UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] 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
(Exact name of registrant as specified in its charter)
Delaware 94-2934609
(State of Incorporation) (I.R.S. Employer
Identification No.)
650 California Street
San Francisco, California 94108-2788
(Address of principal executive office) (Zip Code)
(415) 981-8150 http://www.homestake.com
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $1.00 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Participating
Cumulative Preferred Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
5 1/2% Convertible Subordinated Notes Due June 23, 2000
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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock* held by non-affiliates of the
registrant was approximately $1,624,000,000 as of March 15, 1999.
The number of shares of common stock outstanding as of March 15, 1999 was
239,198,876.*
*Includes 8,099,210 Homestake Canada Inc. exchangeable shares that may be
exchanged at any time for Homestake common stock on a one-to-one basis.
Documents Incorporated by Reference:
Specified sections of Homestake Mining Company's 1998 Annual Report to
Shareholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-K. The definitive Proxy Statement for the 1999 Annual Meeting
of Shareholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1998, is incorporated by reference in Part
III of this Form 10-K.
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART I
ITEM - 1 BUSINESS
INTRODUCTION
Homestake Mining Company ("Homestake" or "the 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 California was founded to develop
the Homestake mine discovered in the Black Hills of the Dakota Territory in
1876. Homestake is one of the largest North American-based gold mining companies
with current annual production of approximately 2.3 million gold equivalent
ounces and reserves of approximately 20.8 million gold equivalent ounces at
December 31, 1998. Homestake's operations include mineral exploration,
extraction, processing and refining. Gold bullion is Homestake's principal
product. Ore and concentrates containing gold and silver from the Eskay Creek
and Snip mines are sold directly to smelters. 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, Argentina, Brazil, Chile and
the Andean region of South America.
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 ("KMA") partnership. In 1987, Homestake sold 20% of its shares of
HGAL to the public. In 1989, HGAL increased its interest in KMA to 50% and
acquired a 50% interest in adjacent joint ventures and properties. In late 1995
and early 1996, Homestake acquired the HGAL shares held by the public.
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, a large
Canadian gold producer, subsequently renamed Homestake Canada Inc. ("HCI"). As a
result of that transaction, Homestake acquired its 50% interests in the Williams
and David Bell mines and also acquired interests in Prime Resources Group Inc.
("Prime") and Stikine Resources Limited ("Stikine"), the owners of the Eskay
Creek property. Prime and Stikine were subsequently combined and, through HCI,
Homestake owned 50.6% of Prime. In December 1998, Homestake acquired the 49.4%
of the Prime shares held by the public and subsequently, Prime was amalgamated
with HCI.
In April 1998, Homestake acquired Plutonic Resources Limited
("Plutonic"), the third largest Australian gold mining company. As a result of
that transaction, Homestake acquired five operating mines in Western Australia
and a large number of exploration tenement holdings, principally in Western
Australia where some of the most significant gold discoveries in Australia have
taken place over the past 20 years. Homestake is now the second largest gold
mining company in Australia.
2
<PAGE>
SIGNIFICANT 1998 AND 1999 DEVELOPMENTS
Effective January 1, 1998, the Ruby Hill mine in Nevada commenced
commercial production. The total capital cost of the mine, including the
prestripping of the overlying alluvium, was approximately $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 crushed low-grade ore in a rotating agglomeration drum prior to being
placed on the leach pad. The mine's 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 $140 per ounce. During 1998, the mine
produced 116,500 ounces of gold at a total cash cost of $122 per ounce.
Effective January 1, 1998, commercial production commenced at the new
Eskay Creek gravity and flotation mill. The total capital cost of the mill was
approximately $12 million. The mill produces a flotation concentrate, which is
sold to a Canadian smelter, and a gravity concentrate, which is shipped to a
Canadian refinery. The mill has improved the profitability of certain Eskay
Creek ore that would have otherwise been shipped directly to third-party
smelters and allows processing of other lower-grade ore that previously was not
economic. Mill recoveries in 1998 were approximately 89% for both gold and
silver, net of third-party smelter payables. During 1998, a total of 61,385 tons
of ore were milled with an average grade of 1.24 ounces per ton of gold and 36.4
ounces per ton of silver. Net of third-party smelter payables, the mill produced
68,997 ounces of gold and 2 million ounces of silver in 1998.
In January 1998, the Company began a major restructuring of underground
operations at the Homestake mine in order to reduce operating costs. To most
effectively implement the new operating plan, Homestake suspended underground
mining while it completed the final details of the plan and readied the
underground mine to begin operating on the restructured basis. During the
shutdown period, the mill processed ore from the Open Cut at an accelerated
rate. Underground crews commenced returning to work on a phased basis at the end
of March 1998. The underground work force now is approximately 40% of the size
of the underground work force prior to the shutdown. As a result of the
temporary suspension and reduced workforce, the Company recorded a pretax charge
of $8.9 million. Mining in the Open Cut ceased in September 1998 and the
processing of remaining Open Cut stockpiles will be completed during the second
quarter of 1999. Milling and other surface operations also are being reduced to
accommodate the reduced size of the operations. The new mine plan involves
closing parts of the mine and concentrating on substantially fewer production
levels in order to reduce continuing infrastructure and other operating costs.
The new plan is designed to improve the grade of ore recovered through the
increased use of mechanized cut-and-fill mining methods. Following an additional
capital investment of approximately $30 million, the new plan contemplates
annual gold production of 150,000 to 180,000 ounces of gold at a cash cost of
$280 per ounce. The decision to proceed with the capital expenditure program
will be made during the first half of 1999.
During 1998, the new mill at the Round Mountain mine completed its
first full year of operation. The 8,000 ton-per-day mill, which treats
higher-grade non-oxide ore, was completed in the fourth quarter of 1997 at a
total cost of $62 million (Homestake's share, $16 million). The mill, which
processed approximately 2,885,000 tons in 1998, recovers more than 80% of the
gold contained in non-oxide ores by employing gravity concentration and cyanide
leaching.
Following the completion of Homestake's acquisition of Plutonic,
Plutonic's office in Sydney was closed and administrative functions were moved
to Homestake's office in Perth.
3
<PAGE>
Homestake's and Plutonic's principal exploration functions also were
consolidated in a single office in Perth. During 1998, mining operations were
completed at Plutonic's 80%-owned Mt Morgans mine and 66.7%-owned Peak Hill
mine. Processing of lower-grade stockpiles continued at the Mt Morgans mine
until November 1998 and is expected to continue at the Peak Hill mine until
October 1999. Homestake is continuing active exploration in the vicinity of
these properties.
On July 1, 1998, a gold royalty became payable to the State of Western
Australia at a rate of 1.25% on the realized value of gold produced, increasing
to 2.5% on July 1, 2000. Realized value is based on the spot price of gold.
During the period July 1, 2000 through June 30, 2005, the royalty rate will be
reduced to 1.25% during calendar quarters when the spot gold price is less than
A$450 per ounce.
On September 15, 1998 Homestake and its 50% joint venture partner,
Normandy Mining Limited ("Normandy"), announced a revised operating plan at
their jointly-owned Mt Charlotte mine. The mine has experienced a downturn in
economic performance and an accelerated level of ground movement. The new plan
provides for a restricted level of mining in low-risk areas of the mine.
Homestake recorded a pretax charge of $38 million for severance, unrecovered
capital and other costs related to the operation, reducing Homestake's carrying
value for the Mt Charlotte mine to zero.
Due to continuing low gold prices, Homestake used a gold price of $325
per ounce for determining its gold reserves at the end of 1998. On that basis,
Homestake does not expect to recover its remaining investment in property, plant
and equipment at the Homestake mine. Accordingly, the Company recorded a pretax
write-down of approximately $76 million, reducing the carrying value of the mine
to zero. In addition, Homestake recorded a provision for estimated environmental
and reclamation costs related to historic mining in and around the Homestake
mine properties of $35 million. These adjustments will have no impact on the
effort to reduce cash production costs at the Homestake mine to $280 per ounce.
During 1998, Homestake also reduced the carrying values of other mining
properties by approximately $27 million before tax, including approximately $19
million related to Lachlan Resources NL ("Lachlan"), an 81%-owned subsidiary of
the Company acquired as part of the Plutonic acquisition.
On December 3, 1998 Homestake completed the acquisition of the 49.4% of
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 an 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.
In January 1999, Homestake and Normandy announced that they had reached
agreement to progressively assume mining operations from the current open-pit
mining contractor over the next 12 months. Homestake's share of the total cost
of the conversion project, including the mining fleet acquisition, is estimated
to be $33.6 million. Once full conversion to owner mining is completed,
Homestake expects Super Pit mining costs to be reduced by approximately $26 per
ounce.
4
<PAGE>
In January 1999, Homestake announced that due to continuing low gold
prices and ongoing production shortfalls, the Pinson mine was being placed on
care and maintenance. Homestake recorded a charge of approximately $2.6 million
at December 31, 1998 to write off its 50% share of the remaining carrying value
of the Pinson mine assets and record its share of reclamation and other closure
expenses. Both Homestake and its joint-venture partner Barrick Gold Corporation
("Barrick") intend to continue exploration activities within the Pinson minesite
and adjoining area.
On March 8, 1999, Homestake and Argentina Gold Corp. ("Argentina Gold")
announced a definitive agreement for Homestake to acquire the Vancouver-based
Argentina Gold for approximately US$200 million in Homestake common stock.
Argentina Gold's principal asset is its 60% interest in the Veladero property
located in northwest Argentina along the El Indio gold belt. Under the terms of
the agreement, Argentina Gold shareholders will receive 0.545 shares of
Homestake common stock for each share of Argentina Gold common stock. Homestake
will issue a total of 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. Homestake and Argentina Gold have agreed to complete the
acquisition as a Plan of Arrangement under the Canada Business Corporations Act.
Completion of the transaction is subject to approval by the Argentina Gold
shareholders, the British Columbia Supreme Court and further due diligence. The
transaction is expected to close by April 30, 1999.
GLOSSARY OF TERMS
See "GLOSSARY AND INFORMATION ON RESERVES" beginning on page 51 for
definitions of terms used in the following discussion.
GOLD OPERATIONS
The following tables present a statistical summary of the Company's
gold operations for 1998 and 1997.
5
<PAGE>
This Page Intentionally Left Blank.
6
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
GOLD PRODUCTION PRODUCTION COSTS PER OUNCE (1)
---------------------------------------------- --------------------------------------------
Tons
Interest Processed Grade Recovery Ounces Operating Other
% (millions) (oz/ton) (%) Produced Cash (c) Cash (d) Noncash (e)
-------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
United States
Homestake 100 2.1 0.141 95 277,401 $244 $ 5 $ 46
Ruby Hill 100 1.3 0.098 90 116,500 115 7 119
McLaughlin 100 2.8 0.077 58 128,680 213 6 127
Round Mountain (3) 25 11.6 0.016 71 127,625 207 13 56
Pinson (4) 50 0.9 0.038 83 17,287 436 10 39
Marigold (4) 33 1.1 0.027 96 23,979 214 21 30
Canada
Eskay Creek (5,6) 100 0.2 3.195 95 504,780 130 3 36
Williams 50 1.4 0.152 95 195,220 211 6 37
David Bell (7) 50 0.2 0.355 96 91,167 191 9 40
Snip (5) 100 0.2 0.693 92 99,283 205 - 142
Australia
Kalgoorlie 50 6.2 0.071 89 390,186 228 1 49
Plutonic 100 3.2 0.089 89 255,456 224 2 66
Darlot 100 0.7 0.111 95 77,502 248 2 32
Lawlers 100 0.6 0.208 96 126,403 179 2 25
Mt Morgans 80 0.8 0.074 82 52,350 211 2 26
Peak Hill 67 0.5 0.052 97 23,803 279 1 27
Other Projects - - - - - - - -
Chile
Agua de la Falda (8) 51 0.2 0.216 72 24,119 198 - 89
-------------- -------------------------------------------
Total Production 2,531,741 $198 $4 $56
===========================================
Minority Interests (10) (273,452)
-------------
Homestake's Share
of Gold Production 2,258,289
=============
Eskay Creek - Silver
7
<PAGE>
<CAPTION>
-------------------------------------------------------------------
RESERVES (a) MINERALIZED MATERIAL (b)
------------------------------------ -----------------------------
Contained
Interest Tons Grade Ounces Tons Grade
% (millions) (oz/ton) (thousands) (millions) (oz/ton)
------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 (continued)
United States
Homestake 100 11.1 0.216 2,401 12.1 0.259
Ruby Hill 100 5.1 0.109 553 7.3 0.072
McLaughlin 100 10.9 0.057 626 - -
Round Mountain (3) 25 89.6 0.018 1,594 27.1 0.015
Pinson (4) 50 - - - 3.1 0.057
Marigold (4) 33 6.4 0.033 213 - -
Canada
Eskay Creek (5,6) 100 1.6 1.683 2,611 0.5 0.448
Williams 50 15.0 0.148 2,216 4.1 0.118
David Bell (7) 50 2.4 0.303 711 0.3 0.109
Snip (5) 100 0.1 0.662 44 - 0.667
Australia
Kalgoorlie 50 85.3 0.067 5,720 120.1 0.075
Plutonic 100 9.3 0.073 677 23.2 0.181
Darlot 100 9.0 0.154 1,393 4.1 0.130
Lawlers 100 1.0 0.117 119 3.7 0.145
Mt Morgans 80 - - - 4.2 0.096
Peak Hill 67 0.4 0.046 19 - -
Other Projects - - - - 10.6 0.077
Chile
Agua de la Falda (8) 51 0.3 0.185 63 8.5 0.169
----------- ------------ ------------
Total Production 247.5 18,960 228.9
=========== ============ ============
Minority Interests (10)
Homestake's Share
of Gold Production
------------------------------------------------------------------
Eskay Creek - Silver 1.6 72.7 112,816 0.5 11.7
------------------------------------------------------------------
<FN>
Notes:
1 Homestake reports per ounce production costs in accordance with the "Gold
Institute Production Cost Standard."
2 The Ruby Hill mine commenced commercial production effective January 1,
1998. Costs associated with gold produced during 1997 have been excluded
from cost per ounce calculations.
3 Recovery relates to the reusable pad at the Round Mountain mine.
4 Recovery relates to ore milled at the Pinson and Marigold mines.
5 The Eskay Creek and Snip mines were owned 100% by Prime Resources Group
Inc. ("Prime"). On December 3, 1998 Homestake acquired the 49.4% of Prime
which it did not already own and subsequently, Prime was amalgamated with
HCI. The ownership interests and production amounts shown are Homestake's
consolidated interests without reduction for minority interests. Production
amounts include ounces contained in ore and concentrates sold to smelters.
Reserves and mineralized material at December 31, 1997 are Homestake's
interest 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,
1998 and 1997, the ratio was 52.6 and 68.2 ounces of silver equals one
ounce of gold, respectively. Reserves and mineralized material relate to
gold only. Silver reserves and mineralized material are shown at the bottom
of the chart.
7 Ounces produced include 11,331 ounces of gold production from the Quarter
Claim in both 1998 and 1997. Reserves include a 25% net profits interests
in Quarter Claim.
8 Production, reserves, and mineralized material represent Homestake's 51%
interest in Agua de la Falda.
9 Includes 14,441 ounces and 507 ounces of gold produced at the Bellevue
project in Western Australia and at the El Hueso mine in Chile during 1997,
respectively.
10 Represents minority interests' 49.4% share of Prime's production in 1997
and from January to November 1998.
(a), (b), (c), (d) and (e) see "Definitions" on pages 9 and 10.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
GOLD PRODUCTION PRODUCTION COSTS PER OUNCE (1)
---------------------------------------------------------------------------------------
Tons
Interest Processed Grade Recovery Ounces Operating Other
% (millions) (oz/ton) (%) Produced Cash (c) Cash (d) Noncash (e)
------------------------------------------------------------- ------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States
Homestake 100 2.6 0.163 94 397,299 $306 $ 4 $ 47
Ruby Hill (2) 100 0.3 - - 16,629 - - -
McLaughlin 100 2.7 0.075 58 118,491 247 7 120
Round Mountain (3) 25 12.1 0.015 75 119,959 210 16 49
Pinson (4) 50 0.6 0.046 86 25,829 334 10 54
Marigold (4) 33 0.9 0.028 95 24,547 239 28 34
Canada
Eskay Creek (5,6) 100 0.1 3.661 95 417,303 155 2 35
Williams 50 1.3 0.160 95 201,098 222 7 40
David Bell (7) 50 0.3 0.397 96 101,313 184 10 45
Snip (5) 100 0.2 0.780 92 115,644 213 - 115
Australia
Kalgoorlie 50 6.6 0.072 89 425,914 259 - 55
Plutonic 100 3.4 0.094 88 274,608 234 - 70
Darlot 100 0.6 0.114 95 65,153 320 - 29
Lawlers 100 0.5 0.178 96 87,481 260 - 25
Mt Morgans 80 0.8 0.093 88 73,588 374 6 85
Peak Hill 67 0.5 0.069 97 33,104 269 - 151
Other Projects - - - - - - - -
Chile
Agua de la Falda (8) 51 0.1 0.172 65 16,023 213 - 82
-------------- ------------------------------------
Total Production (9) 2,528,931 $242 $4 $57
====================================
Minority Interests (10) (263,276)
--------------
Homestake's Share
of Gold Production 2,265,655
==============
Eskay Creek - Silver
9
<PAGE>
<CAPTION>
--------------------------------------------------------- ---------------------------
RESERVES (a) MINERALIZED MATERIAL (b)
---------------------------------------------- ---------------------------
Contained
Interest Tons Grade Ounces Tons Grade
% (millions) (oz/ton) (thousands) (millions) (oz/ton)
--------------------------------------------------------- ---------------------------
1997 (continued)
<S> <C> <C> <C> <C> <C> <C>
United States
Homestake 100 13.6 0.205 2,786 18.5 0.170
Ruby Hill (2) 100 7.0 0.098 687 7.2 0.073
McLaughlin 100 13.9 0.061 845 - -
Round Mountain (3) 25 100.3 0.018 1,759 35.6 0.016
Pinson (4) 50 0.9 0.073 65 - -
Marigold (4) 33 5.1 0.033 168 - -
Canada
Eskay Creek (5,6) 100 0.8 1.693 1,281 0.2 0.587
Williams 50 16.5 0.150 2,465 4.1 0.119
David Bell (7) 50 2.6 0.312 804 - -
Snip (5) 100 0.1 0.678 80 - 0.751
Australia
Kalgoorlie 50 89.7 0.066 5,924 102.6 0.071
Plutonic 100 5.2 0.108 567 26.7 0.222
Darlot 100 9.4 0.163 1,556 4.0 0.123
Lawlers 100 1.9 0.134 252 3.8 0.117
Mt Morgans 80 3.8 0.023 91 - -
Peak Hill 67 0.5 0.044 24 - -
Other Projects - - - - 6.6 0.105
Chile
Agua de la Falda (8) 51 0.7 0.167 110 7.7 0.160
------------- ------------ ------------
Total Production (9) 272.0 19,464 217.0
============= ============ ============
Minority Interests (10)
Homestake's Share
of Gold Production
---------------------------------------------------------------------------------------
Eskay Creek - Silver 0.8 78.3 59,208 0.2 12.0
---------------------------------------------------------------------------------------
<FN>
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 and 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>
1,2,3,4,5,6,7,8,9 and 10 see "Notes" on pages 7 and 8.
10
<PAGE>
UNITED STATES
Homestake conducts operations at the Homestake mine in the Black Hills
of South Dakota, at the Ruby Hill mine in north central Nevada, and at the
McLaughlin mine in northern California. In addition, Homestake owns a 25%
interest in the Round Mountain mine in central Nevada and a 33.3% interest and a
50% interest in the Marigold and Pinson mines, respectively, both located 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 mining operations, an
ore processing plant, final product refinery, a wastewater treatment plant, and
tailings disposal facilities. Open-pit (the "Open Cut") mining was completed in
September 1998 and the processing of remaining Open Cut stockpiles will be
completed during the second quarter of 1999.
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. Stockpiled ore
from the Open Cut 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
series of carbon columns to recover residual gold in solution. Process tails are
used for underground fill or are deposited in a tailings impoundment facility
three miles from the plant.
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, resulting in higher costs. In
January 1998, the Company began a major restructuring of underground operations
at the Homestake mine in order to reduce operating costs. To most effectively
implement the new operating plan, Homestake suspended underground mining while
it completed the final details of the plan and readied the underground mine to
begin operating on the restructured basis. During the shutdown period, the mill
processed ore from the Open Cut at an accelerated rate.
The new mine plan, which included a workforce reduction of 450
employees, involves closing parts of the mine and concentrating on substantially
fewer production levels in order to reduce continuing infrastructure and other
operating costs. The new plan is designed to improve the grade of ore recovered
through the increased use of mechanized cut-and-fill mining methods. Following
an additional capital investment of approximately $30 million, the new plan
contemplates annual gold production of 150,000 to 180,000 ounces of gold at a
cash cost of $280 per ounce. The decision to proceed with the capital
expenditure program will be made during the first half of 1999. During the
fourth quarter of 1998, the underground mine produced 39,170 ounces at a total
cash cost of $302 per ounce.
11
<PAGE>
Planned capital expenditures during 1999 total approximately $12.7
million, including $6.8 million for the purchase of new mobile equipment for the
underground mining operations. The remaining capital primarily is for completion
of a tailings dam lift and electrical upgrades. The first phase of a major
tailings dam lift expansion commenced in 1996. Construction of an interim raise
of eleven feet was completed in 1997 at a cost of approximately $11.8 million,
and construction of an additional nine-foot lift will be completed in 1999 at a
cost of approximately $3 million. The expansion will provide tailings storage
capacity sufficient to hold projected mining activity for approximately 5 years.
Facilities and equipment at this operation generally are in good operating
condition, but the basic mine and major facilities have been in service for many
years and are less efficient than mines and facilities developed more recently.
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 84% of electric power
consumption is purchased under contract from Black Hills Corporation and the
remainder is provided by Homestake-owned hydroelectric facilities.
On October 2, 1998, Homestake announced that it would use an assumed
price of $325 per ounce for determining its gold reserves at the end of 1998. On
that basis Homestake did not expect to recover its remaining investment in
property, plant, and equipment at the Homestake mine. Accordingly, the Company
recorded a pretax write-down of approximately $76 million, reducing the carrying
value of the mine to zero at September 30, 1998. In addition, Homestake recorded
a provision for estimated environmental and reclamation costs related to
historic mining in and around the Homestake mine properties of $35 million.
These adjustments will have no impact on the effort to reduce cash production
costs at the Homestake mine to $280 per ounce.
Hourly employees at the Homestake mine are represented by the United
Steel Workers of America. A new five-year contract was signed in May 1998.
During 1998, the mine operated in compliance with its environmental
permits, except that in May, the mine had a reportable spill into Whitewood
Creek that resulted from a failure in the sand backfill system. As a result of
this spill and a spill in 1997, the Company paid a total of $200,000 in fines
and penalties in 1998. 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 $4 per ounce of gold sold when the
price of gold is $499 per ounce or less, increasing by $1 per ounce for each
$100 increment or part thereof in excess of $499 per ounce.
Geology
The Homestake mine is the largest known iron formation hosted gold
deposit. In its 123-year life, the mine has produced in excess of 39 million
ounces of gold. The Homestake gold deposit is Proterozoic in age (approximately
1.9 billion years). Mineralization generally is stratabound within the Homestake
Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has
been complexly deformed by tight 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.
12
<PAGE>
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Underground:
Tons of ore (000) 10,528 11,900
Ounces of gold per ton 0.224 0.220
Contained ounces of gold (000) 2,360 2,620
Open Cut:
Tons of ore (000) 590 1,674
Ounces of gold per ton 0.070 0.099
Contained ounces of gold (000) 41 166
Total:
Tons of ore (000) 11,118 13,574
Ounces of gold per ton 0.216 0.205
Contained ounces of gold (000) 2,401 2,786
Operating Data
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore mined (000):
Underground 495 1,359
Open Cut 691 1,894
Ore grade mined (oz. gold/ton):
Underground 0.221 0.195
Open Cut 0.124 0.123
Open Cut stripping ratio (waste:ore) 1.5:1 2.3:1
Tons of ore milled (000) 2,075 2,578
Mill feed ore grade (oz. gold/ton) 0.141 0.163
Mill recovery (%) 95 94
Gold recovered (000 ozs.) 277 397
Cost per Ounce of Gold Produced:
Cash operating costs $244 $306
Other cash costs 5 4
Noncash costs 46 47
---------------- ---------------
Total production costs $295 $357
</TABLE>
Ruby Hill Mine
The Ruby Hill mine is located one mile northwest of Eureka, Nevada.
Homestake owns 100% of the operation. 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 on the Ruby Hill properties have resulted in the
discovery of several mineralized zones. A positive feasibility study on the West
Archimedes deposit was completed during 1995, and construction of a mine,
heap-leach pad and a milling facility commenced in
13
<PAGE>
February 1997 and was completed in December 1997. The total capital cost of the
Ruby Hill mine, including the prestripping of the overlying alluvium, was
approximately $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 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 $140 per ounce. The mine commenced
commercial production effective January 1, 1998 and produced 116,500 ounces in
1998 at a total cash cost of $122 per ounce and a total cost of $241 per ounce.
Water is obtained from on-site wells and power is purchased from Mount
Wheeler Power Company.
During 1998, the mine operated in compliance with all of its
environmental permits.
A production royalty of 3% of net smelter returns is payable on
production over 500,000 ounces of gold.
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 Ordovician Pogonip Group. The micron-size gold is
finely disseminated and the ore body is entirely oxidized. Exploration and
delineation drilling are continuing on several surface targets within the Ruby
Hill claim block.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 5,082 7,028
Ounces of gold per ton 0.109 0.098
Contained ounces of gold (000) 553 687
Operating Data
1998
----------------
Production Statistics:
Tons of ore mined (000) 1,153
Stripping ratio (waste:ore) 7.5:1
Tons of ore leached (000) 1,324
Ore grade leached (oz. gold/ton) 0.098
Recovery (%) 90
Gold recovered (000 ozs.) 117
Cost per Ounce of Gold Produced:
Cash operating costs $115
Other cash costs 7
Noncash costs 119
----------------
Total production costs $241
</TABLE>
14
<PAGE>
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 now is 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
processing 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 8,000 TPD. In 1998, the
embankment at the tailings impoundment was raised, increasing the impoundment's
capacity to allow for the treatment of all ore remaining in the stockpiles.
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
2002, has declined significantly over the last 3 years due to the completion of
mining and exhaustion of high-grade ores. Processing costs also have declined
significantly due to the shutdown of the higher-cost autoclave and flotation
circuits, allowing economic treatment of the lower-grade stockpiled ore.
Production at the McLaughlin mine totaled 128,680 ounces in 1998 at a cash cost
of $219 per ounce compared to 118,491 ounces at a cash cost of $254 per ounce
during 1997. The decrease in cash costs per ounce during 1998 is due to higher
grades and cost containment measures. Production is expected to decrease and
cash costs per ounce are expected to increase during 1999, as the higher-grade
portion of the remaining stockpiles will be consumed by mid-1999.
During 1996, Homestake entered into long-term gold hedging contracts to
ensure recovery of the remaining investment and to cover remaining reclamation
costs.
During 1998, the mine operated in compliance with all of its
environmental permits.
McLaughlin mine royalties are equivalent to approximately 2% of
revenues.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Stockpiled:
Tons of ore (000) 10,934 13,908
Ounces of gold per ton 0.057 0.061
Contained ounces of gold (000) 626 845
15
<PAGE>
Operating Data
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Production Statistics:
Tons of ore milled (000) 2,839 2,719
Mill feed ore grade (oz. gold/ton) 0.077 0.075
Mill recovery (%) 58 58
Gold recovered (000 ozs.) 129 118
Cost per Ounce of Gold Produced:
Cash operating costs $213 $247
Other cash costs 6 7
Noncash costs 127 120
---------------- ----------------
Total production costs $346 $374
</TABLE>
Round Mountain Mine
The Round Mountain gold mine is an open-pit mining operation located 60
miles north of Tonopah in Nye County, Nevada. 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.
The Round Mountain property position consists of contiguous patented
and unpatented mining claims covering approximately 27,500 acres. Patents have
been filed for additional lode claims to cover all the current reserves in the
ultimate pit. The issuance of the patents is currently pending government
review.
The open-pit mining operation employs three 28-yard electric mining
shovels, a 22-yard hydraulic mining shovel, and twenty-one 150-ton, thirteen
190-ton and nine 85-ton haul trucks. Gold is recovered through four independent
recovery operations. These include crushed ore leaching (reusable pad),
run-of-mine ore leaching (dedicated pad), milling of higher-grade nonoxidized
ore, and the gravity concentration circuit.
Heap leaching on a reusable pad is used to recover gold from oxide ores
above a cut-off grade of 0.018 ounce per ton. Ore is crushed to less than 3/4
inches at a rate of up to 30,000 tons per day and conveyed to two parallel 1.5
million square foot asphalt reusable leach pads. This ore is leached for
approximately 100 days, rinsed, removed and placed on the dedicated leach pad
and releached. In 1998, 18,950 tons of ore per day were processed on the
reusable heap leach pad, compared to 26,600 tons per day in 1997. Reusable pad
volume varies with ore release, which is determined by the phases of the pit
being mined.
Lower grade ore (down to a cut-off grade of 0.006 ounce per ton for
oxidized ores) and ore removed from the reusable leach pad is transported
directly to a dedicated run-of-mine leach pad at a rate which averaged 101,900
tons per day in 1998, compared to 108,000 tons per day in 1997. Ore is placed in
50-foot thick layers for leaching. After completion of an initial leaching cycle
of approximately 100 days, additional layers of ore are placed until the heap
reaches an ultimate height of 300 feet. The dedicated leach pad is constructed
in phases, as capacity is needed. The existing dedicated leach pad covers
approximately 16.4 million square feet and has a capacity of approximately 131
million tons. Current mining rates consume nearly three to four million square
feet of dedicated leach pad per year.
16
<PAGE>
Construction of an 8,000 ton-per-day mill to treat higher-grade
nonoxide ore was completed in the fourth quarter of 1997, at a total cost of $62
million (Homestake's share, $16 million). The mill processed approximately
2,885,000 tons in 1998, its first full year of operation. The facility recovers
more than 80% of the gold contained in nonoxidized ores by employing gravity
concentration and cyanide leaching.
Gravity concentration only is applied to very high-grade ore containing
coarse gold. A 500 ton-per-day gravity recovery circuit processes ore from
several small flat-lying narrow, but very high-grade veins within the Round
Mountain ore body. Homestake's share of gravity circuit production is expected
to be 7,500 ounces of gold in 1999. Gravity circuit tails are sent to the mill
for further cleaning and disposal.
Ore and waste rock was mined at a rate of approximately 195,600 tons
per day in 1998 compared to 197,000 tons per day in 1997. The slight decrease in
ore from the pit was offset by 35 million tons of reusable pad tails, which were
hauled to dedicated pads for releaching.
Homestake's share of total 1998 gold production from the Round Mountain
mine was 127,625 ounces at a total cash cost of $220 per ounce, compared to
119,959 ounces at a total cash cost of $226 in 1997. The higher 1998 production
is a result of higher-grade reusable pad offloads placed on the dedicated pad
and higher ore grades in the mill. In 1999, the Round Mountain mine is expected
to produce slightly less gold compared to 1998 due to the amount of ore
available as a result of the mining plan.
In 1998, the joint venture partners initiated an expanded exploration
program in the vicinity of the mine to add new reserves to the current mine
life. Three exploration targets have been given priority. Initial drill results
from two targets were encouraging enough to warrant additional follow-up
drilling. Permits have been filed to drill a third target.
Water is supplied from joint-venture-owned wells on the property
and from water reclaimed from tailings dams. Power is purchased under contract
from Sierra Pacific Power Company.
During 1998, the mine had six spills of leach solutions. None of the
contamination escaped from the property. The contaminated soil was removed and
placed on the leach pad. Measures have been taken to prevent further spills.
Otherwise, during 1998 the mine operated in compliance with all of its
environmental 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 $320 per ounce of gold to
approximately 6.4% of gold revenues at prices of $440 per ounce of gold or more.
During 1998, the royalties averaged 3.5% of revenues.
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 358,597 401,325
Ounces of gold per ton 0.018 0.018
Contained ounces of gold (000) 6,375 7,037
17
<PAGE>
Operating Data (100% Basis)
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Production Statistics:
Tons of ore mined (000) 22,920 32,726
Stripping ratio (waste:ore) 2.1:1 1.2:1
Tons of ore crushed (000) 6,999 9,757
Tons of ore processed (000) 46,510 48,496
Weighted average ore grade
placed on the pads (oz. gold/ton) 0.016 0.015
Leach recovery - reusable pads (%) 71 75
Gold recovered (000 ozs.) 511 480
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $207 $210
Other cash costs 13 16
Noncash costs 56 49
---------------- ---------------
Total production costs $276 $275
</TABLE>
Pinson Mine
The Pinson open-pit gold mine is located in Humboldt County
approximately 30 miles northeast of Winnemucca, Nevada. Homestake has a 50%
interest in the Pinson Partnership and is the operator of the Pinson mine.
Barrick owns the remaining interest. The mine began operation in 1981.
In January 1999, due to continuing low gold prices and ongoing
production shortfalls, the Pinson mine was placed on care and maintenance.
Mining operations ceased and 46 employees were terminated. Ore processing
operations will continue for an indefinite period of time with the remaining 18
employees. As a result, Homestake recorded a charge of approximately $2.6
million at December 31, 1998 to write off its 50% share of the remaining
carrying value of the Pinson mine assets and record its share of reclamation and
other closure expenses.
The Pinson properties consist of approximately 36,615 acres of which
11,511 acres are held under leases. The remaining land is comprised of 21,800
acres of unpatented mining claims and 3,303 acres of primarily fee lands. Access
to the property is by paved and gravel roads.
Total material mined averaged 29,223 TPD in 1998. The mine has both
heap-leaching and conventional milling facilities for treatment of ore. The mill
has a rated capacity of 1,550 tons per day using both carbon-in-pulp and
carbon-in-leach methods. Due to low gold prices, milling of ore was suspended in
February 1998. Since that time, all ore has been heap-leached. The facilities
are in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
During 1998, the mine operated in compliance with all of its
environmental permits.
18
<PAGE>
Production royalties averaging 3.5% 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.
Homestake's share of production from the Pinson mine was 17,287 ounces
of gold in 1998 compared to 25,829 ounces in 1997.
During 1998, Homestake and Barrick spent a total of $3.6 million to
explore for high-grade mineralized zones at depth at Pinson. This exploration
program will continue during 1999 at a similar expenditure level.
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 has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) - 1,783
Ounces of gold per ton - 0.073
Contained ounces of gold (000) - 131
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore mined (000) 1,705 1,263
Stripping ratio (waste:ore) 5.3:1 8.2:1
Tons of ore milled (000) 76 550
Ore grade milled (oz. gold/ton) 0.072 0.076
Mill recovery (%) 83 86
Tons of ore leached (000) 1,628 712
Ore grade leached (oz. gold/ton) 0.037 0.023
Gold recovered (000 ozs.) 35 52
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $436 $334
Other cash costs 10 10
Noncash costs 39 54
---------------- ---------------
Total production costs $485 $398
</TABLE>
19
<PAGE>
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. 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 are intermittent. Mine facilities are in good condition.
During 1998, a pipeline was installed to supply water to the Marigold
mine at no cost from a nearby pit-dewatering operation. Backup water supply is
from on-site wells. Power is purchased from Sierra Pacific Power Company.
During 1998, the mine operated in compliance with all its environmental
permits.
Production royalties are paid to two leaseholders in amounts of
7% of net smelter returns and 3.5% of net profits, respectively.
Geology
Gold mineralization at the Marigold mine is hosted largely in the
Permian Antler Formation and the Ordovician Valmy Formation and is 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>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 19,120 15,288
Ounces of gold per ton 0.033 0.033
Contained ounces of gold (000) 639 504
20
<PAGE>
Operating Data (100% Basis)
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Production Statistics:
Tons of ore mined (000) 3,191 2,583
Stripping ratio (waste:ore) 2.4:1 3.3:1
Tons of ore milled (000) 368 387
Ore grade milled (oz. gold/ton) 0.086 0.082
Mill recovery (%) 96 95
Tons of ore leached (000) 2,834 2,290
Ore grade leached (oz. gold/ton) 0.019 0.019
Gold recovered (000 ozs.) 72 74
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $214 $239
Other cash costs 21 28
Noncash costs 30 34
---------------- ---------------
Total production costs $265 $301
</TABLE>
CANADA
Homestake conducts operations at the Eskay Creek and Snip mines in
northwestern British Columbia. Homestake also has a 50% interest in the Williams
and David Bell mines in the Hemlo Gold Camp in Ontario and a 25% net profits
interest in the Quarter Claim adjacent to the David Bell mine. See "SEE
SIGNIFICANT 1999 AND 1998 DEVELOPMENTS" beginning on page 3 for information
regarding Homestake's acquisition of Prime.
Homestake 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
Homestake owns 100% of the Eskay Creek gold/silver mine, located in
northwestern British Columbia approximately 50 air miles north of Stewart,
British Columbia. Access is by 38 miles of privately owned single-lane gravel
road. A local company provides road maintenance and snow removal services under
contract. The Eskay Creek mine commenced operations in 1995.
The Eskay Creek property consists of five mining leases, 12 mineral
claims and various other mineral and surface rights comprising approximately
4,630 acres. The leases have remaining terms of approximately 22 to 26 years,
subject to renewal rights.
The mine is an underground operation accessible through three surface
portals. Mining is conducted by a mining contractor using equipment owned by
Homestake. The mine utilizes a drift-and-fill mining method with cemented rock
backfill. Higher-grade ore is crushed and blended in a facility located at the
minesite prior to shipment and sale to third-party smelters for final
processing. Some high-grade and lower-grade ore is sent to an on-site gravity
and flotation mill for further processing and concentration. Concentrates
produced by the mill are sent to third-
21
<PAGE>
party smelters and refineries for final processing. Mine waste rock and tailings
from the mill are disposed of underwater in a nearby barren lake. The mine and
facilities and the equipment are new and in good condition. Eskay Creek
personnel work rotations of two-weeks-on and two-weeks-off.
In November 1997, Homestake completed construction of the Eskay Creek
gravity and flotation mill at a cost of $12 million. Commercial production from
the mill commenced January 1, 1998. The mill produces a flotation concentrate,
which is sold to a Canadian smelter, and a gravity concentrate, which is shipped
to a Canadian refinery. The mill has improved the profitability of certain Eskay
Creek ore that would have otherwise been shipped directly to third-party
smelters and allows processing of other lower-grade ore that previously was not
economic. Mill recoveries in 1998 were approximately 89% for both gold and
silver, net of third-party smelter payables. During 1998, a total of 61,385 tons
of ore were milled with an average grade of 1.24 ounces per ton of gold and 36.4
ounces per ton of silver. Net of third-party smelter payables, the mill produced
68,997 ounces of gold and 2 million ounces of silver.
Two long-term ore sale contracts with smelters in Japan and Quebec
provide for combined ore sales of 99,200 tons annually, with options to increase
sales to 132,300 tons, subject to mutual agreement with the smelters. Ore and
concentrates are trucked by a contractor 164 miles to Stewart for shipment to
Japan or 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 of ore and concentrate to Quebec.
Water is supplied from the Eskay and Argillite Creeks and power is
produced on-site by diesel generators.
The mine produced approximately 445 tons of ore per day in 1998 and 333
tons of ore per day in 1997. Based on existing reserves and current operating
plans, the mine has a projected remaining life of approximately ten years.
Following a successful 1998 exploration program, the Eskay Creek mine's
proven and probable ore reserves increased by approximately 383,000 ounces of
gold and 7.2 million ounces of silver at December 31, 1998 (before considering
1998 production).
During 1998, there were three occasions where water effluent permit
levels were exceeded. Each incident was reported and corrective action was taken
immediately. There was also one ore spill when a trailer overturned on the Eskay
road. This incident was reported and cleaned up. No citations have been issued
and none are expected. With these exceptions, the mine operated in compliance
with all environmental permits in 1998.
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.
Production at the Eskay Creek mine, consisting of payable gold and gold
equivalent in ore and concentrates sold, increased to 504,780 equivalent ounces
of gold during 1998 from 417,303 equivalent ounces in 1997. Cash costs per
equivalent ounce, including third-party smelter costs, decreased to $133 during
1998 from $157 per equivalent ounce during 1997. The increase in 1998 production
primarily is due to production from the new gravity/flotation mill and the
effect of a lower gold/silver equivalency. Cash costs per equivalent ounce
declined in 1998 due to the lower-cost production from the mill and the weaker
Canadian dollar.
22
<PAGE>
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
have not been determined. The mine has entered into several service contracts
with the Tahltan Nation Development Corporation, and approximately 35% of the
employees at the mine are members of the Tahltan Nation. Homestake 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. (See "RISK FACTORS" beginning on page 61.)
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>
1998 1997
----------------- ---------------
<S> <C> <C>
Tons of ore (000) 1,552 1,495
Ore grade (ozs. gold/ton) 1.683 1.693
Contained ounces of gold (000) 2,611 2,532
Ore grade (ozs. silver/ton) 72.7 78.3
Contained ounces of silver (000) 112,816 117,011
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore shipped (000) 101 121
Direct ore sales grade (ozs. gold/ton) 2.24 2.16
Direct ore sales grade (ozs. silver/ton) 90.7 97.7
Tons milled (000) 61 -
Mill grade (ozs. gold/ton) 1.24 -
Mill grade (ozs. silver/ton) 36.4 -
Mill recovery - gold % 92 -
Mill recovery - silver % 95 -
Gold production (000 ozs.) 282 245
Silver production (000 ozs.) 11,723 11,766
Total gold equivalent ounces (1) (000 ozs.) 505 417
23
<PAGE>
<CAPTION>
<S> <C> <C>
Homestake's Cost per Ounce of Gold Equivalent Produced:
Cash operating costs (2) $130 $155
Other cash costs 3 2
Noncash costs 36 35
---------------- ---------------
Total production costs $169 $192
<FN>
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
52.6 ounces and 68.2 ounces of silver equals one ounce of gold equivalent
for production calculations for the years ended December 31, 1998 and 1997.
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.
</FN>
</TABLE>
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. Each
of Homestake and Teck Corporation ("Teck") owns a 50% interest in the mine and
in WOC. The mine commenced operations in 1985.
The property consists of 11 freehold patents and one Crown mining lease
covering approximately 380 acres. 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, up to 1,400 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 rated capacity of
the mill is 7,000 TPD. During 1998, the mill operated at 7,453 TPD with a gold
recovery of 94.7%. The Williams and David Bell mines share a 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 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 under long-term contract from Ontario Hydro. Propane for heating mine
air and surface facilities also is purchased under contract.
Ground stability problems were experienced during 1998, but were
significantly reduced from the difficulties encountered in 1997. Ground
conditions will continue to be a concern, but changes to the mining schedule and
design, increased ground support and increased instrumentation have improved the
situation.
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
24
<PAGE>
underground exploration program. The agreement gives WOC a right of first
proposal for any mineralization, which Franco may discover during its
exploration activity.
During 1998, the mine had four minor spills, which were reported, and
corrective action was taken immediately. No citations have been issued and none
are expected. With these exceptions, during 1998, the mine operated in
compliance with all environmental permits.
The mining claims are 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 gold production from the Williams mine amounted to
195,220 ounces at a cash cost of $217 per ounce during 1998 compared to 201,098
ounces at a cash cost of $229 per ounce during 1997. The lower production in
1998 was due to a decline in ore grades, partially offset by increased
throughput. The lower cash costs per ounce in 1998 are due primarily to the
weaker Canadian dollar.
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>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 29,952 32,926
Ounces of gold per ton 0.148 0.150
Contained ounces of gold (000) 4,431 4,929
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore milled (000) 2,720 2,656
Mill feed ore grade (oz. gold/ton) 0.152 0.160
Mill recovery (%) 95 95
Gold recovered (000 ozs.) 390 402
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $211 $222
Other cash costs 6 7
Noncash costs 37 40
---------------- ---------------
Total production costs $254 $269
</TABLE>
25
<PAGE>
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.
Each of Homestake and Teck owns a 50% interest in the mine and 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 each other's interest in the David Bell mine and shares of TCOC.
Each of Homestake and Teck has 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 1,284 TPD in 1998. Cyanidation, CIP and gravity processes are used to
recover gold. The facilities and equipment are modern and in good condition.
Beginning in mid-1999, ore from the David Bell mine will be processed
in the Williams mine mill and milling operations at the David Bell mine will be
discontinued. Detailed engineering has confirmed that closure of the David Bell
mill should not result in decreased production from the mines, and should
decrease significantly future David Bell costs.
