<PAGE>
Homestake Mining Company
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(x) Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the Quarterly Period Ended September 30, 2000
( ) Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from______to______
Commission File Number 1-8736
HOMESTAKE MINING COMPANY
A Delaware Corporation
IRS Employer Identification No. 94-2934609
1600 Riviera Avenue
Walnut Creek, California 94596-3568
Telephone: (925) 817-1300
http://www.homestake.com
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock outstanding as of October
31, 2000 was 263,162,000*
* Includes 3,528,000 Homestake Canada Inc. exchangeable shares
that may be exchanged at any time for Homestake common stock on
a one-for-one basis.
<PAGE>
Homestake Mining Company
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
A.Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except per share amount)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
------------ ------------
ASSETS
Current Assets
Cash and equivalents $ 242,289 $ 130,273
Short-term investments 5,763 136,362
Receivables 42,519 44,988
Inventories (note 7) 64,903 63,337
Deferred income and mining taxes 17,854 14,663
Other 3,237 7,479
------------ ------------
Total current assets 376,565 397,102
------------ ------------
Property, Plant and Equipment, net 996,833 1,132,846
Investments and Other Assets
Noncurrent investments 7,563 10,473
Other assets 94,095 94,048
------------ ------------
Total investments and other assets 101,658 104,521
------------ ------------
Total Assets $ 1,475,056 $ 1,634,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 34,089 $ 34,873
Accrued liabilities 80,641 64,460
Income and other taxes payable 14,384 3,469
Current portion of long-term debt and capital leases 52,463 37,206
------------ ------------
Total current liabilities 181,577 140,008
------------ ------------
Long-term Liabilities
Long-term debt and capital leases (note 8) 223,663 278,494
Other long-term obligations 235,774 184,893
------------ ------------
Total long-term liabilities 459,437 463,387
------------ ------------
Deferred Gain on Close-out of Forward Sales Contracts 25,478 34,956
Deferred Income and Mining Taxes 193,908 216,958
Minority Interests in Consolidated Subsidiaries 11,567 13,800
Shareholders' Equity
Capital stock, $1 par value per share:
Authorized - Preferred: 10,000 shares; no shares outstanding
- Common: 450,000 shares
Outstanding - HCI exchangeable shares: 2000 - 3,581; 1999 - 6,657
- Common: 2000 - 259,552 ; 1999 - 253,808 259,552 253,808
Additional paid-in capital 937,871 923,091
Deficit (490,694) (382,271)
Accumulated other comprehensive loss (103,640) (29,268)
------------ ------------
Total shareholders' equity 603,089 765,360
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,475,056 $ 1,634,469
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Homestake Mining Company
B.Condensed Statements of Consolidated Operations (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues
Gold and ore sales $ 163,594 $ 165,279 $ 493,525 $ 493,582
Interest income 4,763 4,212 15,680 11,993
Other income (loss) (note 3) (6,288) 2,902 (21,232) 37,413
----------- ----------- ----------- -----------
162,069 172,393 487,973 542,988
----------- ----------- ----------- -----------
Costs and Expenses
Production costs 108,588 111,322 326,558 334,542
Depreciation, depletion and amortization 37,967 33,387 108,133 101,246
Administrative and general expense 9,884 10,905 32,224 32,633
Exploration expense 9,896 8,041 29,522 29,153
Interest expense 5,107 4,885 14,993 13,503
Business combination expenses - - - 4,764
Write-downs and other unusual charges 67,823 6,886 68,339 10,386
Other expense 362 364 869 2,731
----------- ----------- ----------- ----------
239,627 175,790 580,638 528,958
----------- ----------- ----------- ----------
Income (Loss) From Continuing Operations
Before Taxes and Minority Interests (77,558) (3,397) (92,665) 14,030
Income and Mining Taxes 757 5,871 (2,302) (11,254)
Minority Interests 1,058 217 1,890 1,004
---------- ----------- ----------- ----------
Income (Loss) From Continuing Operations (75,743) 2,691 (93,077) 3,780
Loss From Discontinued Operations - (944) (15,346) (2,866)
------------ ------------ ------------ ------------
Net Income (Loss) $ (75,743) $ 1,747 $ (108,423) $ 914
=========== =========== =========== ===========
Per Share Amounts - Basic and Diluted:
Income (loss) from continuing operations $ (0.29) $ 0.01 $ (0.36) $ 0.01
Loss from discontinued operations - - (0.06) (0.01)
------------ ------------ ------------ ------------
Net Income (Loss) Per Share $ (0.29) $ 0.01 $ (0.42) $ -
=========== =========== ============ ===========
Average Shares Used in the Computation 262,672 260,232 261,198 259,838
=========== =========== =========== ===========
Dividends Paid Per Common Share $ - $ - $ - $ 0.05
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Homestake Mining Company
C.Condensed Statements of Consolidated Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
September 30,
2000 1999
---------- ----------
Cash Flows from Operations
Income (loss) from continuing operations $(93,077) $ 3,780
Reconciliation to net cash provided by continuing operations:
Depreciation, depletion and amortization 108,133 101,246
Deferred gains on close-out of forward sales contracts 3,348 34,956
Write-downs and other unusual charges 68,339 10,386
Gains on asset disposals (5,272) (2,740)
Deferred taxes, minority interests and other 5,692 (13,448)
Effect of changes in operating working capital items 10,443 (29,631)
---------- ----------
Net cash provided by continuing operations 97,606 104,549
Net cash used by discontinued operations (3,636) (4,364)
---------- ----------
Net cash provided by operations 93,970 100,185
---------- ----------
Investment Activities
Decrease in investments 130,599 84,409
Additions to property, plant and equipment (61,719) (70,340)
Acquisition of interest in Round Mountain mine (25,930) -
Proceeds from sale-leaseback of equipment 6,713 -
Proceeds from asset sales 4,607 4,291
Decrease in restricted cash 1,789 11,796
---------- ----------
Net cash provided by investment activities 56,059 30,156
---------- ----------
Financing Activities
Borrowings 99,172 99,791
Debt repayments (136,333) (164,131)
Dividends paid - (12,085)
Common shares issued - 6,707
---------- ----------
Net cash used in financing activities (37,161) (69,718)
---------- ----------
Effect of Exchange Rate Changes on Cash and Equivalents (852) (10,104)
---------- ----------
Net Increase in Cash and Equivalents 112,016 50,519
Cash and Equivalents, January 1 130,273 147,519
---------- ----------
Cash and Equivalents, September 30 $242,289 $198,038
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Homestake Mining Company
Notes to Condensed Consolidated Financial Statements (unaudited)
1. General Information
The condensed consolidated financial statements include
Homestake Mining Company and its majority-owned subsidiaries,
and their undivided interests in joint ventures (collectively,
"Homestake" or the "Company") after elimination of
intercompany amounts.
The information furnished in this report reflects all normal
recurring adjustments, which in the opinion of management are
necessary for a fair statement of the results for the interim
periods. Results of operations for interim periods are not
necessarily indicative of results for the full year. These
unaudited condensed consolidated financial statements should
be read in conjunction with the financial statements and notes
thereto, which include information as to significant
accounting policies, in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
All dollar amounts are in United States dollars unless
otherwise indicated.
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 requires that derivatives
be recognized as assets or liabilities and be measured at fair
value. Gains or losses resulting from changes in the value of
derivatives are to 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 5, 2000. In June 2000, the FASB issued
SFAS 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment of SFAS 133" (SFAS
138"). Under the amended standard, certain components of the
Company's precious metals hedging program may be excluded from
the accounting requirements of SFAS 133 provided they meet
certain criteria to qualify as a normal purchase and sale
transaction. The Company has not determined whether its
precious metals hedging contracts will meet the criteria for
exclusion. The Company believes that changes in unrealized
gains and losses on Hometake's derivative activities, to the
extent subject to the requirements of SFAS 133 and SFAS 138,
will qualify for hedge accounting and, to the extent
effective, be deferred in other comprehensive income.