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 1998. In addition, an Alimak
mining method was successfully tested in two stopes in 1998. This method, which
significantly reduces waste development, will be used in the future as ore
widths and ore grades dictate. Production in 1998 decreased by 11% compared to
1997 primarily as a result of processing lower-grade ore. The grade of ore mined
declined in 1998, approaching the average life-of-mine reserve grade. Production
in 1999 is expected to be consistent with the levels achieved in 1998.
The hourly work force at David Bell is unionized and the collective
bargaining agreement with the United Steel Workers of America expired in October
1998. As of December 31, 1998 a new collective bargaining agreement had not been
settled and negotiations with the union were continuing.
During 1998, the mine operated in compliance with all of its
environmental permits. No citations were issued and none are expected.
The property is subject to a 3% net smelter return royalty.
Homestake's share of production at the David Bell mine was 79,836
ounces in 1998 at a total cash cost of $200 per ounce, compared to 89,982 ounces
in 1997 at a total cash cost of $194 per ounce. The increase in cash costs per
ounce in 1998 is due primarily to the lower production, partially offset by the
effects of a weaker Canadian dollar.
26
<PAGE>
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>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 4,448 4,785
Ounces of gold per ton 0.303 0.316
Contained ounces of gold (000) 1,349 1,512
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore milled (000) 469 473
Mill feed ore grade (oz. gold/ton) 0.355 0.397
Mill recovery (%) 96 96
Gold recovered (000 ozs.) 160 180
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $191 $184
Other cash costs 9 10
Noncash costs 40 45
---------------- ---------------
Total production costs $240 $239
</TABLE>
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 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. Until deemed cumulative
production from January 1, 1995 is equal to 95% of the estimated reserves as of
January 1, 1995, the deemed production rate is based upon committed throughput
of 500 TPD multiplied by (a) the average ore grade of the January 1, 1995
reserves, and (b) a recovery factor. Thereafter, Homestake's interest is reduced
to a 20% net profits interest calculated on actual production.
Geology
See "Williams Mine - Geology."
27
<PAGE>
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 565 747
Ounces of gold per ton 0.258 0.258
Contained ounces of gold (000) 146 193
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore milled (000) 183 183
Mill feed ore grade (oz. gold/ton) 0.257 0.257
Mill recovery (%) 96 96
Gold recovered (000 ozs.) 45 45
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $157 $162
Other cash costs 8 10
Noncash costs 2 1
---------------- ---------------
Total production costs $167 $173
</TABLE>
Snip Mine
The 100%-owned 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. The mine commenced operations in 1991.
The property consists of a mining lease with a remaining term of 20
years, together with four mineral claims covering approximately 4,774 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 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 and
three-weeks-off rotations.
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.
28
<PAGE>
Water is supplied from Bronson Creek and power is produced on site by
diesel generators.
Ore reserves at the Snip mine are nearing exhaustion. Based on current
milling rates and existing reserves, the mine is expected to cease production in
the second quarter of 1999. Reclamation of the property has commenced and final
planning for closure is nearing completion. Estimated reclamation and related
closure costs of approximately $6 million were fully accrued at December 31,
1998.
During 1998, the Snip mine had three environmental incidents. The
incidents included a spill of tailings from a tailings line and two diesel fuel
spills. The incidents were reported and corrective action was taken immediately.
No citations have been issued and none are expected. In addition, an inactive
landfill containing hydro-carbon products was uncovered in 1998. Testing has
confirmed that no groundwater contamination has occurred and disposal options
are being reviewed. With these exceptions, the mine operated in compliance with
all environmental permits during 1997.
Homestake's share of gold production in 1998 was 99,283 ounces at a
cash cost of $205 per ounce compared to 115,644 ounces at a cash cost of $213
per ounce in 1997. The decrease in cash costs per ounce in 1998 is due primarily
to the weaker Canadian dollar, partially offset by lower production as the mine
nears completion.
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.
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 66 232
Ounces of gold per ton 0.662 0.678
Contained ounces of gold (000) 44 157
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore milled (000) 160 165
Mill feed ore grade (oz. gold/ton) 0.693 0.780
Mill recovery (%) 92 92
Gold recovered (000 ozs.) 99 116
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $205 $213
Noncash costs 142 115
---------------- ---------------
Total production costs $347 $328
</TABLE>
29
<PAGE>
AUSTRALIA
Homestake owns 50% of Australia's largest gold mining operations, the
surface and underground operations at Kalgoorlie. Homestake also conducts
operations at the Plutonic, Darlot and Lawlers mines and has a 66 2/3% interest
in the Peak Hill mine and an 80% interest in the closed Mt Morgans mine. All of
these mines are located in Western Australia. Homestake explores for gold
throughout Australia, principally in Western Australia. Australian activities
are managed from an office in Perth, Western Australia. See "SEE SIGNIFICANT
1998 AND 1999 DEVELOPMENTS" beginning on page 3 for information regarding
Homestake's acquisition of Plutonic.
On July 1, 1998, a gold royalty became payable to the State of Western
Australia at a rate of 1.25% on the realized value of gold produced, increasing
to 2.5% on July 1, 2000. Realized value is based on the spot price of gold.
During the period July 1, 2000 through June 30, 2005, the royalty rate will be
reduced to 1.25% during calendar quarters when the spot gold price is less than
A$450 per ounce.
Kalgoorlie Operations
The Kalgoorlie operations are located adjacent to the town of
Kalgoorlie approximately 340 miles northeast of Perth, Western Australia.
Homestake owns a 50% interest in the Kalgoorlie operations. Subsidiaries of
Normandy Mining Limited ("Normandy") own the other 50% interest. Homestake 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. Homestake acquired its interest in the original KMA joint venture in
1976. Mining operations in the Kalgoorlie region date back to 1893. Access to
the operations is by paved road.
The Kalgoorlie properties consist of 164 state leases and licenses
covering approximately 30,000 acres. The mineral leases were granted for a term
of 21 years on conditions covering rental, royalties, expenditure conditions and
reporting. They are renewable in the final year.
The Kalgoorlie operations are 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. Sulfide concentrates produced at the
Fimiston mill are roasted and leached at the Gidji roaster, located 12 miles
north of the main Kalgoorlie operations. Gold loaded on carbon from the Gidji
roaster is sent to the Fimiston mill for final processing. The facilities and
equipment at the Kalgoorlie operations are in good condition.
The Super Pit mine is located along the "Golden Mile" ore bodies
previously mined from underground. Contractors are employed to conduct the
open-pit mining operations, ore and concentrate haulage and some specialized
services. In January 1999, Homestake and Normandy announced that they had
reached agreement to progressively transfer mining operations from the current
open-pit mining contractor to KCGM over the next 12 months. Homestake's share of
the total cost of the conversion project, including the mining fleet
acquisition, is estimated to be $33.6 million. Once full conversion to owner
mining is completed, Homestake expects Super Pit mining costs to be reduced by
approximately $26 per ounce. In 1998, 71.2 million tons of material containing
10.8 million tons of ore was mined, compared to 75.9 million tons of material
containing 10.9 million tons of ore mined in 1997. Homestake's share of Super
Pit gold production was 325,349 ounces in 1998 and 344,754 ounces in 1997. The
decrease in 1998 production primarily was due to a decrease in throughput as a
result of girth gear issues associated with the SAG mill, discussed below.
30
<PAGE>
The Mt Charlotte mine uses bulk mining methods and large conventional
diesel powered loaders and trucks. The main production level is 3,200 feet below
surface. In 1997, a 1.6-mile decline was constructed 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. Ore from the Mt Charlotte mine is trucked from the decline to the
Fimiston mill. During both 1998 and 1997, 1.9 million tons of ore were recovered
from the Mt Charlotte mine. Homestake's share of gold production was 64,837
ounces in 1998 and 81,160 ounces in 1997. The lower 1998 production is a result
of lower ore grades and lower throughput.
On September 15, 1998, Homestake and Normandy announced that a revised
mining plan would be implemented at the Mt Charlotte mine. The decision was
reached following an evaluation of economic factors and an accelerated level of
ground movement in the mine. Following recent ground movement, a panel of rock
mechanics experts concluded that mining could be conducted safely by restricting
mining to low-risk areas of the mine. The new mine plan contemplates extraction
of approximately 1.5 million tons of ore through September 1999. Performance of
the mine will be monitored during this time to determine whether the operation
will continue beyond that period. As a result of the new operating plan,
approximately 50% of the Mt Charlotte employees have been laid off. Homestake
recorded a charge of $26.4 million ($38.4 million pretax) during the third
quarter of 1998 for severance, unrecovered capital and other costs. This reduced
Homestake's carrying value for the Mt Charlotte mine to zero. As a result of the
new mining plan, Homestake's 50% share of reserves at the Mt Charlotte mine were
reduced by 297,000 ounces to 175,000 ounces at December 31, 1998 (before
considering 1998 production).
The Fimiston mill is a 35,000-TPD mill with CIP leaching and refractory
sulfide flotation circuits. The mill processed 12.5 million tons of ore in 1998
and 11.2 million tons in 1997. During June 1998, cracks were discovered in the
girth gear of the Fimiston SAG mill. Temporary repairs have been made and the
SAG mill currently is being limited to 90% of rated power. A temporary
replacement gear is expected to be available in February 1999 and a permanent
replacement is expected to be available in May 1999. Underwriters of KCGM's
property and business interruption insurance policies have acknowledged
liability and the extent of recovery is now being determined. Possible claims
against the SAG mill construction contractor also are under investigation. Steps
which have been taken to mitigate the lower throughput have increased milling
costs.
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 both 1998 and 1997.
Homestake's share of gold production from the consolidated Kalgoorlie
operations was 390,186 ounces in 1998 compared to 425,914 ounces in 1997. Total
cash costs per ounce in 1998 were $229 compared to $259 in 1997. The reduction
in cash costs is due primarily to a 15% decline in the average value of the
Australian dollar compared to the US dollar.
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 wells and the underground mine. Power is
provided under a power supply agreement with Normandy Power Pty Ltd, a company
associated with Normandy.
31
<PAGE>
During 1997, there was one instance where monitoring equipment reported
that sulfur dioxide levels in the Kalgoorlie area exceeded air quality limits.
KCGM reported the reading to the Department of Environmental Protection ("DEP").
The DEP subsequently filed a charge alleging that the Gidgi roaster was the
source of the excess and that it was a breach of its license. Following a court
hearing in December 1998, the charge was dismissed. During 1997 and 1998 the
mine operations were in compliance with all environmental permits.
With the exception of the royalty payable to the State of Western
Australia there are no royalties currently payable on production from the
Kalgoorlie mines.
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. See "Risk Factors."
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 48
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.
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Tons of ore (000) 170,600 179,346
Ounces of gold per ton 0.067 0.066
Contained ounces of gold (000) 11,440 11,847
Operating Data (100% Basis)
1998 1997
--------------- ----------------
Production Statistics:
Super Pit:
Tons of ore mined (000) 10,791 10,949
Stripping ratio (waste:ore) 5.6:1 6.0:1
Tons of ore milled (000) 10,697 11,183
Mill feed ore grade (oz. gold/ton) 0.069 0.069
Mill recovery (%) 88 88
Gold recovered (000 ozs.) 651 689
32
<PAGE>
<CAPTION>
<S> <C> <C>
Mt Charlotte:
Tons of ore mined (000) 1,916 1,919
Tons of ore milled (000) 1,775 1,931
Mill feed ore grade (oz. gold/ton) 0.081 0.091
Mill recovery (%) 91 92
Gold recovered (000 ozs.) 130 163
Combined Production Statistics:
Tons of ore mined (000) 12,707 12,763
Tons of ore milled (000) 12,472 13,219
Mill feed ore grade (oz. gold/ton) 0.071 0.072
Mill recovery (%) 89 89
Gold recovered (000 ozs.) 780 852
Homestake's Consolidated Cost per Ounce of Gold
Produced:
Cash operating costs $228 $259
Other cash costs 1 -
Noncash costs 49 55
--------------- ----------------
Total production costs $278 $314
</TABLE>
Plutonic Mine
The Plutonic mine is located 110 miles northeast of Meekatharra,
Western Australia, approximately 8 miles from the Great Northern Highway.
Homestake owns 100% of the Plutonic mine. The mine commenced production in
August 1990.
The Plutonic properties, including the recently purchased adjoining
Marymia property, encompass an area of approximately 322,000 acres, consisting
of 109 mining leases, three prospecting licenses, eight exploration licenses and
three miscellaneous licenses. Homestake also holds the pastoral lease on which
the mine is located.
The Plutonic mine consists of both open-pit and underground operations.
The Main Pit was the predominant ore source from the commencement of operations
until its depletion in December 1997. The underground operations are now the
primary source of ore. Some open-pit mining continues to be performed by a
mining contractor. While the underground operations are being developed,
underground ore production is being supplemented with ore from extensive primary
ore and laterite stockpiles, which were built up as the Main Pit was mined.
Approximately 146 staff employees and 250 contractor personnel working
on two-weeks-on and one-week-off rotations operate the mine on a fly-in fly-out
basis. Initial underground development commenced early in 1995. Capital
expenditures of approximately $13 million and $24 million were incurred during
1998 and 1997, respectively, primarily for underground mine development. The
underground mine consists of three main working areas, extending to a depth of
1,400 feet below the surface. The working areas are accessed by two separate
declines. Mining methods vary depending on the particular working area and
include development and uphole retreat open stoping and flat dip room and pillar
mining. All mining is performed by contractors using mechanized trackless
systems with technical supervision and control provided by Homestake
33
<PAGE>
employees. Most areas do not require back filling. Ore is hauled to the surface
by 45-ton trucks. Underground ore production during 1998 and 1997 was
approximately 668,000 tons and 550,000 tons, respectively.
The Plutonic mine mineralization consists of multiple discrete lodes.
Extensive mineralized material has been defined by wide-spaced surface drilling
but detailed drilling from underground development openings is required for
conversion of the mineralized material to reserves. Underground access to the
largest zone of mineralization was achieved by decline in late 1997. The
extensive drilling required to define the extent of the lode structure has
delayed development in this area, although production now has begun. Definition
drilling continues in several areas of the mine to define reserves and
facilitate mine planning.
Open-pit mining using selective mining techniques is performed by a
mining contractor. The contractor uses a 110-ton excavator and a fleet of 95-ton
trucks. Oxide ore is derived from the Perch, Salmon and Area 4 pits. Production
from a new laterite pit commenced in 1998.
The mill and treatment facility, which was upgraded in 1997, has
separate oxide and sulfide circuits. The mill has the capacity to treat
approximately 2 million tons of primary sulfide ore and 1.3 million tons of
oxide ore per year. Both the sulfide and oxide circuits utilize crushing,
grinding and cyanidation in CIL leach tanks. The sulfide ore circuit gold
recovery ranges from 83% to 96% depending on the ore source and mineralogy, and
the oxide ore circuit gold recovery is approximately 96%. All plant and
equipment is modern and in good condition.
Potable quality process water is sourced from two well fields with most
coming from wells located approximately 7.5 miles from the mine. In 1997, an
on-site gas-fired power station with a rated station capacity of 19MW was
commissioned at a cost of approximately $16 million. Purchased gas is provided
via a 12.5-mile lateral line from the Goldfields Gas Transmission pipeline.
In 1997, the mine was notified by the DEP of non-compliance under four
of its license conditions. All issues were related to inadequate record keeping
and monitoring. During 1998, an environmental officer was employed to manage
Homestake's Australian environmental compliance programs. All noncompliance
issues have been corrected. In August 1998, a tailings water return line failed.
The line was repaired and no environmental impact was caused by the leak. Also
in August 1998, during inspection of the tailings storage facilities, leakage
from the facility was detected along the toe of the structure. A cut-off trench
was installed to collect the water and a pump system was installed to return the
water to the tailings facility. With these exceptions, during 1997 and 1998 the
mine operated in compliance with all environmental permits.
With the exception of the royalty payable to the State of Western
Australia, the underground operations are not subject to any royalties. However,
16 mining leases to the east of the Main Pit, which contain a relatively small
proportion of the mine's overall reserves and mineralized material, are subject
to a royalty based on tonnage and grade.
During 1998, the Plutonic mine produced 255,456 ounces of gold at a
total cash cost of $226 per ounce compared to 274,608 ounces at a total cost of
$234 per ounce in 1997. The decrease in production was due to lower grade and
throughput. Lode structures in the Northwest extension were flatter and less
continuous than expected, making mining more difficult. However, drilling has
defined higher-grade lode structures in areas where production began in the
third quarter of 1998. The lower cash costs per ounce in 1998 primarily reflect
the weaker Australian dollar, partially offset by the lower production.
34
<PAGE>
Geology
Gold lodes predominantly occur 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 mineralization occurs within
multiple, sub-parallel, northwest striking lodes, which generally dip in a
northeast direction. The lodes are hosted mainly by the mafic volcanic unit.
Lodes range from three to thirty-five feet thick and display good continuity
often for several hundred feet. Gold is associated with sulphides, particularly
arsenopyrite and pyrrhotite.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 9,281 5,221
Ounces of gold per ton 0.073 0.108
Contained ounces of gold (000) 677 567
Operating Data
1998 1997
---------------- --------------
Production Statistics:
Tons of ore mined (000) 1,887 3,280
Ore grade mined (oz. gold/ton) 0.113 0.106
Open pit stripping ratio (waste:ore) 3.7:1 5.3:1
Tons of ore milled (000) 3,249 3,395
Mill feed ore grade (oz. gold/ton) 0.089 0.094
Mill recovery (%) 89 88
Gold recovered (000 ozs.) 255 275
Cost per Ounce of Gold Produced:
Cash operating costs $224 $234
Other cash costs 2 -
Noncash costs 66 70
---------------- --------------
Total production costs $292 $304
</TABLE>
Darlot Mine
The Darlot mine is located 70 miles north of Leonora, Western
Australia. Homestake's property covers an extensive gold field discovered more
than 100 years ago. Modern mining, including development of the Darlot Pit,
commenced in 1988. Mining in the Darlot Pit was completed in 1995 and the mine
is now an entirely underground operation. Homestake owns 100% of the Darlot
mine.
The Darlot properties encompass an area of approximately 34,200 acres,
consisting of 16 mining leases, 32 prospecting licenses and one exploration
license. The Darlot and Centenary orebodies are contained on a mining lease
located on a pastoral lease. The mining lease was granted in 1988 for 21 years
and is renewable.
The Darlot mine consists of the Darlot orebody, where mining is
expected to be completed in mid-1999, and the Centenary deposit. The Centenary
deposit was discovered in August 1996 when a vertical exploration drillhole
intersected the Centenary deposit, a previously undiscovered
35
<PAGE>
gold mineralized zone of substantial thickness about three-quarters of a mile
from the Darlot deposit. The Darlot mine is a fly-in fly-out operation with
about 65 staff employees and 156 contractor personnel working two-weeks-on and
one-week-off rotations.
Mining of the Darlot orebody is performed by a contractor using
mechanized trackless equipment. Access to the Darlot orebody is through a
decline from a portal in the Darlot Pit approximately 375 feet below the natural
surface. During the second quarter of 1996, the mine successfully completed the
transition to a full-scale underground operation. The workings now extend to
about 725 feet below the surface with mining being conducted in four different
sub-lode systems within the main Darlot structure. Stoping of the Darlot lodes
consists of 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 used in the thicker sections. Backfilling is not required.
Access to the Centenary deposit is through an extension of the Darlot
decline, which intersects the Centenary deposit approximately 1,100 feet below
the surface. A raise bored ventilation shaft recently was commissioned,
completing the Centenary ventilation circuit and also providing emergency egress
for the mine. Work has started on a second decline for access to and ventilation
of the deeper load structures. Sub-level stoping of the thick central section of
the Centenary deposit began near the end of the third quarter of 1998. The
thinner extremities of the deposit are suitable for sub-level open stoping or
room and pillar stoping similar to the methods successfully utilized in the
Darlot orebody.
The treatment plant consists of a three-stage crushing circuit, primary
and secondary ball mills, carbon-in-pulp leaching, adsorption and gold recovery
circuits. The crushing plant is owned and operated by a contractor. Both the
Darlot and Centenary ores are free milling with recovery rates of approximately
95%. Coarse gold, which represents approximately 30% of total production, is
recovered in a gravity circuit. The mill will be upgraded during 1999 to improve
the efficiency of processing the higher-grade Centenary ore. Ore capacity is
approximately 700,000 tons per annum. The treatment plant is in good condition.
Two new generators were commissioned in early 1998, which together with
other Homestake-owned facilities provide power to the site.
Water is obtained from wells five miles from the treatment plant.
During 1998, the mine operated in compliance with all of its
environmental permits.
With the exception of the royalty payable to the State of Western
Australia, the Darlot mine is not subject to any royalties.
Production in 1998 of 77,502 ounces at a total cash cost of $250 per
ounce compares to production of 65,153 ounces at a total cash cost of $320 per
ounce in 1997. The higher production was due to higher throughput and
higher-grade ore from the Centenary orebody. The decrease in cash costs per
ounce in 1998 primarily is due to the higher production in conjunction with a
weaker Australian dollar.
Geology
Darlot is situated within an Archaean sequence of mostly intrusive and
extrusive mafic rocks, and occurs within a corridor of north-northwest trending
structures. The Darlot orebody is a shear-hosted, gold-mineralized, quartz vein
system about one mile long. The structure is
36
<PAGE>
continuous along strike with mineralization open down dip indicating potential
for depth extensions.
The Centenary orebody is a large, structurally controlled, quartz vein
hosted gold deposit. The lode, which extends for more than three-quarters of a
mile, varies from 15 feet to more than 160 feet in thickness. The full extent of
the lode is not yet known.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 9,022 9,409
Ounces of gold per ton 0.154 0.163
Contained ounces of gold (000) 1,393 1,556
Operating Data
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore mined (000) 795 568
Ore grade mined (oz. gold/ton) 0.10 0.11
Tons of ore milled (000) 738 607
Mill feed ore grade (oz. gold/ton) 0.111 0.114
Mill recovery (%) 95 95
Gold recovered (000 ozs.) 78 65
Cost per Ounce of Gold Produced:
Cash operating costs $248 $320
Other cash costs 2 -
Noncash costs 32 29
---------------- ---------------
Total production costs $282 $349
</TABLE>
Lawlers Mine
The Lawlers mine is located 75 miles northwest of Leonora, Western
Australia. Homestake owns 100% of the 100-year-old mine, which was reopened
in 1986.
The Lawlers mine properties consists of two groups of contiguous
tenements consisting of three exploration licenses, 89 prospecting licenses and
13 mining leases totaling approximately 68,800 acres. Mining leases vary in date
of grant and expiry. One mining lease, from which production currently is
derived, was granted by the Western Australian Government after January 1, 1994.
See "Risk Factors - Risk of Native Title Claims."
The Lawlers mine consists of both open-pit and underground mining. The
mine is a fly-in fly-out operation with about 70 staff employees and 42
contractor personnel working on two-weeks-on and one-week-off rotations. During
1998, production principally was derived from the New Holland and Fairyland pits
where mining is conducted by a contractor operating a 110-ton excavator and a
fleet of 95-ton trucks, under the supervision of Homestake personnel.
Homestake recently began underground mining in the downward extension
of the New Holland South orebody using a contractor. Mining was initially
performed using decline on-ore
37
<PAGE>
development, and now is performed using room and pillar stoping. Work has begun
on a second decline to access the deeper lode structure of the New Holland South
zone. In December 1998, a decline was commenced to access the Genesis ore zones.
The Lawlers treatment plant is capable of treating between 550,000 and
770,000 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 includes a gravity circuit to recover
coarse gold. Approximately 50% to 60% of the operation's total gold production
is recovered in the gravity circuit. The grinding circuit slurry is transferred
to a conventional carbon-in-pulp circuit. The treatment plant has an overall
recovery rate of approximately 90% to 95%, depending on the ore source. The
treatment plant will be upgraded during 1999 to improve the efficiency of
processing the higher-grade underground ore. Power is supplied by contract
diesel generators. Good quality process water is obtained from wells 10 miles
northeast of the plant.
In October 1998, Homestake announced the results of a continuing
exploration program along the Glasgow Lass Trend, which includes the New
Holland, Genesis and Hidden Secret pits. The drilling results verify continuity
of mineralization along the Glasgow Lass Trend and indicate the potential for an
expansion of reserves and mineralized material in the vicinity of the Lawlers
mine.
Lawlers has devoted significant efforts to correcting earlier
environmental issues, which predated Homestake's acquisition of Plutonic. During
1998, an environmental officer was employed to manage Homestake's Australian
environmental compliance program. A previous backlog of waste dump and tailings
storage facility reclamation has been brought up to date. A contaminated
groundwater plume exists southwest of the tailings dams. As required under the
permit, monitoring bores pump the contaminated water back into the tailing
facility. Lawlers has had an environmental dust issue, mainly from a small
section of the tailings storage facility. A dust management strategy has been
developed and actions are being taken to reduce the dust emissions from all
major sources at the mine. Except as noted, the Lawlers mine is in compliance
with all applicable environmental requirements.
With the exception of the royalty payable to the State of Western
Australia, the Lawlers mine is not subject to any royalties.
Production in 1998 of 126,403 ounces at a total cash cost of $181 per
ounce compares to production of 87,481 ounces at a total cash cost of $260 per
ounce in 1997. The increase in production in 1998 primarily was due to the
high-grade ore sourced from the New Holland pit. The decrease in cash costs per
ounce was due to the higher production and the weakening of the Australian
dollar.
Geology
Gold ore is derived from two distinct geological domains, a western
sedimentary domain (New Holland) and an eastern mafic/ultramafic volcanic domain
(Fairyland). The western area deposits are high-grade ladder quartz veins within
sandstone units enclosed in finer grained sediments. Exploration involves deep,
close-spaced drilling to locate high-grade, shallow plunging ore shoots within
the favorable rock unit. The eastern domain is part of the nickeliferous
Agnew-Mt Keith-Yakabindie-Honeymoon Well sequence, which hosts major nickel
deposits north of Lawlers.
38
<PAGE>
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 1,020 1,897
Ounces of gold per ton 0.117 0.134
Contained ounces of gold (000) 119 252
Operating Data
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore mined (000) 788 911
Ore grade mined (oz. gold/ton) 0.131 0.111
Open pit stripping ratio (waste:ore) 7.5:1 6.5:1
Tons of ore milled (000) 630 515
Mill feed ore grade (oz. gold/ton) 0.208 0.178
Mill recovery (%) 96 96
Gold recovered (000 ozs.) 126 87
Cost per Ounce of Gold Produced:
Cash operating costs $179 $260
Other cash costs 2 -
Noncash costs 25 25
---------------- ---------------
Total production costs $206 $285
</TABLE>
Mt Morgans Mine
The Mt Morgans mine is located 30 miles west of Laverton, Western
Australia. Homestake owns an 80% interest in the Mt Morgans Joint Venture and is
the operator of the Mt Morgans mine. Abednego Nickel Limited owns the remaining
interest. The Mt Morgans gold field has been operated intermittently since 1896.
The Mt Morgans properties consist of six exploration licenses, 117
prospecting licenses and 27 mining leases totaling approximately 113,700 acres.
The principal mining leases were all granted prior to January 1, 1994.
The Mt Morgans mine completed mining operations in May 1998. The
property had been operated on a fly-in fly-out basis with about 27 staff
employees and 74 contractor personnel working two-weeks-on and one-week-off
rotations. Processing of stockpiles ceased in November 1998. Active exploration
continues on the property, and recent exploration results in the Just-In-Case
target area continue to be very promising.
The treatment plant, which has the capacity to treat 1.1 million tons
of ore per year, consists of a primary crusher, open stockpile, SAG mill, pebble
crusher and secondary ball mill grinding circuit, and a conventional
carbon-in-pulp leach/adsorption section. Gold recoveries at Mt Morgans ranged
from 85% to 90%. The plant has been decommissioned and is available for sale.
Power is supplied by diesel generators and process water is obtained
from wells located five miles from the plant.
39
<PAGE>
In 1997, a leak occurred in the wall of the tailings storage facility
and an external containment dam was constructed to contain future discharges.
The tailings storage facility was decommissioned and tailings now are contained
in a depleted open pit. A contaminated groundwater plume from the tailing
storage facility exists. Monitoring bores contain the plume and are returning
the water to compliance levels by pumping the contaminated water back into the
tailings facility. During 1998, a tailings spill discharged beyond the
containment dam. A remediation program approved by the DEP has removed all
contamination from the spill. Except for the foregoing, the mine operated in
compliance with applicable requirements in 1997 and 1998. In 1997, the site was
awarded a Golden Gecko Certificate of Merit for Environmental Excellence by the
Western Australia Department of Minerals and Energy.
The final closure plan is being finalized for approval by regulatory
agencies.
Homestake's share of production at Mt Morgans was 52,350 ounces in 1998
compared to 73,588 ounces in 1997.
Geology
Most production has come from lodes in intensely folded Archaean banded
iron formation, which are hosted in an Archaean sequence of ultramatic volcanics
and sediment.
Homestake has an 80% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) - 4,754
Ounces of gold per ton - 0.023
Contained ounces of gold (000) - 114
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore mined (000) 187 582
Ore grade mined (oz. gold/ton) 0.139 0.038
Tons of ore milled (000) 1,003 1,039
Mill feed ore grade (oz. gold/ton) 0.074 0.093
Mill recovery (%) 82 88
Gold recovered (000 ozs.) 65 92
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $211 $374
Other cash costs 2 6
Noncash costs 26 85
---------------- ---------------
Total production costs $239 $465
</TABLE>
40
<PAGE>
Peak Hill Mine
The Peak Hill mine is located 80 miles north of Meekatharra, Western
Australia. Homestake owns a 66.67% interest in the Peak Hill joint venture.
North Limited owns the remaining interest and is the operator of the Peak Hill
mine. The Peak Hill gold field is more than 100 years old, but modern operations
commenced in 1988.
The mine is a fly-in fly-out operation with approximately 22
staff employees and 17 contractor personnel working two-weeks-on and
one-week-off rotations.
The Peak Hill properties consist of two exploration licenses, 41
prospecting licenses and 18 mining leases totaling approximately 44,200 acres.
Homestake manages exploration on the joint venture tenements. Homestake also has
extensive non-joint venture exploration interests in the region surrounding the
Peak Hill mine. In total, Homestake has thirteen projects in the Peak Hill
District, including eight joint ventures, totaling approximately 101 tenements
on 137,000 acres.
Open-pit mining at the Harmony pit, located six miles west of the
plant, was completed in November 1997. Processing of stockpiled ore is expected
to continue until October 1999.
The plant has a capacity of 660,000 tons of soft oxide ore per year.
Hard primary ore is blended or fine crushed to maintain this rate. The plant
consists of 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 obtained
from wells seven miles northeast of the plant.
A contaminated groundwater plume from the tailing storage facility
exists. Contaminated water is collected and pumped back to the tailings facility
to improve water quality. With the exception of the foregoing, the operation was
in compliance with all environmental requirements during 1998.
Homestake's share of production at Peak Hill was 23,803 ounces in 1998
compared to 33,104 ounces in 1997.
Geology
Gold mineralization occurs as multiple lodes within altered Proterozoic
mafic volcanics. Weathering extends to 100 meters beneath a well-developed
laterite profile.
Homestake has a 66.67% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 605 799
Ounces of gold per ton 0.046 0.044
Contained ounces of gold (000) 28 36
41
<PAGE>
Operating Data (100% Basis)
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Production Statistics:
Tons of ore mined (000) - 396
Ore grade mined (oz. gold/ton) - 0.083
Tons of ore milled (000) 702 732
Mill feed ore grade (oz. gold/ton) 0.052 0.069
Mill recovery (%) 97 97
Gold recovered (000 ozs.) 36 50
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $279 $269
Other cash costs 1 -
Noncash costs 27 151
---------------- ---------------
Total production costs $307 $420
</TABLE>
Bellevue Operation
The Bellevue property is located 110 miles north of Leonora and 75
miles south of Wiluna, Western Australia. The property is 100% owned by
Homestake. The area has been mined since 1896.
The Bellevue tenements comprise nine mining leases, eight prospecting
licenses and two exploration licenses. Four mining leases were granted prior to
January 1, 1994.
Treatment at Bellevue ceased in August 1996. Ore produced after August
1996 was trucked to the nearby Lawlers plant for treatment. Mining was completed
in April 1997 at which time the operation was placed on care and maintenance.
The Bellevue property is prospective for both gold and nickel
mineralization. Lachlan has acquired the rights to nongold mineralization on 23
of the Bellevue tenements subject to a 25% net profits interest to Homestake.
During 1998, an exploration program conducted by Lachlan at the Mt Goode nickel
prospect intersected disseminated sulfides assaying 1.05% nickel over 530 feet.
At the time of closure in mid-1997, all reclamation was up to date. All
open-pit dumps have been contoured and the No. 1 tailings storage facility has
been capped. The partially filled No. 2 tailings storage facility has not been
capped pending further exploration and a decision on permanent mine closure. The
closure plan has been finalized for approval by the regulatory agencies.
Meekatharra Operation
Operations at Meekatharra's Paddys Flat mining camp ceased in October
1995 after 100 years of intermittent gold production. Historic and recent
production totaled nearly two million ounces of gold with a further one million
ounces remaining in mineralized material. Although the tenements have been
extensively explored, the potential exists for further discoveries of small to
medium size shallower deposits and larger deeper deposits amenable to
underground mining. Drilling of deeper targets will commence shortly.
The infrastructure required to re-establish production at Meekatharra
largely is in place. However, the crushing and grinding circuit has been
relocated.
42
<PAGE>
All access to open pits has been blocked and all rock waste dumps have
been reclaimed, which involved contouring and seeding with native vegetation. A
closure plan has been finalized for approval by the regulatory agencies.
Lachlan Resources NL
Homestake holds an 81.2% interest in Lachlan, a publicly traded
Australian company. Lachlan has interests in and is exploring a number of base
metal properties in Australia. Homestake manages Lachlan's business.
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 La Falda
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 to mine the 187,000 ounces of oxide reserves discovered by Homestake
on the property. The Agua de la Falda mine, which is operated by La Falda, 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 at 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 $6.5 million. Mining
commenced in January 1997 and gold production began in April 1997. The operation
utilizes room-and-pillar underground mining. 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. Homestake's 51% share of production in 1998 was
24,119 ounces compared to 16,023 ounces in 1997. Production of 40,000 to 45,000
ounces (100% basis) annually during 1999 and 2000 is expected.
Water and power are purchased from Codelco.
Exploration drilling conducted in 1997 encountered an additional oxide
ore zone, adding to proven and probable reserves 300,000 tons of ore at a grade
of 0.18 ounces of gold per ton. 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 15 million tons of unoxidized
mineralized material (100% basis), at an average grade of 0.160 ounces per ton,
have been outlined. Metallugical testwork is underway to develop
43
<PAGE>
an economic treatment method. A decline was completed to access the deeper
sulfide ore to obtain a large sample of the ore for large scale metallurgical
testing.
In February 1995, the El Hueso mine closed as reserves were
depleted. Reclamation of the El Hueso mine site continued during 1998. 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>
1998 1997
---------------- ---------------
<S> <C> <C>
Tons of ore (000) 670 1,290
Ounces of gold per ton 0.185 0.167
Contained ounces of gold (000) 124 215
Operating Data (100% Basis)
1998 1997
---------------- ---------------
Production Statistics:
Tons of ore leached (000) 309 281
Ore grade (oz. gold/ton) 0.216 0.172
Recovery (%) 72 65
Gold recovered (000 ozs.) 47 31
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $198 $213
Noncash costs 89 82
---------------- ---------------
Total production costs $287 $295
</TABLE>
BULGARIA
In November 1997, Homestake entered into amended agreements with Navan
Resources Plc, an Irish public company ("Navan"), regarding the Chelopech
gold-copper mine and related processing facilities and exploration activities in
Bulgaria. Under the agreements, Homestake purchased for $12 million a 20%
interest in Navan Bulgarian Mining BV, a Netherlands company ("Navan BV") and a
subsidiary of Navan. Navan BV owns a 68% interest in Bimak AD, the Bulgarian
company that owns the ore processing facilities adjacent to the Chelopech mine
and that has the exclusive right to purchase ore from Chelopech EAD, the
Bulgarian government-owned
44
<PAGE>
company that mines the Chelopech ore under the supervision of Bimak AD. In
September 1998, Homestake completed its evaluation of the Chelopech mine and
concluded that the project did not warrant Homestake's participation under
current economic conditions. As a result, Homestake exercised its right to
terminate its participation in Navan BV and the Chelopech mine project. In
connection with the termination, Navan BV returned to Homestake approximately
$11 million of Homestake's investment that had not been expended prior to
termination of Homestake participation. Also in connection with that
termination, Homestake loaned to Navan $500,000 and has agreed to lend to Navan
up to an additional $1 million for Navan's use in connection with Navan's
proposed purchase of a 75% interest in Chelopech EAD and privatization of the
Chelopech mine. Homestake has the option to convert the loans into Navan
Ordinary Shares.
During November 1997, Homestake purchased a 32% interest in Navan's
Bulgarian exploration projects for $4 million. The agreement, as amended in
October 1998, gives Homestake the right to invest up to an additional $4 million
in the exploration program during the period ending November 2002, which would
result in Homestake owning a 50% interest in the exploration program. Homestake
has the right to terminate its investment obligation at any time and either
limit its investment (and percentage participation) to the level in existence at
the time of termination or to transfer its interest to Navan. Also in October
1998, Homestake became the operator of the Bulgarian exploration program.
SULFUR
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulfur
deposit, which at December 31, 1998 contained proven recoverable reserves of
approximately 63 million long tons of sulfur. Freeport-McMoRan Sulphur LLC
("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 pays 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 high-temperature sea water 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 3,800 TPD during 1998, down from 5,200 TPD in 1997. The
reduction was in part a planned response to a weakening sulfur market. In
addition, in late September 1998, all Main Pass 299 drilling and production
operations were shut down for three days in response to adverse weather
conditions caused by a hurricane. The shutdown caused nine previously producing
sulfur wells to require redrilling. As a result, production levels were lower
and unit production costs increased during the fourth quarter of 1998 and these
conditions are expected to continue in the first half of 1999. Based on current
reserve estimates, projected costs and prices, annual production (100% basis) is
expected to average two million long tons over a remaining reserve life
currently in excess of 30 years.
45
<PAGE>
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.
During 1998, continuing low sulfur prices, reduced sales volumes and
higher operating costs for both sulfur and oil operations resulted in Homestake
recording an operating loss of $5.3 million compared to an operating loss of
$3.6 million during 1997.
In the third quarter of 1997, due to a prolonged period of low sulfur
prices and Homestake's current assessment of estimated future cash flows,
Homestake wrote off its entire remaining $107.8 million investment in the Main
Pass 299 sulfur mine. As a result, Homestake's carrying value of the Main Pass
299 sulfur mine was reduced to zero effective 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
2.4 million barrels in 1998 compared to 3.3 million barrels in 1997. Homestake's
share of remaining recoverable oil reserves at December 31, 1997 is estimated to
be 0.7 million barrels after adjusting for the federal royalty and future
production due to Chevron. Due to low oil prices, Homestake wrote down the
carrying value of the oil property by $0.7 million at September 30, 1998. The
remaining carrying value of Homestake's investment in the Main Pass 299 oil and
gas property was $1.1 million at December 31, 1998.
Homestake has a 16.7% share of the following amounts:
Year-end Proven and Recoverable Reserves
(100% Basis)
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Tons of sulfur (000) 62,908 64,287
Barrels of oil (000) 5,421 8,738
Production Statistics (100% Basis)
1998 1997
--------------- ----------------
Tons of sulfur (000) 1,378 1,894
Barrels of oil (000) 2,428 3,298
46
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Homestake's Per Unit Data
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Average Sales Realization:
Per ton of sulfur $59 $59
Per barrel of oil 11 18
Production Costs:
Sulfur cash operating costs per ton $78 $66
Sulfur noncash costs per ton 1 8
--------------- ----------------
Total production costs $79 $74
Oil cash operating costs per barrel $8 $10
Oil noncash costs per barrel 7 7
--------------- ----------------
Total production costs $15 $17
</TABLE>
MINERAL EXPLORATION AND DEVELOPMENT
Total exploration expenses, including exploration activities in and
around Homestake's mines, were $55.3 million in 1998 and $65.2 million in 1997.
The 1998 and 1997 expenditures do not include approximately $10 million and $7
million of capitalized development drilling primarily at the Plutonic mine and
the Darlot mine's Centenary deposit in Western Australia. Expenses related to
in-mine definition drilling at Homestake's operating mines are included in the
individual mine operating expenses and cost per ounce calculations.
Of the $55.3 million spent on exploration in 1998, approximately 30%
was spent in North America, 43% in Australia, 15% in the Andes in South America
and 12% in other international areas. In 1999, the projected exploration budget
is $43.1 million; 28%, 49% and 18% of which has been allocated to North America,
Australia, and the Andes, respectively, with the remaining 5% to be spent in
other international regions.
Homestake plans to intensify its focus on its biggest and best
prospects in 1999. These include several Australian properties recently acquired
as part of the Plutonic acquisition, the Eskay Creek mine, and the land
positions around the Pinson, Ruby Hill and Agua de la Falda mines.
United States
Homestake concentrates most of its domestic exploration activities in
Nevada and has several major property positions within the northern Nevada gold
belts. Specific exploration opportunities are evaluated in other western states
and in Alaska on a case-by-case basis. Exploration expenses in the United States
totaled $11.5 million in 1998 and $13.9 million in 1997. During 1999, $8.1
million has been budgeted for the United States.
At the 50%-owned Pinson property, managed by Homestake, 1998 and 1997
expenditures were $1.6 million and $2.4 million, respectively (Homestake's
share), the latter including $0.7 million of in-mine target drilling. A further
$1.5 million (Homestake's share) has been budgeted for 1999. Drilling in 1998
included the probing of broad structural and stratigraphic targets along the
pediment north of the mine complex and follow-up around several deep,
mineralized intercepts drilled under the CX Pit in 1997. The deep drilling has
outlined an
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interweaving system of structurally controlled oxide and sulfide gold zones
extending over a strike length of 1,900 feet and a vertical interval of at least
1,500 feet. Gold grades range from 0.2 oz/ton to in excess of 1 oz/ton, and the
system is open. Additional step-out drilling is planned in 1999 as well as
further testing of pediment targets.
The Company spent $2 million in 1998 at the Ruby Hill property, drill
testing a total of five target areas. Low-grade gold mineralization was
encountered in several holes and follow-up drilling is planned. Four additional
targets have been selected for drill testing in 1999 within a planned budget of
$1.5 million.
Exploration expenditures at the 25%-owned Round Mountain property
totaled $0.5 million in 1997 and $0.3 million in 1998 (Homestake's share). Two
broad drill targets, that were tested beneath shallow pediment cover north of
the mine area, returned some low-grade gold values. A further $0.3 million
(Homestake's share) of drilling is planned in 1999.
At the 33%-owned Marigold mine property, Homestake's share of
exploration expenditures was $0.4 million in 1998 and is expected to be $0.3
million in 1999. In 1998, a significant tonnage of mill-grade mineralization was
discovered in the Terry Zone, and 1999 drilling will attempt to expand this new
reserve along strike.
Exploration at the Homestake mine properties totaled $1.8 million in
1998 and $2.1 million in 1997. A budget of $0.6 million has been approved for
1999. Systematic drilling into untested segments of historic ore zones added
potentially mineable resources above the 4850 foot level and further extension
and infill drilling is planned for 1999. A near-surface target located 5 miles
northwest of the existing open pit was drilled late in 1998 and additional
testing will be considered in 1999.
Two new properties in Nevada, the Mud Springs project and the Bonita
Canyon project, were acquired and reconnaissance drilled in 1998. The Mud
Springs project is located on the Battle Mountain/Eureka trend approximately 9
miles north of the Pipeline deposit, and the Bonita Canyon project is located 25
miles northwest of Round Mountain. Gold mineralization was intersected on both
projects and further drilling is planned in 1999.
Target drilling was completed on the Pioche project in Nevada. Results
were disappointing and the project was abandoned.
Australia
Homestake's exploration efforts in Australia continued at a high level
in 1998, following the acquisition of Plutonic and its large assemblage of
properties, including many in the prolific Yilgarn province of Western
Australia. It is anticipated that 45-55% of the Company's total exploration
budget will be allocated to Australia over the next several years. Exploration
expenditures in 1998 were $23.3 million compared to 1997 expenditures of $25.6
million.
In Western Australia, Homestake is exploring at over 65 project areas,
most of which are in Archaean greenstone belts. The ten projects described below
currently are the most important.
On the 80%-owned Mt Morgans tenements, 1998 exploration expenditures
were $2.6 million and are expected to be $2 million in 1999. Systematic drilling
on 250 foot centers was completed at the newly discovered Just-In-Case gold
deposit, which is contiguous with and part of the adjacent Granny Smith Joint
Venture's Wallaby deposit. The Just-In-Case deposit
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potentially is surface mineable and comprises a series of stacked siliceous gold
lodes dipping gently to the south. Several additional targets have been
generated in the local area and elsewhere on the tenement block and these will
be drill tested in 1999.
At the Lawlers mine property, exploration in 1998 totaled $1.9 million
and the budget for 1999 has increased to $2.1 million. Along the three-mile long
Glasgow Lass trend on the west side of the property, surface and underground
drilling in 1998 produced positive results and has increased the amount of
mineralized material. Broader reconnaissance drilling along previously untested
portions of the trend and on parallel geologic zones intersected ore-grade gold
values in several areas. In 1999, drilling will proceed on several programs
simultaneously, including infill and extension drilling of identified resource
blocks, offset drilling around new exploration intercepts, and first pass
testing in a number of target areas. On the east side of the Lawlers property,
potential open-pit gold mineralization was intersected at the Leviathan North
prospect and a program of extension and infill drilling is planned for 1999.
Several other targets on the property remain to be evaluated.
Exploration expenditures in the Plutonic mine area totaled $1.9 million
in 1998. Targets tested included the mine sequence stratigraphy down dip from
the Plutonic West sulfide lode system and several areas of potential oxide
mineralization. In December 1998, Homestake purchased the large, adjoining
Marymia property for $8.7 million. The Marymia property contains several areas
of partially defined mineralization containing 8.6 million tons of mineralized
material at a grade of 0.09 ounces per ton and holds excellent potential for
additional gold discoveries. Homestake now controls the entire Marymia
greenstone belt, which it considers to be a long-term exploration play. The 1999
budget for the combined Plutonic/Marymia properties is $3.9 million.
Intensive exploration continues on the Darlot property, especially for
additional Centenary-type mineralization. Expenditures totaled $2.2 million in
1998 and were directed at drilling along strike from the mine operations and
evaluating favorable host-rock formations in several locations. An area of
potentially significant, near-surface oxide mineralization encountered just
north of the mine will be followed up in 1999 along with ongoing regional target
drilling. The 1999 budget is $2.2 million.
Lachlan has acquired the rights to nongold mineralization on 23 of the
Bellevue tenements subject to a 25% net profits interest to Homestake. During
1998, an exploration program conducted by Lachlan at the Mt Goode nickel
prospect intersected disseminated sulfides assaying 1.01% of nickel over 660
feet.
Homestake's share of exploration expenses at the 50%-owned Kalgoorlie
operations was $1 million in 1998 and is expected to be approximately $1.4
million (Homestake's share) in 1999. In 1998 surface and underground drilling
was carried out on targets west of the Mt Charlotte mine. Surface drilling also
was carried out on a number of targets within the Kalgoorlie South Joint
Venture.
At the Kundip project area, Homestake spent $1.5 million in 1998. In
excess of twelve targets have been selected for drill testing in 1999 under an
area-wide budget of $1.5 million.
In eastern Australia, Homestake controls three major projects; two in
Queensland and one in New South Wales.
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<PAGE>
At the Twin Hills, where Homestake is earning an initial 65% interest,
the Company spent $0.8 million in 1998 and plans to spend $1.7 million in 1999.
The project contains two partially explored centers of epithermal gold
mineralization characterized by broad sections of low to medium grade material
and associated narrow sections of extremely high grade. The two deposits lie
approximately five miles apart along a regional lineament where a series of
additional geophysical and geochemical targets recently have been generated.
These targets will be drill tested in 1999 along with further extension drilling
to expand the existing deposits.
In 1998, $1.4 million was spent at the new Agate Creek project,
including acquisition costs. The 1999 budget is $0.7 million. Preliminary
drilling at the end of 1998 on the Sherwood target encountered extensive gold
mineralization including some significant near-surface intersections. Plans for
1999 include offset drilling at the Sherwood target plus the evaluation of other
targets on the property.
The 54.5%-owned Junction Reefs project is located adjacent to and along
geologic trend from Newcrest's large Cadia gold-copper project which came into
production in 1998. Exploration expenditures in 1998 were $0.8 million, and $0.6
million of work is planned for 1999. The property contains anomalous gold-copper
mineralization spread over several broad areas within which Homestake has been
searching for Cadia-type deposits. Three current targets remain to be tested in
1999.
Other International
Homestake explores in a number of other countries outside the United
States and Australia, including Canada, Chile, Argentina, Brazil, Bulgaria and
Poland. Exploration expenses were $25.7 million in 1997, and $20.3 million in
1998, and $13.9 million of expenditures are planned in 1999.
Homestake's Canadian exploration spending in 1998 and 1997 (including
expenditures by Prime) was $5 million and $8.4 million, respectively. The 1999
Canadian budget is $3.9 million.
The principal project in Canada is in the Eskay Creek District, where
drilling has been ongoing to increase the size of the existing deposits, explore
for repetitions in the general mine environment and drill test favorable
geologic settings on Homestake's overall land position. Exploration spending was
$3.6 million in 1997, $3.5 million in 1998 and is expected to be $2.9 million in
1999. Substantial additions to reserves and mineralized material were made to
the 21B and 21C zones in 1998. Although rock sequences similar to those at the
mine were confirmed at several more distant sites, no significant mineralization
has been encountered to date. The staking of several new claims on open ground
down dip from the main 21B deposit will provide additional priority exploration
targets for 1999.
In the Andes, Homestake explores for gold in northern Chile,
northwestern and southern Argentina and selected belts in Peru. During 1998 and
1997, $8.1 million and $7.7 million was spent, respectively, and $7.9 million of
expenditures are planned during 1999.
Exploration at the 51%-owned Agua de la Falda project in Chile totaled
$2.1 million in 1998 and $2 million in 1997 (100% basis). The budget for 1999 is
$2.1 million (100% basis). Feasibility work on the Jeronimo sulfide gold deposit
resulted in expenditures of $0.6 million and $2.2 million in 1997 and 1998,
respectively, and $3.0 million has been budgeted for 1999. During 1998, a small
addition was made to the oxide reserves. Preliminary infill drilling at the
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Upper Jeronimo deposit further defined the resource, supplied additional
material for bench scale metallurgical tests and provided the necessary
geotechnical control for a 2300 foot long exploratory decline. The decline was
driven into the core of the Upper Jeronimo deposit to extract a bulk sample for
an on-site, pilot-scale, bio-oxidation heap leach test to be conducted in 1999.
Additional broad spaced offset drilling extended the size of the Lower Jeronimo
deposit in several directions and the deposit is still open. Further infill and
extension drilling at Jeronimo will be considered once the metallurgical testing
is completed. The initial exploration program for 1999 will drill test several
other targets on the property.
In 1998, Homestake acquired all of Western Mining Company's holdings
(850,000 acres) in the Jurassic volcanic belts of Chubut, Rio Negro and Santa
Cruz provinces of southern Argentina, known as the Patagonia project. During
1998, $0.5 million was spent on land acquisition and preliminary work at the
Patagonia project. A further $0.7 million program is planned for 1999 to follow
up on known gold occurrences and complete a first pass evaluation of other
high-priority areas.
In Northern Latin America in 1998, Homestake closed down its activities
in Venezuela and French Guiana and disposed of the El Foco and St. Pierre
projects. A limited exploration program continued in Brazil. Expenditures in the
general region were $2.8 million in 1998 and $8.1 million in 1997, but are
expected to decrease to $0.4 million in 1999.
The Tapajos grassroots project in northern Brazil generated
disappointing results and the focus in 1999 will be the evaluation of advanced
opportunities in selected mining districts.
In 1998, Homestake significantly increased its involvement in Eastern
Europe. Following the November 1997 acquisition of a 32% interest in Navan's
Bulgarian exploration projects for $4 million, the Company entered into a joint
venture with Carpathian Gold, Ltd. during 1998, to explore the Bomboly property
in northeastern Hungary and continued the joint venture with FX Energy, Inc., to
investigate the gold potential of southern Poland. During 1998, the Company
spent $4.5 million in Eastern Europe compared to $1.4 million (excluding the $4
million Navan purchase) in 1997. The Company has budgeted $1.8 million of
expenditures in 1999.
No economic gold mineralization was found in the five targets drilled
in Bulgaria but three targets are being prepared for drilling in 1999 and a new,
high priority property is under negotiation. Twelve holes were drilled in the
Bomboly project in Hungary but the gold tenor was of insufficient interest to
continue. In Poland, several potential target areas were tested with surface
surveys and many historic gold occurrences were investigated. The regional
evaluation is planned to continue in 1999.
GLOSSARY AND INFORMATION ON RESERVES
GLOSSARY
The following terms used in the preceding discussion mean:
"Cash operating costs" are costs directly related to the physical
activities of producing gold, and include mining, processing and other plant
costs, deferred mining adjustments, third-party refining and smelting costs,
marketing expenses, on-site general and administrative costs, in-mine drilling
expenditures that are related to production and other direct costs, but exclude
depreciation, depletion and amortization, corporate general and administrative
expense, mineral
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exploration expense, royalties, federal and state income and production taxes,
Canadian mining taxes, financing costs and accruals for final reclamation.
"Other cash costs" are costs that are not related to, but may result
from, gold production activities, and include royalties and federal and state
production taxes, but excludes Canadian mining taxes.
"Total cash costs" are the sum of cash operating costs and other cash
costs.
"Noncash costs" are costs that are typically accounted for ratably over
the life of an operation and include depreciation, depletion and amortization of
capital assets, accruals for the costs of final reclamation and long-term
monitoring and care that are usually incurred at the end of mine life, and the
amortization of the economic cost of property acquisitions, but exclude
amortization of deferred tax purchase adjustments relating to property
acquisitions established in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" as these deferred tax purchase
adjustments did not involve any economic resources of the Company.
"Total production costs" is the sum of cash operating costs, other cash
costs and noncash costs.
"In-situ deposit" refers to reserves still in the ground. This does not
include previously mined stockpiled reserves that are being stored for future
processing.
"Mineral deposit" and/or "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. Under United States Securities and Exchange Commission
standards, a mineral deposit does not qualify as a reserve unless the recoveries
from the deposit are expected to be sufficient to recover total cash and noncash
costs for the mine and related facilities.
"Run-of-mine ore" is mined ore which has not been subjected to any
pretreatment, such as washing, sorting or crushing, prior to processing.
"Stripping ratio" is the ratio of the number of tons of waste to the
number of tons of ore extracted at an open-pit mine.
"Tonnage" and "grade" refer, respectively, to the quantity of reserves
and mineralized material and the amount of gold (or other products) contained
therein and include, in the case of reserves, estimates for mining dilution but
not for other processing losses.
"Tons" means short tons (2,000 pounds) unless otherwise specified.
"Adit" or "Portal" is a tunnel driven into a mountainside providing
access to an ore deposit.
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INFORMATION ON RESERVES
Gold
The proven and probable gold ore reserves stated in this Report on Form
10-K 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 calculations. Homestake used gold prices of $325 and $350 per ounce
in calculating reserves at December 31, 1998 and 1997, respectively. Homestake
used a price of $325 per ounce of gold in its mine-by-mine evaluation of mining
properties at December 31, 1998. Homestake used gold prices of $325 and $350 per
ounce in its mine-by-mine evaluation of short-lived and long-lived mining
properties, respectively, at December 31, 1997.
Silver
The proven and probable silver ore reserves have been calculated on the
same basis as gold ore reserves, except that silver reserves at December 31,
1998 and 1997 are based on an assumed price of $5.00 per ounce.
Sulfur
Homestake's proven 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.
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 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
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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.
OVERVIEW OF AUSTRALIAN, CANADIAN AND
UNITED STATES REGULATION OF MINING RIGHTS
Australia
The mining of hard rock minerals 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 are
granted by the State or Territory government where those rights are sought.
In general, exploration is authorized by statutory title with some
jurisdictions providing for 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.
See "Risks of Native Title Claims - Australia" included in the Risk
Factors section included elsewhere in Part I of this Form 10-K.
Canada
Mining rights in Canada 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 with the provincial
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
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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 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 preexisting agreements. In some
jurisdictions disagreements over rights of surface use may be resolved by a
government agency having authority to determine use and compensation.
See "Risks of Native Title Claims - Canada" included in the Risk
Factors section included elsewhere in Part I of this Form 10-K.
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
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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.
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 are conducted on a
regular basis with the objective of auditing each operation at least once every
three years.
Homestake makes 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 1998, these expenditures totaled approximately $3
million compared to $18 million in 1997. Homestake estimates that during 1999
capital expenditures for such purposes will be approximately $4 million and that
during the five years ending December 31, 2003, such capital expenditures will
be approximately $12 million.
Homestake also incurs operating costs to minimize the effects of its
operations on the environment, including current reclamation costs, costs for
environmental monitoring and studies to identify and quantify environmental
impacts, if any, and accruals for remediation and future reclamation
expenditures. Such expenses totaled approximately $55 million in 1998, compared
with approximately $30 million in 1997. Homestake estimates that environmental
and related operating costs in 1999 will be approximately $26 million. 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. 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, 1998 and 1997, Homestake had accrued $131 million and $92 million,
respectively, for future reclamation and related costs. With respect to
nonoperating properties, Homestake believes that it has fully provided for all
remediation liabilities and for estimated reclamation and site restoration
costs. Homestake's provisions are evaluated regularly and adjusted when
necessary. At September 30, 1997 Homestake 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. Accordingly, a
charge of $29.1 million was recorded at that time. At September 30, 1998,
Homestake recorded an additional provision for estimated environmental and
reclamation costs for historical operations at the Homestake mine in the amount
of $35 million. Homestake charges
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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.
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 substance classified
as hazardous, including liability for oversight costs incurred by the EPA.
Legislative proposals and congressional hearings for CERCLA reauthorization have
occurred in 1994 through 1997.
Whitewood Creek
Beginning in the nineteenth century, mining companies operating in the
Black Hills of South Dakota, including Homestake, placed mine tailings in
Whitewood Creek in western South Dakota. Some tailings placed in Whitewood Creek
eventually flowed downstream. 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 21 years the Homestake mine has
placed, in a tailings storage facility, all mine tailings that are not
redeposited in the mine.
In 1983, the 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 streambed. 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 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 fieldwork
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
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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.
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. In the complaint, the State of
South Dakota alleged that Homestake 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 historical 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, and 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 Homestake,
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
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
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the United States government. Homestake has also counterclaimed against the
Federal Trustees seeking cost recoupment, contribution and indemnity.
In the opinion of Homestake, there is no basis for the claims by the
State of South Dakota or by the federal government and the Cheyenne River Sioux
Tribe. Homestake is also of the opinion that it 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 have owned property or otherwise conducted activity within the NRD Site
which may have contributed to any alleged damage. Homestake does not believe
that resolution of these matters will have a material adverse effect on its
business or financial condition or results of operations.
Homestake, the State of South Dakota, the Federal Trustees and the
Cheyenne River Sioux Tribe are engaged in settlement discussion 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, 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.
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. 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 1998, Homestake incurred approximately $3.7 million
of reclamation expenditures at the Grants facility and approximately $4 million
is planned to be expended during 1999.
Title X of the Energy Policy Act of 1992 (the "Energy Policy Act") and
subsequent amendments to the Energy Policy 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
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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 Energy Policy Act, the DOE is responsible for 51.2% of the past
and future costs of reclaiming the Grants site in accordance with NRC license
requirements. Through December 31, 1998 Homestake had received $25.6 million
from the DOE and the balance sheet at December 31, 1998 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 December 31, 1998.
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 Homestake, 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 Homestake and others, Homestake 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 shipped through
the Port of Pascagoula was produced and sold for the account of Homestake. The
State of Mississippi Department of Environmental Quality is reviewing the
investigation efforts and remediation plans that are being developed by the Port
Authority. Based on information currently available, Homestake believes the
remediation costs should not exceed $1 million. Homestake's position is that the
Port Authority 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 Authority contributed to the
contamination by moving stored material from a storage building and depositing
it on the ground. Homestake believes that any future costs it may incur in
connection with this matter will not be material.
Foreign Operations
Except for the instances described above in respect of the individual
properties, 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.
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RISK FACTORS
The following risk factors should be considered in conjunction with the
other information included in "Cautionary Statements."
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 maintains and intends to continue to maintain, property
and liability insurance consistent with industry practice, but such insurance
contains exclusions and limitations on coverage. For example, coverage for
environmental liability generally is limited and may be totally unavailable.
There can be no 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.
Substantially all of Homestake's gold production and significant
exploration activities take place in the United States, Australia and Canada,
all of which historically have experienced relatively low levels of political
and economic risk. Homestake also produces gold in Chile and conducts
exploration activities in Eastern Europe, Argentina, Brazil, Chile and the
Andean region of South America. These regions generally have higher levels of
political and economic risk than the United States, Australia and Canada,
including greater 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 operations are affected significantly by the
market price of gold and, to a lesser extent, 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 has 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.
During 1998 and 1999 to date, the price of gold generally has been below $300
per
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ounce. After increasing to approximately $7.81 per ounce in February 1998, the
price of silver has dropped significantly, to as low as $4.69 per ounce during
1998.
The following table shows the reported annual high, low, average and
end of the period afternoon fixing prices of gold per ounce and silver per ounce
in US dollars on the London Bullion Market.
<TABLE>
<CAPTION>
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gold
High........................... $313 $367 $416 $397 $398
Low............................ 273 283 367 372 370
Average........................ 294 331 388 384 384
Period End..................... 287 290 369 387 383
Silver
High........................... $7.81 $6.27 $5.83 $6.04 $5.75
Low............................ 4.69 4.22 4.71 4.41 4.64
Average........................ 5.54 5.17 5.19 5.19 5.28
Period End..................... 5.01 5.95 4.73 5.11 4.87
</TABLE>
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 and silver producer to fix a future
price for hedged gold and silver that generally is higher than the then current
spot price. However, to the extent that sales of future production are hedged,
the ability to realize future increases in prices may be reduced subject to the
producer's ability to extend the expiry dates of the hedge contracts.
Homestake has adopted a gold and silver hedging policy under which
Homestake, in appropriate circumstances, may enter into forward-sales
transactions for up to 30% of its gold and silver production in each of the
subsequent ten years (five years for silver) at prices in excess of certain
targeted prices. Homestake may also use, in appropriate circumstances,
combinations of put and call option contracts, which provide an effective price
floor for sales. To the extent Homestake has not hedged its production in
forward-sales transactions or established price floors, its profitability is
fully exposed to fluctuations in the current price of gold and silver in world
markets.
Homestake's results also are 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.
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Risks Associated with Reserve Realization
Gold and silver reserves reported by Homestake reflect estimated
quantities and grades of gold and silver in deposits and in stockpiles of mined
material that Homestake 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.
Further, reserves are valued based on estimates of future costs and future
prices. Homestake's gold reserves at December 31, 1998 are based on an assumed
price of $325 per ounce. Gold reserves at December 31, 1997 are based on an
assumed price of $325 per ounce for short-lived operations, and $350 per ounce
for other operations. Silver reserves at December 31, 1998 and 1997 at the Eskay
Creek mine are based on an assumed price of $5 per ounce.
Actual quality and other characteristics 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
Homestake's mining operations 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. Some jurisdictions also require or may in the future require the
payment of royalties. Changes in regulations can have material impacts on
anticipated levels of production, costs and profitability. It is possible that
exploration, or development or operation of a mine, may be delayed or terminated
as a result of the inability to obtain all required permits and government
approvals on an economic basis, or the imposition of royalty payments or other
government regulations.
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
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similarly might be payable. Should the Mining Law be so amended, it could reduce
the amount of future exploration and development activity conducted by Homestake
on federal government-owned property in the United States.
Risks of Currency Fluctuations
Gold and silver are sold throughout the world principally based on the
US dollar price, but operating expenses of gold and silver mining companies
generally are incurred in local currencies. Homestake's operations principally
are based in the United States, Canada and Australia. Homestake engages in
currency hedging in Canadian and Australian dollars to protect against
significant currency fluctuations relative to the US dollar.
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. In 1996, the High
Court 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 the States of Australia have passed legislation in
relation to native title which provides for native title claims to be made. Some
of 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) 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.
In July 1998, the Native Title Amendment Act was passed by both houses
of the Australian Parliament. The legislation came into operation on September
30, 1998, although in some respects it operates retroactively. The Act makes
significant changes in the regime governing native title in Australia. Among
other things, the new law (i) transfers the determination of native title claims
to the Australian Federal Courts; (ii) requires that native title claims be
registered in compliance with specified requirements in order to qualify for the
right to negotiate; (iii) permits registration of claims to be delegated to
State bodies; and (iv) permits States to validate all titles issued between
January 1, 1994 and December 23, 1996 on land which was the subject of freehold
or leasehold title. Homestake cannot predict the extent to which the new law
will impact its operations, but it is generally expected that the new law will
facilitate and accelerate resolution of many native title issues and eliminate
some uncertainties.
There are a number of native title claims relating to the area of
Homestake's 50% owned 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 affect their validity. There also are native title claims
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relating to areas in which Homestake's other Australian mining operations are
conducted, but the validity of these claims also has not been determined. In any
event, with the one exception described below, all of the other production
mining leases are pre-1994 leases and their validity is not affected by native
title claims.
One production mining lease was granted between January 1 and March 15,
1995, when Western Australia did not comply with the requirement of negotiation
in granting these titles. Although there have been no decisions on the point to
date, titles granted during that period may be open to challenge on native title
grounds. 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 exploration tenements in Australia are subject to
multiple native title claims. Should Homestake 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 Homestake 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. Under certain circumstances the negotiation process and grants of
title will be subject to the jurisdiction of State bodies. 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.
Canada
In the Delgamuukw decision in December 1997, the Supreme Court of
Canada (the "Supreme Court") 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 Supreme 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 Supreme 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 Supreme 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 Supreme 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 have been determined.
The British Columbia government has initiated a process for the
negotiation of treaties to resolve outstanding issues of aboriginal rights and
title in British Columbia, under the authority of the B.C. Treaty Commission. To
date, 51 aboriginal groups have commenced negotiations under
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the B.C Treaty Commission process. Some aboriginal groups have withdrawn from
negotiations and commenced litigation since Delgamuukw. The position of the
provincial government is that it will not negotiate treaties if the claims are
being litigated in the courts. No treaties have yet been ratified under this
process.
On August 4, 1998, the government of British Columbia and the
government of Canada initialled a treaty with the Nisga'a Nation negotiated
under a separate process. Before it comes into effect the Nisga'a treaty
requires ratification by the Nisga'a Nation and legislation by both the federal
and the provincial governments. The Nisga'a treaty includes provisions granting
fee simple title to an area of Crown land (Treaty title lands), confirmation of
non-exclusive aboriginal rights over an extended area, provisions for payment of
compensation, and provisions for the establishment of a Nisga'a government. The
ratification process has not yet been completed and is the subject of public
debate and challenges as to constitutional validity. None of Homestake's
operations or exploration properties are located in the area subject to the
Nisga'a treaty.
It is the policy of the British Columbia government that lands held in
fee simple by third parties will not be affected by treaty negotiation and that
the province will respect the terms of all legal interests in Crown lands and
resources including leases and licenses. However, where there are legal
interests in Crown lands which, under a treaty, become Treaty title lands, and
where those legal interests have termination dates, subject to extensions or
renewals, the province will likely decline to grant further extensions or
renewals. The Nisga'a treaty contemplates that future rights and interests
within the Treaty title lands will be subject to negotiation with the Nisga'a
government and to potential payment of fees, royalties or other charges to the
Nisga'a government.
Any confirmation by treaty of non-exclusive aboriginal rights on Crown
land will mean the continuation of certain limitations and procedural
requirements (such as consultation and possibly consent) on the disposition of
Crown land and resources.
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 in British
Columbia, and Homestake does not believe that its other 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.
United States
There are no native title issues for Homestake's properties in the
United States.
CAUTIONARY STATEMENTS
This Report contains certain information relating to Homestake that is
based on the beliefs of management, as well as assumptions made by and
information currently available to management. Any statements made in this
Report that are not historical in nature, including statements preceded by the
words "anticipate," "believe," "estimate," "expect," "intend," "will"
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and similar expressions, as they relate to Homestake, are forward-looking
statements (as such term is defined in the United States Private Securities
Litigation Reform Act of 1995). 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.
Reserves
Gold and silver reserves reported by Homestake reflect estimated
quantities and grades of gold and silver in deposits and in stockpiles of mined
material that Homestake 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 costs
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 including 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 other
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. Actual quality and other
characteristics of ore deposits, gold and silver prices, and costs of production
will vary from the assumptions used to develop reserve estimates. Such
differences may be material.
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's gold reserves at December 31, 1998 and 1997 are based on an assumed
price of $325 per ounce and $350 per ounce, respectively. Silver reserves at
December 31, 1998 and 1997 are based on an assumed price of $5.00 per ounce.
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
67
<PAGE>
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.
Mineralized Material
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.
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 in which such evaluation is made.
68
<PAGE>
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. Homestake periodically reevaluates 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 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 also reflect
assumptions with respect to factors beyond the control of Homestake, 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
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 operations are conducted in a number of jurisdictions, with
differing rates of taxation, but substantially all of Homestake's revenues come
from the United States, Canada and Australia.
Homestake's reported 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, as a result of the acquisition of the minority
interests in Prime, there will be an increase in the basis of mining assets for
financial reporting purposes that will not be deductible for Canadian tax
purposes. The problem is partially mitigated by the FASB 109 deferred tax
purchase accounting adjustments established at the time of purchase. In
addition, 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. Certain Canadian accounting expenses cannot be deducted in
calculating the mining tax.
69
<PAGE>
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, can cause the consolidated effective
tax rate to rise.
Homestake's overall effective tax rate also can fluctuate significantly
during a period of low gold prices, because the tax rate is affected by 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
continue 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.
CUSTOMERS
Sales to individual customers exceeding 10% of Homestake's 1998
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>
1998 1997
($ in thousands)
<S> <C> <C>
Customer A $120,100
B 108,000 $100,000
C 99,200 143,000
D 75,600 -
</TABLE>
CREDIT FACILITIES
See note 13 "Long-term Debt" to the consolidated financial statements
on page 48 of the 1998 Annual Report to Shareholders for details of the
Company's credit facilities. Such information is hereby incorporated by
reference.
70
<PAGE>
EMPLOYEES
The number of full-time employees at December 31, 1998 of Homestake and
its subsidiaries was:
<TABLE>
<CAPTION>
<S> <C>
Homestake mine (1) 377
McLaughlin mine 102
Ruby Hill mine 92
Nickel Plate mine 12
Eskay Creek mine 107
Snip mine 155
Plutonic mine 146
Darlot mine 64
Lawlers mine 54
Agua de la Falda mine (1) 47
United States corporate staff and other 86
Canada exploration and corporate staff 29
Australian exploration and corporate staff 93
United States exploration 24
Uranium 8
Chile exploration and corporate staff 29
----------------
Total 1,425
</TABLE>
The number of full-time employees (excluding contractors' employees) at
December 31, 1998 in jointly-owned operations in which Homestake participates
was:
<TABLE>
<CAPTION>
<S> <C>
Kalgoorlie Consolidated Gold Mines Pty Ltd (1) 379
Williams Operating Corporation 595
Round Mountain mine 662
Teck-Corona Operating Corporation (1) 243
Pinson Mining Company 66
Marigold Mining Company 88
Main Pass 299 177
Mt Morgans mine 1
Peak Hill mine 20
----------------
Total 2,231
<FN>
1. Operations where a portion of the employees are represented by a labor
union.
</FN>
</TABLE>
Labor relations at all locations are believed to be good. At the
Homestake mine, a new five-year labor contract was signed in May 1998. The union
contract at the David Bell mine expired in October 1998. Negotiations for a new
contract at the David Bell mine are continuing and an application for
conciliation is proceeding.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages at December 31, 1998,
their business experience and principal occupations during the past five years
and their business backgrounds are:
Jack E. Thompson - Chairman since July 1998, Chief Executive Officer
since May 1996 and President since August 1994, age 48. He was Chief Operating
Officer from August 1994 until May 1996, and from August 1994 to June 1995, he
was also Chairman of Prime. He was Executive Vice President, Canada of the
Company and President of Prime from 1992 through August 1994. He also was
President of North American Metals Corp. from 1988 until 1993. He is a mining
engineer with over 28 years of experience in mining and mine management.
Lee A. Graber - Vice President, Corporate Development since 1983, age
51. From 1980 to 1983, he was Manager, Corporate Development and Planning. He
has over 28 years of experience in finance and corporate development.
Wayne Kirk - Vice President, General Counsel and Secretary since
September 1992, age 55. He was a partner in Thelen, Marrin, Johnson & Bridges
from 1976 to 1992. He has practiced law for 30 years.
Gregory A. Lang - Vice President, Australian Operations since January
1999, age 43. He was Vice President, U.S. and International Operations from
August 1998 to December 1998, Vice President, Development from March 1997 to
August 1998, Vice President of Homestake International Minerals Limited from
June 1996 until March 1997, General Manager, Project Development from January
1996 until June 1996 as well as General Manager of the Ruby Hill project from
October 1994 through June 1996, and General Manager of the Nickel Plate mine
from 1993 until October 1994. He joined Homestake in 1992 as Resident Manager of
the Santa Fe mine, a position he had held with International Corona Corporation
since 1988. He is a mining engineer with over 21 years of experience in mining
and mine management.
Gillyeard J. Leathley - Senior Vice President, Operations since July
1997, age 61. He was Vice President, Operations from May 1995 until July 1997.
He joined Homestake in 1992 as Vice President, Canadian Operations. Prior to
joining Homestake, he was Senior Vice President, Operations for International
Corona Corporation from 1986 to September 1992. He has over 41 years of
experience in mining and mine management.
Donald W. T. Lewis - Vice President, Evaluations since March 1997, age
41. He was Director, North American Exploration/Evaluations from January 1996
until March 1997. He joined Homestake in 1992 as Director, Project Generation.
Prior to joining Homestake he was Exploration Manager - Western Canada for
International Corona Corporation from 1989 until 1992. He is a geologist with
more than 19 years of professional experience.
William F. Lindqvist - Vice President, Exploration since August 1995,
age 56. He rejoined Homestake from Newcrest Mining Company, where he was
Executive General Manager, Exploration. He was Vice President, Exploration at
Homestake from 1990 through 1992. He is a geologist with more than 28 years of
professional experience.
72
<PAGE>
Stephen A. Orr - Vice President, Investor Relations since August 1998,
age 43. He was the Vice President, U.S. Operations from December 1996 to August
1998, General Manager of the Homestake mine from January 1995 until December
1996, and was Operations Manager from 1993 to 1995 and Manager, Mine Engineering
from 1992 to 1993. He was a Financial Analyst in the Corporate Finance
Department from 1990 to 1992. He has been with Homestake since 1981 and has over
21 years of experience in mining and mine management.
David W. Peat - Vice President and Controller since December 1995, age
46. He was Controller of the Company from 1992 through November 1995. Prior to
joining Homestake in 1992, he was Vice President, Controller for International
Corona Corporation. He is a chartered accountant with over 22 years of
accounting and finance experience.
Walter T. Segsworth - Vice President, North American Operations since
March 1999, age 49. He also is President and Chief Executive Officer of HCI and
was Vice President, Canada from April 1998 to March 1999 and was Vice President
and Chief Executive Officer of Prime from April 1998 through December 1998.
Prior to joining Homestake, he was President, Chief Executive Officer and
Director of Westmin Resources Limited in Vancouver until it was acquired in
early 1998. Before joining Westmin in 1990 he was employed by Noranda Limited in
a number of positions of increasing responsibility. He is a mining engineer with
more than 25 years of professional experience.
Richard A. Tastula - Vice President, Australia since August 1995, age
55. He has been Managing Director of Homestake Gold of Australia Limited since
1993, and was Director of Operations from 1991 to 1993. For 23 years prior to
that time, he held various positions with Western Mining Corporation, Limited.
He became Managing Director of Plutonic in April 1998 when Homestake acquired
Plutonic. He has over 33 years of experience in mining and mine management.
Michael L. Carroll - Treasurer since April 1997, age 45. He has been
with Homestake since 1991, originally as Director of Taxes. Prior to joining
Homestake, he was Assistant Vice President of Bond International Gold Inc.
Before joining Bond, he was Director of Taxes for St. Joe Minerals Corporation.
He has over 21 years of accounting, finance and tax experience.
No officer is related to any other officer by blood, marriage or
adoption.
Officers are elected to serve until the next annual meeting of the
Board of Directors at which officers are elected or until their successors are
chosen.
No arrangement or understanding exists between any officer and any
other person under which any officer was elected.
ITEM 2 - PROPERTIES
See Item 1 - Business.
ITEM 3 - LEGAL PROCEEDINGS
Certain environmental proceedings in which Homestake or its subsidiaries are or
may become parties are discussed under the caption "Environmental Matters."
73
<PAGE>
In October 1997, HCI and Prime entered into an agreement with Inmet
Mining Corporation ("Inmet") to purchase the Troilus mine in Quebec for $110
million plus working capital. In December 1997, HCI and Prime terminated the
agreement after determining that, on the basis of due diligence studies,
conditions to closing the arrangement would not be satisfied. On February 23,
1998, Inmet filed suit against Prime and HCI in the British Columbia Supreme
Court, disputing the termination of the agreement, and alleging that Prime and
HCI had breached the agreement. Inmet seeks specific performance or, in the
alternative, equitable damages. Homestake believes that the agreement with Inmet
was terminated properly and that the action by Inmet is without merit. Homestake
intends to defend this action vigorously.
Homestake 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 adverse effect on the Homestake's financial
condition, results of operations or cash flow.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 1, 1998 at a Special Meeting of Stockholders, Homestake
Mining Company stockholders approved a Restated Certificate of Incorporation.
The Restated Certificate increased the number of authorized shares of Homestake
Common Stock from 250,000,000 to 450,000,000, increased the number of authorized
shares of Series A Preferred Stock from 2,500,000 to 4,500,000, created one
share of Special Voting Stock and made certain technical changes, primarily to
reflect the existence of the Special Voting Stock. The restated certificate
provided Homestake with additional authorized shares which permitted Homestake
to acquire the minority interests in Prime. The Special Voting Stock was issued
to Montreal Trust Company of Canada, in trust for the holders of the HCI
Exchangeable Shares, and provides the mechanism for holders of HCI Exchangeable
Shares to receive voting rights in Homestake Mining Company. At the December 1,
1998 Special Meeting, Homestake's stockholders also approved an Outside
Directors' Stock Compensation Plan that provides for external directors to
receive a portion of their compensation in Homestake common stock.
Stockholder votes were as follows:
Restated Certificate of Incorporation
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Non-Votes
<S> <C> <C> <C>
118,294,460 16,092,719 819,490 35,556,668
1998 Outside Directors' Stock Compensation Plan
Votes For Votes Against Abstentions Non-Votes
163,842,374 4,621,467 2,299,496 -0-
</TABLE>
74
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
a. The common stock of Homestake Mining Company is registered and traded
principally on the New York Stock Exchange under the symbol "HM." It is
also listed and traded on the Australian Stock Exchange and in
Switzerland on the Basel, Geneva and Zurich stock exchanges under the
same symbol. HCI Exchangeable Shares are listed and traded in Canada on
the Toronto stock exchange under the symbol "HCX".
b. The number of holders of common stock of record as of March 15, 1999
was 21,228. The number of holders of HCI Exchangeable Shares of record
as of March 15, 1999 was 75.
c. Information about the range of sales prices for the common stock and
the frequency and amount of dividends declared during the past two
years appears in the tables on pages 58 and 59 in the Company's 1998
Annual Report to Shareholders. The tables setting forth sales prices
and dividends are hereby incorporated by reference. Information about
certain restrictive covenants under the Company's line of credit
appears in note 13 entitled "Long-term Debt" on page 48 in the Notes to
Consolidated Financial Statements in the Company's 1998 Annual Report
to Shareholders. Such information is hereby incorporated by reference.
d. Reference is hereby made to the note 17 entitled "Shareholders' Equity"
beginning on page 52 in the Notes to Consolidated Financial Statements
in the Company's 1998 Annual Report to Shareholders. Such information
is hereby incorporated by reference.
e. The Registrant did not sell any securities during 1998 that were not
registered under the Securities Act of 1933 except as follows:
(i) Plutonic Resources Limited Acquisition.
Homestake issued 64,355,692 shares of its Common Stock to acquire
Plutonic Resources Limited. The shares were issued effective as of
April 30, 1998. These shares were issued without registration in
reliance upon an exemption under Section 3(a)(10) of the Securities
Act after a fairness hearing by the Supreme Court of New South Wales.
A proxy statement for Homestake Mining Company was filed with the
Commission in respect of a vote by the holders of Common Stock of
Homestake Mining Company to approve the transaction.
(ii) Acquisition of minority interest in Prime Resources Group Inc.
Homestake issued 16,672,304 shares of its Common Stock, and Homestake
Canada Inc. issued 11,139,045 of its Exchangeable Shares to acquire
the outstanding shares of Prime Resources Group Inc. not already owned
by Homestake and its subsidiaries. The shares were issued effective as
of December 3, 1998. These shares were issued without registration in
reliance upon an exemption under Section 3(a)(10) of the Securities
Act after a fairness hearing by the Supreme Court of British Columbia.
A proxy statement for Homestake Mining Company was filed with the
Commission in respect of a vote by the holders of Common Stock of
Homestake Mining Company to authorize additional shares of Capital
stock needed to complete the transaction. Each Homestake Canada Inc.
75
<PAGE>
Exchangeable Share is exchangeable at any time for one share of
Homestake Mining Company Common Stock. The Homestake Mining Company
Common Stock issuable on exchange for Homestake Canada Inc.
Exchangeable Shares were registered under the Securities Act of 1933.
ITEM 6 - SELECTED FINANCIAL DATA
A summary of selected consolidated financial data of the Company and
its subsidiaries for the five-year periods ended December 31, 1998 appears on
page 59 in the Company's 1998 Annual Report to Shareholders. The summary of
selected consolidated financial data is hereby incorporated by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations covering the three year periods ended December 31, 1998 appears on
pages 28 through 35 in the Company's 1998 Annual Report to Shareholders and is
hereby incorporated by reference.
ITEM - 7 (a) MARKET RISK DISCLOSURES
See notes 2 and 20 to the consolidated financial statements at December
31, 1998 for additional information regarding the Company's precious metals
and foreign currency hedging programs and the future adoption of Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Such information is hereby
incorporated by reference.
Gold And Silver Risk Disclosures
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.
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.
76
<PAGE>
At December 31, 1998 the Company had gold forward sales and option
contracts outstanding as follows:
<TABLE>
<CAPTION>
Expected Maturity or Transaction Date
---------------------------------------------------------------- Fair
There- Total or Value (US$
1999 2000 2001 2002 2003 after Average millions) (1)
---------- ----------- ---------- --------- --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US $ denominated contracts:
Forward sales contracts: $59.1
Ounces 109,920 85,080 95,000 95,000 75,000 460,000
Average price ($ per oz.) $415 $430 $441 $457 $481 $443
Put options owned: $ 1.2
Ounces 100,000 30,000 130,000
Average price ($ per oz.) $293 $350 $306
Call options written:
Ounces 100,000 15,000 115,000
Average price ($ per oz.) $304 $395 $316
Australian $ denominated contracts (2):
Forward sales contracts: $ 5.1
Ounces 24,800 24,800 24,800 24,800 50,800 150,000
Average price (US$ per oz.) $322 $322 $322 $322 $322 $322
Put options owned: $ 7.6
Ounces 120,000 120,000 120,000 360,000
Average price (US$ per oz.) $309 $318 $327 $318
<FN>
(1) Fair values are based on market quotations for similar financial
instruments.
(2) Expressed in US dollars at an exchange rate of A$ = US$0.6112
</FN>
</TABLE>
At December 31, 1998 the Company had forward sales contracts
outstanding for approximately 7.2 million ounces of silver for delivery
during 1999 through 2001 at an average price of $6.28 per ounce. The fair
value of these contracts at December 31, 1998, based on market quotations
for similar financial instruments, was $7.7 million
Foreign Currency Risk Disclosures
Significant portions of the Company's operations are located in Australia
and Canada. The Company's profitability is impacted by fluctuations in
those countries' currency exchange rates relative to the United States
dollar. Under the Company's foreign currency protection program, the
Company has entered into a series of foreign currency option contracts
which establish trading ranges within which the United States dollar may be
exchanged for Australian and Canadian dollars.
77
<PAGE>
At December 31, 1998 the Company had Canadian and Australian foreign
currency option contracts outstanding as follows:
<TABLE>
<CAPTION>
Expected Maturity or Transaction Date
--------------------------------------------- Fair
Total or Value (US$
1999 2000 2001 Average millions) (1)
------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Canadian $ / US $ option contracts: $ (13.6)
US $ covered (thousands) $138,000 $89,420 $59,110 $286,530
Average put exchange rate (2) 0.69 0.69 0.66 0.68
Average call exchange rate (3) 0.72 0.72 0.69 0.71
Australian $ / US $ option contracts: $ (10.4)
US $ covered (thousands) $92,000 $68,620 $23,000 $183,620
Average put exchange rate (2) 0.66 0.64 0.60 0.64
Average call exchange rate (3) 0.69 0.67 0.63 0.67
<FN>
(1) Fair values are based on market quotations for similar financial
instruments.
(2) Assuming exercise 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.
(3) Assuming exercise 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>
The Company does not require or place collateral for its foreign
currency and precious metals hedging derivatives. However, the Company
minimizes its credit risk by dealing with only major international banks
and financial institutions.
Other Financial Instrument Risk Disclosures
The carrying values of the Company's long-term debt and other financial
instruments approximated their estimated fair values at December 31, 1998
(see notes 13 and 16 to the consolidated financial statements at December
31, 1998). The Company's $150 million 5.5% convertible subordinated notes
mature in June 2000 and the fair value of this debt has been estimated to
approximate its carrying value due to the relatively short time until
maturity and the provision that the Company can redeem this debt at any
time at par value. The fair value of borrowings under the pollution control
bonds and the Company's cross-border credit facility have been estimated to
approximate their carrying values as these instruments bear interest at
prevailing market rates. The Australian dollar-denominated borrowings under
the cross-border credit facility are held by the Company's Australian
subsidiaries whose functional currency is the Australian dollar. Therefore
the reported liability balance, as expressed in the US dollar reporting
currency of Homestake, will fluctuate as the Australian to US dollar
exchange rate changes.
78
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's 1998 Annual Report to Shareholders includes the Company's
consolidated balance sheets as of December 31, 1998 and 1997 and related
statements of consolidated operations, consolidated shareholders' equity,
consolidated cash flows and consolidated comprehensive income (loss) for each of
the three years in the period ended December 31, 1998 and the independent
auditors' report thereon, and certain supplementary financial information. The
following are hereby incorporated by reference from the Company's 1998 Annual
Report to Shareholders at the pages indicated:
Statements of Consolidated Operations (page 36)
Consolidated Balance Sheets (page 37)
Statements of Consolidated Shareholders' Equity (page 38)
Statements of Consolidated Cash Flows (page 39)
Statements of Consolidated Comprehensive Income (Loss) (page 40)
Notes to Consolidated Financial Statements (pages 41 - 56)
Report of Independent Auditors (page 57)
Quarterly Selected Data (page 58)
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEMS 10, 11, 12 AND 13
In accordance with General Instruction G (3), Items 10, 11, 12 and 13
(with the exception of certain information pertaining to executive officers,
which is included in Part I hereof) have been omitted from this report since a
definitive proxy statement is being filed with the Securities and Exchange
Commission and furnished to shareholders pursuant to Regulation 14A.
The information contained in the proxy statement relating to directors,
executive compensation, security ownership and certain relationships (other than
the performance graph and Compensation Committee report contained therein) is
hereby incorporated by reference.
79
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORMS 8-K
(a) 1. Financial Statements:
Refer to Part II, Item 8.
2. Financial Statement Schedules:
Schedules for the years ended December 31, 1998, 1997, and
1996 -
II Valuation and Qualifying Accounts
Report of Independent Auditors
Schedules not listed are omitted because they are not required
or because the required information is included elsewhere in
this report.
3. Exhibits
3.1 Restated Certificate of Incorporation of Homestake Mining
Company (incorporated by reference to Exhibit 3.6 to the
Registrant's Form 8-K dated December 10, 1998.)
3.2 Bylaws (as amended through March 5, 1999) of Homestake Mining
Company.
3.3 Homestake Canada Inc. Exchangeable Share Provisions
(incorporated by reference to Appendix D to the Registrant's
Proxy Statement dated as of October 20, 1998).
3.4 Voting, Support and Exchange Trust Agreement in respect of
Homestake Canada Inc. Exchangeable Shares (incorporated by
reference to Appendix E to the Registrant's Proxy Statement
dated as of October 20, 1998).
3.5 Rights Agreement dated October 16, 1987 (incorporated by
reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A dated October 16, 1987).
3.6 Amendment No. 1 dated as of October 15, 1997 to the Rights
Agreement dated as of October 16, 1987 (incorporated by
reference to Exhibit 4 to the Registrant's Form 8-A/A filed on
October 16, 1997).
3.7 Amendment No. 2 dated as of December 3, 1998 to the Rights
Agreement dated as of October 16, 1987 (incorporated by
reference to Exhibit 6 to the Registrant's Form 8-A/A filed on
December 4, 1998).
3.8 Rights Agreement dated as of December 3, 1998, between
Homestake Canada Inc., Homestake Mining Company and Montreal
Trust Company of Canada as Rights Agent (incorporated by
reference to Exhibit 5 to the Registrant's Form 8-A/A filed on
December 4, 1998).
80
<PAGE>
4.1 Indenture dated as of January 23, 1993 between Homestake
Mining Company, Issuer and The Chase Manhattan Bank, N.A.,
Trustee, with respect to U.S. $150,000,000 principal amount of
5 1/2% Convertible Subordinated Notes due January 23, 2000
(incorporated by reference to Exhibit 4.2 to the Registrant's
Form 8-K Report dated as of June 23, 1993).
10.1 Credit Agreement dated as of July 24, 1998 between the
Registrant, the Lenders, The Chase Manhattan Bank of Canada as
Canadian Administrative Agent for Lenders, Chase Securities
Australia Limited, as Australian Administrative Agent for
Lenders, Chase Securities Inc., as Arranger, The Chase
Manhattan Bank, as Administrative Agent for Lenders, and
Deutsche Bank A.G., as Documentation Agent for Lenders
(incorporated by reference to Exhibit 10.1 to the Registrant's
Form 10-Q dated as of August 13, 1998).
10.2 First Amendment and Waiver to Credit Agreement dated as of
September 14, 1998 among the Registrant, the Lenders, Deutsche
Bank A.G. as Documentation Agent, The Chase Manhattan Bank of
Canada as Canadian Administrative Agent, Chase Securities
Australia Limited, as Australian Administrative Agent, Chase
Securities Inc., as Arranger, and The Chase Manhattan Bank, as
Administrative Agent (incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-Q dated November 13, 1998).
10.3 Second Amendment, dated as of October 16, 1998, to Credit
Agreement among the Registrant, the Lenders, Deutsche Bank
A.G., as Documentation Agent, The Chase Manhattan Bank of
Canada as Canadian Administrative Agent, Chase Securities
Australia Limited, as Australian Administrative Agent, Chase
Securities Inc., as Arranger, and The Chase Manhattan Bank, as
Administrative Agent (incorporated by reference to Exhibit
10.3 to the Registrant's Form 10-Q dated November 13, 1998).
10.4 Agreement dated July 4, 1995 between Noranda Exploration
Company Limited, Teck Corporation and International Corona
Resources Limited (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant), relating to development of the Quarter Claim mine
(incorporated by reference to Exhibit 10.1 to the Registrant's
Form 10-K Report for the year ended December 31, 1995).
* 10.5 Form of Change of Control Severance Plan of Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's
Form 10-K Report for the year ended December 31, 1995).
* 10.6 Deferred Compensation Plan of Homestake Mining Company
effective October 1, 1995 (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-K Report for the year
ended December 31, 1995).
* 10.7 Amended and Restated Executive Supplemental Retirement Plan of
Homestake Mining Company effective August 1, 1995 (and as
modified January 23, 1998).
* 10.8 Supplemental Retirement Plan of Homestake Mining Company,
amended and restated effective as of January 1, 1990
(including November 29, 1990 modification) (incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-K Report
for the year ended December 31, 1995).
* 10.9 Master Trust under the Homestake Mining Company Deferred
Compensation Plans as of December 5, 1995 (incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-K Report
for the year ended December 31, 1995).
* 10.10 Retirement plan for outside directors of the Registrant dated
as of July 21, 1994 (incorporated by reference to Exhibit 10.2
to the Registrant's Form 8-K dated March 20, 1995).
81
<PAGE>
10.11 Combination Implementation Agreement dated December 22, 1997
between Homestake Mining Company and Plutonic Resources
Limited (incorporated by reference to Appendix A to the
Registrant's Preliminary Proxy Statement dated January 26,
1998 and as amended March 11, 1998).
10.12 Arrangement Agreement dated as of September 28, 1998 among
Prime Resources Group Inc., Homestake Canada Inc., Homestake
Canada Holdings Company and Homestake Mining Company
(incorporated by reference to Appendix b to the Registrant's
Proxy Statement dated as of October 20, 1998).
10.13 Agreement dated October 9, 1991 between the Registrant and
Chevron Minerals Ltd. (incorporated by reference to Exhibit
10(b) to the Registrant's Form 10-K for the year ended
December 31, 1991).
10.14 Guarantee dated December 18, 1991 between the Registrant and
Chevron Minerals Ltd. (incorporated by reference to Exhibit
10(c) to the Registrant's Form 10-K for the year ended
December 31, 1991).
10.15 Agreement dated May 4, 1990 for the sale of the Registrant's
42.5% partnership interest in The Doe Run Company
(incorporated by reference to Exhibit 28(a) to the
Registrant's Form 8-K dated May 18, 1990).
10.16 Purchase and sale agreement dated January 15, 1989 between the
Registrant's subsidiary, Homestake Gold of Australia Limited,
and North Kalgoorlie Mines Limited (and Group Companies) and
Kalgoorlie Lake View Pty. Ltd. (incorporated by reference to
Exhibit 10(g) to the Registrant's Form 10-K for the year ended
December 31, 1989).
10.17 Agreement Amending Joint Venture Agreement made 19 June 1996
between Homestake Gold of Australia Limited, North Kalgoorlie
Mines Pty Ltd. and Kalgoorlie Consolidated Gold Mines Pty Ltd.
(incorporated by reference to Exhibit 10.14 to the
Registrant's Form 10-K for the year ended December 31, 1996).
10.18 Joint Operating Agreement dated May 1, 1988 between
Freeport-McMoRan Resources Partners, IMC Fertilizer, Inc. and
Felmont Oil Corporation (a subsidiary of Registrant, now named
Homestake Sulphur Company) relating to the Main Pass Block 299
sulfur project (incorporated by reference to Exhibit 10.16 to
the Registrant's Form 10-K for the year ended December 31,
1992).
10.19 Amendment No. 1 dated July 1, 1993 to Joint Operating
Agreement between Freeport McMoRan Resources Partners, IMC
Fertilizer, Inc. and Homestake Sulphur Company (incorporated
by reference to Exhibit 10.8 to the Registrant's Form 10-K for
the year ended December 31, 1993).
10.20 Amendment No. 2 dated November 30, 1993 to Joint Operating
Agreement between Freeport McMoRan Resources Partners, IMC
Fertilizer, Inc. and Homestake Sulphur Company (incorporated
by reference to Exhibit 10.9 to the Registrant's Form 10-K for
the year ended December 31, 1993).
10.21 Letter dated June 17, 1996, amending Amendment No. 1 to Joint
Operating Agreement between Freeport McMoran Resource
Partners, IMC Fertilizer Inc. and Homestake Sulphur Company
(incorporated by reference to Exhibit 10.18 to the
Registrant's Form 10-K for the year ended December 31, 1996).
10.22 Amended and Restated Project Agreement (David Bell Mine) dated
as of April 1, 1986 among Teck Corporation, International
Corona Resources Ltd. (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant), Teck-Hemlo Inc., Corona-Hemlo Inc. (a subsidiary
of International Corona Corporation, now Homestake Canada Inc.
and a subsidiary of Registrant) (incorporated by reference to
Exhibit 10.17 to the Registrant's Form 10-K for the year ended
December 31, 1992).
82
<PAGE>
10.23 Amended and Restated Operating Agreement (David Bell Mine)
among Teck Corporation, International Corona Resources Ltd. (a
subsidiary of International Corona Corporation, now Homestake
Canada Inc. and a subsidiary of Registrant), Teck Mining Group
Limited, Teck-Corona Operating Corporation, Teck-Hemlo Inc.
and Corona-Hemlo Inc. (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant) (incorporated by reference to Exhibit 10.18 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.24 Project Agreement (Williams Mine) dated August 11, 1989 among
Teck Corporation, Corona Corporation (now Homestake Canada
Inc. and a subsidiary of Registrant) and Williams Operating
Corporation (incorporated by reference to Exhibit 10.19 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.25 Operating Agreement (Williams Mine) dated August 11, 1989
among Teck Corporation, Corona Corporation (now Homestake
Canada Inc. and a subsidiary of Registrant), Teck Mining Group
Limited and Williams Operating Corporation (incorporated by
reference to Exhibit 10.20 to the Registrant's Form 10-K for
the year ended December 31, 1992).
10.26 Shareholders' Agreement dated August 11, 1989 among Corona
Corporation (now Homestake Canada Inc. and a subsidiary of
Registrant), Teck Corporation and Williams Operating
Corporation (incorporated by reference to Exhibit 10.21 to the
Registrant's Form 10-K for the year ended December 31, 1992).
* 10.27 Share Incentive Plan effective July 1, 1988 of
International Corona Corporation (now Homestake Canada Inc.
and subsidiary of Registrant), as amended October 22, 1991
(incorporated by reference to Exhibit 10.32 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.28 Shareholder Agreement dated January 1, 1989 among Homestake
Mining Company, Case, Pomeroy & Company, Inc. and Hadley Case
(incorporated by reference to Exhibit 10(a) to the
Registrant's Form 10-K for the year ended December 31, 1988).
10.29 Amendment dated March 27, 1992 to Shareholder Agreement dated
January 1, 1989 among Homestake Mining Company, Case, Pomeroy
& Company, Inc., and Hadley Case (incorporated by reference to
Exhibit 10.14 to the 1992 S-4 Registration Statement).
* 10.30 Consulting agreement dated July 24, 1992, between Stuart T.
Peeler and the Registrant (incorporated by reference to
Exhibit 10.36 to the Registrant's Form 10-K for the year ended
December 31, 1992).
* 10.31 Consulting agreement dated March 1, 1993 between William A.
Humphrey and the Registrant (incorporated by reference to
Exhibit 10.27 to the Registrant's Form 10-K for the year ended
December 31, 1993).
* 10.32 Consulting agreement dated as of May 15, 1996 between Harry M.
Conger and the Registrant (incorporated by reference to
Exhibit 10.30 to the Registrant's Form 10-K for the year ended
December 31, 1996).
* 10.33 Long Term Incentive Plan of 1983 of Homestake Mining Company
(incorporated by reference to Exhibit 10(g) to the
Registrant's Registration Statement on Form S-14 dated May 16,
1984).
* 10.34 Employees' Stock Option and Share Rights Plan-1988
(incorporated by reference to Exhibit 10(n) to the
Registrant's Form 10-K for the year ended December 31, 1987).
83
<PAGE>
* 10.35 1996 Stock Option and Share Rights Agreement ("1996 Plan")
(incorporated by reference to Exhibit A to the Registrant's
Proxy Statement for the 1996 Annual Meeting of Shareholders).
* 10.36 Form of Stock Option Agreement under the 1996 Plan.
* 10.37 Form of Performance Based Share Agreement under the 1996 Plan.
* 10.38 Form of Bonus Share Agreement under the 1996 Plan.
* 10.39 Form of Matching Stock Agreement under the 1996 Plan.
* 10.40 1998 Outside Directors' Stock Compensation Plan.
11 Computation of Earnings Per Share.
13 Specified Sections from the Company's 1998 Annual Report to
Shareholders
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
27 Financial Data Schedule.
* Compensatory plan or management contract.
(b) Reports Filed on Form 8-K
Two reports on Form 8-K were filed during the fourth quarter of 1998.
The report on Form 8-K dated October 2, 1998 was submitted 1) to report
a revised exchange ratio for the Homestake acquisition of the minority
interests in Prime; 2) to report a revised mining plan for reduced
operations at Mt Charlotte mine; 3) to announce the election of a
director and related amendment to the bylaws and, 4) to announce that
Homestake would record several nonrecurring charges in the 1998 third
quarter.
The report on Form 8-K dated December 10, 1998 was submitted 1) to
report on the results of a Special Meeting of Stockholders and, 2) to
announce the completion of the acquisition of the minority interests in
Prime Resources Group Inc.
84
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 17, 1999 By:/s/ Jack E. Thompson
------------------ ---------------------
Jack E. Thompson
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
/s/ David W. Peat Vice President and Controller March 17, 1999
- ----------------- (Principal Accounting Officer and
David W. Peat Acting Principal Financial Officer)
(Signatures continued on following page.)
85
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Jack E. Thompson Chairman, President, Chief March 17, 1999
- -------------------- Executive Officer and Director
Jack E. Thompson
/s/ Gerhard Ammann Director March 17, 1999
- ------------------
Gerhard Ammann
Director March 17, 1999
- ----------------------
M. Norman Anderson
/s/ Richard R. Burt Director March 17, 1999
- -------------------
Richard R. Burt
/s/ Robert H. Clark, Jr. Director March 17, 1999
- ------------------------
Robert H. Clark, Jr.
/s/ G. Robert Durham Director March 17, 1999
- ----------------
G. Robert Durham
/s/ Douglas W. Fuerstenau Director March 17, 1999
- -------------------------
Douglas W. Fuerstenau
/s/ Paul McClintock Director March 17, 1999
- -------------------
Paul McClintock
Director March 17, 1999
- ---------------------
John Neerhout, Jr.
/s/ Peter J. Neff Director March 17, 1999
- -------------------
Peter J. Neff
/s/ Stuart T. Peeler Director March 17, 1999
- --------------------
Stuart T. Peeler
/s/ Carol A. Rae Director March 17, 1999
- -------------------
Carol A. Rae
/s/ Jeffrey L. Zelms Director March 17, 1999
- --------------------
Jeffrey L. Zelms
</TABLE>
86
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT BALANCE
BEGINNING AT END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEFERRED TAX ASSET VALUATION ALLOWANCES(1)
Year ended December 31, 1998 $ 107,920 $ 105,707 $ 6,452 (2) $ 207,175
Year ended December 31, 1997 $ 100,671 $ 27,042 $ 19,793 (3) $ 107,920
Year ended December 31, 1996 $ 94,167 $ 22,078 $ 15,574 (4) $ 100,671
<FN>
(1) For further information see Note 6, Income Taxes, in the Notes to the
Consolidated Financial Statements.
(2) Deductions in 1998 relate to realization of certain deferred tax assets and
reduction of foreign tax loss carryovers.
(3) Deductions in 1997 relate to a reduction of the Company's foreign tax
credit carryover, realization of certain deferred tax assets and
utilization of foreign tax loss carryovers.
(4) Deductions in 1996 relate to the realization of certain United States
deferred tax assets and to utilization of foreign tax loss carryovers.
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Homestake Mining Company:
Our audits of the consolidated financial statements referred to in our report
dated February 1, 1999 of the 1998 Annual Report to Shareholders of Homestake
Mining Company (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedules listed in Item 14(a)(2) of this Form
10-K. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
San Francisco, California
February 1, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of Filing
<C> <S> <C>
3.2 Bylaws (as amended through March 5, 1999) Filed herewith electronically
10.7 Amended and Restated Executive Supplemental
Retirement Plan of Homestake Mining Company
Effective August 1, 1995 (and as modified
January 23, 1998) Filed herewith electronically
10.36 Form of Stock Option Agreement Filed herewith electronically
10.37 Form of Performance Based Share Agreement Filed herewith electronically
10.38 Form of Bonus Share Agreement Filed herewith electronically
10.39 Form of Matching Stock Agreement Filed herewith electronically
10.40 1998 Outside Directors' Stock Compensation
Plan Filed herewith electronically
11 Computation of Earnings per Share Filed herewith electronically
13 Specified Sections of the 1998 Annual
Report to Shareholders Filed herewith electronically
21 List of Subsidiaries Filed herewith electronically
23 Consent of PricewaterhouseCoopers LLP,
Independent Auditors Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically
</TABLE>
EXHIBIT 3.2
HOMESTAKE MINING COMPANY
(A DELAWARE CORPORATION)
BYLAWS
As amended through March 5, 1999
ARTICLE I
MEETING OF STOCKHOLDERS
SECTION 1. The annual meeting of the Company shall be held on such day
and at such time as the Board of Directors shall determine, for the election of
Directors and the transaction of such other business as properly come before
such meeting.
SECTION 2. Special meetings of the stockholders may be called at any
time by the Chairman of the Board, by the President, by the Board of Directors
of the Company, by a committee of the Board of Directors which has been duly
designated by the Board of Directors and whose powers and authority, as provided
in a resolution of the Board of Directors or in the Bylaws of the Company
include the power to call such meetings, or by stockholders having not less than
seventy-five percent (75%) of the total voting power of all outstanding shares
of stock of the Company, but such special meetings may not be called by any
other person or persons; provided, however, that if and to the extent that any
special meeting of stockholders may be called by any other person or persons
specified in any provisions of the Restated Certificate of Incorporation or any
amendment thereto, or any certificate filed under Section 151(g) of the General
Corporation Law of Delaware (or its successor statute as in effect from time to
time hereafter), then such special meeting may also be called by the person or
persons in the manner, at the times and for the purposes so specified.
SECTION 3. All notices of meetings of stockholders shall be sent or
otherwise given in accordance with Section 4 of this Article I not less than ten
(10) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date and hour of the meeting and (1) in the case of a
special meeting, the general nature of the business to be transacted, and no
other business may be transacted, or (2) in the case of the annual meeting,
those matters which the Board of Directors, at the time of giving the notice,
intends to present for action by the stockholders, and (3) in the case of any
meeting at which directors are to be elected, the names of the nominees intended
at the time of the mailing of the notice to be presented by management for
election.
SECTION 4. Notice of any meeting of stockholders shall be given either
personally or by mail or other written communication, charges prepaid, addressed
to the stockholder at the address of the stockholder appearing on the books of
the Company, or given by the stockholder to the Company for the purpose of
notice. If no such address appears on the Company's books or is given, notice
shall be deemed to have been given if sent to that stockholder by mail or other
written communication to the Company's principal executive office, or, if
published at least once
<PAGE>
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the Company is returned to the Company by
the United States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice to the stockholder at that
address, all future notices or reports shall be deemed to have been duly given
without further mailing if these shall be available to the stockholder on
written demand of the stockholder at the principal executive office of the
Company for a period of one year from the date of the giving of the notice. An
affidavit of the mailing or other means of giving any notice of any
stockholders' meeting may be executed by the Secretary, any Assistant Secretary,
or any transfer agent of the Company giving the notice, and if executed shall be
filed and maintained in the minute book of the Company.
SECTION 5. Every annual meeting and every special meeting of the
stockholders shall be held at such place within or without the State of Delaware
as may be designated as the place for holding such meeting by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the Company.
SECTION 6. Except as otherwise provided by statute of by the Restated
Certificate of Incorporation, the presence in person or by proxy of the holders
of a majority in voting power of the shares of capital stock of the Company at
the time issued and outstanding and entitled to vote at any meeting shall
constitute a quorum for the transaction of business. The stockholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment notwithstanding the withdrawal of enough stockholders
to leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority in voting power of the shares required to
constitute a quorum. If such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have the power to adjourn the meeting
from time to time until a quorum shall by present or represented. At any
adjourned meeting at which a quorum shall be present or represented any business
which might have been transacted at the meeting which was adjourned may be
transacted and with the same effect. If after the adjournment a new record date
is fixed for the adjourned meeting or if the adjournment is for more than thirty
(30) days, notice of the adjourned meeting shall be given as in the case of an
original meeting, but otherwise no further notice of the time and place of the
adjourned meeting need be given other than by announcement at the meeting at
which such adjournment is taken.
SECTION 7. Except as otherwise provided by statute or by the Restated
Certificate of Incorporation, every stockholder of record shall be entitled at
any meeting of stockholders to one vote on each matter submitted to a vote of
the stockholders for every share of stock standing in the name of such person on
the books of the Company and qualified to vote. The stockholders'
2
<PAGE>
vote shall be by written ballot unless the requirement therefor is dispensed
with by the Board of Directors. On any matter other than elections of directors,
any stockholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
stockholder fails to specify the number of shares which the stockholder is
voting affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares that the stockholder is entitled to
vote. All matters (other than the election of directors) shall, unless otherwise
provided by the Restated Certificate of Incorporation, these By-laws, or the
rules and regulations of any stock exchange applicable to the Company or its
securities, be decided by the affirmative vote of the holders of a majority in
voting power of the shares of stock of the Company which are present in person
or by proxy and entitled to vote thereon.
SECTION 8. In the event the Board of Directors fixes a day for the
determination of stockholders of record entitled to vote as provided in Section
1 of Article XIV of these Bylaws, then only persons in whose names shares
entitled to vote stand on the stock records of the Company on such day shall be
entitled to vote.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the business day next preceding the day notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
If no record date is fixed, the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 9. At all meetings of the stockholders, stockholders may vote
either in person or by one or more agents authorized by a proxy. A proxy which
does not state that it is irrevocable shall continue in full force and effect
unless (1) revoked before the vote pursuant to that proxy, by a revocation
delivered to the Company stating that the proxy is revoked, or by the granting
of a subsequent proxy by, or attendance at the meeting and voting by, the person
granting the proxy, or (2) written notice of the death or incapacity of the
maker of that proxy is received by the Company before the vote pursuant to that
proxy is counted; provided, however, that no proxy shall be valid after the
expiration of three (3) years from the date of the proxy, unless otherwise
provided in the proxy. The revocability of a proxy that states on its face that
it is irrevocable shall be governed by the provisions of Section 212(e) of the
General Corporation Law of Delaware (or its successor statute as in effect from
time to time hereafter).
3
<PAGE>
SECTION 10. The transaction of business at any meeting of stockholders,
however called and noticed, and wherever held, shall be as valid as though had
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy, and if, either before or after a meeting, each
person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to a holding of the meeting, or an
approval of minutes of the meeting. The waiver of notice or consent need not
specify either the business to be transacted or the purpose of any annual or
special meeting of stockholders. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of meeting but not so included if that objection is
expressly made at the meeting.
SECTION 11. No action shall be taken by the stockholders except at an
annual or special meeting of the stockholders.
SECTION 12. At any annual meeting of stockholders, only such business
shall be conducted as shall have been brought before the annual meeting (1) by
or at the direction of the chairman of the meeting or (2) by any stockholder
who is a holder of record at the time of the giving of the notice provided for
in this Section 12, who is entitled to vote at the meeting, and who complies
with the procedures set forth in this Section 12.
For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary. To be timely, a stockholder's notice must be
received at the principal executive offices of the Company not less than 75 days
nor more than 180 days prior to the anniversary date of the immediately
preceding annual meeting; provided, however, that in the event that the date of
the annual meeting is more than 30 days earlier or more than 30 days later than
such anniversary date, notice by the stockholder to be timely must be so
received not earlier than the 180th day prior to such annual meeting and not
later than the close of business on the later of the 75th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. To be in proper written form, a
stockholder's notice to the Secretary shall set forth in writing as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; and (ii) the
name and address, as they appear on the Company's books, of the stockholder
proposing such business. The foregoing notice requirements shall also be deemed
satisfied by a stockholder if the stockholder has notified the Company of his or
her intention to present a proposal at an annual
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meeting and such stockholder's proposal has been included in a proxy statement
that has been prepared by management of the Company to solicit proxies for such
annual meeting; provided, however, that if such stockholder does not appear or
send a qualified representative to present such proposal at such annual meeting,
the Company need not present such proposal for a vote at such meeting,
notwithstanding that proxies in respect of such vote may have been received by
the Company.
ARTICLE II
DIRECTORS
SECTION 1. Subject to the limitations prescribed by statute or by the
Restated Certificate of Incorporation or these Bylaws as to action to be
authorized or approved by the stockholders, all the powers, rights and
privileges of the Company shall be exercised by or under the direction of, and
the business and affairs of the Company shall be managed under the direction of,
its Board of Directors. Directors shall be elected by the stockholders of the
Company, and at each election the persons receiving the greatest number of
votes, up to the number of directors then to be elected, shall be the persons
then elected. The election of directors is subject to any provisions in the
Restated Certificate of Incorporation relating thereto, including any provisions
for a classified Board.
SECTION 2. Except as otherwise provided by statute or by the Restated
Certificate of Incorporation, any vacancy in the Board of Directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, and each director so elected shall hold office
until his successor is elected and qualified.
SECTION 3. All meetings of the Board of Directors shall be held at the
principal office of the Company or at any other place within or without the
State of Delaware as the Board of Directors may from time to time fix therefor.
Any meeting of the Board of Directors, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another, and all such
directors shall be deemed to be present in person at the meeting.
SECTION 4. A regular meeting of the Board of Directors shall be held,
if a quorum be present, in each and every year immediately after the adjournment
of the annual meeting of stockholders for the purpose of electing officers and
transacting such other business as might be transacted at any regular meeting of
the Board. Regular meetings of the Board of Directors, of which no notice shall
be required to be given, shall be held in every odd-numbered month in accordance
with a schedule established by the Board of Directors from time to time, except
that the scheduled date of any meeting may be changed by the Chairman of the
Board or the President, in the discretion of either, provided that notice of
such change shall be given to all directors personally or by mail, telegram,
telecopy or other means of electronic communication
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or telephone at least one (1) week prior to such scheduled date and at least
four (4) days prior to the date upon which such meeting is to be held.
SECTION 5. Special meetings of the Board of Directors shall be called
by the Secretary at the direction of the Chairman of the Board, the President,
or a majority of the directors. Notice of the time and place of any special
meeting of the Board of Directors shall be given by serving the same personally
or by telegram, telecopy or other means of electronic communication or telephone
at least two (2) hours before such meeting. Each member of the Board of
Directors shall, by writing filed with the Secretary, designate his post office
address, telecopier number, electronic mail address, telephone number or other
relevant delivery information to which notices of meetings of the Board of
Directors of this Company shall be directed, and in the event of any change
therein shall promptly inform the Company thereof.
SECTION 6. At all meetings of the Board of Directors a majority of the
directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and every act and decision done or made by a majority
of the directors present at a regular meeting or a duly called special meeting
held at which a quorum is present shall be the act of the Board of Directors,
unless a greater number is required by statute or by the Restated Certificate of
Incorporation. In the absence of a quorum, a majority of the directors present
at any meeting may adjourn the meeting from time to time until and not past the
time fixed for the next regular meeting of the Board of Directors. Notice of the
time and place of holding an adjourned meeting need not be given to directors
absent from the meeting which was adjourned if the time and place of the
adjourned meeting are fixed at the meeting which was adjourned.
SECTION 7. By resolution of the Board of Directors, a fixed sum may be
allowed each director attending a meeting of the Board of Directors. Members of
the Executive Committee or other committees may likewise be allowed fixed sums
as determined by the Board of Directors. All directors shall be reimbursed for
any reasonable expenses which they incur as such for attendance at meetings of
the Board of Directors or committees or otherwise. Directors who are not also
officers or employees of the Company may receive such compensation for their
services as directors as may be fixed or determined by the Board of Directors.
Except as provided herein, no director shall be compensated for his services as
a director, but any director may serve the Company in any other capacity and
receive compensation therefor.
SECTION 8. The transaction of business at any meeting of the Board of
Directors, however called and noticed, and wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum be
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice and consent to holding the meeting or
an approval of the minutes thereof, which waiver, consent, or approval shall be
filed with the corporate records or made a part of the minutes of the meeting.
Notice of a meeting shall also be deemed given to any director who attends the
meeting without protesting before or at its commencement, the lack of notice to
that director. Any action required or permitted to be
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taken by the Board of Directors may be taken without a meeting, if all members
of the Board shall individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board of Directors.
SECTION 9. The authorized number of Directors is hereby set at thirteen
until such number is changed by a Bylaw or amendment thereof duly adopted by the
stockholders in accordance with the Restated Certificate of Incorporation or by
the Board of Directors amending this Section Nine. The Board of Directors shall
be divided into three classes of directors elected for terms of three years
each. Until so changed, Class I shall consist of four directors, Class II shall
consist of four directors, and Class III shall consist of five directors.
SECTION 10. The Board of Directors may from time to time designate from
one to three former directors of this Company as Consultants to the Board of
Directors. The term of office of each such Consultant to the Board of Directors
shall terminate immediately after the adjournment of each annual meeting of
stockholders of the Company, or at such other time as may be determined by the
Board of Directors. A Consultant to the Board of Directors may attend meetings
of the Board of Directors with the privilege of participating in all
discussions, but without the right to vote, and shall be eligible for
appointment as Consultant to committees of the Board of Directors, but with no
right to vote. Consultants shall not be included in determining the presence of
a quorum. Other rights, privileges and duties of Consultants to the Board of
Directors and any compensation to be paid to Consultants to the Board of
Directors may be provided from time to time by resolution of the Board of
Directors.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. The Board of Directors may, by resolution or resolutions
passed by a majority of the directors, appoint from their number an Executive
Committee of one or more directors, who shall make recommendations to the Board.
The Executive Committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors including, without limitation, the power and authority to
declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware (or its successor statute as in effect from time to
time hereafter); but shall not have the power or authority to: (a) amend the
Restated Certificate of Incorporation (except that a committee may, to the
extent authorized in resolutions providing for the issuance of stock adopted by
the Board of Directors as provided in Section 151(a) of the General Corporation
Law of Delaware (or its successor statute as in effect from time to time
hereafter), fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, distribution of assets of the Company, or
the conversion into or the exchange of such shares for shares of any other class
or classes or any other series of the same of any other class or classes of
stock of the Company), (b) adopt an agreement of merger or consolidation under
Section 251 or 252 of the General Corporation Law
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of Delaware (or its successor statute as in effect from time to time hereafter),
(c) recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Company's property and assets, (d) recommend to the
stockholders a dissolution of the Company or a revocation of a dissolution, or
(e) amend the Bylaws of the Company. The Board of Directors shall elect a
Chairman of the Executive Committee, and in his absence the Chairman of the
Board shall act as Chairman of the Executive Committee, ex officio, in his
place, and in the absence of the Chairman of the Executive Committee and the
Chairman of the Board, the President of the Company shall act as Chairman of the
Executive Committee, ex officio, in their places.
SECTION 2. A majority of the Executive Committee shall constitute a
quorum for the transaction of business at any meeting thereof duly called and
held. The Board of Directors shall have the power to provide by resolution for
regular meetings of the Executive Committee and to specify the time and place of
holding such regular meetings. Special meetings of the Executive Committee may
be called at any time by the Chairman of the Board, the President, or by a
majority of the members of the Executive Committee and notice of all such
special meetings shall be given in the manner provided in Section 5 of Article
II. Meetings of the Executive Committee may be held at the principal office of
the Company, or, if authorized by resolution of the Board of Directors, such
meetings may, by unanimous consent of the members of the committee, be held at
any other place. The Board of Directors shall have the power to prescribe rules
for the government of the Executive Committee not inconsistent with the
provision of these Bylaws. In the absence of any such prescription by the Board
of Directors of by the Bylaws, the regular and special meetings and other
actions of the Executive Committee shall be governed by the provisions of
Article II applicable to meetings and actions of the Board, with such changes in
the context of these Bylaws as are necessary to substitute the Executive
Committee and its members for the Board of Directors and its members.
SECTION 3. The Board of Directors may, by resolution or resolutions
passed by a majority of the directors, appoint from their number such other
committees consisting of one or more directors as the Board of Directors may
deem advisable. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent member at the meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have all the authority of the Board of Directors,
except with respect to the matters set forth in (a) through (e) of Section 1 of
this Article III and shall be governed in accordance with Section 2 of this
Article III.
SECTION 4. The Executive and other committees shall keep records of
their proceedings and report the same to the Board of Directors whenever so
required.
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ARTICLE IV
OFFICERS
SECTION 1. The officers of this Company shall be a Chairman of the
Board, a President, a Vice President, a Secretary, a Treasurer and a Controller,
who shall be elected by and hold office at the pleasure of the Board of
Directors. The Board of Directors may also elect such additional officers, if
any, as it shall deem expedient, including, without limitation, one or more
Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice
Presidents and one or more assistant officers. Only members of the Board of
Directors shall be eligible for the office of the Chairman of the Board and the
office of President, but no other officer need be a member of the Board of
Directors. Any two or more offices may be held by the same person. The
compensation of officers shall be fixed and determined by the Board of Directors
from time to time.
SECTION 2. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall elect a Chairman of the Board, a
President, a Vice President, a Secretary, a Treasurer and a Controller and at
such time or from time to time may elect or appoint such other officers and
agents as it shall deem expedient.
SECTION 3. Except as otherwise provided by law, or in these Bylaws, or
by resolutions of the Board of Directors, each of such officers shall serve
until the date appointed by these Bylaws for the next annual meeting of
stockholders and until his successor is elected or appointed and shall have
qualified. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
SECTION 4. The Board of Directors, in its discretion, may require any
officer, agent or employee of the Company to give security for the faithful
performance of his duties in such form and amount and with or without one or
more of such sureties as the Board of Directors may determine.
SECTION 5. Nothing in this Article IV or elsewhere in these Bylaws
shall prevent the Board of Directors from authorizing, or the Company from
executing, a contract for the employment of a person as an officer of the
Company for a period of more than one year.
ARTICLE V
CHAIRMAN OF THE BOARD AND PRESIDENT
SECTION 1. The Chairman of the Board shall, if present, preside at all
meetings of the stockholders and of the Board of Directors, and shall have such
other powers and duties as shall be prescribed by the Board of Directors or by
law. He shall be a member ex officio of all committees, except the Audit,
Compensation and Nominating Committees.
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SECTION 2. The President shall, if present and in the absence of the
Chairman of the Board, preside at all meetings of the stockholders and of the
Board of Directors, and shall have such other powers and duties as shall be
prescribed by the Board of Directors or by law. He shall be a member ex officio
of all committees, except the Audit, Compensation and Nominating Committees.
ARTICLE VI
POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER
AND HEAD OF THE COMPANY
Either the Chairman of the Board or the President, as may be determined
from time to time by the Board of Directors, shall have the powers and duties of
the Chief Executive Officer and head of the Company. Such powers and duties
shall include the general control and management of the business and affairs of
the Company; the responsibility for seeing that all orders and resolutions of
the Board of Directors are carried into effect; the exclusive authority to
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the Company, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Company; and membership ex officio in all committees, except the Audit,
Compensation and Nominating Committees.
ARTICLE VII
EXECUTIVE VICE PRESIDENTS AND VICE PRESIDENTS
SECTION 1. Executive Vice Presidents, if any shall have been elected
and be in office, shall have and may exercise the powers and duties of the
President in the absence or inability of the latter and such other powers and
duties as may be assigned to them by the Board of Directors.
SECTION 2. The Vice President or Vice Presidents (including any Senior
Vice Presidents) shall have and exercise the powers and duties of the Executive
Vice President in the absence or inability of the President and the Executive
Vice Presidents and such other powers and duties as may be assigned to them
respectively by the Board of Directors.
SECTION 3. The Vice President, Finance shall be the Chief Financial
Officer of the Company.
ARTICLE VIII
SECRETARY AND ASSISTANT SECRETARIES
SECTION 1. The Secretary shall have custody of the seal of the Company,
and when authorized by the Board of Directors, he shall affix the same to any
instrument requiring it, and
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when so affixed it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary. He shall attend all meetings of the
stockholders and of the Board of Directors and keep the minutes of all
proceedings in a book or books to be kept for that purpose at the principal
office of the Company or at such other place as the Board of Directors may from
time to time determine, and he shall perform like duties for the Executive and
other committees when required. He shall attend to the giving and serving of all
notices of the Company, and he shall perform such other duties as may be
incidental to his office or as may be assigned to him by the Board of Directors,
the Chairman of the Board, the President, or the officer under whose supervision
he shall be.
SECTION 2. It shall be the duty of the Assistant Secretaries, if any
shall have been elected and be in office, to aid the Secretary in the discharge
of his duties and to perform such other duties as may be assigned to them by the
Board of Directors, the Chairman of the Board, the President, the Vice
President, Finance, or the Secretary.
ARTICLE IX
TREASURER AND ASSISTANT TREASURER
SECTION 1. The Treasurer shall have the care and custody of the funds
and securities of the Company, except as otherwise determined by the Board of
Directors, and shall deposit all such funds and securities of the Company in the
name and to the credit of the Company in such depositories and places and
subject to withdrawal in such manner as these Bylaws or the Board of Directors
may determine. Within established lines of authority, he shall be responsible
for the administration of the Company's securities portfolio, pension plans,
insurance and employee benefit programs, the keeping of the stock certificate
book and such other books and records as the Board of Directors may direct. He
shall also have charge of a stock book containing the names of the stockholders
and their addresses, the number of shares of stock held by them respectively,
the name and date of the certificates issued for the same, and the number and
date of cancellation of every certificate surrendered for cancellation, and
shall have such other powers and perform such other duties as may be conferred
upon or assigned to him by the Board of Directors, the Chairman of the Board,
the President, the Vice President, Finance, or the officer under whose
supervision he shall be.
SECTION 2. It shall be the duty of the Assistant Treasurer, if one
shall have been elected and be in office, to aid the Treasurer in the discharge
of his duties and perform such other duties as may be assigned to him by the
Board of Directors, the Chairman of the Board, the President, the Vice
President, Finance, or the Treasurer.
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ARTICLE X
CONTROLLER AND ASSISTANT CONTROLLER
SECTION 1. The Controller shall keep or cause to be kept adequate and
correct accounts of the corporate properties and business transactions in books
belonging to the Company, and he shall disburse the funds of the Company as
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
whenever they may require it, an account of all of his transactions and the
financial condition of the Company. He shall be responsible for the
administration of programs providing for financial management and budgetary
controls of the Company, development of accounting policies and procedures, and
use of data processing equipment and the preparation, review and filing of all
tax and other financial reports and returns, and he shall have such other powers
and perform such other duties as may be conferred upon or assigned to him by the
Board of Directors, the Chairman of the Board, the President, the Vice
President, Finance, or the officer under whose direct supervision he shall be.
SECTION 2. It shall be the duty of the Assistant Controller, if one
shall have been elected and be in office, to aid the Controller in the discharge
of his duties and to perform such other duties as may be assigned to him by the
Board of Directors, the Chairman of the Board, the President, the Vice
President, Finance, or the Controller.
SECTION 3. The Controller shall be the Chief Accounting Officer of the
Company.
ARTICLE XI
GENERAL MANAGER
SECTION 1. The Board of Directors may appoint a General Manager who
shall not be an officer of the Company unless the Board shall otherwise
determine.
SECTION 2. Subject to the supervision and direction of the Chairman of
the Board or the President, and in accordance with the policies determined by
the Board of Directors, the General Manager shall have power and authority to do
and transact and supervise and direct such of the usual and ordinary business of
the Company as may be designated by the Chairman of the Board or the President.
SECTION 3. The Board of Directors may also appoint an Assistant General
Manager to aid the General Manager in the performance of his duties and to
perform such other duties as may be required of him by the Chairman of the Board
or the President.
SECTION 4. The Chairman of the Board or the President may, with the
approval of the Board of Directors, appoint managers or superintendents for
specific operations that are not
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related to or included in those assigned to the General Manager, with duties and
responsibilities as may be designated by the Chairman of the Board or the
President.
ARTICLE XII
REMOVALS, RESIGNATIONS AND VACANCIES OF DIRECTORS AND OFFICERS
SECTION 1. No member of the Board of Directors may be removed without
cause and except in compliance with the Company's Restated Certificate of
Incorporation.
SECTION 2. Any director or officer may resign his office at any time,
such resignation to be made in writing and to take effect from the time of its
receipt by the Company, unless a different time be fixed in the resignation, and
in that event, from the time so fixed. The acceptance of a resignation shall not
be required to make it effective.
SECTION 3. Any officer elected or appointed by the Board of Directors
may be removed at any time with or without cause by the Board of Directors. Any
other officer or employee of the Company may be removed at any time with or
without cause by the Board of Directors or by any committee or superior officer
upon whom such power of removal may be conferred by the Bylaws or by the Board
of Directors.
SECTION 4. If the office of any director becomes vacant for any cause,
such vacancy may be filled for the unexpired portion of the term, if any, by a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director.
ARTICLE XIII
CERTIFICATES OF STOCK
SECTION 1. Form of Certificate. Certificates for shares of stock of the
Company shall be in such form and of such design as the Board of Directors shall
prescribe and each certificate for shares issued by the Company shall be signed
by the Chairman of the Board, or the President or any Executive Vice President
or Vice President and the Secretary or an Assistant Secretary. Any or all of the
signatures on the certificate may be facsimile. If any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Company with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue. The certificates for shares shall be numbered and registered as
they are issued. They shall exhibit the number, date of issuance, name of person
to whom issued, designation, if any, the class or series of shares represented
thereby, the par value of the shares or a statement that such shares are without
par value.
SECTION 2. Transfer of Shares. Upon surrender to the Secretary or
Transfer Agent of the Company of a certificate for shares, duly endorsed or
accompanied by proper evidence of
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succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto and the old certificate canceled and the
transaction recorded upon the books of the Company.
SECTION 3. Lost Certificates. The Chairman of the Board or the
President and the Secretary or the Assistant Secretary may in their discretion
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Company alleged to have
been lost or destroyed upon the production by the person claiming the
certificate for shares to be lost or destroyed of satisfactory evidence of the
loss or destruction of such certificate or certificates and of the claimant's
ownership of the shares of stock represented thereby, together with a bond in
favor of the Company, with a surety satisfactory to said officers, in the amount
of the then current market value of the stock represented by such allegedly lost
certificate or certificates, conditioned upon such claimant and surety
indemnifying and saving harmless the Company from all and every cost, charge,
expense and liability which it may in any manner incur by reason of the issuance
of such new certificate or certificates, and further conditioned upon their
surrendering to the Company for cancellation such allegedly lost certificate or
certificates in the event of their subsequent discovery; or the Chairman of the
Board or President or Secretary may refer any such application for the issuance
of a new certificate or certificates to the Board of Directors which shall have
the power to direct the issuance of a new certificate or certificates upon
submission of such proof and upon such guarantee on the part of the applicant as
the Board of Directors may deem satisfactory.
ARTICLE XIV
GENERAL PROVISIONS
SECTION 1. Fixing of Record Date or Closing of Transfer Books. The
Board of Directors may fix a time in the future as a record date for the
determination of the stockholders entitled to notice of and to vote at any
meeting or entitled to receive any dividend or distribution or any allotment of
rights or to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) nor less than ten (10)
days prior to the date of such meeting and no more than sixty (60) days prior to
any other action. When a record date is so fixed, then, subject to the
provisions of the General Corporation Law of Delaware, only stockholders of
record at that date shall be entitled to notice of and to vote at the meeting or
to receive the dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Company after the record date.
SECTION 2. Dividends. Subject to the provisions of the Restated
Certificate of Incorporation relating thereto, if any, dividends may be declared
by the Board of Directors at any regular or special meeting of the Board of
Directors pursuant to law. Dividends may be paid in cash, in property, or in
shares of capital stock, subject to any provisions of the Restated Certificate
of Incorporation.
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SECTION 3. Reserves. Before payment of any dividend there may be set
aside out of any funds of the Company available for dividends such sum or sums
as the Board of Directors from time to time in their absolute discretion think
appropriate as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Company, or for
such other purposes as the Board of Directors shall think conducive to the
interests of the Company, and the Board of Directors may abolish any such
reserve in the manner in which it was created.
SECTION 4. Annual Report. The Board of Directors shall cause an annual
report to be sent to the stockholders not later than one hundred twenty (120)
days after the close of each fiscal year of the Company and at least fifteen
(15) days prior to the annual meeting of stockholders to be held during the
ensuing fiscal year.
SECTION 5. Checks, Drafts and Notes. All checks, drafts and demands for
money and notes of the Company shall be signed by such individual or individuals
as the Board of Directors may from time to time designate.
SECTION 6. Representation of Shares of Other Corporations. The chief
executive officer or any other officer or officers authorized by the Board of
Directors or the President are each authorized to vote represent, and exercise
on behalf of the Company all rights incident to any and all shares of any other
corporation or corporations standing in the name of the Company. The authority
herein granted may be exercised either by any such officer in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officer.
SECTION 7. Seal. The seal of the Company shall consist of a circle
bearing on its surface the inscription,
"Homestake Mining Company
Delaware
Incorporated November 28, 1983"
SECTION 8. Indemnification.
(a) Right of Indemnification. To the fullest extent permitted by the
General Corporation Law of Delaware, the Company shall indemnify each
director and officer and may indemnify each employee or other agent of
the Company against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any action,
suit or proceeding arising by reason of the fact that any such person
is or was a director, officer, employee or other agent of the company
or is or was serving at the request of the Company as a director,
officer, employee or other agent of another corporation, partnership,
joint venture, trust or other enterprise.
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(b) Advances of Expenses. Expenses incurred by an officer or director
in defending a civil or criminal action, suit or proceeding arising by
reason of the fact that such director or officer is or was a director
or officer of the Company or was serving at the request of the Company
as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust or other enterprise
shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or
on behalf of the director or officer to repay all amounts so advanced
if it shall ultimately be determined that such director or officer is
not entitled to be indemnified by the Company as authorized in this
Section 8. Such expenses incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may, with the
consent of such director, officer, employee or other agent of the
Company, authorize the legal counsel of the Company to represent such
person, in any action, suit or proceeding, whether or not the Company
is a part to such action, suit or proceeding.
(c) Procedure for Indemnification. Any indemnification or advance of
expenses required hereunder shall be made promptly, and in any event
within sixty (60) days after a written request therefor by a director
or officer. The right to indemnification or advances as granted by this
Section 8 shall be enforceable by a director or officer in any court of
competent jurisdiction, if the Company denies such request, in whole or
in part, or if no disposition thereof is made within sixty (60) days.
The director's or officer's expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Company. It
shall be a defense to any such action (other than an action brought to
enforce a claim for the advance of expenses where the required
undertaking, if any, has been received by the Company) that the
claimant has not met the standard of conduct required by law, but the
failure of the Company (including its Board of Directors, its
independent legal counsel and its stockholders) to have made a
determination as to whether indemnification of the claimant is proper
in the circumstances because he has met the applicable standard of
conduct shall not be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
(d) Other Rights. The indemnification and advancement of expenses
provided by or granted pursuant to this Section 8 shall not be deemed
exclusive of any other rights to which a person seeking indemnification
may be entitled under any law (common or statutory), agreement, vote of
stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while
holding office. All rights to indemnification under this Section 8
shall be deemed to be a contract between the Company and each director
and officer who serves or served in such capacity at any time while
this Section 8 is in effect, and any repeal or modification of this
Section 8 or relevant provision of the General Corporation Law of
Delaware or any other applicable law shall not in any way diminish any
rights to indemnification of such
16
<PAGE>
director or officer, or the obligations of the Company arising
hereunder prior to such modification or repeal.
(e) Insurance. The Company may, but shall not be required to, purchase
and maintain insurance on behalf of any person who is or was a director
or officer of the Company against any liability asserted against such
person and incurred by him or on his behalf in such capacity or as a
director, officer, employee or other agent of another corporation,
partnership, joint venture, trust or other enterprise, for which such
person is or was serving at the request of the Company, or arising out
of his status as such, whether or not the Company would have the power
to indemnify him against such liability under the provisions of this
Section 8, all as the Board of Directors may from time to time deem
appropriate.
(f) Definitions. For purposes of this Section 8:
(i) service as a director, officer, employee or other agent of
any corporation, partnership, joint venture, trust or other
enterprise in which the Company, directly or indirectly, holds
an interest shall be deemed to be service at the request of
the Company;
(ii) "the Company" shall include in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, employees or other agents, so that any person who is
or was a director, officer, employee or other agent of such
constituent corporation, or is or was serving at the request
of such constituent corporation, as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under the provision of this Section 8 with respect to
the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate
existence had continued;
(iii) "other enterprise" shall include without limitation
employee benefit plans; "fines" shall include without
limitation any excise taxes assessed on a person with respect
to an employee benefit plan; and "serving at the request of
the Company" shall include without limitation any service as a
director, officer, employee or other agent of the Company
which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries;
(iv) the indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 8 shall, unless other
wise provided when authorized or
17
<PAGE>
ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person;
(v) "expenses" shall include all direct and indirect costs,
charges and attorneys' fees; and
(vi) "action, suit or proceeding" shall include any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and
any appeal therefrom.
(g) Effect of Advances. Advances of expenses by the Company as required
or authorized by this Section 8 shall not be deemed or interpreted as
ratifying, approving or condoning any act or omission by any director,
officer or employee of the Company in violation of standards of conduct
required by law.
(h) Savings Clause. If this Section 8 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then
the Company shall nevertheless indemnify each director and officer of
the Company as to expenses, judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding to the
fullest extent permitted by any applicable portion of this Section 8
that shall not have been invalidated and to the fullest extent
permitted by applicable law.
ARTICLE XV
AMENDMENT OF BYLAWS
These Bylaws may be amended or repealed, or new bylaws may be adopted,
(a) by the affirmative vote of the holders of a majority in voting power of the
shares of capital stock of the Company entitled to vote thereon or (b) by the
affirmative vote of the majority of the Board of Directors at any regular or
special meeting. Any Bylaw adopted or amended by the stockholders may be amended
or repealed by the Board of Directors.
18
EXHIBIT 10.7
AMENDED AND RESTATED
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
Homestake Mining Company
Effective August 1, 1995
(and as modified January 23, 1998)
<PAGE>
HOMESTAKE MINING COMPANY
AMENDED AND RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
1. The Amended and Restated Executive Supplemental Retirement Plan (the
"Plan") for designated key executives of Homestake Mining Company is
effective as of August 1, 1995.
2. General Purpose of Plan
This Plan is established to provide supplementary Retirement Benefits
for key executives designated by the Compensation Committee of the
Board of Directors.
3. Definitions
(a) "Affiliate" means any affiliated organizations designated by
the Compensation Committee to participate in the Plan.
(b) "Board" means the Board of Directors of Homestake Mining
Company.
(c) "Company" means Homestake Mining Company.
(d) "Committee" means the Compensation Committee of the Board, as
constituted from time to time, or, in the event there is no
such Committee of the Board, means the Board.
(e) "Compensation" means all regular base salary; performance
bonuses paid under the Homestake Mining Company Bonus Plan;
plus any pre-tax reductions of such compensation made at the
election of the Member under a Section 401 (k), cafeteria,
deferred income or similar plans paid by the Company and
Affiliates. All other payments to a Member, such as relocation
bonuses, tax equalization payments, fees, commissions,
directors fees and payments resulting from or relating to the
exercise of stock option or appreciation rights are excluded.
(f) "Participant" means a key executive of the Company or
Affiliate who receives written notification from the Company
that he or she has been designated as a participant of the
Plan by the Compensation Committee.
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<PAGE>
(g) "Normal Retirement Date" means with respect to a Member the
first day of the calendar month coincident with or next
following the first date on which the Member has both attained
age sixty-two and completed ten or more continuous years of
Service.
(h) "Reorganization" means any of the following events:
(i) the Company is a party to a merger or consolidation under
the terms of which less than 75% of the shares in the
resulting company are owned by the shareholders of the Company
immediately preceding such events; (ii) at least 75% in fair
market value of the Company's assets are sold in a single
transaction or series of related transactions; or (iii) at
least 25% in voting power of the Company's shares for electing
directors are acquired by any one person or group as that term
is used in Rule 13d-5 under the Securities Exchange Act of
1934.
(i) "Retirement Benefit" means the benefits payable under this
Plan, calculated in accordance with Section 4.
(j) "Homestake Retirement Plan" means the Homestake Retirement
Plan, restated as of January 1, 1989, as it has been and may
be amended and restated from time to time.
(k) "Service" means all periods of employment with the Company and
any Affiliate and any other entity designated by the Company.
4. Retirement Benefit
(a) Normal Retirement Benefit--At the Normal Retirement Date a
Member who retires at such date shall be entitled to receive a
monthly Retirement Benefit equal to the amount determined by
multiplying:
(i) 4-1/3% by
(ii) the complete or fractional years of Service
(up to a maximum of fifteen years) by
(iii) the average monthly Compensation paid to the
Member during the period of his thirty-six
consecutive months of highest Compensation
(or, if employed for less than thirty-six
consecutive months, the period of such
Member's actual employment);
3
<PAGE>
The monthly Retirement Benefit thus calculated shall be
reduced by:
(iv) commencing on the Member's attainment of age
65, (x) 50% of the primary insurance amount
of United States Social Security which the
Member would be entitled to receive if he
retired and commenced receipt of benefits at
that time, and (y) an amount equal to any
reduction for Canada Pension Plan, Quebec
Pension Plan and any similar foreign
employment related social security plan
("foreign plans") benefits which the Member
would be entitled to receive if he retired
and commenced receipt of benefits at that
time, but only to the extent the Homestake
Retirement Plan has been amended prior to
the Member's attainment or age 65 to provide
for such a reduction in respect of foreign
plans from benefits payable under the
Homestake Retirement Plan, and
(v) benefits from time to time received or
receivable before giving effect to any
spousal or contingent annuitant benefit
election under the Homestake Retirement
Plan, the Supplemental Retirement Plan or
any other of the Company's pension or
retirement plans (not including the Savings
Plan), and any disability plan or worker's
compensation plan.
(b) Early Retirement Benefit--A Member who has attained age
fifty-five and has completed ten or more continuous years of
Service may elect to retire on the first day of any month
prior to the Member's Normal Retirement Date, upon written
election filed with, and subject to the approval of, the
Compensation Committee. The Compensation Committee, at its
discretion, may withhold such approval, but in no event beyond
age sixty-two. Upon such retirement, the Member shall be
entitled to receive a monthly Retirement Benefit determined as
provided in clauses (i), (ii) and (iii) of paragraph (a)
above, reduced as follows:
(i) by four percent of such amount for each year
(prorated on a monthly basis for parts of a
year) by which such commencement of benefits
precedes the Member's Normal Retirement
Date; and
(ii) there shall then be made the reductions
provided in clauses (iv) and (v) of
paragraph (a) above.
(c) Postponed Retirement Benefit--A Member who retires after the
Normal Retirement Date will receive monthly the same dollar
amount of Retirement Benefit that would have been payable had
the Member's retirement not been postponed, except that such
Member's years of Service shall include all years of Service
(up to a maximum of fifteen years) prior to such Member's
actual retirement.
4
<PAGE>
(d) Surviving Spouse Benefit--If a Member with ten or more
continuous years of Service dies after age fifty-five, either
before or after retirement, the Member's qualifying spouse
will receive a Surviving Spouse Benefit for life if the Member
did not, at the time of death, have in effect a valid election
to receive an optional form of joint and survivor annuity
pursuant to Section 5. A "qualifying spouse" is the spouse of
a Member at the Member's death who has been lawfully married
to the Member throughout the one-year period ending on the
earlier of the Member's death or Normal Retirement Date. The
Surviving Spouse Benefit shall commence on the first day of
the month following the Member's death and terminate with the
payment for the month in which the spouse's death occurs. Such
benefit amount shall equal one-half of the Retirement Benefit
which would have been payable if the Member had been living
and had commenced receipt of benefits on the date of death,
reduced by one percent of such benefit for each full year in
excess of ten that the date of birth of such surviving spouse
occurred after that of the deceased Member.
(e) For the purposes of paragraphs (a), (b) and (c) of Section 4,
the payment of any benefit provided under this Plan will
commence on the first day of the month following the month in
which retirement occurs. The final payment will be the payment
made on the first day of the month in which death occurs.
5. Optional Forms of Benefits
Instead of the Retirement Benefit with Surviving Spouse Benefit
provided in Section 4, a Member may elect, effective upon the
attainment of age fifty-five with ten or more continuous years of
Service, to receive an actuarially determined Retirement Benefit to
provide an optional surviving spouse or contingent annuitant benefit,
which benefits to a spouse or contingent annuitant shall be paid upon
the Member's death, whether before or after retirement. The optional
surviving spouse or contingent annuitant benefit shall be actuarially
adjusted to take into account the amount to be continued as well as the
ages of the spouse or contingent annuitant and the Member. The optional
forms of benefits are as follows:
(a) Surviving Spouse: The Retirement Benefit may be actuarially
reduced to provide a benefit to a qualifying surviving spouse
equal to:
(i) the benefit the Member would have been
entitled to receive, or
(ii) two-thirds of the benefit the Member would
have been entitled to receive.
(b) Contingent Annuitant: With the written consent of a spouse, if
any, a member may designate a person other than a qualifying
spouse to be a contingent annuitant, in which case the
Retirement Benefit will be actuarially reduced to provide a
benefit to the contingent annuitant equal to:
5
<PAGE>
(i) the benefit the Member would have been
entitled to receive, or
(ii) two-thirds of the benefit the Member would
have been entitled to receive, or
(iii) one-half of the benefit the Member would
have been entitled to receive.
Any actuarial reduction in benefits made pursuant to this Section 5
shall be made in accordance with the actuarial assumptions used in
computing alternative forms of benefits under the Homestake Retirement
Plan at the time that such reduction is made.
6. Benefit Increases
It is anticipated that the retirement benefits payable to Member
hereunder will exceed those to which Member is entitled pursuant to the
Homestake Retirement Plan, the Supplemental Retirement Plan or any
other retirement plans from time to time in effect and its employment
policies generally and, in the event that Member becomes entitled to
retirement benefits under said plans and policies which benefits at any
time or from time to time are greater than those herein provided, no
additional benefits shall be payable under this Plan. If at any time
the Company increases the benefits paid to persons then retired under
the Company's retirement plans generally or to then retired senior
executives generally, such increases shall be applied pro rata to all
of the Retirement Benefits payable to Members hereunder. For purposes
of this section 6, any annual adjustment to the Member's retirement
benefits under the Homestake Retirement Plan will also apply to
Retirement Benefits payable hereunder.
7. Termination of Service
A Member who ceases to be employed by the Company for any reason (other
than retirement or early retirement under the provisions of Section 4
of this Plan), after attaining age fifty-five and having completed ten
or more continuous years of Service shall be entitled, with the
approval of the Compensation Committee as provided in Section 4(b), to
receive early Retirement Benefits as provided in Section 4(b). With the
approval of the Compensation Committee the terminated Member may elect
to begin receiving benefits on the Normal Retirement Date, such benefit
will be calculated based on the Member's actual years of continuous
service and earnings, up to the date of termination.
Any Member who ceases to be employed by the Company or Affiliates for
any reason before completion of ten continuous years of Service and age
fifty-five shall cease to be a Member and shall not be entitled to
received any benefits under this Plan except for any benefits to which
such Member may become entitled through re-employment.
6
<PAGE>
8. Withdrawal Election
A Member or his or her Beneficiary, as the case may be, may elect, at
any time after he or she commences to receive benefits payments under
this Plan, to receive those payments in a lump sum, based on the
actuarial equivalent of his or her remaining vested benefits less a 10%
penalty (as described below). No election to partially accelerate
benefits shall be allowed. The Member shall make this election by
giving the Plan Administrator written notice of the election in a form
determined from time to time by the Plan Administrator. The penalty
shall be equal to 10% of the lump sum actuarial equivalent of the
Member's remaining vested benefit.
Any actuarial reduction in benefits made pursuant to this Section 8
shall be made in accordance with the actuarial assumptions used in
computing lump sum payments under the Homestake Retirement Plan at the
time such lump sum payment is made. The Member shall be paid the
reduced Benefit Amount within 60 days of his or her election. Once such
is paid, the Member's participation in the Plan shall terminate and the
Member shall not be eligible to participate in the Plan in the future.
9. Suspension or Termination of Benefits
If the Compensation Committee determines that a Member otherwise
entitled to benefits under the Plan is engaged actively or proposes to
engage actively, directly or indirectly in activities which may be
detrimental to the interests of the Company, it shall give such person
written notice of the grounds for its determination. The Compensation
Committee shall afford such person an opportunity to submit to it
within 60 days thereafter a written statement of reasons why such
person considered such determination to be incorrect. After considering
such written statement and any other information which it determines to
be relevant, the Compensation Committee shall have the right to
terminate benefits otherwise payable under the Plan or to suspend them
for such period as it determines to be appropriate. The Compensation
Committee shall advise such person of its action. Any determination by
the Compensation Committee to suspend or terminate benefits shall be
final and binding upon the Member.
10. Trust
The Company may establish one or more grantor Trusts and the Company
and Affiliates shall at least annually transfer over to the Trust such
assets as the Company and Affiliates determine, in their sole
discretion, are necessary to provide for the Company's and Affiliates
future liabilities created under the Plan, provided the assets of the
Trust shall be considered part of the general assets of the Company and
Affiliates subject to the claims of its general creditors.
7
<PAGE>
The provisions of the Plan shall govern rights of a Member to receive
distributions pursuant to the Plan. The provisions of the Trust shall
govern the rights of the Members and the creditors of the Company and
Affiliates to the assets transferred to the Trust. The Company and
Affiliates shall at all times remain liable to carry out its
obligations under the Plan. The Company's and Affiliate's obligations
under the Plan may be satisfied with Trust assets distributed pursuant
to the terms of the Trust.
11. Administration and Interpretation
This Plan is intended to qualify for exemption from Parts II, III and
IV of the Employee Retirement Income Security Act of 1974, as amended,
as a plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees under Sections 201(2), 301(a)(3) and 401(a)(1) of such Act,
and shall be so interpreted.
This plan shall be administered by the Compensation Committee. The
Committee shall have the discretion and authority to make, amend,
interpret and enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any and all questions
including interpretations of this Plan, as may arise in connection with
the Plan.
In the administration of this Plan, the Committee may, from time to
time, employ agents and delegate to them such administrative duties as
it sees fit and may, from time to time, consult with counsel who may be
counsel to the Company.
The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation
and application of the Plan and the rules and regulations promulgated
hereunder shall be final and conclusive and binding upon all persons
having any interest in the Plan.
The Company and Affiliates shall indemnify and hold harmless each
member of the Committee against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with
respect to this Plan, except in the case of willful misconduct by that
member.
To enable the Committee to perform its functions, the Company and
Affiliates shall supply full and timely information to the Committee on
all matters relating to the compensation of its Members, the date and
circumstances of the retirement, disability, death or termination of
employment of its Members, and such other pertinent information as the
Committee may reasonably require.
8
<PAGE>
12. Termination of Plan
The Company and Affiliates reserves the right to change or terminate
the Plan, or both, at any time. The Company and Affiliates shall
promptly notify Members of any change or termination. Any change or
termination will not affect benefits vested on the effective date of
change or termination, but any benefits or expected benefits not then
vested shall be modified or extinguished as the case may be. For this
purpose, the Normal Retirement Benefit shall be deemed vested when a
Member reaches age sixty-five or both completes ten continuous years of
Service and reaches age sixty-two, and the Early Retirement Benefit
shall be deemed vested when a Member completes ten continuous years of
Service and reaches age fifty-five.
13. Effects of Dissolution, Liquidation or Reorganization
(a) Notwithstanding any other provision of the Plan, if the
Company is dissolved or liquidated or is a party to a
Reorganization and if (i) the Company's successor does not, by
operation or law or prior agreement, assume the Company's
obligations with respect to the Plan, or (ii) a Member's
employment is terminated for any reason or no reason by the
Member or by such successor within two years following the
occurrence of such dissolution or liquidation, or (iii) a
Member's employment is terminated under circumstances
described in Section 13(b) within two years following the
occurrence of such Reorganization, the benefits of each Member
affected thereby under the Plan shall vest fully as if such
Member's Service had continued until the Normal Retirement
Date (but in no event for more than a total of 15 years of
Service) but shall be calculated based on such Member's
highest average monthly Compensation over any thirty-six
consecutive month period of actual employment prior to the
vesting date, or, if employed for less than thirty-six
consecutive months at such time, the period of such Member's
actual employment. No termination or modification of the Plan
shall affect the rights of a Member to then-vested benefits
pursuant to the preceding sentence.
(b) If a Member's employment is terminated under the following
circumstances within two years following the occurrence of a
Reorganization, the unvested benefits of such Member under the
Plan shall vest fully if:
(i) The Member's employment is terminated involuntarily
for reasons other than death, disability or discharge
for "Good and Sufficient Cause" (as defined below);
or
(ii) The Member voluntarily chooses to terminate
employment for "Good Reason" (as defined below).
9
<PAGE>
(c) Benefits so vested pursuant to this Section 13 shall be
payable commencing on the later of attainment of age
fifty-five or the first day of the month following the vesting
event, or at such later time as a Member alone may elect;
provided, however, that in computing such benefits the amount
computed pursuant to clauses (i), (ii) and (iii) of Section
4(a) hereof, as modified in this Section 13, shall be reduced
by 4% for each year (prorated on a monthly basis for parts of
a year) by which such commencement of benefits precedes such
Member's Normal Retirement Date, and then reduced as provided
in clauses (iv) and (v) of Section 4(a).
(d) Any Member who is employed by a successor organization shall
be entitled to the retirement benefits of such organization
without offset of benefits provided under this Plan and to the
extent benefits otherwise receivable from such organization
are reduced, benefits under this Plan shall be correspondingly
increased.
(e) As used herein:
(i) "Good and Sufficient Cause" means any act of fraud or
dishonesty, or conviction of a felony involving moral
turpitude or a Member knowingly engaging in acts
seriously detrimental to any of the operations of the
Company.
(ii) Voluntary termination of employment by a Member for
"Good Reason" means termination subsequent to a
Reorganization resulting from the occurrence of one
of the following events without the Member's express
written consent:
(A) The assignment by the Company to the Member of
any duties inconsistent with the Member's
positions, duties, responsibilities, and status
with the Company immediately prior to the
Reorganization, or a reduction in the Member's
responsibilities, titles or offices as in effect
immediately prior to the Reorganization, or any
removal of the Member from or any failure to
re-elect the Member to any such positions,
except in connection with the involuntary
termination of Member's employment for Good and
Sufficient Cause, or as a result of the Member's
death, disability or retirement, or voluntary
termination by the Member for other than Good
Reason;
(B) A reduction by the Company in the Member's base
salary as in effect immediately prior to the
Reorganization;
(C) The requirement by the Company that the Member
be based anywhere other than within a 50-mile
radius of the Member's location immediately
prior to the Reorganization except for required
10
<PAGE>
travel on the Company's business to an extent
substantially consistent with the Member's
business travel obligations immediately prior to
the Reorganization; or
(D) The failure by the Company to continue in
effect, or a change of the Member's
participation or benefits under, any bonus or
incentive compensation plan, any employee
benefit plan qualified under Section 401(a) of
the Internal Revenue Code of 1954, as amended
from time to time (the "Code"), any stock
ownership, stock purchase, stock option or other
equity incentive plan, any life, health,
accident, disability or similar plan providing
welfare benefits or any plan or program of
fringe benefits in which the Member participates
immediately prior to the Reorganization, the
effect of which would be to materially reduce
the Member's benefits under such plans as such
existed immediately prior to the Reorganization,
or the failure by the Company to provide the
Member with the number of paid vacation days to
which the Member was entitled in accordance with
the Company's general vacation policy in effect
immediately prior to the Reorganization.
14. General Provisions
Members and their Beneficiaries, heirs, successors and assigns shall have
no legal or equitable rights, interest or claims in any property or assets
of the Company or Affiliate's. With respect to the Plan, any Plan
Agreement and the Trust, any and all of the Company's or Affiliate's
assets shall be, and shall remain, the general, unpledged unrestricted
assets of the Company or Affiliate's, except as provided by the Trust. The
Company's or Affiliate's obligation under the Plan shall be merely that of
an unfunded and unsecured promise to pay money in the future.
The Company's or Affiliate's liability for the payment of benefits shall
be defined only by the Plan. The Company or Affiliate's shall have no
obligation to a Member under the Plan except as expressly provided in the
Plan.
Neither a Member nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt,
the amounts, if any, payable hereunder, or any part thereof, which are,
and all rights to which are, expressly declared to be unassignable and
non-transferable, except that the foregoing shall not apply to any family
support obligations set forth in a court order. No part of the amounts
payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Member or any other person, nor be transferable by
operation of law in the event of a Member's or any other person's
bankruptcy or insolvency.
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<PAGE>
The terms and conditions of this Plan shall not be deemed to constitute a
contract of employment between the Company or any Affiliate and the
Member. Such employment is an "at will" employment relationship that can
be terminated at any time for any reason, with or without cause, unless
expressly provided in a written employment agreement. Nothing in this Plan
shall be deemed to give a Member the right to be retained in the service
of any Company or Affiliate or to interfere with the right of any Company
or Affiliate to discipline or discharge the Member at any time.
A Member will cooperate with the Company or Affiliate by furnishing any
and all information requested by the Company or Affiliate and take such
other actions as may be requested in order to facilitate the
administration of the Plan and the payments of benefits hereunder,
including but not limited to taking such physical examinations as any
Company or Affiliate may deem necessary.
Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they
would so apply; and wherever any words are used herein in the singular or
in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would
so apply.
The captions of the articles, sections and paragraphs of this plan are for
convenience only and shall not control or affect the meaning or
construction of any of its provisions.
The provisions of this Plan shall be construed and interpreted according
to the laws of the State of California.
In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal
and invalid provision had never been inserted herein.
Any notice or filing required or permitted to be given to the Committee
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by registered or certified mail, to the address below:
Homestake Mining Company
Attn: Compensation Committee
650 California Street
San Francisco, CA 94108
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
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<PAGE>
Any notice or filing required or permitted to be given to a
Member under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of
the Member.
The provisions of this Plan shall bind and inure to the benefit of the
Company and Affiliates and their successors and assigns and the Member,
the Member's Beneficiaries, and their permitted successors and assigns.
The interest in the benefits hereunder of a spouse of a Member who has
predeceased the Member shall automatically pass to the Member and shall
not be transferable by such spouse in any manner, including but not
limited to such spouse's will, nor shall such interest pass under the laws
of intestate succession.
If a benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetency, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Member and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
15. Distribution in the Event of Taxation
If, for any reason, all or any portion of a Member's benefit under this
Plan becomes taxable to the Member prior to receipt, a Member may petition
the Committee for a distribution of assets sufficient to meet the
Participant's tax liability (including additions to tax, penalties and
interest). Upon the grant of such a petition, which grant shall not be
unreasonably withheld, the Company and Affiliate shall distribute to the
Member immediately available funds in an amount equal to the Member's
federal, state and local tax liability associated with such taxation
(which amount shall not exceed a Participant's accrued benefit under the
Plan), which liability shall be measured by using that Member's then
current highest federal, state and local marginal tax rate, plus the rates
or amounts for the applicable additions to tax, penalties and interest. If
the petition is granted, the tax liability distribution shall be made
within 90 days of the date when Participant's petition is granted. Such a
distribution shall affect and reduce the benefits to be paid under Article
3.
13
<PAGE>
16. Claims Procedure
If a Member or Beneficiary ("Claimant") believes that he or she is
entitled to a benefit or greater benefit as the case may be, under the
Plan, the Claimant may submit a signed, written application to the
Committee within 90 days of having been denied such benefit. The Claimant
will generally be notified of the approval or denial of this application
within 90 days of the date that the Committee receives the application. If
the claim is denied, the denial will state specific reasons for the denial
and the Claimant will have 60 days to file a signed, written request for a
review of the denial with the Committee. This request should include the
reasons for requesting a review, facts supporting the request and any
other relevant comments. The Committee, operating pursuant to its
discretionary authority to administer and interpret the Plan and to
determine eligibility for benefits under the terms of the Plan, will
generally make a final, written determination of the Claimant's
eligibility for benefits within 60 days of receipt of the request for
review.
17. Arbitration
Any controversy between a participant and the Company or Affiliates
involving the construction or application of any of the terms, provisions,
or conditions of this Plan shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association, then in effect, and judgment on the award rendered by the
arbitrator(s) may be entered by any court having jurisdiction thereof. The
exclusive place of arbitration shall be San Francisco, California. The
expenses reasonably incurred by both parties in connection with
arbitration, including attorney fees, shall be borne by the Company or
Affiliates.
IN WITNESS WHEREOF, Homestake Mining Company has adopted this Amended
and Restated Executive Supplemental Retirement Plan, effective January 23, 1998.
HOMESTAKE MINING COMPANY
___________________________ By: __________________________
Date of Execution Vice President
14
EXHIBIT 10.36
Homestake Mining Company
_____________, 1999
(Salutation) (First Name) (Last Name)
(Company)
(Address 1)
(Address 2)
(City), (State), (Postal Code)
Re: Option to Purchase Shares of $1.00 Par
Value Common Stock of Homestake Mining Company
Dear (Salutation) (LastName):
Homestake Mining Company ("Company") hereby grants you an option to purchase
(Options) shares of its $1.00 par value common stock at a price of $_____ per
share on the following terms:
1. The option is intended to be a non-statutory option that does not satisfy
the requirements of Section 422A of the Internal Revenue Code.
2. The option shall expire on the earlier of ___________, 2009 or the
occurrence of the first of the following:
a. Three months after the termination of your active employment with
the company or any affiliate (as hereafter defined) for reason
other than retirement, death, disability, or cause.
b. Thirty-six months after termination of your active employment with
the Company or any affiliate by retirement.
c. Thirty-six months after the termination of your active employment
with the Company or any affiliate by death or disability.
d. Except as provided in paragraph 2.b. and 2.c., six months after
termination of your active employment with the Company or any
affiliate for any reason other than cause if you should die or
become disabled within three months after such termination.
e. Immediately upon termination of your active employment with the
Company or any affiliate for cause, as determined by the
Compensation Committee of the Board of Directors of the Company
("Committee").
For purposes of this agreement, (i) affiliate includes any corporation
or other form of enterprise in which the Company has, directly or
indirectly, an ownership interest of 50% or more or
<PAGE>
equivalent power to direct the management and policy of such enterprise by
contract or otherwise; (ii) if your employment with the Company or an affiliate
terminates and immediately thereafter you become a consultant to the Company or
an affiliate, such service may be treated as employment with the Company but
only if the Committee in its sole discretion so determines; (iii) any
determination by the Committee made in good faith shall be final unless clearly
erroneous; and (iv) any determination by the Committee as to a matter reserved
to the sole discretion of the Committee shall be final.
3. The option shall become exercisable in installments beginning ________,
2000 and on the same day of each of the next three years, as to 25% of
the shares each year. To the extent not previously exercised, such
installments shall accumulate and be exercisable, in whole or in part,
at any time before expiration of the option.
4. Except as hereafter provided, if for any reason your active employment
with the Company or any affiliates terminates before one or more
installments become exercisable, the option shall be exercisable only
as to any installments which became exercisable before termination and
then only to the extent not previously exercised. Notwithstanding the
foregoing:
a. Upon your death or total and permanent disability occurring while
employed, all installments shall be immediately exercisable to
the extent not previously exercised; and
b. If, within one year after a "Change of Control" (as defined in
the Company's Change of Control Severance Plan as amended from
time to time), your employment is terminated involuntarily for
reasons other than death, disability or discharge for Good and
Sufficent Cause (as defined in that Change of Control Severance
Plan) or you voluntarily choose to terminate your employment for
Good Reason (as defined in the Change of Control Severance Plan
as amended from time to time), all installments shall be
immediately exercisable to the extend not previously exercised.
5. Except as permitted by the Committee, the option is transferable by you
only by will or the laws of descent or distribution. Except as
permitted by the Committee, it may be exercised during your lifetime
only by you or by your legal representative duly appointed by a court
of competent jurisdiction. After your death, it may be exercised only
by your executor or administrator or by persons who acquire it directly
from you by bequest or inheritance or as permitted by the Committee.
6. If a dividend is declared on common stock of the Company payable in
common stock, the unexercised shares shall be increased and the per
share option price shall be decreased proportionately to reflect the
dividend as the Committee may determine.
7. If any change is made in the common stock through merger,
consolidation, reorganization, recapitalization, split-up, combination
of shares, exchange of shares, change in corporate structure or
otherwise or a stock dividend is payable in stock other than common
stock, an appropriate adjustment shall be made for shares not
previously exercised as to the number of any kind of securities or
rights and the price per share as the Committee may determine.
8. You shall not be a stockholder, nor be entitled to any privileges of
stock ownership, under this agreement until shares are actually issued
and delivered to you.
<PAGE>
9. a. The option may be exercised from time to time in accordance with
this agreement by written notice signed and delivered by you or your
legal representative (or after your death, by your executor,
administrator, heir or legatee, as the case may be), or other permitted
transferee to the Secretary of the Company at the Company's principal
office.
b. The notice shall state the number of shares as to which the
option is exercised, the date of exercise and how the exercise
price will be paid. The notice shall be accompanied by payment in
cash or by delivery of a check, bank draft or money order, or, as
more specifically provided in the Plan, by common stock duly
endorsed for transfer or a combination thereof for the full
exercise price. The fair market value of any common stock so
delivered shall be the mean between the high and low sales price
of the shares on the composite tape for New York Stock
Exchange-listed securities on the day of exercise, or if no sales
of shares of common stock shall have been reported on such
composite tape on that day, then such amount as the Committee
shall determine to be the fair market value on such day.
10. Before delivery of any shares, the Company shall determine the amount
of federal and state income tax or other tax withholding required by
law and you shall pay the Company such amount, to the extent not
previously withheld.
11. a. Upon receipt of notice of exercise by the Company, this agreement
shall become a contract for the purchase and sale of the shares
specified in the notice and, except as herein provided, neither
you nor the Company shall have the right to terminate or rescind
the contract. The Company shall tender the shares within a
reasonable time.
b. If the Committee determines that any law or regulation or
requirement of any securities exchange requires the Company to
take any action before issuance or delivery of shares or
prohibits or delays their issuance or delivery then the date for
payment, issuance and delivery, shall be extended for the period
necessary to take such action, or during the period of such
prohibition or limitation delay.
12. In the event of certain corporate transactions or changes of control,
the option may become immediately exercisable in accordance with the
terms of the Plan.
13. By exercising the option, you agree that you are acquiring the shares
for investment and will not transfer any shares in violation of
applicable federal and state securities laws. Any shares delivered
under this agreement may bear such legends and may be subject to such
restrictions on transfer as the Committee determines to be necessary
or appropriate. You agree to execute such agreements as to transfer of
such shares as the Committee may deem advisable. You agree that the
Company shall not be required to register any shares acquired by you
and that you may be required to hold such shares indefinitely in the
absence of registration or an exemption from registration under
federal and state securities laws. You agree that any shares purchased
by you may be issued in the name of you and your spouse if you then or
recently lived in a community property state.
14. This agreement incorporates the Plan by reference. In the event of a
conflict between the terms of this agreement and the Plan, the Plan, as
interpreted and administered by the Committee, shall prevail.
<PAGE>
15. The option may be exercised only as to whole shares. No fractional
shares will be issued or delivered.
Please indicate your acceptance of the foregoing by signing the agreement and
returning it to the Company in the enclosed envelope.
Very truly yours,
HOMESTAKE MINING COMPANY
By_______________________________
Jack E. Thompson,Chairman,
President & Chief Executive Officer
Acceptance and Agreement:
The foregoing agreement is hereby accepted by me as of ___________ (date).
- -----------------------------------
(Signature )
EXHIBIT 10.37
, 1999
(First Name) (Last Name)
Homestake Mining Company
650 California Street
San Francisco, CA 94108
Re: Grant of Right to Receive Performance Based Shares
Dear (First Name):
Effective upon your entering into this agreement, Homestake Mining Company
("Homestake" or "Company") grants you the right to receive (Total Shares)
shares of its $1.00 value common stock ("Shares") on the following terms and
conditions:
1.This grant is made under the Company's Stock Option and Share Rights
Plan - 1996 (the "Plan"). Any capitalized terms used in this agreement that are
not defined in this agreement have the meanings given to them in the Plan.
2.Effective upon your entering into this agreement, there also will be
established for you in the records of the Company a Dividend Equivalency
Account. As of each subsequent record date for dividends on the Company's Common
Stock, there will be credited to your Dividend Equivalency Account an amount
equal to the amount of dividends (a "Dividend Equivalent") that would have been
payable in respect of each unvested Share subject to this agreement had such
Share been outstanding on that record date. Such Dividend Equivalents will
accumulate without interest. At the time your right to receive any Share under
this agreement vests, you will also vest in and be entitled to receive the
accumulated Dividend Equivalents that have accrued in your Dividend Equivalency
Account in respect of such Share. Under no circumstances will you have any
rights in or right to receive any Dividend Equivalent until you vest in the
Share in respect of which the Dividend Equivalent was credited. If your right to
receive any Shares under this agreement is forfeited, your right to receive
related Dividend Equivalents will also be forfeited at the same time. Any
subsequent reference in this agreement to Shares will be deemed to refer to the
related Dividend Equivalents, and any subsequent reference in this agreement to
the vesting in and/or issuance of Shares shall be deemed to refer to the vesting
in and/or payment of the related Dividend Equivalents.
3.Your right to receive Shares under this agreement is subject to
achieving the Annual Performance Goals set out below and is also subject to
compliance with the terms and conditions of this agreement. Shares will not be
issued, and you will have no rights of ownership in respect thereof, except and
until your rights to the Shares have vested. Except for transfers by will or
under laws of descent or distribution, interests in and rights to receive Shares
may not be sold, assigned, pledged or otherwise transferred until rights to the
Shares have vested and the Shares have been issued.
<PAGE>
4.Your right to receive Shares will vest if and to the extent the Annual
Performance Goals described below are achieved:
(a) For purposes of this agreement, achievement of an "Annual
Performance Goal" means that the closing price of the Company's Common Stock on
the New York Stock Exchange (or other principal exchange selected by the board
of directors on which the Common Stock is listed if not listed on the New York
Stock Exchange) on the Measurement Dates set out below, in relation to the stock
closing price on December 31, 1998, cumulatively outperforms the Adjusted
Standard and Poor's Gold and Precious Metals Index ("Index") on the Measurement
Dates set out below, in relation to the level thereof at December 31, 1998, by
the amounts set out under "Annual Performance Goal" in paragraph (c) below.
(b) "Final Performance Date" means December 31, 2002.
(c) On each "Measurement Date" set out below, if the Company achieves
the Annual Performance Goal for that date, your right to receive Shares will
vest as to: (i) 25% of the Shares; and (ii) any Shares as to which your right
could have but did not vest on any prior Measurement Date because the Annual
Performance Goal for that Measurement Date was not achieved. If the Company
fails to achieve the Annual Performance Goal for any Measurement Date, your
right to receive Shares will not vest on that Measurement Date, but your right
to receive those Shares will vest on any subsequent Measurement Date on which
the Annual Performance Goal for that subsequent Measurement Date is achieved.
The Measurement Dates and the Annual Performance Goals for each are as follows:
Measurement Date - Annual Performance Goal -
In Relation to HMC Common Stock to
12/31/98 Cumulatively Outperform the Index By
------------------ -----------------------
12/31/99 5%
12/31/00 10%
12/31/01 15%
12/31/02 20%
(d) For purposes of this agreement, "Adjusted Standard and Poor's Gold
and Precious Metals Index" means the Standard and Poor's Gold and Precious
Metals Index from time to time, notwithstanding that there may be a change in
those companies between the date of this agreement and the Final Performance
Date, but excluding therefrom the stock of the Company.
5. This agreement will expire immediately after the close of business on
the Final Performance Date and any rights in respect of Shares that have not
vested on or before the Final Performance Date will be forfeited. Except as
otherwise provided in connection with Termination of Employment, no rights in
respect of Shares will be forfeited prior to the close of business on the Final
Performance Date.
2
<PAGE>
6. Except as hereafter provided, all rights to receive Shares under this
agreement that have not already vested will expire and be forfeited to the
Company if you cease to be an "Employee" (as defined in the Plan) of Homestake
or any Affiliate of Homestake prior to any Measurement Date ("Termination of
Employment"). If any company or other entity which is your employer ceases to be
an Affiliate of Homestake, then you will be deemed to have ceased being an
Employee as of the time that company or other entity ceases to be an Affiliate.
(a) If your Termination of Employment is because you (i) die, (ii) are
Disabled (as defined in the Homestake Retirement Plan), (iii) retire from
Homestake or any Affiliated Company on or after your Normal Retirement Date or
on your Early Retirement Date (as defined in the Homestake Retirement Plan)
other than a Termination of Employment pursuant to clause (b) below, or (iv)
retire at a time when you are eligible to receive a "Retirement Benefit" under
the Homestake Executive Supplemental Retirement Plan other than a a Termination
of Employment pursuant to clause (b) below, you will continue to be treated as
an Employee for a period of thirty-six months following the date of such death,
disability or retirement or until the Final Performance Date, whichever is
earlier. Rights in respect of Shares that do not vest during that period will be
forfeited.
(b) If your Termination of Employment takes place within one year
following a "Change of Control" and is as a result of (i) termination by the
Company other than for "Good and Sufficient Cause" or (ii) termination by you
for "Good Reason," (all as defined in the Company's Change of Control Severance
Plan), then on such termination, your right to receive any Shares that remain
unvested under this agreement will vest in the same proportion as equals the
proportion of (i) number of months (or part thereof) from the date of grant
hereof to the date of your Termination of Employment to (ii) the total number of
months (or part thereof) from the date of grant to the Final Performance Date.
Following such vesting, any remaining rights hereunder shall thereupon be
forfeited. The provisions of this paragraph 6(b) are in addition to any rights
that you may have under Article XIII of the Plan.
(c) The Committee will have the authority, in its discretion, to extend
the term of this agreement to include all or part of any period of time during
which you continue as an Employee of any corporation, joint venture, partnership
or other entity in which Homestake has, directly or indirectly, at least a 20%
ownership or profits interest or during which you act as a consultant to
Homestake, any of its Affiliates, or any corporation, joint venture, partnership
or other entity in which Homestake has, directly or indirectly, at least a 20%
ownership or profits interest.
7. You do does not own any Shares granted under this agreement until your
right to receive such Shares have vested and such Shares have actually been
issued. Until such Share issuance, you will not be entitled to exercise any
voting rights or receive dividends in respect of such Shares.
8. Notwithstanding anything contained herein to the contrary, the Company's
obligation to issue or deliver Shares pursuant to this agreement will be subject
to all applicable laws, rules and regulations, including stock exchange rules.
If any laws, rules or regulations
3
<PAGE>
require that the Company take any action before issuance and delivery of Shares,
then the date of issuance and delivery will be delayed for the period necessary
to take such action.
9. As a condition to the issuance and delivery of any Shares which vest under
this agreement, the Company will have the right to require you to remit to the
Company, or the Company will have the right to withhold from any amounts payable
to you, as compensation or otherwise, amounts sufficient to satisfy all federal,
state, provincial and local tax and other withholding requirements. If
withholding is required, you will have the opportunity to satisfy the
withholding requirement by (i) paying the withholding amounts in cash to the
Company, (ii) having the required amount withheld from other monies then due to
you, or (iii) having the Company retain a portion of the Shares otherwise then
issuable to you in an amount equal in value to the required withholding amounts,
with the Company paying the required withholding amounts. If you select the
third alternative, you must notify the Company at least seven days before the
date the Shares may become issuable to you.
10. This agreement incorporates the Plan by reference. In the event of a
conflict between the terms of this agreement and the Plan, the Plan, as
interpreted and administered by the Committee, will prevail.
Please indicate your agreement with the foregoing by signing one copy of this
agreement and returning it to the Company in the enclosed envelope.
Very truly yours
Homestake Mining Company
By _____________________________
Jack E. Thompson, Chairman,
President & Chief Executive Officer
I agree to the foregoing
- ---------------------------------
4
EXHIBIT 10.38
HOMESTAKE MINING COMPANY
Bonus Stock Program Election Form
I have read the Bonus Stock Program Memorandum Dated as of June 29,
1998 (which is deemed incorporated herein by this reference), and I understand
the Bonus Stock Program. I have also had the opportunity to ask all questions I
may have with regard to the program, and I have received satisfactory answers to
all of my questions. I understand that, in electing to participate in the Bonus
Stock Program, there is no assurance that cash bonuses will in fact be paid for
1998, and therefore there is no assurance that I will in fact receive a
contingent right to receive shares. I understand that the number of shares
subject to any contingent share right will have a value (on the date bonuses are
approved) equal to 150% of the cash foregone, that the number of shares subject
to the contingent share right will be determined on that date, and that the
number of shares subject to the contingent share right will not change,
regardless of subsequent changes in market value of the shares. I also
understand that once I forego any cash, that cash will not be paid to me even if
I forfeit all rights to receive the shares subject to the contingent share
right. I understand that my right to receive the shares will vest over three
years from the date the cash bonus being foregone is approved by the Board of
Directors - 50% after one year, 25% after two years and 25% after three years. I
also understand that, with certain exceptions described in the Memorandum, I
must continue to be an employee of Homestake or its affiliated companies on the
vesting dates; otherwise I will forfeit all rights to the unvested shares and
related dividend equivalency amounts. Finally, I understand that this election
is irrevocable.
I hereby elect to forego _____%, subject to a maximum amount of
$_______________, of the cash bonus I may be entitled to receive for the year
1998. I elect to receive a contingent right to receive Homestake Mining Company
Common Stock in lieu thereof. The terms of that contingent right are described
in the Memorandum and in the accompanying Terms and Conditions, which are deemed
incorporated in this election form. This election will be effective upon its
acceptance by Homestake Mining Company.
---------------------------------
Name
---------------------------------
Signature
---------------------------------
Date
ACCEPTED:
Homestake Mining Company
By ____________________
<PAGE>
Terms and Conditions to Homestake Mining Company
Bonus Stock Program Election Form
1. These Terms and Conditions are a part of the contract created by the
Bonus Stock Program Election Form ("Election Form") when it has been executed by
you and accepted by Homestake Mining Company ("Homestake" or the "Company").
2. The grant of a contingent right to receive Homestake Mining Company
Common Stock, $1.00 par value ("Homestake Shares") pursuant to the Bonus Stock
Program is made under the pursuant to the Company's Stock Option and Share
Rights Plan - 1996 (the "Plan"). Any capitalized terms used herein that are not
defined herein have the meanings given to them in the Plan.
3. Effective upon (i) your proper completion, execution and delivery of
the Election Form and (ii) its acceptance by Homestake, you will have made the
election specified in the Election Form to forego up to 50% of your potential
cash bonus for 1998 in exchange for the award of a contingent right to receive
Homestake Shares in the future (the "1998 Contingent Right"). You are not
assured that there will be a cash bonus for 1998 payable to you, and the making
of the election specified in the Election Form does not assure that any cash
bonus for 1998 will be payable in fact; you will not receive the 1998 Contingent
Right unless the cash bonus foregone by you is approved by the Board of
Directors, as provided below. Further, once the election is made, the election
is irrevocable, and you will forever give up all rights to receive any foregone
cash bonus for 1998 that otherwise would have been payable, even if you forfeit
all or any part of your 1998 Contingent Right. The election may not be made as
to any part of the cash bonus that has been deferred under the Company's
Deferred Compensation Plan.
4. The number of Homestake Shares subject to your 1998 Contingent Right
will be that number of Homestake Shares which have a fair market value, on the
day your cash bonus for 1998 is approved by the Homestake Board of Directors
("Approval Date"), equal to 150% of the amount of cash bonus for 1998 that is
foregone by you. For this purpose, "fair market value" will be the Closing Price
of Homestake Shares on the New York Stock Exchange on the Approval Date (or the
next preceding trading day if Homestake Shares do not trade on the Approval
Date). If Homestake Shares are not listed or otherwise trading on the New York
Stock Exchange at or about the Approval Date, the fair market value will be
determined by the Committee in its sole discretion. Once the number of Homestake
Shares subject to your 1998 Contingent Right is determined, that number of
Homestake Shares is fixed and will not vary because of subsequent changes in the
market value of Homestake Shares. As a result, you take the market risk of an
increase or decrease in the value of the Homestake Shares subject to your 1998
Contingent Right.
5.There also will be established for you in the records of the Company a
Dividend Equivalency Account. As of each subsequent record date for dividends on
Homestake Shares, there will be credited to your Dividend Equivalency Account an
amount equal to the amount of
2
<PAGE>
dividends (a "Dividend Equivalent") that would have been payable in respect of
each unvested Share subject to your 1998 Contingent Right had such Share been
outstanding on that record date. Dividend Equivalents will accumulate without
interest. At the time your right to receive any Share subject to your 1998
Contingent Right vests, you will also vest in and be entitled to receive the
accumulated Dividend Equivalents that have accrued in your Dividend Equivalency
Account in respect of such Share. Under no circumstances will you have any
rights in or right to receive any Dividend Equivalent until you vest in the
Share in respect of which the Dividend Equivalent is credited. If your right to
receive any Shares subject to your 1998 Contingent Right is forfeited, your
right to receive related Dividend Equivalents will also be forfeited at the same
time. Any subsequent reference in these Terms and Conditions to Shares will be
deemed to refer to the related Dividend Equivalents, and any subsequent
reference in these Terms and Conditions to the vesting in and/or issuance of
Shares also will be deemed to refer to the vesting in and/or payment of the
related Dividend Equivalents.
6. Your right to receive Homestake Shares subject to your 1998
Contingent Right will vest over three years. Your right to receive 50% of the
Homestake Shares subject to your 1998 Contingent Right will vest on the first
anniversary of the Approval Date. Your right to receive an additional 25% will
vest on each of the second and third anniversaries of the Approval Date. The
right to receive Shares is also contingent on your continuing to be an Employee
of Homestake (or an affiliated company) on the vesting date as set out below.
Shares will not be issued, and you will have no rights of ownership in respect
thereof, except and until your rights to the Homestake Shares have vested.
Except for transfers by will or under laws of descent or distribution, interests
in and rights to receive Homestake Shares under your 1998 Contingent Right may
not be sold, assigned, pledged or otherwise transferred until rights to the
Homestake Shares have vested and the Homestake Shares have been issued.
7. (a) Except as hereafter provided, all rights to receive Homestake
Shares under your 1998 Contingent Right that have not already vested immediately
will expire and be forfeited if you cease to be an "Employee" (as defined in the
Plan) of Homestake or any Affiliate of Homestake prior to an anniversary of the
Approval Date ("Termination of Employment"). If any company or other entity
which is your employer ceases to be an Affiliate of Homestake, then you will be
deemed to have ceased being an Employee as of the time that company or other
entity ceases to be an Affiliate.
(b) If your Termination of Employment is because you (i) die,
(ii) are Disabled (as defined in the Homestake Retirement Plan), (iii) retire
from Homestake or any Affiliated Company on or after your Normal Retirement Date
or on your Early Retirement Date (as defined in the Homestake Retirement Plan),
or (iv) retire at a time when you are eligible to receive a "Retirement Benefit"
under the Homestake Executive Supplemental Retirement Plan, your right to
receive all unvested Homestake Shares subject to your 1998 Contingent Right will
immediately vest, and you will be entitled to receive all Homestake Shares
subject to the 1998 Contingent Right as of the date of Termination of
Employment.
3
<PAGE>
(c) If there is a "Corporate Transaction" or a "Change of
Control" of Homestake, as defined in the Plan, then under certain circumstances
outlined in the Plan, there may be an acceleration of vesting of your right to
receive Homestake Shares subject to your 1998 Contingent Right. If that occurs,
then you may vest in and be entitled to receive Homestake Shares subject to your
1998 Contingent Right, or cash in lieu thereof under certain circumstances.
(d) If your Termination of Employment takes place within one
year following a "Change of Control" and is as a result of (i) termination by
Homestake other than for "Good and Sufficient Cause" or (ii) termination by you
for "Good Reason," (all as defined in Homestake's Change of Control Severance
Plan), then on such termination, your right to receive any unvested Homestake
Shares subject to your 1998 Contingent Right will immediately vest, and you will
be entitled to receive all Homestake Shares subject to your 1998 Contingent
Right as of the date of Termination of Employment.
(e) The Committee will have the authority, in its discretion,
to extend the term of your 1998 Contingent Right to include all or part of any
period of time during which you continue as an Employee of any corporation,
joint venture, partnership or other entity in which Homestake has, directly or
indirectly, at least a 20% ownership or profits interest or during which you act
as a consultant to Homestake, any of its Affiliates, or any corporation, joint
venture, partnership or other entity in which Homestake has, directly or
indirectly , at least a 20% ownership or profits interest.
8. You do not own any Homestake Shares subject to your 1998 Contingent
Right until your right to receive such Homestake Shares has vested and such
Homestake Shares have actually been issued. Until issuance of the Homestake
Shares, you will not be entitled to exercise any voting rights or receive
dividends in respect thereof.
9. Notwithstanding anything contained herein to the contrary,
Homestake's obligation to issue or deliver Homestake Shares hereunder will be
subject to all applicable laws, rules and regulations, including stock exchange
rules. If any laws, rules or regulations require that Homestake take any action
before issuance and delivery of Homestake Shares subject to your 1998 Contingent
Right, then the date of issuance and delivery will be delayed for the period
necessary to take such action.
10. As a condition to the issuance and delivery of any Homestake Shares
subject to your 1998 Contingent Right, Homestake will have the right to require
you to remit to Homestake, or Homestake will have the right to withhold from any
amounts payable to you, as compensation or otherwise, amounts sufficient to
satisfy all federal, state, provincial and local tax and other withholding
requirements. Alternatively, if you give written notice to Homestake at least
seven days in advance of any anniversary of the Approval Date, Homestake will
retain a portion of the Homestake Shares and Dividend Equivalents otherwise
payable to you on that anniversary of Approval Date, in an amount equal in value
to the required withholding amounts, which it will use to satisfy such
withholding requirements; provided, however, that if
4
<PAGE>
Homestake withholds an incorrect amount, that will not relieve you from paying
the correct amount, if Homestake underwithholds, nor will it relieve Homestake
from reimbursing you, if Homestake overwithholds.
11. These Terms and Conditions incorporate the Plan by reference. In
the event of a conflict between these Terms and Conditions and the Plan, the
Plan, as interpreted and administered by the Committee, will prevail.
5
EXHIBIT 10.39
TO: _______
FROM: Mary T. Schuba
DATE: January ____, 1999
SUBJECT: Matching Stock Award Program
- -----------------------------------------------------------------------------
In 1997, Homestake Mining Company established a Matching Stock Award
Program to assist key employees in achieving the stock ownership guidelines set
by the Board. The Program was established under the Homestake Mining Company
Stock Option and Share Rights Plan - 1996 (the "Plan"). Under the Program, you
have the right to receive one share of matching stock for each three shares
enrolled in the program. You will be permitted to enroll shares in the Program
once each calendar year. The right to receive the matching shares will vest on
the fifth anniversary of enrollment of the shares to be matched. Once you enroll
shares, you must hold the enrolled stock continuously throughout the five year
period. If you sell or otherwise transfer the enrolled stock during the
five-year holding period, you will completely forfeit the right to receive the
corresponding matching stock. Each annual enrollment will be treated as a single
enrollment and will not impact any other enrollment, holding period or
forfeiture. Once shares have been matched, those shares may not be enrolled in
the program a second time.
You may enroll shares held of record or held beneficially, including
shares held in a 401(k) account or in an IRA, or held in trust for you. You may
enroll shares separately owned by you or held jointly or as community property
with your spouse. Shares held separately by or for the benefit of your spouse
and shares held by or for the benefit of your children are not eligible for
enrollment under the Program. If you hold shares jointly with a person other
than your spouse, or if you share beneficial ownership of shares with a person
other than your spouse, only the portion of stock attributable to you may be
enrolled in the Program.
At the time shares are enrolled, you must provide the Company with a
statement certifying the number of shares that you wish to enroll in the
Program. Appropriate documentation of ownership, such as a copy of a current
401(k) statement, an IRA, trust or brokerage statement, or stock certificate
must accompany the certification.
By electing to enroll in the Program, you are indicating your intent to
hold the shares for at least five years. Each year you will be required to
provide documentation that you still hold the shares. If you do not continue to
retain the enrolled shares, your right to receive the matching shares will be
forfeited.
Except as hereafter provided, all rights to receive matching shares
that have not already vested will expire and be forfeited if you cease to be an
"Employee" (as defined in the Plan) of Homestake or any Affiliate of Homestake
prior to fifth anniversary of the date on which you enrolled the shares to be
matched. If any company or other entity which is your employer ceases to be an
Affiliate of Homestake, then you will be deemed to have ceased being an Employee
as of the time that company or other entity ceases to be an Affiliate.
<PAGE>
If you have a termination of employment for any of the following
reasons, then on such termination, your right to receive any matching shares
that have not vested will vest in the same proportion as equals the proportion
of (i) number of months (or part thereof) from the date of enrollment of the
shares to be matched to (ii) the fifth anniversary of enrollment. This paragraph
applies if (1) you die, (2) you are Disabled (as defined in the Homestake
Retirement Plan), (3) you retire from Homestake or any Affiliated Company on or
after your Normal Retirement Date or on your Early Retirement Date (as defined
in the Homestake Retirement Plan), (4) you retire at a time when you are
eligible to receive a "Retirement Benefit" under the Homestake Executive
Supplemental Retirement Plan, or (5) your termination of employment takes place
within one year following a "Change of Control" and is as a result of (x)
termination by Homestake or any Affiliated Company other than for "Good and
Sufficient Cause" or (y) termination by you for "Good Reason" (all as defined in
the Company's Change of Control Severance Plan).
You do not own any matching shares until your right to receive the
shares has vested and the shares have actually been issued. Until the matching
shares are issued, you will not be entitled to exercise any voting rights or
receive dividends in respect of such shares.
Notwithstanding anything contained herein to the contrary, the
Company's obligation to issue or deliver matching shares will be subject to all
applicable laws, rules and regulations, including stock exchange rules. If any
laws, rules or regulations require that the Company take any action before
issuance and delivery of shares, then the date of issuance and delivery will be
delayed for the period necessary to take such action.
The Company may be required to withhold income and other taxes payable
in respect of matching shares. If withholding is required, you will have the
opportunity to satisfy the withholding requirement by (i) paying the withholding
amounts in cash to the Company, (ii) having the required amount withheld from
other monies then due to you, or (iii) having the Company retain a portion of
the matching shares otherwise then payable to you in an amount equal in value to
the required withholding amounts, with the Company paying the required
withholding amounts. If you select the third alternative, you must notify the
Company at least seven days before the date the matching shares become payable
to you.
In 1997 and 1998, you enrolled ___________ and _________ shares of
Homestake Common Stock in this Program. Please provide documentation that you
still hold enrolled stock.
If you wish to enroll additional stock in this program, please complete
the attached certification form, attach the appropriate documentation and return
to me by January 30, 1999.
<PAGE>
HOMESTAKE MINING COMPANY
Matching Stock Award Program
January 1999
I elect to enroll _______ shares of Homestake common stock in the
Matching Stock Award Program ("the Program"). I understand that I will
be granted one matching share of Homestake common stock for each three
shares I have enrolled in the Program and that I vest in such matching
shares in five years provided I maintain continuous ownership of the
enrolled shares. I have attached documentation verifying ownership of
the enrolled shares. The attached memo from Mary T. Schuba dated
January ___, 1999 sets out terms which form a part of this Award.
-------------------
Name
----------------
EXHIBIT 10.40
HOMESTAKE MINING COMPANY
1998 OUTSIDE DIRECTORS' STOCK COMPENSATION PLAN
(amended January 22, 1999)
The Plan was adopted by the Board on September 24, 1998, and
will be submitted for approval by Homestake's stockholders at the next meeting
of stockholders held after Board Approval. Contingent upon stockholder approval,
the Plan is generally effective as of January 1, 1999, except as specified below
in Article 8, relating to initial grants of Share Rights. Capitalized terms used
herein shall have the meanings provided in Article 12.
ARTICLE 1. SHARE OWNERSHIP POLICY; PLAN PURPOSE.
It is hereby declared to be the policy of Homestake that
Outside Directors are expected to own Shares equal in value to three times the
amount of the Annual Retainer. Outside Directors are expected to achieve that
level of ownership within five years from the later of (i) the effective date of
the Plan or (ii) the date of election as a Director.
The purpose of the Plan is to facilitate compliance with this
share ownership policy and to promote the interests of Homestake by attracting
and retaining qualified individuals who are neither employees nor officers of
Homestake or a subsidiary to serve as directors of Homestake. The Plan is
intended to further align the interests of outside directors with the interests
of stockholders of Homestake, thereby promoting longterm growth and performance
of Homestake. The Plan is intended to supersede Article 7 of the Homestake
Mining Company Stock Option and Share Rights Plan 1996 and, on the date the Plan
becomes effective, no further grants shall be made to Eligible Directors under
that plan.
ARTICLE 2. ADMINISTRATION.
The Plan shall be administered by the Board. The Board shall
administer the Plan in accordance with the Plan and shall have all powers and
discretion necessary or appropriate to administer the Plan, including but not
limited to, the power to (a) interpret the Plan and (b) make all other decisions
relating to the operation of the Plan. The Board may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Board's
determinations under the Plan shall be final and binding on all persons. No
member of the Board shall be liable for any action or decision made in good
faith in connection with the exercise of the Board's duties under the Plan.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Shares issued pursuant to the Plan shall be authorized
but unissued Shares or treasury Shares. The aggregate number of Shares that may
be issued under the Plan shall not exceed 250,000. The limitations of this
Section 3.1 shall be subject to adjustment pursuant to Section 3.3.
<PAGE>
3.2 Available Shares. If Restricted Shares or Share Rights are forfeited or
terminate for any other reason before being exercised, then such Restricted
Shares and Shares subject to such Share Rights shall again become available for
Awards under the Plan. If cash is paid in lieu of the issuance of Shares, the
number of Shares with respect to which such payment is made shall not again be
available under the Plan.
3.3 Adjustments. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of Shares, merger, consolidation, rights
offering, or any other change in the corporate structure or Shares of Homestake,
the Board shall make such adjustment, if any, as it may deem appropriate in the
number and kind of Shares authorized by the Plan, and in the number and value of
Shares covered by Awards.
ARTICLE 4. PARTICIPATION IN THE PLAN.
Only Eligible Directors are eligible to participate in the
Plan.
ARTICLE 5. AGREEMENTS.
All Awards shall be evidenced by an Agreement signed by the
Eligible Directors and Homestake. Each Award shall be subject to the terms and
conditions of the Plan and to such other terms and conditions as may be
established by the Board.
ARTICLE 6. ANNUAL RETAINER.
6.1 Portion of Annual Retainer Payable in Shares. With respect to each Annual
Service Period, each Eligible Director shall receive, in lieu of cash,
unrestricted Shares having a Fair Market Value equal to 50% of his or her Annual
Retainer. The number of Shares to be issued pursuant to Section 6.1 on each date
that a part of the Annual Retainer is payable shall be determined by dividing
50% of the Annual Retainer that would otherwise have been paid in cash on each
payment date (but for this Section 6.1) by the Fair Market Value of a Share on
that date. The Shares shall be issued as soon as is reasonably possible after
the dates on which the cash portion of the Annual Retainer is to be paid.
6.2 Election to Receive Additional Shares. Not later than ten Business Days
prior to the first day of an Annual Service Period or, if later, the date on
which an individual first becomes an Eligible Director, an Eligible Director
may, by filing a written Annual Election with Homestake, direct Homestake to pay
to such Eligible Director, in the form of unrestricted Shares, some or all of
the cash portion of the Annual Retainer payable to such Eligible Director for
the related Annual Service Period. Any Annual Election shall be effective for
the entire Annual Service Period to which the Annual Election relates. The
number of Shares to be issued pursuant to an Annual Election shall be determined
by dividing the amount of the Annual Retainer that would otherwise have been
paid in cash on each payment date (but for this Section 6.2) by the Fair Market
Value of a Share on that date. Such Shares shall be issued as soon as is
reasonably possible after the dates on which that portion of the Annual Retainer
would have been paid in
2
<PAGE>
cash. If the Annual Retainer is increased during the Annual Service Period,
Eligible Directors shall receive such increase in cash and not Shares,
regardless of whether an Annual Election has been made.
6.3 Bonus Restricted Shares. Each Eligible Director who has made an Annual
Election pursuant to Section 6.2, shall also receive one Restricted Share for
each four Shares issued pursuant to Section 6.2. The Restricted Shares shall be
subject to the provisions of Article 7.
6.4 Election to Defer. Not later than ten Business Days prior to the first day
of an Annual Service Period or, if later, the date on which an individual first
becomes an Eligible Director, an Eligible Director may elect to defer, in
accordance with the Homestake Deferred Compensation Plan, receipt of Shares to
be issued pursuant to Sections 6.1 and 6.2 during the Annual Service Period to
which the election relates. To the extent that any Eligible Director elects to
defer the receipt of Shares, such number of deferred stock units shall be
credited to the Eligible Director's Deferred Compensation Plan account, and such
Deferred Compensation Plan account shall be credited with all dividends and
distributions payable with respect to the number of Shares equal to that number
of deferred stock units.
ARTICLE 7. TERMS OF RESTRICTED SHARES.
7.1 Restrictions. The Restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as otherwise specifically provided,
prior to the lapse of the restrictions.
7.2 Issuance of Shares. Homestake shall issue Restricted Shares awarded
hereunder as soon as practicable after the restrictions thereon shall lapse.
Prior to the lapse of the restrictions thereon, the Restricted Shares shall not
be deemed to be outstanding for any purpose.
7.3 Forfeiture. Restricted Shares shall be forfeited and shall be returned to
Homestake and all rights of the Eligible Director to the Restricted Shares shall
terminate without any payment of consideration by Homestake if the Eligible
Director ceases to be a Director prior to the lapse of the restrictions.
7.4 Lapse of Restrictions. The restrictions shall lapse in accordance with this
section.
(a) Restrictions shall lapse with respect to the first 50% of
the Restricted Shares comprising an Award of Restricted Shares to an
Eligible Director on the first anniversary of the Grant Date.
(b) Restrictions shall lapse with respect to an additional 25%
of such Restricted Shares on the second anniversary of the Grant Date.
(c) Restrictions shall lapse with respect to the final 25% of
such Restricted Shares on the third anniversary of the Grant Date.
3
<PAGE>
(d) In the event that an Eligible Director ceases to be a
Director prior to the lapse of restrictions as described above within
one year following a Change of Control, or by reason of death,
disability, or retirement at mandatory retirement age for Directors,
the restrictions on all Restricted Shares (and accrued dividends
thereon) awarded to such Eligible Director shall lapse on the date the
Eligible Director ceases to be an Director.
(e) The Board shall have the authority to accelerate the time
at which the restrictions will lapse or to remove any of such
restrictions whenever it decides, in its sole discretion, that, by
reason of changes in applicable law or other material changes in
circumstances arising after the date of the Award, such action is in
the best interests of Homestake and equitable to the Eligible Director.
7.5 Voting Rights. Prior to lapse of the restrictions on Restricted Shares,
Eligible Directors shall not have any right to vote with respect to those
Restricted Shares, unless otherwise provided in the Agreement.
7.6 Dividends. Prior to lapse of the restrictions, dividends and other
distributions shall be credited to Restricted Shares, but not paid to Eligible
Directors, unless otherwise provided in the Agreement. After lapse of the
restrictions, Eligible Directors shall be entitled to receive all dividends and
other distributions accrued since the Grant Date with respect to such Restricted
Shares, unless otherwise provided in the Agreement.
ARTICLE 8. INITIAL GRANTS OF SHARE RIGHTS;
ANNUAL GRANTS OF SHARE RIGHTS
8.1 Initial Grant of Share Rights. Effective January 1, 1997, upon first being
elected to the Board, each Eligible Director shall be granted Share Rights
providing for the issuance of 2,000 Shares. For purposes of Section 8.4, the
date of election to the Board shall be the Grant Date for Eligible Directors
elected between January 1, 1997 and the effective date of the Plan.
8.2 Annual Grant of Share Rights. Effective January 1, 1999, on the first day
of each Annual Service Period, each Eligible Director shall be granted Share
Rights providing for the issuance of 1,000 Shares attributable to services
performed during the preceding Annual Service Period. Annual Grants to Eligible
Directors who were not Eligible Directors for the entire preceding Annual
Service Period shall be prorated and rounded to the nearest whole Share based on
the number of days actually served as an Eligible Director during such Annual
Service Period.
8.3 Forfeiture. Share Rights shall be canceled if the Eligible Director ceases
to be a Director before the lapse of the restrictions.
8.4 Lapse of Restrictions. The restrictions imposed on Share Rights shall lapse
upon the earlier of: (i) the third anniversary of the Grant Date, (ii) the date
the Eligible Director ceases to be a Director within one year following a Change
of Control, or (iii) the date the Eligible Director ceases to be a Director by
reason of death, disability, or retirement at mandatory retirement age for
Directors.
4
<PAGE>
8.5 Payment of Share Rights. If the restrictions imposed on an Eligible
Director Share Right lapse, the Shares to which such Share Right relates shall
be issued to the Eligible Director as soon as reasonably possible after the date
the Eligible Director ceases to be a Director.
ARTICLE 9. PLAN TERM; AMENDMENT; TERMINATION.
9.1 Plan Term. The Plan shall be effective upon approval at the next meeting of
stockholders held after Board Approval. Unless terminated sooner in accordance
with Section 9.2, no Award may be granted after the earlier of (i) December 31,
2008, or (ii) the date on which all Shares (or Share Rights in respect thereof)
available for issuance under the Plan have been issued or canceled pursuant to
the exercise or surrender of Awards under the Plan.
9.2 Amendment or Termination. Except as hereafter provided, the Board may, at
any time and for any reason, amend or terminate the Plan. The foregoing
notwithstanding, any amendment of the Plan shall be subject to the approval of
Homestake's stockholders to the extent required by applicable laws, regulations
or rules, or to the extent any such amendment shall (i) increase the maximum
number of Shares issuable under the Plan (except in accordance with Section
3.3), (ii) increase the benefits accruing to Eligible Directors, or (iii) modify
the eligibility requirements for Awards. No Awards shall be granted under the
Plan after the termination of the Plan. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 10. REGULATORY APPROVAL,
REGISTRATION, AND INVESTMENT PURPOSE.
10.1 Regulatory Approval. The implementation of the Plan, the issuance of
Restricted Shares and the granting of any Share Rights shall be subject to
Homestake's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, and the Shares issued pursuant to
it.
10.2 Registration. The Plan, the Shares subject thereto, and the Share Rights
granted thereunder may, in the discretion of the Board, be registered under the
Securities Act and under the securities laws of any state, province or country.
Unless the Share Rights or the Shares shall have been registered under the
Securities Act, each grant of Share Rights and each grant of Shares shall be for
investment and not with a view to resale or distribution of such Shares contrary
to any applicable securities laws. As a condition to the issuance of any Shares
which are not registered under such Act, the Eligible Director and his or her
legal representative, executor, administrator, heir or legatee, as the case may
be, receiving such Shares shall deliver to Homestake a writing, in form and
substance satisfactory to Homestake and its counsel, implementing such
agreement.
5
<PAGE>
ARTICLE 11. MISCELLANEOUS.
11.1 No Right to Continue as a Director. Neither the Plan nor any Award granted
under the Plan shall be deemed to give any individual a right to remain a
Director of Homestake, an Affiliate or any other person. Homestake reserves the
right to terminate the service of any Director in accordance with Homestake's
Certificate of Incorporation, its Bylaws or applicable law.
11.2 Shareholders' Rights. Except as otherwise provided in an Agreement, an
Eligible Director shall have no dividend rights, voting rights or other rights
as a shareholder with respect to any Shares covered by an Award prior to the
issuance of a stock certificate for such Shares and delivery thereof to such
Director.
11.3 Rule 16b3. Homestake intends that, with respect to persons subject to
Section 16 of the Exchange Act, this Plan and the issuance of Restricted Shares,
Share Rights and Shares issued on account of Share Rights will qualify under
Rule 16b3 promulgated thereunder. So long as Homestake has any class of equity
securities registered under the Exchange Act, to the extent required to avoid
application of Section 16(b) of the Exchange Act to an acquisition of Shares,
any equity security, as defined in the Exchange Act or the rules and regulations
thereunder, granted pursuant to the Plan, must be held for six months from the
Grant Date, and in the case of any derivative security (as defined in the rules
and regulations promulgated under Section 16) offered pursuant to the Plan, at
least six months must elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than upon
exercise or conversion) or its underlying equity security, except in the event
of the death or disability of the holder thereof. If any provision of the Plan
or an Agreement requires modification to comply with the requirements of Section
16 and the rules thereunder, the Board may waive, amend or modify the Plan or
the Agreement accordingly. To the extent that any provision of this Plan or
action by the Board fails to comply with the Section 16 rules, it shall be null
and void to the extent permitted by law and deemed advisable by the Board.
11.4 Transferability. Restricted Shares and rights to dividends thereon (prior
to lapse of restrictions thereon) and Share Rights granted under the Plan shall
not be transferable other than by will or the laws of descent or distribution;
provided, however, to the extent permitted by Rule 16b3 or any successor rule,
an Agreement with respect to Restricted Shares and Share Rights may permit
transfers, (i) in connection with an Eligible Director's estate plan, to (a) an
Eligible Director's family members, (b) a trust for the benefit of the Eligible
Director or the Eligible Director's family members, or (c) other members of the
Eligible Director's household, or (ii) pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended, or
Title I of the Employee Retirement Income Security Act, or the rules thereunder.
11.5 Governing Law. The Plan and all Agreements shall be construed in
accordance with and governed by the laws of the State of Delaware.
11.6 Payment of Taxes. Homestake shall have the right to require, prior to the
issuance or delivery of any Shares or dividends thereon, payment by an Eligible
Director of any taxes required by law with respectto the issuance or delivery
of such Shares or dividends. With respect
6
<PAGE>
to tax withholding required upon the grant of Shares, upon the lapse of
restrictions on Restricted Shares, or upon any other taxable event arising out
of or as a result of any grant or Award made hereunder, Eligible Directors may
elect to satisfy the withholding requirement, in whole or in part, by tendering
previouslyowned Shares or by having Homestake withhold Shares having a Fair
Market Value on the date the tax is to be determined equal to the minimum
statutory total tax which could be imposed on the transaction. All elections
shall be irrevocable, made in writing, and signed by the Eligible Director.
11.7 Costs. Homestake shall bear all expenses incurred in administering the
Plan, including expenses related to the award and issuance of Shares, Restricted
Shares and Share Rights.
11.8 Fractional Shares. In all instances, cash shall be paid in lieu of
fractional Shares in an amount equal to the Fair Market Value of the fractional
Shares on the date the fractional Shares would otherwise be payable.
ARTICLE 12. DEFINITIONS.
12.1 General Definitions. The following words and phrases, when used in the
Plan, unless otherwise specifically defined or unless the context clearly
otherwise requires, shall have the following meanings:
"Agreement" means the written agreement setting forth the
terms and provisions applicable to each Award granted under the Plan.
"Annual Election" means an irrevocable election made in
accordance with Section 6.2.
"Annual Retainer" means the annual retainer to be paid by
Homestake to an Eligible Director with respect to an Annual Service Period, at
the rates determined by the Board in advance of such period.
"Annual Service Period" means an annual period determined by
the Board, which annual period shall be January 1 through December 31 or such
other annual period as may be designated from time to time by the Board of
Directors.
"Award" means any award of Shares, Restricted Shares or Share
Rights under the Plan.
"Board" means Homestake's Board of Directors, as constituted
from time to time.
"Change in Control" means the occurrence of any of the
following events:
(a) Homestake is a party to a merger or combination under the
terms of which less than 75% of the shares in the resulting or
continuing publiclyheld company are owned by the shareholders of
Homestake immediately preceding such event; or
7
<PAGE>
(b) At least 75% in fair market value of Homestake's assets
are sold; or
(c) At least 25% in voting power in election of Directors of
Homestake's capital stock is acquired by any one person or group as
that term is used in Rule 13d5 under the Exchange Act.
"Code" means the Internal Revenue Code of 1986, as amended.
"Director" means a member of the Board.
"Eligible Director" means a Director who is not an
employee of Homestake or any of its subsidiaries or affiliates. Directors
emeritus shall not be eligible to participate.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means the fair market value of Shares,
determined by the Board, in its sole discretion.
"Grant Date" means, with respect to an Award, the date that
the Award is deemed granted under the Plan. Within a reasonable time thereafter,
Homestake will execute and deliver an Agreement to the Eligible Director.
"Homestake" means Homestake Mining Company, a Delaware
corporation.
"Plan" means this Homestake Mining Company 1998 Outside
Directors' Stock Compensation Plan, as it may be amended from time to time.
"Restricted Share" means a Share which is subject to the
restrictions set forth in Section 7.
"Securities Act" means the Securities Act of 1933, as amended.
"Share" means one share of the common stock of Homestake.
"Share Right" means the right to acquire a Share for no
consideration.
8
<PAGE>
12.2 Other Definitions. In addition to the above definitions, certain words and
phrases used in the Plan and any Agreement may be defined in other portions of
the Plan or in an Agreement.
IN WITNESS WHEREOF, HOMESTAKE MINING COMPANY has executed this
Plan as of December 1, 1998.
HOMESTAKE MINING COMPANY
By: Wayne Kirk
Wayne Kirk
Vice President, General
Counsel and Secretary
EXHIBIT 11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC:
Earnings:
Net income (loss) $ (218,325) $ (230,606) $ 45,765
================= ================= ===============
Net income (loss) applicable to basic earnings
per share calculation $ (218,325) $ (230,606) $ 45,765
================= ================= ===============
Weighted average number of shares outstanding 213,354 210,537 210,027
================= ================= ===============
Net income (loss) per share - basic $ (1.02) $ (1.10) $ 0.22
================= ================= ===============
DILUTED:
Earnings:
Net income (loss) $ (218,325) $ (230,606) $ 45,765
Add:
Interest relating to 5.5% convertible
subordinated notes, net of tax 8,250 6,517 6,517
Amortization of issuance costs relating to 5.5%
convertible subordinated notes, net of tax 561 443 443
----------------- ----------------- ---------------
Net income (loss) applicable to diluted
earnings per share calculation $ (209,514) $ (223,646) $ 52,725
================= ================= ===============
Weighted average number of shares outstanding:
Common shares 213,354 210,537 210,027
Additional average shares outstanding assuming:
Conversion of 5.5% convertible subordinated notes 6,505 6,505 6,505
----------------- ----------------- ---------------
219,859 217,042 216,532
================= ================= ===============
Net income (loss) per share - diluted (a) $ (0.95) $ (1.03) $ 0.24
================= ================= ===============
<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
produced an anti-dilutive result.
</FN>
</TABLE>
EXHIBIT 13
Index to Exhibit 13:
Selected information from the 1998 Annual Report to Shareholders is incorporated
by reference in the Form 10-K and such information is herewith filed
electronically as Exhibit 13. Such selected information is listed below. Noted
page references correspond to pagination in the 1998 Annual Report to
Shareholders.
Annual Report Page
Management's Discussion and Analysis 28-35
Consolidated Financial Statements 36-40
Notes to Consolidated Financial Statements 41-56
Report of Independent Auditors 57
Management's Responsibility for Financial Reporting 57
Quarterly Selected Data 58
Five-Year Selected Data 59
Common Stock Price Range 59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(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 Mining Company ("Homestake" or the "Company")
acquired 100% of Plutonic Resources Limited ("Plutonic"), a publicly-traded
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.
On December 3, 1998 Homestake acquired the 49.4% of Prime Resources
Group Inc. ("Prime") it did not already own by issuing 16.7 million Homestake
common shares and 11.1 million Homestake Canada Inc. ("HCI") exchangeable
shares. 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 one
Homestake common share. As a result of this transaction, which was accounted for
as a purchase, Homestake owns 100% of Prime.
RESULTS OF OPERATIONS
Homestake recorded a net loss of $218.3 million or $1.02 per share during 1998
compared to a net loss of $230.6 million or $1.10 per share during 1997 and net
income of $45.8 million or $0.22 per share during 1996. The 1998 loss includes
write-downs and unusual items amounting to $195 million or $0.91 per share
compared to write-downs and unusual items amounting to $159.2 million or $0.76
per share in 1997 and net nonrecurring income of $18.3 million or $0.08 per
share in 1996.
Excluding the effect of the write-downs and unusual items, Homestake
incurred a net loss of $23.3 million or $0.11 per share in 1998 compared to a
net loss of $71.4 million or $0.34 per share in 1997 and net earnings of $27.5
million or $0.14 per share in 1996. The reduced 1998 loss compared to 1997 was
due to significantly lower per ounce cash costs, lower depreciation and
exploration expenses and lower income taxes, partially offset by lower gold
prices. The 1997 loss compared to net income in 1996 primarily was due to
significantly lower gold prices, partially offset by higher gold production and
lower per ounce cash costs.
A summary of significant write-downs and unusual items in 1998, 1997 and
1996 follows:
<TABLE>
<CAPTION>
Significant Write-downs and Unusual Items
(after tax in millions of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Resource asset write-downs $(120.6) $(60.1)
Increase in the estimated accrual for remediation
and reclamation expenditures (36.0) (21.5)
Plutonic business combination and
integration costs (16.7)
Homestake mine restructuring charges (5.9)
Write-down of Homestake's investment
in the Main Pass 299 sulfur mine (84.9)
Gain on termination of Santa Fe merger 47.2
Reduction in accrual of prior year income taxes $24.0
Write-downs of noncurrent investments (7.6) (45.7) (8.3)
Other (8.2) 5.8 2.6
- -----------------------------------------------------------------------------------------------------------
$(195.0) $(159.2) $18.3
===========================================================================================================
</TABLE>
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. 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.
During 1998, 1997 and 1996 the Company delivered or financially settled
358,000, 656,000 and 508,400 ounces of gold at average prices of $359, $421 and
$474 per ounce, respectively, under forward sales contracts and delivered in
1998 an additional 900,000 ounces of gold at a price of $325 per ounce under
option contracts. During 1998, the Company also closed out and financially
settled one million ounces of its Australian dollar-denominated forward gold
contracts. The $5 million gain realized on this transaction has been deferred
and will be recorded in income as the originally designated production is sold.
The Company's hedging activities increased revenues by approximately
28
<PAGE>
$47 million, $25 million and $43 million in 1998, 1997 and 1996, respectively.
The estimated fair value of the Company's gold and silver hedging position at
December 31, 1998 was approximately $81 million.
A significant portion of the Company's operations are located in
Australia and Canada. The Company's profitability is impacted by fluctuations in
these countries' currency 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. The average Canadian/U.S. dollar exchange rate decreased from
$0.7331 in 1996 to $0.7224 in 1997 and to $0.6748 in 1998, and the average
Australian/U.S. dollar exchange rate decreased from $0.7834 in 1996 to $0.7442
in 1997 and to $0.6297 in 1998. As a result, the Company recorded foreign
currency losses of $34.3 million and $28.5 million during 1998 and 1997,
respectively, under this program compared to a foreign currency gain of $1.6
million during 1996. At December 31, 1998 the Company had net unrealized losses
of $24 million on open contracts under this program.
See notes 2 and 20 to the consolidated financial statements for
additional information regarding the Company's hedging programs and the future
adoption of Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities".
Revenues from gold, ore and concentrate sales totaled $782.2 million
during 1998 compared to revenues of $863.6 million in 1997 and $921.7 million in
1996. The decrease in revenues in 1998 from 1997 primarily is due to lower gold
prices. The decrease in revenues in 1997 from 1996 is due to lower gold prices,
partially offset by higher production. During 1998, the Company realized an
average price of $312 per gold equivalent ounce compared to $353 per gold
equivalent ounce in 1997 and $406 per gold equivalent ounce in 1996. Gold
equivalent production totaled 2,531,700 ounces during 1998 compared to 2,528,900
ounces during 1997 and 2,417,900 ounces during 1996.
<TABLE>
<CAPTION>
Consolidated Production Costs per Ounce
(per ounce of gold) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct mining costs $185 $222 $244
Deferred stripping adjustments 1 5 1
Costs of third-party smelters 12 14 14
Other 1 (4)
- ------------------------------------------------------------------------------------------------------------
Cash Operating Costs 198 242 255
Royalties 3 3 4
Production taxes 1 1 2
- ------------------------------------------------------------------------------------------------------------
Total Cash Costs 202 246 261
Depreciation and amortizaton 50 54 57
Reclamation 6 3 5
- ------------------------------------------------------------------------------------------------------------
Total Production Costs $258 $303 $323
============================================================================================================
</TABLE>
Homestake's reported consolidated cash cost per gold equivalent
ounce was $202 during 1998 compared to $246 and $261 during 1997 and 1996,
respectively. The lower cash cost per ounce in 1998 reflects the effect of the
Company's cost containment efforts, weaker Australian and Canadian currencies,
the impact of initial production at the low-cost Ruby Hill mine, higher
production at the low-cost Eskay Creek mine and a decrease in production at the
high-cost Homestake mine. Cash costs per ounce decreased during 1997 compared to
1996 primarily due to a weaker Australian dollar, higher production at the
Kalgoorlie, Plutonic and Lawlers operations, higher shipments and higher grades
at the Eskay Creek mine and higher production at the Round Mountain mine,
partially offset by lower grades at the Williams and David Bell mines.
Homestake's total noncash cost per equivalent ounce was $56 during 1998
compared to $57 and $62 per ounce during 1997 and 1996, respectively. The
decrease in noncash costs in 1997 from 1996 primarily was due to reserve
expansions at the Eskay Creek and Snip mines. In 1999, noncash costs per ounce
are expected to remain at current levels as the additional depreciation charges
resulting from the acquisition of the Prime minority interests will be offset by
reduced depreciation charges following the resource asset write-downs recorded
at September 30, 1998.
<TABLE>
<CAPTION>
Reconciliation of Total Cash Costs per Ounce to Financial Statements
(millions of dollars, except per ounce amounts) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Production Costs per Financial Statements $537.3 $627.6 $615.5
Costs not included in Homestake's
production costs:
Costs of third-party smelters (a) 32.4 34.5 33.1
Production costs of consolidated joint ventures (4.6) (3.3)
Production costs of equity-accounted investments 1.9 1.9 12.9
Sulfur and oil production costs (24.2) (25.4) (23.2)
Reclamation accruals (13.4) (9.0) (11.3)
By-product silver revenues (3.1) (2.6) (3.1)
Inventory movements and other (13.8) (6.4) 6.8
- -------------------------------------------------------------------------------------------------------------
Production Costs for Per Ounce Calculation $ 512.5 $ 617.3 $630.7
- -------------------------------------------------------------------------------------------------------------
Ounces Produced during the Year (in thousands) 2,532 2,529 (b) 2,418
- -------------------------------------------------------------------------------------------------------------
Total Cash Costs Per Ounce $ 202 $ 246 $ 261
=============================================================================================================
<FN>
a. Eskay Creek sells ore and concentrates containing gold and silver directly
to third-party smelters. For comparison purposes, cash operating costs per
ounce include estimated third-party costs incurred by smelters and others
to produce marketable gold and silver.
b. Includes 16,600 ounces produced at the Ruby Hill mine during 1997, prior to
commercial production, which are excluded from the cost per ounce
calculation.
</FN>
</TABLE>
29
<PAGE>
United States
United States gold production of 691,500 ounces at a cash cost of $221 per ounce
during 1998 compares to production of 702,800 ounces at a cash cost of $286 per
ounce during 1997 and 732,100 ounces at a cash cost of $283 per ounce during
1996. The slight decrease in production and significant decrease in costs during
1998 primarily reflects lower production at the Homestake mine in South Dakota
and initial production from the new Ruby Hill mine in Nevada.
In January 1998, the Company began a major restructuring of underground
operations at the Homestake mine to reduce operating costs. The new mine plan,
which involved a workforce reduction of 450 employees, is designed to improve
the grade of ore recovered through the increased use of mechanized cut-and-fill
mining methods. Following an additional capital investment of approximately $30
million, the new plan contemplates annual gold production from the underground
operations of 150,000 to 180,000 ounces of gold at a cash cost of $280 per
ounce. The decision to proceed with the capital expenditure program will be made
during the first half of 1999. Homestake mine production decreased to 277,400
ounces at a cash cost of $249 per ounce in 1998 from 397,300 ounces at a cash
cost of $310 per ounce during 1997 and 407,300 ounces at a cash cost of $304
during 1996. The lower production and decrease in cash costs during 1998
reflects a decrease in the production levels in the higher-cost, higher-grade
underground operations and an increase in the rate of processing the lower-cost,
lower-grade Open Cut ore. Mining at the Open Cut was completed in September 1998
and the processing of remaining stockpiled ore will be completed during the
second quarter of 1999.
The Ruby Hill mine, which commenced commercial production effective
January 1, 1998, produced 116,500 ounces of gold in 1998 at a cash cost of $122
per ounce. Production from the mine exceeded expectations in 1998 due to higher
ore grades.
Production at the McLaughlin mine in northern California totaled
128,700 ounces in 1998 compared to 118,500 ounces during 1997 and 185,500 ounces
during 1996. In June 1996, mining operations were completed and the autoclaves
were shut down as the orebody was depleted. Through 2002, lower-grade stockpiled
ore will be processed through a conventional carbon-in-pulp circuit. Cash costs
during 1998 were $219 per ounce compared to $254 per ounce during 1997 and $250
per ounce in 1996. The decrease in cash costs per ounce during 1998 is due to
higher grades and cost containment measures. Production is expected to decrease
and cash costs per ounce are expected to increase during 1999, as the
higher-grade portion of the remaining stockpiles will be consumed by mid-1999.
Canada
Canadian gold production of 890,400 equivalent ounces at a cash cost of $166 per
ounce during 1998 compares to production of 835,400 equivalent ounces at a cash
cost of $186 per ounce during 1997 and 858,900 equivalent ounces at a cash cost
of $200 per ounce during 1996. The increase in production and decrease in costs
during 1998 primarily reflects higher production at the Eskay Creek mine in
British Columbia and a weaker Canadian dollar, partially offset by lower
production at the Hemlo mining camp in Ontario and at the Snip mine in British
Columbia.
Production at the Eskay Creek mine, consisting of payable gold and
silver in ore and concentrates sold, increased to 504,800 equivalent ounces of
gold during 1998 from 417,300 and 372,300 equivalent ounces in 1997 and 1996,
respectively. Cash costs per equivalent ounce, including third-party smelter
costs, decreased to $133 during 1998 from $157 per equivalent ounce during 1997
and $170 per equivalent ounce during 1996. The increase in 1998 production
primarily is due to the new gravity/flotation mill commissioned in December
1997, which produced concentrates containing 107,300 equivalent ounces of gold,
and the effect of a lower gold/silver equivalency. Eskay Creek silver production
is converted to gold equivalent production using the ratio of the gold market
price to the silver market price. During 1998, the Company converted silver to
gold using an equivalency factor of 52.6 ounces of silver equals one ounce of
gold production compared to equivalency factors of 68.2 ounces and 74.9 ounces
of silver equals one ounce of gold production in 1997 and 1996, respectively.
Cash costs per equivalent ounce declined in 1998 due to the lower-cost
production from the mill and the weaker Canadian dollar. The lower 1997 costs
per ounce compared to 1996 primarily were a result of increased ore sales,
higher gold grades, productivity improvements, and a decrease in the gold/silver
equivalency ratio, partially offset by lower silver grades.
The Company's share of gold production from the Williams mine in the
Hemlo mining camp amounted to 195,200 ounces at a cash cost of $217 per ounce
during 1998 compared to 201,100 ounces at a cash cost of $229 per ounce during
1997 and 205,500 ounces at a cash cost of $222 per ounce during 1996. The
production decreases in 1998 and 1997 were due to declines in ore grades,
partially offset by increased throughput. The Company's share of production at
the David Bell mine, also in the Hemlo mining camp, amounted to 79,800 ounces at
a cash cost of $200 per ounce during 1998 compared to production of 90,000
ounces at a cash cost of $194 per ounce during 1997 and 97,700 ounces at a cash
cost of $172 per ounce during 1996. The decline in production in 1998 is due to
lower ore grades as the grade of ore mined more closely approximates the
remaining average reserve grade. The decrease in production during 1997 from
1996 was due to lower ore grades, partially offset by higher throughput.
Operation of the David Bell mill is expected to be discontinued
30
<PAGE>
in the third quarter of 1999 and ore from both the Williams and David Bell mines
will be processed at the lower-cost Williams mill.
Production from the Snip mine decreased to 99,300 ounces at a cash cost
of $205 per ounce during 1998 from 115,600 ounces at a cash cost of $213 per
ounce during 1997 and 101,800 ounces at a cash cost of $190 per ounce during
1996. Production in 1998 decreased primarily due to lower grade. Production
increased in 1997 compared to 1996 due to Homestake's April 1996 purchase of an
additional 60% interest in the mine, partially offset by a decrease in total
tonnage milled. This operation is expected to complete mining of the existing
ore reserves and commence decommissioning and final reclamation in the second
quarter of 1999.
Australia
Western Australian gold production of 925,700 ounces at a cash cost of $224 per
ounce during 1998 compares to production of 974,300 ounces at a cash cost of
$269 per ounce during 1997 and 818,600 ounces at a cash cost of $305 per ounce
during 1996. The decrease in production during 1998 primarily reflects lower
production at the Kalgoorlie and Plutonic operations, partially offset by higher
production at the Lawlers and Darlot mines. The increase in production during
1997 from 1996 primarily reflects higher production at the Kalgoorlie, Plutonic
and Lawlers operations. The decreases in cash costs per ounce during 1998 and
1997 primarily are due to the weaker Australian dollar and productivity
improvements.
Homestake's share of production from the Kalgoorlie operations totaled
390,200 ounces at a cash cost of $229 per ounce during 1998 compared to 425,900
ounces at a cash cost of $259 per ounce during 1997 and 368,800 ounces at a cash
cost of $291 per ounce during 1996. The decrease in production in 1998 primarily
is due to lower Fimiston mill throughput and a decrease in production at the Mt
Charlotte mine. The increase in production during 1997 from 1996 reflects higher
mill throughput, ore grades and recoveries. The decrease in cash costs in 1998
primarily reflects the weaker Australian dollar. The decrease in cash costs in
1997 from 1996 reflects higher production, the installation of a recycle crusher
at the Fimiston mill, and a weakening of the Australian dollar.
In June 1998, structural cracks were detected in the SAG mill ring gear
of the Fimiston mill. Temporary repairs were made and operation of the SAG mill
currently is being limited to 90% of rated power in order to minimize stress on
the gear. A temporary replacement gear was fabricated and will be available for
use as an emergency spare. A permanent replacement is expected to be available
in May 1999. The underwriters of Homestake's property and business interruption
insurance policies have acknowledged liability and the extent of the ultimate
recovery is now being determined. Homestake recorded a reduction of $0.6 million
in 1998 operating costs for its share of insurance proceeds pertaining to
business interruption coverage related to 1998 operations. Further business
interruption insurance proceeds related to 1999 operations are expected and will
be offset against 1999 operating costs. In January 1999, Homestake and its 50%
joint venture partner Normandy Mining Ltd. ("Normandy") announced that they had
reached agreement with the current open-pit mining contractor to progressively
transfer mining operations to Kalgoorlie Consolidated Gold Mines Pty Ltd over
the next 12 months. Homestake's share of the total cost of the conversion
project including the mining fleet acquisition is estimated to be $33.6 million.
Once full conversion to owner mining is completed, Homestake expects Super Pit
cash costs to be reduced by approximately $26 per ounce.
During 1998, Homestake and Normandy announced a revised operating plan
at the Mt Charlotte mine. The mine has experienced a downturn in economic
performance and an increased level of ground movement. The new plan provides for
a restricted level of mining activity in low-risk areas of the mine until
approximately the fourth quarter of 1999. Performance of the mine will be
monitored to determine whether the operation will continue beyond that period.
Production at the Plutonic mine totaled 255,500 ounces in 1998 compared
to 274,600 ounces in 1997 and 183,700 ounces in 1996. The decrease in production
in 1998 from 1997 primarily is due to lower ore grades and lower mill throughput
as the mine changes from an open pit to an underground mining operation. The
increase in 1997 production primarily is due to an increase in throughput
following an expansion of the mill in late 1996. During 1998, ore sourced from
the underground operations provided 41% of total production compared to 26% in
1997 and 22% in 1996. Cash costs of $226 per ounce in 1998 compare to $234 per
ounce in 1997 and $276 per ounce during 1996. Cash costs in 1998 decreased due
to the weakening of the Australian dollar. In Australian dollars, cash costs per
ounce increased by 5% in 1998 due to the lower production.
Production at the Darlot mine increased to 77,500 ounces in 1998
compared to 65,200 ounces in 1997 and 62,800 ounces in 1996. The increase in
production in 1998 was due to higher throughput and initial mining in the new
higher-grade Centenary underground orebody. Cash costs of $250 per ounce in 1998
compare to $320 per ounce in 1997 and $345 per ounce during 1996. The lower cash
costs per ounce primarily are due to the higher production and the weakening of
the Australian dollar. Production from the higher-grade Centenary orebody is
expected to increase through 1999 while in-fill drilling and ore block
development continues.
Production at the Lawlers mine increased to 126,400 ounces in 1998 from
87,500 and 50,600 ounces during 1997 and 1996, respectively. The increase in
production in 1998 was due to higher grades and increased throughput, primarily
from the New Holland and Fairyland deposits. Production increased in 1997 from
1996 primarily due to
31
<PAGE>
higher-grade ore sourced from the New Holland pit. The weaker Australian dollar
and higher production in conjunction with successful cost reduction efforts
reduced cash costs to $181 per ounce in 1998 from $260 per ounce in 1997 and
$417 per ounce in 1996. Open-pit mining was completed in October 1998. All
production in 1999 is expected to be from the underground operations.
During 1998, mining operations were completed at the 80%-owned Mt
Morgans mine and at the 66.7%-owned Peak Hill mine. Processing of lower-grade
stockpiles continued at the Mt Morgans mine until November 1998 and is expected
to continue at the Peak Hill mine until October 1999. During 1998, the Company's
share of production at the Mt Morgans mine decreased to 52,400 ounces at a cash
cost of $213 per ounce, and the Company's share of production at the Peak Hill
mine decreased to 23,800 ounces at a cash cost of $280 per ounce. Homestake is
continuing active exploration in the vicinity of these properties.
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. During 1998,
lower sales prices, reduced sales volumes and higher operating costs for both
sulfur and oil operations resulted in Homestake recording a Main Pass 299
operating loss of $5.3 million compared to an operating loss of $3.6 million
during 1997 and an operating profit of $1.3 million in 1996. In late September
1998, all Main Pass 299 drilling and production operations were shut down for
three days in response to adverse weather conditions caused by a hurricane. The
shutdown caused nine previously producing sulfur wells to require redrilling. As
a result, production levels were lower and unit production costs increased
during the fourth quarter of 1998 and are expected to continue to be higher in
the first half of 1999.
During 1997, due to a prolonged period of low sulfur prices and
Homestake's assessment of estimated future cash flows from sulfur operations,
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.
Other income (loss) of $(24.7) million in 1998 compares to $63.6 million in 1997
and $25.6 million in 1996. Other income in 1998 and 1997 includes foreign
currency exchange losses of $40 million and $34.1 million, respectively,
reflecting significant weakening of both the Canadian and Australian currencies
in relation to the United States dollar. Other income in 1998 also includes
gains on sales of investments of $5.3 million. Other income in 1997 also
includes a gain of $62.9 million related to the fee received on termination of
the merger with Santa Fe Pacific Gold Corporation ("Santa Fe"), income of $10.4
million related to an agreement to sell a right to cancel the Company's option
to acquire shares of Great Central Mines Limited ("Great Central"), and a gain
of $13.5 million from the sale of the George Lake and Back River joint venture
interests. Other income in 1996 includes a gain of $7.9 million on the sale of
an investment in Eagle Mining Corporation NL ("Eagle Mining"), income of $4.7
million on the execution of the agreement to cancel the Company's option to
acquire shares of Great Central, and $8.9 million of foreign exchange losses,
primarily on Canadian dollar denominated advances to HCI.
Depreciation, depletion and amortization of $139.4 million during 1998 compares
to $162.8 million during 1997 and $151.9 million during 1996. Depreciation
expense decreased in 1998 from 1997 following the asset write-downs recorded in
1997 and 1998. The increase in depreciation in 1997 from 1996 reflects higher
production, partially offset by reserve expansions at the Eskay Creek and Snip
mines.
Exploration expense of $55.3 million in 1998 compares to $65.2 million in 1997
and $67.4 million in 1996. During 1998, the Company continued to concentrate its
exploration efforts in and around its existing operations. Significant
expenditures were made in Western Australia around the operations acquired as
part of the Plutonic acquisition and resulted in the discovery of additional
reserves and mineralized zones at the Lawlers mine. In addition, mineralized
zones have been identified at the Just-In-Case prospect near the Mt Morgans mine
and at the Mt Goode nickel prospect owned by Lachlan Resources NL ("Lachlan"),
an 81%-owned subsidiary of the Company acquired as part of the Plutonic
acquisition. Significant expenditures also were made at the Eskay Creek and Ruby
Hill mines, the Pinson mine in Nevada and at the Jeronimo project in Chile. The
Company currently plans to spend approximately $45 million on exploration
activities during 1999.
Resource asset write-downs: During 1998, due to the continuing low-gold price
environment, the Company reviewed the carrying values of its gold mining
operations using a $325 per ounce gold price. As a result of this review, the
Company determined that impairment existed and that write-downs were required to
reduce the carrying values of several of its assets or operations. Based on
estimated future cash flows, the Company did not expect to recover its remaining
investments in property, plant and equipment at the Homestake and Mt Charlotte
mines. Accordingly, the Company recorded write-downs of $76.1 million and $38.4
million reducing the remaining carrying values of property, plant and equipment
at the Homestake and Mt Charlotte mines, respectively, to zero. The Company also
recorded write-downs of $26.9 million related to other mineral properties,
including $19.4 million related to mineral properties owned by Lachlan.
In 1997, the Company reviewed the carrying values of its gold mining
operations using a $350 per ounce gold price at its long-lived operations and
$325 per ounce gold
32
<PAGE>
price at its short-lived operations. As a result of that review, the Company
determined that impairment existed and that write-downs were required to reduce
the carrying values of several of its assets or operations with short remaining
lives, including the Mt Morgans and Peak Hill mines, the Pinson mine, the
Homestake mine's Open Cut, low-grade stockpiled ore and exploration properties
at certain locations in Western Australia and redundant mining equipment at the
Kalgoorlie operations.
Environmental: During 1998, the Company recorded a provision for estimated
additional remediation and related reclamation costs at the Homestake mine of
$35 million. The recognition of this liability was caused by the findings of an
environmental audit and changes in the operation's mining plans.
The Company's estimates of its remediation and reclamation obligations
are based on currently available facts, existing technology and presently
enacted laws and regulations. The Company regularly reviews these obligations.
However, it is reasonably possible that as reclamation plans and associated cost
estimates change, the Company's remediation and reclamation liability could
change significantly.
Income and mining taxes: Homestake's income and mining tax rate was 5.7% during
1998 compared to 7.9% and 27.4% during 1997 and 1996, respectively. The
geographic mix of pretax income and losses dramatically impacts the overall
effective tax rate. During 1998, the Company had pretax income of $38.1 million
in Canada, and pretax losses of $163.4 million and $94.9 million in the United
States and Australia, respectively. In addition, the Company had pretax losses
of $8 million in foreign jurisdictions other than Canada and Australia ("Other
Foreign"). Homestake incurred a tax expense of $15.8 million on Canadian income,
and a tax benefit of $28.9 million on Australian losses resulting in a net
consolidated tax benefit of $13.1 million. In 1998, no tax benefit was
recognized on losses incurred in the United States and Other Foreign
jurisdictions due to the uncertainty of their realization.
The Canadian statutory tax rate, including federal and provincial
income tax and mining tax is approximately 49.2%. The Company's effective
Canadian tax rate in 1998 was 41.7%, primarily reflecting the realization of a
reduction in prior years' income tax accruals for certain contingencies that
were favorably resolved. The Company's effective Australian tax rate was 30.5%
in 1998 versus the statutory rate of 36% due to nondeductible expenses, which
reduced the loss for tax purposes. The statutory tax rate in the United States
is 35%. However, when the Company does pay tax, it is generally subject to the
20% Alternative Minimum Tax. The effective U.S. tax rate was zero in 1998
reflecting the increase in valuation allowances discussed below. In addition, no
tax benefit was recorded for Other Foreign losses, due to the uncertainty of
their realization.
At December 31, 1998 and 1997 the Company had valuation allowances
related to its deferred tax assets of $207.2 million and $107.9 million,
respectively. Based on current projections of taxable income in United States
and Other Foreign jurisdictions, Homestake does not expect to realize a benefit
from these tax assets. In addition, there currently is not a strategy that would
result in the realization of the Australian deferred tax assets. While
circumstances could occur which would permit the Company to realize these
benefits in the future, the Company's current projections indicate that it is
more likely than not that these deferred tax assets will not be realized.
Minority interests: Income allocable to minority interests in consolidated
subsidiaries amounted to $3.2 million in 1998 compared to $4 million in 1997 and
$13.3 million in 1996. The decrease in income allocable to minority interests in
1998 from 1997 primarily is attributable to the minority interests' share of the
Lachlan mineral property write-downs. The decrease in income allocable to
minority interests in 1997 from 1996 is due to reduced earnings from the Eskay
Creek and Snip mines, and increases in exploration expenditures incurred by
Lachlan and the Company's 51%-owned subsidiary, Agua de la Falda S.A.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, Homestake's cash and equivalents and short-term investment balances
increased by $34.1 million to $299.4 million. Net cash provided by operations in
1998 amounted to $119.9 million compared to $160 million and $182.2 million in
1997 and 1996, respectively. The decrease in cash provided by operations during
1998 primarily is due to lower gold prices and the inclusion in 1997 of the $65
million fee received on termination of the merger with Santa Fe.
In July 1998, the Company entered into a new United
States/Canadian/Australian cross-border credit facility providing a total
availability of $430 million. The new facility replaced the Company's $275
million cross-border credit facility and Plutonic's A$400 million syndicated
credit facility. The new 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. At December 31, 1998 Australian
dollar-denominated borrowings of $142.4 million (A$233 million) were
outstanding. Under the new facility, 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 new credit
agreement requires, amongst other provisions, a minimum consolidated net worth,
as defined in the agreement
33
<PAGE>
(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 under the new facility is payable quarterly based on the Australian
Bank Bill Swap Rate plus a margin of up to 1.125%. At December 31, 1998 this
interest rate was 5.95%.
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 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 has notified the trustee that it will redeem $10
million of the Waste Disposal Bonds in March 1999 out of the funds held in
trust. See note 13 to the Consolidated Financial Statements for further
information on the Company's long-term debt.
The acquisition of the Prime minority interests was accounted for as a
purchase. Based upon the total purchase price of $321.8 million (including $4
million of capitalized direct acquisition costs), the excess of the purchase
price paid over the net book value of the minority interests acquired was $224
million of which $174 million ($259.6 million including an increase related to
deferred taxes) was allocated to the Eskay Creek mine's ore reserves and $50
million ($74.6 million including an increase related to deferred taxes) was
allocated to the Eskay Creek exploration properties.
In February 1997, Homestake completed the sale of its interests in the
George Lake and Back River joint ventures in Canada to Kit Resources Corporation
("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. As
a result of this transaction, the Company recorded a pretax gain of $13.5
million.
In November 1997, Homestake purchased a 20% interest in Navan Bulgarian
Mining BV ("Navan BV"), a wholly-owned subsidiary of Navan Resources plc, for
$12 million. In September 1998, Homestake completed its evaluation of Navan BV's
Chelopech project and concluded that the project did not warrant Homestake's
participation and therefore terminated its participation in Navan BV. Navan BV
returned approximately $11 million of Homestake's investment.
In 1996, the Company paid $51.4 million to purchase the
disproportionate sharing arrangement covering gold production from a portion of
the Super Pit and now shares equally with Normandy in all gold produced at the
Kalgoorlie operations.
In 1996, Lachlan acquired 90.7% of Archaean Gold NL ("Archaean") for
$36.8 million. In 1997, Lachlan acquired the remaining interest in Archaean.
This acquisition, which was accounted for as a purchase, was funded by a $33.2
million (A$50.9 million) loan from the Company to Lachlan. In May 1998, Lachlan
repaid this loan by issuing additional shares to the Company, which increased
the Company's interest in Lachlan from 62.1% to 81.2%.
In 1995, the Company provided Edensor Nominees Pty, Ltd. ("Edensor")
with a loan facility for up to $37 million (A$50 million) and was granted an
option to acquire 19.9% of the issued capital of Great Central in consideration
for this loan. In 1996, the Company sold a right to cancel this option. The
Company received $4.7 million in 1996 and $10.4 million in 1997 in respect to
the cancellation of the Company's option. Borrowings by Edensor under the loan
facility were repaid to the Company in 1997 and the loan facility was cancelled.
During the fourth quarter of 1995 and the first quarter of 1996,
Homestake acquired the 18.5% of HGAL it did not already own. The total purchase
price was $164.9 million, including $141.7 million for 8.5 million newly issued
shares of the Company, $19.5 million in cash and $3.7 million of transaction
expenses.
In October 1995, the Company acquired most of Dominion Mining Limited's
("Dominion") gold assets. As part of its agreement with Dominion, the Company
offered Dominion shareholders the opportunity to subscribe for shares of the
Company instead of receiving a return of Dominion capital. As a result, 2.3
million shares of the Company were issued to Dominion shareholders in January
1996 for consideration of $32.1 million.
Capital expenditures of $73.3 million in 1998 include $11.2 million and
$8 million at the Plutonic and Darlot mines, respectively, primarily for
underground development work, $6 million at the Round Mountain mine for
construction of new shops and other facilities, $12.7 million at the Homestake
mine for underground operations, $7.3 million at the Kalgoorlie operations
primarily to increase the flotation capacity at the Fimiston mill and complete a
decline from surface and a ventilation raise at the Mt Charlotte mine. The
remaining expenditures primarily were for replacement capital to maintain
existing production capacity.
In addition to sustaining capital, planned capital expenditures of
approximately $124 million during 1999 include $46 million at the Super Pit
primarily to purchase equipment for owner mining and to upgrade the Fimiston
mill flotation circuit, $20 million, $16 million and $9 million at the Darlot,
Plutonic, and Lawlers mines, respectively, primarily for underground
development, and $11 million at the Homestake mine related to the restructuring
of the underground operations.
34
<PAGE>
During 1997, Homestake reduced its dividend rate to semiannual payments
of $0.05 each.
The Company paid cash income and mining taxes (net of tax refunds) of
$22.6 million in 1998 compared to $66.2 million and $15.9 million in 1997 and
1996, respectively. The 1998 net payments include $9 million of net refunds for
1997 and earlier years and $31.6 million of Canadian estimated payments for the
1998 tax year. The decrease in net cash tax payments is due to refunds of prior
years' tax payments in the United States. In addition, Canadian cash tax
payments were lower in 1998 compared to 1997 due to the timing of estimated tax
payments.
Year 2000 Compliance
The Company has completed a review of its computer-based information systems and
has developed a plan to ensure that all of these systems will be Year 2000
compliant. With the exception of certain of the financial systems the Company
acquired as part of the recent acquisition of Plutonic, Year 2000 compliant
upgrades for the Company's core financial systems have been installed and
tested. The non-compliant Plutonic financial systems and all other Company
information systems hardware and software will be brought into compliance by
mid-1999.
The Company currently is in the process of identifying 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 is due to be completed by April 1999. The Company will
upgrade systems and/or develop contingency plans based on this review. 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 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 during 1998 were
approximately $0.8 million.
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 interruption in the supply of power, fuel and/or
water to certain of its operating locations. A disruption in the supply of any
of these utilities could significantly hamper or curtail production at an
operating location until service is restored. A disruption in the supply of
other services or supplies at an operating location potentially could result in
a production disruption at that location.
The Company's principal customers are major financial institutions.
Because of government mandated Year 2000 compliance programs in that 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.
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.
Cautionary Statement Under the Private Securities Litigation Reform Act
This report contains forward-looking statements that are based on management's
expectations and assumptions. They include statements preceded by the words
"believe," "estimate," "expect," "intend," "will," and similar expressions, and
estimates of reserves, future production and mine life, costs per ounce,
reclamation and remediation costs, dates of construction completion, costs of
capital projects and commencement of operations, exploration costs and taxes.
Actual results may differ materially from expectations.
Among the important factors that could cause actual results to differ
materially are the following. Reserve estimation is an interpretive process
based on drilling results and past experience as well as estimates of ore
characteristics and mining dilution, prices, costs of mining and processing,
capital expenditures and many other factors. Actual quality and characteristics
of ore deposits cannot be known until ore is actually mined. Reserves change
over time to reflect actual experience. Grades of ore processed at any time also
may vary from reserve estimates due to geologic variations within areas mined.
Production and mine lives may vary from estimates for particular properties and
for the Company as a whole because of changes in reserves, variation in ore
mined from estimated grade and metallurgical characteristics, unexpected ground
conditions, mining dilution, labor actions, and government restrictions. Cash
costs may vary due to changes from reserve and production estimates, unexpected
mining conditions, and changes in estimated costs of equipment, supplies,
utilities, labor costs and exchange rates. Noncash costs estimates, based on
total capital costs and reserve estimates, change based on actual amounts of
unamortized capital, changes in estimates of final reclamation, and changes in
reserves. Reclamation and remediation cost estimates are based on existing and
expected legal requirements, past experience, cost estimates by the Company and
others, and expectations regarding government action and time for government
agencies to act, all of which change over time and require periodic
reevaluation. Capital cost estimates are based on operating experience, expected
production, estimates by and contract terms with third-party suppliers, expected
legal requirements, feasibility reports by Company personnel and others, and
other factors. Factors involved in estimated time for completion of projects
include the Company's experience in completing capital projects, estimates by
and contract terms with contractors, engineers, suppliers and others involved in
design and construction of projects, and estimated time for the government to
process applications, issue permits and take other actions. Changes in any
factor may cause costs and time for completion to vary significantly from
estimates. There is a greater likelihood of variation for properties and
facilities not yet in production due to lack of actual experience. Exploration
cost estimates are based on past experience, estimated levels of future activity
and assumptions regarding results on a particular property and change based on
actual exploration results (increasing or decreasing expenditures), changed
conditions and property acquisitions and dispositions. Tax estimates reflect
expectations regarding geographic sources of income, locations of expenditures
and expected tax rates in each jurisdiction, and change as the mix of income,
expenditures and tax rates change.
35
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gold and ore sales $ 782,159 $ 863,628 $ 921,685
Sulfur and oil sales 20,975 26,821 30,749
Interest income 19,383 17,320 20,392
Other income (loss) (note 4) (24,740) 63,646 25,620
- ---------------------------------------------------------------------------------------------------------------------------
797,777 971,415 998,446
- ---------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Production costs 537,291 627,639 615,491
Depreciation, depletion and amortization 139,371 162,781 151,852
Administrative and general expense 46,214 48,905 48,664
Exploration expense 55,345 65,238 67,363
Interest expense 20,884 20,756 19,140
Business combination and integration costs (note 3) 19,077
Write-downs and other unusual charges (note 5) 203,657 285,315 8,983
Other expense 4,165 6,836 5,592
- ---------------------------------------------------------------------------------------------------------------------------
1,026,004 1,217,470 917,085
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Taxes and Minority Interests (228,227) (246,055) 81,361
Income and Mining Taxes (note 6) 13,087 19,458 (22,328)
Minority Interests (3,185) (4,009) (13,268)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (218,325) $ (230,606) $ 45,765
===========================================================================================================================
Net Income (Loss) Per Share (Basic and Diluted) $ (1.02) $ (1.10) $ 0.22
===========================================================================================================================
Average Shares Used in the Computation 213,354 210,537 210,027
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Homestake Mining Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share amount)
<TABLE>
<CAPTION>
December 31, 1998 and 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 145,069 $ 124,083
Short-term investments 154,346 141,221
Receivables (note 7) 45,891 43,529
Inventories (note 8) 78,906 103,925
Deferred income and mining taxes (note 6) 22,792 19,372
Other 5,102 13,154
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 452,106 445,284
Property, Plant and Equipment - Net (note 9) 1,100,864 1,021,147
Investments and Other Assets
Noncurrent investments (note 10) 12,945 41,094
Other assets (note 11) 81,616 102,009
- ---------------------------------------------------------------------------------------------------------------------------
Total investments and other assets 94,561 143,103
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $1,647,531 $1,609,534
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 42,580 $ 59,930
Accrued liabilities (note 12) 101,988 68,641
Income and other taxes payable 3,151 277
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 147,719 128,848
Long-term Liabilities
Long-term debt (note 13) 357,410 374,593
Other long-term obligations (note 14) 168,178 152,610
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 525,588 527,203
Deferred Income and Mining Taxes (note 6) 230,567 161,862
Minority Interests in Consolidated Subsidiaries 7,825 108,116
Shareholders' Equity (note 17)
Capital stock, $1 par value per preferred and common share:
Authorized - Preferred: 10,000 shares; no shares outstanding
- Common: 1998 - 450,000; 1997 - 250,000
Outstanding - HCI exchangeable shares: 1998 - 11,139
- Common: 1998 - 228,012; 1997 - 210,696 228,012 210,696
Additional paid-in capital 904,567 601,916
Deficit (337,332) (97,553)
Accumulated other comprehensive loss (59,415) (31,554)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 735,832 683,505
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,647,531 $1,609,534
===========================================================================================================================
</TABLE>
Commitments and Contingencies - see notes 19 and 20.
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
---------------------------
Additional Retained Accumulated Unrealized
For the years ended Common Paid-in Earnings Translation Securities
December 31, 1998, 1997 and 1996 Stock Capital (Deficit) Adjustments Gains(Losses) Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1995 $ 201,883 $ 472,889 $162,350 $ 12,819 $ (1,301) $848,640
Comprehensive income:
Net income 45,765 45,765
Other comprehensive income (loss) 45,445 (7,082) 38,363
Dividends paid (43,278) (43,278)
Exercise of stock options 299 2,726 3,025
Stock issued for purchase of assets
of Dominion (note 3) 2,273 29,815 32,088
Stock issued for purchase of HGAL
minority interests (note 3) 5,976 93,370 99,346
Other (12) (112) (124)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 210,419 598,688 164,837 58,264 (8,383) 1,023,825
Comprehensive income:
Net loss (230,606) (230,606)
Other comprehensive income (loss) (91,645) 10,210 (81,435)
Dividends paid (31,784) (31,784)
Exercise of stock options 277 1,012 1,289
Other 2,216 2,216
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 210,696 601,916 (97,553) (33,381) 1,827 683,505
Comprehensive income:
Net loss (218,325) (218,325)
Other comprehensive income (loss) (31,798) 3,937 (27,861)
Dividends paid (21,454) (21,454)
Stock issued to employee savings plan 148 1,416 1,564
Stock issued for acquisition of Plutonic
options and partly-paid shares (note 3) 503 (503) -
Stock issued for purchase of Prime
minority interests (note 3):
Homestake common shares 16,672 173,843 190,515
HCI exchangeable shares 127,285 127,285
Other (7) 610 603
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 $ 228,012 $ 904,567 $ (337,332) $ (65,179) $ 5,764 $735,832
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operations
Net income (loss) $ (218,325) $ (230,606) $ 45,765
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 139,371 162,781 151,852
Write-downs and other unusual charges (note 5) 194,778 285,315 8,983
Foreign currency exchange losses on intercompany debt (note 4) 5,671 5,657 8,943
Gains on asset disposals (3,651) (16,926) (12,305)
Deferred income and mining taxes (note 6) (39,436) (56,318) (19,620)
Minority interests 3,185 4,009 13,268
Reclamation - net 1,404 2,970 (20)
Other items - net (12,477) 11,345 (2,498)
Effect of changes in operating working capital items:
Receivables (6,890) (372) 12,337
Inventories 43,815 2,932 (44,947)
Accounts payable (15,912) 9,582 4,808
Accrued liabilities and taxes payable 26,756 (18,720) 24,183
Other 1,634 (1,625) (8,572)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 119,923 160,024 182,177
- ----------------------------------------------------------------------------------------------------------------------
Investment Activities
Increase in short-term investments (19,307) (11,063) (63,742)
Proceeds from asset sales 15,566 33,494 49,221
Additions to property, plant and equipment (73,323) (204,629) (169,950)
Decrease (increase) in restricted cash 2,429 (15,990)
Investments in mining companies 11,088 (22,950) (65,006)
Receipt from (advance to) Edensor 37,210 (6,599)
Purchase of interest in Snip mine (note 3) (39,279)
Other (2,430) (3,171)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investment activities (63,547) (186,358) (298,526)
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities
Borrowings 97,676 126,457 56,775
Debt repayments (105,236) (49,629) (9,788)
Dividends paid on common shares - Homestake (21,454) (31,784) (43,278)
- Prime minority interests (1,040) (2,151) (2,205)
Common shares issued 1,289 35,113
Other 1,795 4,234
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (28,259) 48,416 36,617
- ----------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Equivalents (7,131) (2,656) 2,541
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Equivalents 20,986 19,426 (77,191)
Cash and Equivalents, January 1 124,083 104,657 181,848
- ----------------------------------------------------------------------------------------------------------------------
Cash and Equivalents, December 31 $ 145,069 $ 124,083 $ 104,657
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Comprehensive Income (Loss)
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (Loss) $ (218,325) $ (230,606) $ 45,765
- -------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss)
Changes in unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 1,213 (32,128) (15,161)
Less: Reclassification adjustments for gains and losses
included in net income (loss) (1,620) (43,403) (8,211)
- -------------------------------------------------------------------------------------------------------------------------------
2,833 11,275 (6,950)
Income taxes 1,104 (1,065) (132)
- -------------------------------------------------------------------------------------------------------------------------------
3,937 10,210 (7,082)
Foreign currency translation adjustments (before and
after tax) (31,798) (91,645) 45,445
- ------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss) (27,861) (81,435) 38,363
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income (Loss) $ (246,186) $ (312,041) $ 84,128
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
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.
Note 2: Significant Accounting Policies
Basis of presentation: The consolidated financial statements include
Homestake and its majority-owned subsidiaries, and their undivided
interests in joint ventures after elimination of intercompany amounts.
Undivided interests in gold mining operations (the Round Mountain, Pinson
and Marigold mines in Nevada; Homestake Gold of Australia Limited's
("HGAL") interest in the Kalgoorlie operations in Western Australia;
Plutonic Resources Limited's ("Plutonic") interests in the Mt Morgans and
Peak Hill mines in 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 in accumulated other comprehensive income 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. 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 quantities of ore which can
be recovered economically in the future from known mineral deposits. Such
estimates are based on current and projected 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: Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If deemed impaired, an
impairment loss is measured and recorded based on the fair value of the
asset, which generally will be computed using discounted cash flows.
Estimated future net cash flows from each mine are calculated using
estimates of production, future sales prices (considering historical and
current prices, price trends and related factors), production costs,
capital and reclamation costs. (See note 5.) 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.
41
<PAGE>
Undeveloped properties upon which the Company has not performed
sufficient exploration work to determine whether significant mineralization
exists are carried at original acquisition cost. If it is determined that
significant mineralization does not exist, the property would be written
down to estimated net realizable value at the time of such determination.
Reclamation and remediation: Reclamation costs (undiscounted) and related
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 quantities
of ore which can be recovered economically in the future from known mineral
deposits. 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. (See notes 5 and 19.) Amounts to be received from the 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 and are recorded 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. The Company updates these
estimates regularly, however, the Company's estimates of its ultimate
reclamation liabilities could change significantly as a result of changes
in regulations or cost estimates.
Investments and other assets: Investments in mining securities that have
readily determinable fair values 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 in accumulated other
comprehensive income 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.
Derivative financial instruments: The Company uses derivative financial
instruments as part of an overall risk-management strategy. These
instruments are used as a means of hedging exposure to precious metals
prices and foreign currency exchange rates. The Company does not hold or
issue derivative financial instruments for trading purposes. The Company's
accounting for derivative financial instruments is in accordance with the
concepts established in Statement of Financial Accounting Standards
("SFAS") No. 80, "Accounting for Futures Contracts," SFAS No. 52, "Foreign
Currency Translation," American Institute of Certified Public Accountants
Statement of Positions 86-2, "Accounting for Options," and various Emerging
Issues Task Force ("EITF") pronouncements.
The Company uses forward sales contracts and combinations of put and
call options to hedge its exposure to precious metals prices. The
underlying hedged production is designated at the inception of the hedge.
Deferral accounting is applied only if the derivatives continue to reduce
the price risk associated with the underlying hedged production. Contracted
prices on forward sales contracts and options are recognized in product
sales as the designated production is delivered or sold. In the event of
early settlement of hedge contracts, gains and losses are deferred and
recognized in income at the originally designated delivery date.
The Company uses combinations of put and call options to hedge its
exposure to foreign currency exchange rates. Currently, these options do
not qualify for deferral accounting and, accordingly, are marked to market
at each balance sheet date. Realized and unrealized gains and losses on
these options are recognized in other income.
In June 1998, the Financial Accounting Standards Board issued 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 accordingly will be recorded 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.
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.
42
<PAGE>
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
in accumulated other comprehensive income 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. The Company's funding policy for defined benefit pension
plans is to fund the plans annually to the extent allowed by the applicable
regulations. 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 or loss per share is computed by dividing net income or loss by
the weighted average number of common shares outstanding, including the HCI
exchangeable shares (see notes 3 and 17). The Company's basic and diluted
net income or loss per share are the same since the exercise of stock
options and the conversion of the 5.5% convertible subordinated notes would
produce anti-dilutive results.
Preparation of financial statements: Certain 1997 and 1996 amounts 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 and Divestitures
Plutonic Resources Limited: On April 30, 1998 Homestake completed the
acquisition of 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, including 63.9 million shares in
exchange for all of the Plutonic fully-paid ordinary shares outstanding
based on an exchange ratio of 0.34 Homestake common shares for each
Plutonic fully-paid ordinary share, and 0.5 million Homestake common shares
for the Plutonic partly-paid shares and options outstanding.
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. Combined and separate results for
Homestake and Plutonic for the three months ended March 31, 1998 and for
the years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Homestake Plutonic
Historical Historical(a) Adjustments(b) Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended March 31, 1998:
Revenues $ 174,343 $ 43,624 $ (1,750) $ 216,217
Net loss (4,611) (76) (1,899) (6,586)
Shareholders' equity at March 31 522,925 184,379 (37,291) 670,013
Year ended December 31, 1997:
Revenues 723,834 248,519 (938) 971,415
Net loss (168,879) (33,998) (27,729) (230,606)
Shareholders' equity at December 31 531,750 186,577 (34,822) 683,505
Year ended December 31, 1996:
Revenues 766,936 238,065 (6,555) 998,446
Net income (loss) 30,281 18,984 (3,500) 45,765
Shareholders' equity at December 31 768,552 268,168 (12,895) 1,023,825
<FN>
a) The Plutonic historical results of operations have been adjusted
to reflect i) presentation of Plutonic's results of operations in
accordance with United States generally accepted accounting
principles and the format and classifications utilized by
Homestake, and ii) translation into U.S. dollars using the average
exchange rate for each period. Shareholders' equity has been
translated into U.S. dollars using the end-of-period exchange
rates.
b) In combining the historical results of Homestake and Plutonic,
certain adjustments were made to conform Plutonic's accounting
policies to Homestake's accounting policies. The effect of these
adjustments on combined net income (loss) is as follows:
</FN>
<CAPTION>
Three months ended Year ended December 31,
March 31, 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Revenue recognition $ (1,293) $ 377 $ (3,318)
Reclamation expense (474) (1,215) (1,430)
Depreciation, depletion and amortization (1,141) (6,958)
Income taxes 1,009 (19,933) 1,248
--------------------------------------------------------
$ (1,899) $ (27,729) $ (3,500)
=========================================================
</TABLE>
Business combination and integration costs of $19.1 million were
incurred including transaction costs related to the merger of $12.4 million
and post-combination severance, lease termination, and other costs of $6.7
million.
Prime Resources Group Inc. On December 3, 1998 Homestake acquired the 49.4%
of Prime Resources Group Inc. ("Prime") it did not already own. Prime
shareholders (other than Homestake) received 0.74 of a Homestake common
share or 0.74 of an HCI exchangeable share for each share of Prime. Each
HCI exchangeable share is
43
<PAGE>
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 one Homestake common share. Homestake
issued 16.7 million Homestake shares and 11.1 million HCI exchangeable
shares valued in total at $317.8 million. The acquisition of the Prime
minority interests was accounted for as a purchase. Based upon the total
purchase price of $321.8 million (including $4 million of capitalized
direct acquisition costs), the excess of the purchase price paid over the
net book value of the minority interests acquired was $224 million of which
$174 million ($259.6 million including an increase related to deferred
taxes in accordance with SFAS 109) was allocated to the Eskay Creek mine's
ore reserves and $50 million ($74.6 million including an increase related
to deferred taxes in accordance with SFAS 109) was allocated to the Eskay
Creek exploration properties.
On a pro forma basis, assuming that the acquisition of the Prime
minority interests occurred on January 1, 1998, revenues, net loss and net
loss per share for the year ended December 31, 1998 have been estimated at
$797.6 million, $227.2 million and $0.95 per share, respectively, and,
assuming that the acquisition of the Prime minority interests occurred on
January 1, 1997, revenues, net loss and net loss per share for the year
ended December 31, 1997 have been estimated at $971.2 million, $236.9
million and $0.99 per share, respectively. This pro forma information
includes adjustments which are based on 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 Prime
minority interests occurred at the beginning of each year presented or to
project the results of operations for any future date or period.
Homestake Gold of Australia Limited: During the fourth quarter of 1995 and
the first quarter of 1996, Homestake acquired the 18.5% of HGAL it did not
already own. The total purchase price was $164.9 million, including $141.7
million for 8.5 million newly issued shares of the Company, $19.5 million
in cash and $3.7 million of transaction expenses. The acquisition of the
HGAL minority interests was accounted for as a purchase.
Mt Morgans Mine: In October 1995, the Company acquired most of Dominion
Mining Limited's ("Dominion") gold assets, including an 80% interest in the
Mt Morgans mine. The net purchase price after working capital adjustments
was $39.1 million. As part of its agreement with Dominion, the Company
offered Dominion shareholders the opportunity to subscribe for shares of
the Company instead of receiving a return of Dominion capital. As a result,
2.3 million shares of the Company were issued to Dominion shareholders on
January 29, 1996 for consideration of $32.1 million.
Snip Mine: In April 1996, Prime purchased Cominco Ltd.'s 60% interest in
the Snip mine in British Columbia, Canada for $39.3 million in cash. As a
result of this purchase, Prime became the sole owner of the Snip mine.
Archaean Gold NL: In July 1996, Lachlan Resources NL ("Lachlan"), acquired
90.7% of Archaean Gold NL ("Archaean") for $36.8 million. In April 1997,
Lachlan acquired the remaining interest in Archaean. This acquisition,
which was accounted for as a purchase, was funded by a $33.2 million
(A$50.9 million) loan from the Company to Lachlan. In May 1998, Lachlan
repaid this loan by issuing additional shares to the Company which
increased the Company's interest in Lachlan from 62.1% to 81.2%.
George Lake and Back River Joint Ventures: In February 1997, Homestake sold
its interests in the George Lake and Back River joint ventures in Canada to
Kit Resources Corporation ("Kit") for $9.3 million in cash and 3.6 million
shares of Kit common stock. As a result of this transaction, the Company
recorded a pretax gain of $13.5 million in the first quarter of 1997, which
was included in other income.
Note 4: Other Income (Loss)
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Gains on asset disposals $ 3,651 $ 16,926 $ 12,305
Foreign currency contract gains
(losses) (34,332) (28,453) 1,632
Foreign currency exchange losses on
intercompany advances (5,671) (5,657) (8,943)
Gain on sale of Great Central option 10,419 4,699
Gain on termination of Santa Fe merger 62,925
Other 11,612 7,486 15,927
-----------------------------------------------------------
$ (24,740) $ 63,646 $ 25,620
===========================================================
</TABLE>
In March 1997, Santa Fe Pacific Gold Corporation terminated its merger
agreement with Homestake and paid Homestake a $65 million termination fee.
As a result, in 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. Other expense for the year ended December 31, 1996
included $3.4 million of expenses related to this proposed merger.
44
<PAGE>
Note 5: Write-downs and Other Unusual Charges
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
Reduction in the carrying values
of resource assets (a) $ 141,425 $ 84,655
Increase in the estimated accrual for remediation
and reclamation expenditures (b) 36,000 29,156
Homestake mine restructuring charges (c) 8,879
Write-down of Homestake's investment
in the Main Pass 299 sulfur mine (d) 107,761
Write-downs of noncurrent investments (e) 8,213 47,932 $8,983
Other 9,140 15,811
------------------------------------------------
$ 203,657 $ 285,315 $8,983
=================================================
<FN>
a) During 1998, due to the continuing low-gold price environment, the Company
reviewed the carrying values of its gold mining operations using a $325 per
ounce gold price. As a result of this review, the Company determined that
impairment write-downs were required to reduce the carrying values of
several of its assets or operations as follows:
i. Based on estimated future cash flows, the Company does not expect
to recover its remaining investment in property, plant and
equipment at the Homestake mine in South Dakota. The total amount
of the write-down was $76.1 million, thereby reducing the carrying
value of the mine to zero.
ii. Based on estimated future cash flows, the Company recorded a
write-down of property at the Mt Charlotte mine in Western
Australia of $34.5 million and recorded severance and other
charges of $3.9 million.
iii. Based on its evaluations of the recoverability of the carrying
values of other mineral properties, the Company also recorded
write-downs of $26.9 million, including $22.3 million related to
mineral properties acquired as part of the acquisition of
Plutonic.
In 1997, the Company reviewed the carrying values of its gold mining
operations using a $350 per ounce gold price at its long-lived operations
and $325 per ounce gold price at its short-lived operations. As a result of
this review, the Company determined that impairment write-downs were
required to reduce the carrying values of several of its assets or
operations with short remaining lives, including the Mt Morgans and Peak
Hill mines, the Pinson mine, the Homestake mine's Open Cut, low-grade
stockpiled ore and exploration properties at certain locations in Western
Australia and redundant mining equipment at the Kalgoorlie operations.
b) In 1998, following an environmental audit at the Homestake mine and a
change in that operation's mining plans, the Company recorded a provision
for estimated additional remediation and related reclamation costs of $35
million. In addition, a $1 million increase in the provision for
reclamation at closed operations was recorded in 1998. In 1997, as a result
of a review of the Company's reclamation liabilities, the Company
determined that it was necessary to increase reclamation accruals for
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.
c) 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, 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.
d) Homestake owns a 16.7% undivided interest in the Main Pass 299 sulfur mine.
Due to a prolonged period of low sulfur prices and Homestake's assessment
of estimated future cash flows from the Main Pass 299 sulfur mine, in 1997
the Company wrote-off its remaining investment in the Main Pass 299 sulfur
property, plant and equipment.
e) During 1998 and 1997, the Company recorded in income the reductions in the
carrying values of certain marketable securities and other investments that
it deemed to be other than temporary.
</FN>
</TABLE>
Note 6: Income Taxes
The provision for income and mining taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C>
Current
Income taxes
Federal $(11,248) $ 1,023 $ (1,999)
State (84)
Canadian 22,576 26,048 28,367
Other 421 (8) 616
-------------------------------------------------------------
11,665 27,063 26,984
Canadian mining taxes 14,684 9,797 14,964
-------------------------------------------------------------
Total current taxes 26,349 36,860 41,948
-------------------------------------------------------------
Deferred
Income taxes
Federal 9,964 (29,203) (3,879)
State 947 2,026 (1,300)
Canadian (19,286) (7,039) (14,588)
Australian (28,947) (22,282) (2,024)
-------------------------------------------------------------
(37,322) (56,498) (21,791)
Canadian mining taxes (2,114) 180 2,171
-------------------------------------------------------------
Total deferred taxes (39,436) (56,318) (19,620)
-------------------------------------------------------------
Total income and mining taxes $(13,087) $(19,458) $ 22,328
=============================================================
</TABLE>
45
<PAGE>
The provision for income taxes is based on pretax income (loss) before
minority interests as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C>
United States $(163,374) $ (167,570) $(14,003)
Canada 38,058 50,592 95,548
Australia (94,903) (115,323) 7,840
Other foreign (8,008) (13,754) (8,024)
---------------------------------------------------------------
$(228,227) $ (246,055) $ 81,361
===============================================================
</TABLE>
Deferred tax liabilities and assets as of December 31, 1998 and 1997 relate
to the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------
<S> <C> <C>
Deferred Tax Liabilities
Depreciation and other resource
property differences
United States $ 18,598
Canada - Federal $ 78,647 29,906
Canada - Provincial 114,754 61,509
Australia 62,473 112,356
-----------------------
255,874 222,369
Other 47,176 31,697
-----------------------
Gross deferred tax liabilities 303,050 254,066
-----------------------
Deferred Tax Assets
Tax loss carry-forwards
United States 15,364
Australia 27,614 52,868
Chile 25,230 23,943
Other 2,943 2,512
-----------------------
71,151 79,323
Reclamation costs
United States 30,050 16,827
Other 13,832 13,393
-----------------------
43,882 30,220
Employee benefit costs 28,234 28,716
Alternative minimum tax credit
carry-forwards 31,677 10,200
Depreciation, land and other resource
property 61,855 18,750
Inventory 12,804 23,149
Foreign tax credit carry-forwards 12,007 5,857
Unrealized foreign exchange losses 15,305 9,157
Write-downs of noncurrent investments 11,567 9,619
Other 13,968 4,505
-----------------------
Gross deferred tax assets 302,450 219,496
Deferred tax asset valuation allowances (207,175) (107,920)
-----------------------
Net deferred tax assets 95,275 111,576
-----------------------
Net deferred tax liability $ 207,775 $ 142,490
=======================
Net deferred tax liability consists of
Current deferred tax assets $(22,792) $ (19,372)
Long-term deferred tax liability 230,567 161,862
-----------------------
Net deferred tax liability $207,775 $ 142,490
=======================
</TABLE>
The classification of deferred tax assets and liabilities as current or
long term 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 $207.2 million
deferred tax valuation allowance at December 31, 1998 represents the
portion of the Company's consolidated deferred tax assets which, based on
projections at December 31, 1998, the Company does not believe realization
is "more likely than not." The deferred tax valuation allowance consists of
United States, South America, Australia and Canada unrealized deferred tax
assets of $150.6 million, $28.2 million, $27.7 million, and $0.7 million,
respectively. The 1998 net increase in the valuation allowance for United
States deferred tax assets of $94.1 million is comprised of the following
increases: $51.1 million for future tax deductions, $5.4 million for the
1998 net operating loss, $10 million for the 1997 net operating loss, $21.5
million for alternative minimum tax credits, and $6.1 million for foreign
tax credits. Valuation allowances increased for South America, Australia
and Canada by $1 million, $3.8 million and $0.4 million, respectively.
The Company has United States foreign tax credit carry-forwards of
approximately $12 million, which are due to expire at various times through
the year 2003. In addition, the Company has a U.S. net operating loss
carry-forward of approximately $43.9 million which may be used to offset
future regular taxable income. These loss carry-forwards will expire in the
years 2017 and 2018.
Major items causing the Company's income tax provision to differ from
the federal statutory rate of 35% were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) based on statutory rate $ (79,879) $(86,120) $ 28,476
Percentage depletion (1,806) (900) (7,611)
Earnings in foreign jurisdictions
at different rates (2,143) 273 (2,009)
Reduction of prior year accruals (15,953) (24,048)
Other nondeductible losses 7,934 37,770 2,875
Change in valuation allowance 61,700 13,800 3,141
Other - net 4,490 5,742 4,369
----------------------------------------------
Total income taxes (25,657) (29,435) 5,193
Canadian mining taxes 12,570 9,977 17,135
----------------------------------------------
Total income and mining taxes $ (13,087) $(19,458) $ 22,328
==============================================
</TABLE>
46
<PAGE>
Note 7: Receivables
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------------------------
<S> <C> <C>
Trade accounts $ 29,548 $ 24,612
U.S. Government receivable (see note 19) 4,500 5,500
Interest and other 11,843 13,417
------------------------------------------
$ 45,891 $ 43,529
==========================================
</TABLE>
Note 8: Inventories
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------------------------------------
<S> <C> <C>
Finished products $ 13,312 $ 33,019
Ore and in-process 39,465 37,811
Supplies 26,129 33,095
----------------------------------------------
$ 78,906 $103,925
==============================================
</TABLE>
Note 9: Property, Plant and Equipment
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------------------------
<S> <C> <C>
Mining properties and development costs $ 1,434,503 $ 1,108,192
Plant and equipment 1,081,680 1,091,814
Construction and mine development in progress 7,534 22,459
------------------------------------------
2,523,717 2,222,465
Accumulated depreciation, depletion and
amortization (1,422,853) (1,201,318)
------------------------------------------
$ 1,100,864 $ 1,021,147
==========================================
</TABLE>
Note 10: Noncurrent Investments
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------------------------------
<S> <C> <C>
Navan Resources plc $ 3,891 $ 6,685
Navan Bulgarian Mining BV 12,000
Other investments 9,054 22,409
----------------------------------------
$ 12,945 $ 41,094
========================================
</TABLE>
In 1995, Homestake acquired a 10% interest in Navan Resources plc
("Navan"), an Irish public company with diverse mineral interests in
Europe. In November 1997, Homestake purchased a 20% interest in Navan
Bulgarian Mining BV ("Navan BV"), a wholly-owned subsidiary of Navan, for
$12 million. Navan BV owns 68% of Bimak AD, a Bulgarian company that owns
and operates the surface facilities at the Chelopech copper-gold mine near
Sofia, Bulgaria. In September 1998, Homestake completed its evaluation of
the Chelopech mine and concluded that the project did not warrant
Homestake's participation under current economic conditions. As a result
Navan BV returned to Homestake approximately $11 million of Homestake's
investment that had not been expended prior to termination of Homestake's
participation.
Note 11: Other Assets
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Assets held in trust (see note 15) $ 44,756 $ 38,975
Restricted cash (see note 13) 13,561 15,990
Ore stockpiles 9,807 32,125
U.S. Government receivable (see note 19) 3,681 5,362
Other 9,811 9,557
---------------------------------------
$ 81,616 $ 102,009
=======================================
</TABLE>
Note 12: Accrued Liabilities
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Accrued payroll and other compensation $ 31,587 $ 23,898
Accrued reclamation and closure costs 23,206 11,818
Unrealized loss on foreign currency exchange contracts 24,003 20,416
Other 23,192 12,509
---------------------------------------
$101,988 $ 68,641
=======================================
</TABLE>
47
<PAGE>
Note 13: Long-term Debt
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------
<S> <C> <C>
Convertible subordinated notes (due 2000) $150,000 $ 150,000
Pollution control bonds
Lawrence County, South Dakota (due 2032) 48,000 48,000
State of California (due 2004) 17,000 17,000
Cross-border credit facility (due 2003) 142,410 48,855
Plutonic syndicated credit facility 110,738
---------------------------------------
$357,410 $ 374,593
=======================================
</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 semiannually 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: In July 1997, Lawrence County, South Dakota issued
$30 million of South Dakota Solid Waste Disposal Revenue Bonds ("Waste
Disposal Bonds") and $17 million of South Dakota Pollution Control
Refunding Revenue Bonds ("Pollution Control Bonds"), both of which are due
in 2032. The Company is responsible for funding principal and interest
payments on these bonds. Proceeds from the Waste Disposal Bonds are being
used for construction of a new tailings dam lift and other qualifying
expenditures at the Homestake mine. Qualifying expenditures of $17 million
had been incurred through December 31, 1998. The remaining $13.6 million,
which is held in a trustee account, is included in other assets at December
31, 1998. Homestake has reduced the projected size of the tailings dam
project and accordingly notified holders of the Waste Disposal Bonds in
January 1999 that it would redeem within 60 days $10 million of bonds from
the funds held in the trustee account.
The Company pays interest monthly on the pollution control bonds based
on variable short-term, tax-exempt obligation rates. Interest rates at
December 31, 1998 and 1997 were 4.8% and 4.6%, respectively. No principal
payments are required until cancellation, redemption or maturity.
Cross-border credit facility: In July 1998, the Company entered into a new
United States/Canadian/Australian cross-border credit facility providing a
total availability of $430 million. The new facility replaced the Company's
$275 million cross-border credit facility and Plutonic's A$400 million
syndicated credit facility, both of which were cancelled. Borrowings under
the prior credit facilities were repaid using the new facility. The new
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. At December 31, 1998 borrowings under the Australian dollar
credit facility of $142.4 million (A$233 million) were outstanding. Under
the new facility, 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 new credit
agreement requires, amongst other provisions, 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 under the new
facility is payable quarterly based on the Australian Bank Bill Swap Rate
plus a margin of up to 1.125%. At December 31, 1998 this interest rate was
5.95%.
Note 14: Other Long-term Obligations
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------------------------------------
<S> <C> <C>
Accrued reclamation and closure costs $ 107,370 $ 80,428
Accrued pension and other postretirement
benefit obligations (see note 15) 50,569 60,942
Other 10,239 11,240
---------------------------------------------
$ 168,178 $ 152,610
=============================================
</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 $220 million. This figure includes
approximately $7 million of reclamation costs at the Grants uranium
facility which will be funded by the United States Federal Government. At
December 31, 1998 the Company had accrued $130.6 million for estimated
ultimate reclamation and site restoration costs and remediation liabilities
(see notes 12 and 19).
48
<PAGE>
Note 15: Employee Benefit Plans
Pension and other postretirement benefit plans: The Company has pension
plans covering substantially all United States employees. Pension plans
covering salaried and other nonunion employees provide benefits based on
years of service and the employee's highest compensation during any 60
consecutive months prior to retirement. Pension plans covering union
employees provide defined benefits for each year of service. The Company
also has other postretirement plans which provide medical and life
insurance benefits for certain retired employees, primarily retirees of the
Homestake mine. The following table provides a reconciliation of benefit
obligations, plan assets and the funded status of the plans:
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligation, January 1 $237,351 $229,906 $ 37,000 $ 37,000
Service cost 4,215 4,308 188 610
Interest cost 16,969 15,958 2,406 2,939
Plan amendments and special terminations 6,222 (6,450)
Actuarial (gains) losses 22,859 7,272 (1,646)
Benefits paid (23,696) (12,821) (2,373) (1,903)
Curtailments (7,246) (3,293)
-------------- -------------- -------------- -------------
Benefit obligation, December 31 $256,674 $237,351 $ 34,750 $ 37,000
============== ============== ============== =============
Change in plan assets
Fair value of plan assets, January 1 $257,147 $224,064
Actual return on plan assets 24,816 43,955
Company contributions 1,104 1,037 $ 2,373 $ 1,903
Benefits paid (23,696) (11,909) (2,373) (1,903)
-------------- -------------- -------------- -------------
Fair value of plan assets, December 31 $259,371 $257,147 $ - $ -
============== ============== ============== =============
Plan assets in excess of (less than)
projected benefit obligations $ 2,697 $ 19,796 $(34,750) $(37,000)
Unrecognized net actuarial (gains) losses (24,927) (47,626) 2,488 (4,995)
Unrecognized prior service cost 8,527 7,622 (5,914) 557
Unrecognized net transition asset (1,567) (2,445)
-------------- -------------- -------------- -------------
Accrued pension and postretirement
benefit obligations $(15,270) $(22,653) $(38,176) $(41,438)
============== ============== ============== =============
</TABLE>
The liabilities for pension and postretirement benefits recognized in
the consolidated balance sheets consist of the following:
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
--------------------------- -------------------------
1998 1997 1998 1997
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ (8,709) $ (677)
Accrued benefit liability 23,979 23,330 $ 38,176 $ 41,438
------------- ------------ ------------ ------------
15,270 22,653 38,176 41,438
Additional minimum liability (offset by an
intangible asset included in other assets) 523 251
------------- ------------ ------------ ------------
Accrued pension and postretirement
benefit obligations 15,793 22,904 38,176 41,438
Less current portion 1,200 1,200 2,200 2,200
------------- ------------ ------------ ------------
Long-term accrued pension and post-
retirement benefit obligations (see note 14) $ 14,593 $ 21,704 $ 35,976 $ 39,238
============= ============ ============ ============
</TABLE>
The weighted-average actuarial assumptions as of December 31 were as
follows:
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
------------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 6.5% 7.0% 7.0% 6.5% 7.0% 7.0%
Expected return on plan assets 8.5% 8.5% 8.5%
Rate of compensation increase 5.0% 5.0% 5.0%
</TABLE>
The Company has assumed a health care cost trend rate of 8.5% for 1999,
decreasing ratability to 5.0% in 2006 and thereafter.
49
<PAGE>
Net periodic pension and other postretirement benefit costs include the
following components:
<TABLE>
<CAPTION>
Pension Benefits
----------------------------------------------------
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,215 $ 4,308 $ 4,519
Interest cost 16,969 15,958 15,319
Expected return on assets (21,346) (18,596) (16,562)
Amortization of:
Transition asset (370) (370) (370)
Prior service costs 1,005 1,534 1,534
Actuarial gains (898) (467)
----------------------------------------------------
Net periodic benefit cost (425) 2,834 3,973
Additional charges (credits):
Special termination charges 3,922
Curtailment credits (7,246) (1,868)
Settlement credits (2,531)
----------------------------------------------------
Total net benefit cost (credit) $ (6,280) $ 2,834 $ 2,105
====================================================
</TABLE>
<TABLE>
<CAPTION>
Other Postretirement
Benefits
----------------------------------------------------
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Service cost $ 188 $ 568 $ 456
Interest cost 2,406 2,631 2,573
Amortization of:
Prior service costs (850) 60 60
Actuarial (gains) losses 60 (660)
----------------------------------------------------
Net periodic benefit cost 1,804 2,599 3,089
Additional charges (credits):
Special termination charges 600
Curtailment credits (3,293)
---------------------------------------------------
Total net benefit cost (credit) $ (889) $ 2,599 $ 3,089
====================================================
</TABLE>
The projected benefit obligation and accumulated benefit obligation for
pension plans with accumulated benefit obligations in excess of plan assets
were $32.4 million and $24.1 million, respectively, at December 31, 1998
and $27.2 million and $20 million, respectively, at December 31, 1997.
These amounts pertain to a nonqualified supplemental pension plan covering
certain employees and a nonqualified pension plan covering directors of the
Company. These plans are unfunded. The Company has established a grantor
trust, consisting of money market funds, mutual funds and corporate-owned
life insurance policies, to provide funding for the benefits payable under
these nonqualified plans and certain other deferred compensation plans. The
grantor trust, which is included in other assets, amounted to $44.8 million
and $39 million at December 31, 1998 and 1997, respectively.
Health care benefits are contributory and were restricted to employees
at the Homestake mine whose combined years of age and years of service
exceeded 65 as of January 1, 1999.
The assumed health care cost trend rate has a significant effect on the
amounts reported. A one percentage point change in the assumed health care
cost trend rate would have had the following effects on 1998 service and
interest costs and the accumulated postretirement benefit obligation at
December 31, 1998:
<TABLE>
<CAPTION>
One percentage point change Increase Decrease
<S> <C> <C>
Effect on service and interest
components of net periodic cost $ 145 $ (135)
Effect on accumulated postretirement
benefit obligation $1,912 $(1,806)
</TABLE>
Certain of the Company's foreign operations participate in pension
plans. The Company's share of contributions to these plans was $2.5 million
in 1998, $2.3 million in 1997, and $2.1 million in 1996.
Stock option and share rights plan: The Company's 1996 Stock Option and
Share Rights Plan ("1996 Plan") provides for grants of up to 6 million
common shares. At December 31, 1998 and 1997, 3 million and 5 million
shares, respectively, were available for future grants. At December 31,
1998, stock options and share rights for 2.6 million shares were
outstanding under the 1996 Plan and stock options for 2.1 million shares
were outstanding under prior plans.
50
<PAGE>
The exercise price of each stock option granted under these plans is
equal to or greater than 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. A summary of the status of the Company's
stock options as of December 31, 1998, 1997 and 1996 and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------------------
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 4,321 3,738 3,053
Granted 1,588 $ 9.50 794 $15.11 1,435 $19.32
Exercised (63) 13.99 (743) 6.24
Plutonic options retired
(see note 3) (1,033) 15.52
Expired (435) 23.38 (148) 22.04 (7) 16.43
--------- --------- ---------
Balance at December 31 4,441 4,321 3,738
========= ========= =========
Options exercisable at
December 31 2,136 2,248 1,933
Fair value of options granted
during the year $ 3.03 $ 4.95 $4.35
</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 1.2, 1.7 and 1.8 years
from the vesting date (with incremental vesting over four years) for 1998,
1997 and 1996, respectively, expected volatility of 31%, 30.9% and 31.7%
for 1998, 1997 and 1996, respectively, a dividend yield of 1% in each year,
and a risk-free interest rate of 5.7%, 6.6% and 5.4% in 1998, 1997 and
1996, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1998:
<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>
$ 9.37 to $9.37 1,421 9.2 years $ 9.37
9.55 to 15.23 1,352 6.4 years 13.96 718 $13.45
15.78 to 19.13 1,191 5.3 years 17.14 947 16.92
19.70 to 39.79 477 3.1 years 23.70 471 23.75
-------------- -------------
4,441 2,136
============== =============
</TABLE>
At December 31, 1998 there were 0.3 million share rights (1997:0.2
million) outstanding under the 1996 plan. Share rights are converted into
common stock when certain performance measurement or vesting criteria are
met. During 1998, 91,000 shares valued at $0.8 million were converted into
common stock.
The Company elected to use the pro forma disclosure provisions of SFAS
123, "Accounting for Stock-Based Compensation," and has applied Accounting
Principles Board Opinion 25 and related interpretations in accounting for
its stock options. Accordingly, no compensation cost has been recognized
for the Company's stock options. The compensation cost for share rights is
being recognized based on the fair value of the Company's stock over the
period that the performance measurement and vesting criteria are estimated
to be met. Had compensation expense for the Company's stock options been
determined based on the fair value of options at the grant dates as
calculated in accordance with SFAS 123, the Company's net income and
earnings per share for the years ended December 31, 1998, 1997 and 1996
would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- -------------------------------
Loss Loss Earnings
Net Loss Per Share Net Loss Per Share Net Income Per Share
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
As reported $ (218,325) $ (1.02) $(230,606) $ (1.10) $ 45,765 $ 0.22
Pro forma (221,637) (1.04) (233,317) (1.11) 43,637 0.21
</TABLE>
51
<PAGE>
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 $1.9
million in 1998, $2.6 million in 1997 and $2.2 million in 1996.
Note 16: Fair Value of Financial Instruments
At December 31, 1998 and 1997 the carrying values of the Company's cash and
equivalents, short-term investments, noncurrent investments, long-term debt
and foreign currency options approximated their estimated fair values.
Note 17: Shareholders' Equity
On December 1, 1998 at a Special Meeting of Stockholders, Homestake Mining
Company stockholders approved a restated Certificate of Incorporation. The
restated certificate has increased the number of authorized shares of
Homestake common stock from 250 million to 450 million, increased the
number of authorized shares of Series A preferred stock from 2.5 million to
4.5 million, created one share of special voting stock and made certain
technical changes, primarily to reflect the existence of the special voting
stock.
HCI exchangeable shares: In connection with the 1998 acquisition of the
minority interests in Prime (see note 3), HCI issued 11.1 million HCI
exchangeable shares. 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 one Homestake common share. The share of special voting
stock, which was issued to the transfer agent in trust for the holders of
the HCI exchangeable shares, provides the mechanism for holders of the HCI
exchangeable shares to receive their voting rights. At December 31, 1998
the Company had reserved 11.1 million shares of common stock for issuance
on exchange of the HCI exchangeable shares outstanding at that date.
Stock rights: Each share of common stock includes and trades with a right
which 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 and the HCI exchangeable shares, considered as a
single class. 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"). Each one one-hundredth of a share of
Series A Preferred Stock is equivalent to one Homestake common share with
respect to voting and is entitled, on a quarterly basis, to the greater of
a ten cent cash dividend or the dividend payable on one Homestake common
share. In addition, if any person, entity or group (an "Acquiring Person")
acquires 15% or more of the Company's common stock and the HCI exchangeable
shares, considered as a single class, 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 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.
Each HCI exchangeable share trades with an HCI right issued under the
HCI rights agreement. The HCI rights entitle the holders to acquire
additional HCI exchangeable shares at the same price and in the same
amounts and circumstances in which holders of Company rights are entitled
to acquire Company common stock.
52
<PAGE>
Note 18: Additional Cash Flow Information
Cash paid for interest and for income and mining taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Interest, net of amount capitalized $20,236 $ 19,506 $ 18,785
Income and mining taxes, net of refunds 22,620 66,227 15,896
</TABLE>
Certain investing and financing activities of the Company affected its
financial position but did not affect its cash flows. See note 3 for
discussions of the noncash acquisitions of the interests in Prime,
Plutonic, HGAL and the Mt Morgans mine.
Note 19: 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.
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 December 31, 1998, Homestake had received
$25.6 million from the DOE and the accompanying balance sheet at December
31, 1998 includes an additional receivable of $8.2 million (see notes 7 and
11) 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 December 31, 1998.
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 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.
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.
53
<PAGE>
Note 20: Foreign Currency, Gold and Other Commitments
Foreign Currency Contracts
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. Net unrealized losses on contracts outstanding at December 31, 1998
and 1997 were $24 million and $20.4 million, respectively. Other income for
the years ended December 31, 1998, 1997 and 1996 includes income (losses)
of $(34.3) million, $(28.5) million, and $1.6 million, respectively,
related to this program. At December 31, 1998 the Company had foreign
currency contracts outstanding as follows:
<TABLE>
<CAPTION>
Amount Covered Rates to U.S. Dollars
-------------------------------------- Expiration
Currency (U.S. Dollars) Put Options Call Options Dates
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian $138,000 0.69 0.72 1999
Canadian 89,420 0.69 0.72 2000
Canadian 59,110 0.66 0.69 2001
Australian 92,000 0.66 0.69 1999
Australian 68,620 0.64 0.67 2000
Australian 23,000 0.60 0.63 2001
-------------
$470,150
=============
</TABLE>
In addition to amounts related to the foreign currency option
contracts, the Company recorded mark-to-market foreign currency losses on
intercompany debt of $5.7 million in 1998, $5.7 million in 1997, and $8.9
million in 1996 which also were included in other income. These foreign
currency exchange losses are related to the Company's Canadian and
Australian dollar denominated advances to its foreign subsidiaries.
Gold and Silver Contracts
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.
During 1998, 1997 and 1996, the Company delivered or financially
settled 358,000, 656,000 and 508,400 ounces of its gold production into
forward gold contracts at average prices of $359, $421 and $474 per ounce,
respectively, and delivered 900,000 ounces of gold at a price of $325 per
ounce under options contracts. During 1998, the Company also closed out and
financially settled one million ounces of its Australian dollar-denominated
forward gold contracts. The gain of $5 million realized on this transaction
has been deferred and will be recorded in income as the originally
designated production is sold. At December 31, 1998 the Company had
committed 610,000 ounces of its future gold production for sale through the
year 2005 under forward sales contracts as follows:
<TABLE>
<CAPTION>
US $ Denominated Australian $ Denominated
-------------------------------------------- ---------------------------------------------
Average Price Average Price
Year (ounces) (US$ per ounce) (ounces) (US$ per ounce)*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 109,920 $415
2000 85,080 430 24,800 $322
2001 95,000 441 24,800 322
2002 95,000 457 24,800 322
2003 75,000 481 24,800 322
2004 24,800 322
2005 26,000 322
------------------ ------------------
460,000 150,000
================== ==================
* Exchange rate of A$ = US$ 0.6112
</TABLE>
At December 31, 1998 the Company was a party to the following gold
option contracts.
<TABLE>
<CAPTION>
Put Options Owned Call Options Written
--------------------------------- ------------------------------------
Currency Average Price Average Price Exercisable
Denomination (ounces) (US$ per ounce)* (ounces) (US$ per ounce) During
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States 100,000 $293 100,000 $304 1999
United States 30,000 350 15,000 395 2000
Australian 120,000 309 1999
Australian 120,000 318 2000
Australian 120,000 327 2001
------------- -------------
490,000 115,000
============= =============
* Exchange rate of A$ = US$ 0.6112
</TABLE>
At December 31, 1998 the Company also had forward sales contracts
outstanding for approximately 7.2 million ounces of silver for delivery
during 1999 through 2001 at an average price of $6.28 per ounce.
The Company does not require or place collateral for its foreign
currency and gold hedging derivatives. However, the Company minimizes its
credit risk by dealing with only major international banks and financial
institutions.
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.
54
<PAGE>
Note 21: Segment Information
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.
REPORTABLE SEGMENTS
<TABLE>
<CAPTION>
Corporate
United and All Reconciling
States Australia Canada Other Items Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Revenues $253,082 $ 292,808 $ 219,671 $ 37,887 $ (5,671)(a) $797,777
Depreciation expense 43,512 44,126 44,563 7,170 139,371
Operating earnings (loss) 41,423 27,544 61,572 (3,753) (5,671)(a) 121,115
Exploration expense 11,512 23,316 4,983 15,534 55,345
Write-downs and unusual items 123,641 65,736 3,835 10,445 203,657
Capital expenditures 23,412 40,095 8,925 891 73,323
Property, plant and equipment 129,671 426,710 533,013 11,470 1,100,864
Total assets 169,678 540,323 683,828 587,427 (333,725)(a) 1,647,531
Production (equivalent ounces of gold) 691,472 925,700 890,450 24,119 2,531,741
1997
Revenues $246,401 $ 368,368 $ 261,167 $ 100,860(b) $ (5,381)(a) $971,415
Depreciation expense 36,541 76,107 41,639 8,494 162,781
Operating earnings (loss) 10,608 27,059 87,922 60,787 (5,381)(a) 180,995
Exploration expense 13,902 25,623 8,406 17,307 65,238
Write-downs and unusual items 38,872 92,603 19,536 134,304(c) 285,315
Capital expenditures 89,664 88,878 19,983 6,104 204,629
Property, plant and equipment 227,988 523,447 259,343 10,369 1,021,147
Total assets 281,089 658,690 427,388 293,476 (51,109)(a) 1,609,534
Production (equivalent ounces of gold) 702,754 974,289 835,358 16,530 2,528,931
1996
Revenues $291,900 $ 378,751 $ 304,530 $ 35,489 $(12,224)(a) $998,446
Depreciation expense 35,707 62,992 45,894 7,259 151,852
Operating earnings (loss) 53,427 66,526 122,737 637 (12,224)(a) 231,103
Exploration expense 11,861 29,844 9,751 15,907 67,363
Write-downs and unusual items 8,983 8,983
Capital expenditures 37,351 121,627 5,964 5,008 169,950
Property, plant and equipment 191,078 670,663 295,307 118,991 1,276,039
Total assets 215,392 909,195 494,083 453,384 (132,724)(a) 1,939,330
Production (equivalent ounces of gold) 732,107 818,627 858,922 8,274 2,417,930
<FN>
a) Primarily intercompany financing.
b) Includes Santa Fe merger termination fee of $62.9 million.
c) Includes write-down of Homestake's investment in the Main Pass 299
sulfur mine of $107.8 million.
</FN>
</TABLE>
Sales to individual customers exceeding 10% of the Company's 1998
consolidated revenues were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Customer A $ 120,100
B 108,000 $ 100,000 $ 129,000
C 99,200 143,000 117,000
D 75,600 77,000
</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.
55
<PAGE>
Note 22: Homestake Canada Inc.
Homestake owns all of HCI's common shares outstanding. At December 31,
1998, HCI had 11.1 million HCI exchangeable shares outstanding all of which
were held by the public (see notes 3 and 17). Summarized financial
information for HCI is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------------------------------------
<S> <C> <C>
Current assets $ 149,102 $ 160,966
Noncurrent assets 524,588 260,278
------------------ --------------------
Total assets $ 673,690 $ 421,244
================== ====================
Notes payable to the Company $ 144,002 $ 23,459
Other current liabilities 40,837 27,768
Long-term liabilities 15,882 24,893
Deferred income and mining taxes 193,074 101,090
Minority interests 96,877
Redeemable preferred stock
held by the Company 36,167 49,929
Shareholders' equity 243,728 97,228
------------------ --------------------
Total liabilities and
shareholders' equity $ 673,690 $ 421,244
================== ====================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $ 218,978 $ 261,167 $ 317,821
Costs and expenses 180,920 210,575 206,731
----------------- ------------------ -----------------
Income before taxes and
minority interests $ 38,058 $ 50,592 $ 111,090
================= ================== =================
Net income $ 13,213 $ 9,953 $ 63,705
================= ================== =================
</TABLE>
56
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors of
Homestake Mining Company:
In our opinion, the accompanying consolidated balance sheets and the related
statements of consolidated operations, shareholders' equity, comprehensive
income (loss) and of cash flows present fairly, in all material respects, the
financial position of Homestake Mining Company and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
February 1, 1999
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Homestake Mining Company
and Subsidiaries are prepared by the Company's management in conformity with
generally accepted accounting principles. Management is responsible for the
fairness of the financial statements, which include estimates based on
judgments.
The Company maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
the purpose of preparing financial statements and that assets are properly
safeguarded and accounted for. Underlying the concept of reasonable assurance is
the premise that the cost of controls should not be disproportionate to the
benefits expected to be derived from such controls. The Company's internal
control structure is reviewed by its internal auditors and to the extent
necessary by the external auditors in connection with their independent audit of
the Company's consolidated financial statements.
The external auditors conduct an independent audit of the consolidated
financial statements in accordance with generally accepted auditing standards in
order to express their opinion on these financial statements. These standards
require that the external auditors plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatement.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, meets periodically with management, internal auditors and the
external auditors to discuss the annual audit, internal control, internal
auditing and financial reporting matters. The external auditors and the internal
auditors have direct access to the Audit Committee.
/s/ Jack E. Thompson
- --------------------
Jack E. Thompson
Chairman, President and Chief Executive Officer
/s/ David W. Peat
- -----------------
David W. Peat
Vice President and Controller
(Chief Accounting Officer)
February 1, 1999
57
<PAGE>
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>
1998:
Revenues $216,217 $195,285 $ 183,429 $ 202,846 $ 797,777
Net income (loss) (6,586)(1) (30,931)(2) (182,226)(3) 1,418 (4) (218,325)(1-4)
Per common share:
Net income (loss)(9) $ (0.03)(1) $ (0.15)(2) $ (0.86)(3) $ 0.01 (4) $ (1.02)(1-4)
Dividends paid (10) 0.05 0.05 0.10
1997:
Revenues $317,338 $226,060 $ 217,737 $ 210,280 $ 971,415
Net income (loss) 48,256 (5) (64,857)(6) (155,561)(7) (58,444)(8) (230,606)(5-8)
Per common share:
Net income (loss) (9) $ 0.23 (5) $ (0.31)(6) $ (0.74)(7) $ (0.28)(8) $ (1.10)(5-8)
Dividends paid (10) 0.05 0.05 0.05 0.15
<FN>
1. Includes business combination and integration costs of $2.7 million ($2.8
million pretax) or $0.01 per share and charges of $5.9 million ($8.9
million pretax) or $0.03 per share related to the restructuring of the
Homestake mine.
2. Includes business combination and integration costs of $15 million ($17.9
million pretax) or $0.07 per share and reductions in the carrying values of
resource assets of $2.6 million ($2.9 million pretax) or $0.02 per share.
3. Includes write-downs and unusual charges of $165.9 million ($187.9 million
pretax) or $0.78 per share including (i) reductions of $115.4 million
($135.9 million pretax) in the carrying values of resource assets, (ii) an
increase of $35 million ($35 million pretax) in estimated accruals for
remediation and reclamation expenditures, (iii) write-downs of $7.3 million
($7.9 million pretax) of noncurrent investments, and (iv) other charges of
$8.2 million ($9.1 million pretax).
4. Includes a reduction in business combination and integration costs of $1
million ($1.6 million pretax) and write-downs and unusual charges of $3.9
million ($3.9 million pretax) or $0.01 per share including (i) reductions
of $2.6 million ($2.6 million pretax) in the carrying values of resource
assets, (ii) an increase of $1 million ($1 million pretax) in estimated
accruals for reclamation expenditures, and (iii) write-downs of $0.3
million ($0.3 million pretax) in noncurrent investments.
5. Includes a gain of $47.2 million ($62.9 million pretax) or $0.22 per share
on the fee received upon termination of Homestake's merger agreement with
Santa Fe Pacific Gold Corporation and a gain of $8.1 million ($13.5 million
pretax) or $0.04 per share on the sale of the George Lake and Back River
joint venture interests in the Northwest Territories of Canada.
6. Includes write-downs and unusual charges of $50 million ($65.1 million
pretax) or $0.24 per share including (i) a reduction of $31.9 million ($45
million pretax) in the carrying value of resource assets, (ii) write-downs
of $14.5 million ($14.5 million pretax) of certain mining investments, and
(iii) other charges of $3.6 million ($5.6 million pretax).
7. Includes write-downs and unusual charges of $145.1 million ($183.6 million
pretax) or $0.69 per share including (i) a write-down of $84.9 million
($107.8 million pretax) in 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 resource assets, (iii) an increase of $21.5 million
($29.1 million pretax) in the estimated accrual for future reclamation
expenditures, (iv) write-downs of $14.7 million ($16.5 million pretax) of
certain mining investments, and (v) other charges of $5.8 million ($5.9
million pretax) primarily related to foreign exchange losses on
intercompany redeemable preferred stock.
8. Includes write-downs and unusual charges of $29.8 million ($36.6 million
pretax) or $0.14 per share including (i) a reduction of $10 million ($15.4
million pretax) in the carrying values of resource assets, (ii) write-downs
of $16.4 million ($16.9 million pretax) of certain mining investments, and
(iii) other charges of $3.3 million ($4.3 million pretax) primarily losses
on an intercompany gold loan.
9. Basic and diluted earnings per share.
10. Homestake only.
</FN>
</TABLE>
58
<PAGE>
Five-Year Selected Data (1)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 797,777 $ 971,415 $ 998,446 $ 949,251 $ 829,935
Net income (loss) (218,325)(2) (230,606)(3) 45,765(4) 49,942 93,631(5)
Net income (loss) per share (6) (1.02)(2) (1.10)(3) 0.22(4) 0.25 0.47(5)
Total assets 1,647,531 1,609,534 1,939,330 1,673,390 1,460,968
Long-term debt 357,410 374,593 254,668 274,292 188,085
Other long-term obligations 168,178 152,610 123,475 127,558 111,065
Deferred income
and mining taxes 230,567 161,862 218,379 202,607 147,278
Minority interests 7,825 108,116 103,960 100,380 94,140
Shareholders' equity 735,832 683,505 1,023,825 848,640 799,376
Dividends per share (7) 0.10 0.15 0.20 0.20 0.175
<FN>
1. Five-year selected financial data reflects the 1998 combination of
Homestake and Plutonic on a pooling-of-interests basis, accordingly all
periods include the results of Plutonic.
2. Includes business combination and integration costs of $16.7 million ($19.1
million pretax) or $0.08 per share and write-downs and other unusual
charges of $178.3 million ($203.6 million pretax) or $0.83 per share
including (i) a reduction in the carrying values of resource assets of
$120.6 million ($141.4 million pretax), (ii) an increase in the estimated
accrual for remediation and reclamation expenditures of $36 million ($36
million pretax), (iii) Homestake mine restructuring charges of $5.9 million
($8.9 million pretax), (iv) write-downs of investments of $7.6 million
($8.2 million pretax), and (v) other charges of $8.2 million ($9.1 million
pretax).
3. Includes a gain of $47.2 million ($62.9 million pretax) or $0.22 per share
on the fee received upon termination of Homestake's merger agreement with
Santa Fe Pacific Gold Corporation, a gain of $10.4 million ($10.4 million
pretax) or $0.05 per share with respect to the cancellation of an option to
acquire Great Central Mines Limited, and a gain of $8.1 million ($13.5
million pretax) or $0.04 per share on the sale of the George Lake and Back
River joint venture interests in the Northwest Territories of Canada, and
write-downs and unusual charges of $224.9 million ($285.3 million pretax)
or $1.07 per share including (i) a write-down of $84.9 million ($107.8
million pretax) in Homestake's investment in the Main Pass 299 sulfur mine,
(ii) a reduction of $60.1 million ($84.7 million pretax) in the carrying
values of resource assets, (iii) write-downs of $45.7 million ($47.9
million pretax) of certain investments, (iv) an increase of $21.5 million
($29.1 million pretax) in the accrual for estimated future reclamation
expenditures, and (v) other charges of $12.7 million ($15.8 million pretax)
consisting primarily of foreign exchange losses on intercompany redeemable
preferred stock and losses on an intercompany gold loan.
4. Includes income of $24 million or $0.11 per share from a reduction in the
Company's accrual for prior year income taxes, a gain of $7.9 million ($7.9
million pretax) or $0.04 per share from the sale of the investment in Eagle
Mining Corporation NL, a foreign currency exchange loss on intercompany
advances of $7.4 million ($8.9 million pretax) or $0.04 per share primarily
related to the Company's Canadian-dollar denominated advances to HCI,
write-downs of $8.3 million ($9 million pretax) or $0.04 per share in the
carrying values of investments in mining company securities, and proceeds
of $4.9 million ($5.5 million pretax) or $0.02 per share from a litigation
recovery.
5. Includes a gain of $12.6 million ($15.7 million pretax) or $0.06 per share
on the sale of the Company's interest in the Dee mine and a gain of $11.2
million ($11.2 million pretax) or $0.06 per share on dilution of the
Company's interest in Prime.
6. Basic and diluted earnings per share.
7. Homestake only.
</FN>
</TABLE>
Common Stock Price Range
(Prices as quoted on the New York Stock Exchange)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1998: High $11.19 $13.13 $12.69 $15.00 $15.00
Low 7.69 9.31 8.69 8.38 7.69
1997: High $16.63 $15.25 $15.38 $15.56 $16.63
Low 13.13 12.75 12.31 8.31 8.31
</TABLE>
59
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------------------------------------------------------
Homestake Mining Company, a Delaware Corporation and its Subsidiaries
Interest of Homestake Mining Company is 100% unless otherwise noted
( ) Denotes state, province or country of incorporation
- ------------------------------------------------------------------------------
Homestake Mining Company (Delaware)
Homestake Mining Company of California (California)
Denay Creek Gold Mining Company (California)
Gold Ore Inc. (South Dakota)
HMC Finance Pty Ltd (Northern Territory, Australia)
Homestake Canada Holdings Company (Nova Scotia)
Homestake Canada Inc. (Ontario)
588982 Ontario Inc. (Ontario)
E & B Explorations Inc. (Delaware)
Galveston Resources (Nevada), Inc. (Nevada)
PRG Project Development Corp. (British Columbia)
Teck-Corona Operating Corporation (Ontario) - 50%
Williams Operating Corporation (Ontario) - 50%
Homestake de Argentina, S.A. (Buenos Aires)
Homestake do Brasil, S.A. (Brazil)
Homestake Forest Products Company (California)
Homestake Gold of Australia Limited (South Australia)
Homestake Australia Limited (South Australia)
Homestake Superannuation Fund Pty Ltd (Queensland)
Kalgoorlie Consolidated Gold Mines Pty Ltd (Western Australia)
-50%
KCGM Engineering Services Pty Ltd (Western Australia)-50%
Homestake International Minerals Limited (California)
Homestake Lead Company of Missouri (California)
Homestake Nevada Corporation (California)
Homestake-Santa Fe Mine Inc. (Nevada)
Homestake Sulphur Company (Delaware)
Kaczawa Sp. z.o.o. (Poland)
La Jara Mesa Mining Company (New Mexico)
Minera Homestake Chile S.A. (Chile)
Agua de la Falda, S.A. (Chile) - 51%
Minera Patagonia S.R.L. (Argentina)
Minera Rio Guarampin, S.A. (Venezuela)
Minera Rio Marwani, S.A. (Venezuela)
Skora Sp. z.o.o. (Poland)
Whitewood Development Corporation (California)
Plutonic Resources Limited (New South Wales)
Forsayth NL (Western Australia)
Bellevue Gold Projects Pty Ltd (New South Wales)
Blacksmith Holdings Pty Ltd (Western Australia)
Canaustra Holdings Pty Ltd (Western Australia)
Forsayth (Gibson) Ltd (Western Australia)
Forsayth Group Management Pty Limited (Western Australia)
Forsayth Mining Services Ltd (Western Australia)
Forsayth (New Zealand) Limited (Western Australia)
Forsayth Securities Ltd (Western Australia)
Forsayth Tenements Ltd (Western Australia)
Patshore Pty Limited (New South Wales)
Whim Creek Consolidated NL (Western Australia)
Austwhim Resources NL (Western Australia)
Red Rock Mining Corporation Ltd (New South Wales)
Grants Patch Mining Limited (Queensland)
Publishing Investments Company Pty Ltd (Western Australia)
Sundowner Minerals NL (New South Wales)
Lachlan Resources NL (New South Wales) - (81.2%)
Lachlan Pacific NL (New Zealand) - (73.1%)
Quotidian No. 101 Pty Ltd (New South Wales) (81.2%)
Archaean Gold NL (Western Australia) (81.2%)
Plutonic Administration Services Pty Ltd (New South Wales)
Plutonic Finance Pty Ltd (New South Wales)
Plutonic Gold Pty Ltd (New South Wales)
Plutonic Minerals USA Inc. (Nevada)
Plutonic Mining Services Pty Ltd (New South Wales)
Plutonic Operations Limited (New South Wales)
Plutonic (Baxter) Pty Ltd (South Australia)
Rubyset Pty Limited (New South Wales)
Plutonic Superannuation Pty Ltd (New South Wales)
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of Homestake Mining Company: Post-Effective Amendment No. 3 to No.
2-90905 on Form S-8 (originally filed on Form S-3); No. 33-26049 on Form S-8;
No. 2-66538 on Form S-8; Post-Effective Amendment No. 1 to No. 33-48526 on Form
S-8 (originally files on Form S-4); No. 333-17357 on Form S-8; No. 333-17359 on
Form S-8; No. 333-24711 on Form S-3; and No. 333-66311 on Form S-3 of our report
dated February 1, 1998, appearing on Form 10-K of Homestake Mining Company for
the year ended December 31, 1998.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
March 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the related Statement of
Consolidated Operations for the year ended December 31, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 145,069
<SECURITIES> 154,346
<RECEIVABLES> 45,891
<ALLOWANCES> 0
<INVENTORY> 78,906
<CURRENT-ASSETS> 452,106
<PP&E> 2,523,717
<DEPRECIATION> 1,422,853
<TOTAL-ASSETS> 1,647,531
<CURRENT-LIABILITIES> 147,719
<BONDS> 357,410
0
0
<COMMON> 228,012
<OTHER-SE> 507,820
<TOTAL-LIABILITY-AND-EQUITY> 1,647,531
<SALES> 803,134
<TOTAL-REVENUES> 797,777
<CGS> 676,662 <F1>
<TOTAL-COSTS> 722,876 <F2>
<OTHER-EXPENSES> 282,244 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,884
<INCOME-PRETAX> (228,227)
<INCOME-TAX> (13,087)
<INCOME-CONTINUING> (218,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218,325)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
<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, Write-downs and other unusual charges,
Business combination and integration costs and Other expense from the
Statement of Consolidated Operations.
</FN>
</TABLE>