However, there are many complexities to SFAS 133 and SFAS 138,
and the Company currently is evaluating their impact on
reported operating results and financial position. The
effects of adopting the new standard are not reasonably
determinable at this time. The Company expects to adopt SFAS
133 and SFAS 138 effective January 1, 2001.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements" which outlines the basic
criteria required to recognize revenue, and provides a
guidance on the presentation and disclosure of revenue in
financial statements filed with the SEC. The Company will
adopt SAB 101 in the fourth quarter of 2000 and does not
expect the effect of adoption will be material to the
consolidated financial statements.
<PAGE>
Homestake Mining Company
2. Acquisitions
Round Mountain Mine: Effective July 1, 2000, Homestake acquired
Case Pomeroy & Company, Inc.'s ("Case") 25% interest in the
Round Mountain mine for $42.6 million, increasing Homestake's
ownership in the mine from 25% to 50%. The transaction was
effected by Homestake purchasing 100% of the shares of Bargold
Corporation, a wholly owned subsidiary of Case. Purchase
consideration consisted of 2.6 million newly issued Homestake
common shares and $25.9 million in cash. The transaction was
accounted for as a purchase with the purchase price allocated
$3.4 million for net working capital and $44.7 million for
property, plant and equipment, less $5.5 million for accrued
reclamation.
Argentina Gold Corp.: In April 1999, Homestake issued 20.9
million common shares to acquire Argentina Gold Corp.
("Argentina Gold"), a publicly-traded Canadian gold
exploration company whose principal asset is its 60% interest
in the Veladero property in northwest Argentina. The business
combination was accounted for as a pooling of interests, and
accordingly, Homestake's consolidated financial statements
include Argentina Gold for all periods presented. The Company
recorded business combination expenses of $4.8 million related
to this transaction in the nine months ended September 30,
1999.
3. Other Income (Loss)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(in thousands) 2000 1999 2000 1999
------------ ------------ ------------ ------------
Foreign currency contract gains (losses) $ (3,991) $ (2,941) $ (15,983) $ 13,992
Foreign currency exchange gains (losses)
on intercompany advances and other (9,614) (1,257) (19,480) 8,645
Oil sales 1,876 1,217 5,547 3,065
Royalty income 514 419 1,966 1,507
Gains on asset sales and other 4,927 5,464 6,718 10,204
------------ ------------ ------------ ------------
$ (6,288) $ 2,902 $ (21,232) $ 37,413
=========== =========== =========== ===========
</TABLE>
4. Write-downs and Other Unusual Charges
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(in thousands) 2000 1999 2000 1999
------------ ------------ ------------ ------------
Homestake mine restructuring charges (a) $ 22,159 $ - $ 22,159 $ -
Reduction in the carrying values
of resource assets (b) 26,585 1,701 27,101 1,701
Increase in the estimated accrual for
reclamation and remediation expenditures (c) 16,166 5,185 16,166 5,185
Write-downs of noncurrent investments (d) - - - 3,500
Other 2,913 - 2,913 -
------------ ------------ ------------ ------------
$ 67,823 $ 6,886 $ 68,339 $ 10,386
=========== =========== =========== ===========
</TABLE>
<PAGE>
Homestake Mining Company
a) On September 11, 2000, the Company announced a restructuring
of the Homestake mine in South Dakota that contemplated the
completion of operations over the next 16 months. In
connection with the restructuring, the Company recorded a
$22.2 million provision for employee termination benefits
and other exit costs. The workforce will be reduced, from
the current level of 366 employees, to approximately 40 by
no later than December 2001. The classifications of the
employees at the Homestake mine being terminated include
mining engineers, geologists, administrative employees and
mine workers. The key elements of the mine-out plan consist
of abandonment of efforts to redevelop the mine above the
4850 level and completion of all production activities.
Reclamation and remediaton activities will continue for a
number of years. The Company expects to spend approximately
$66 million, of which $48 million was accrued at September
30, 2000, on final reclamation and remediation of the
Homestake mine.
b) During the 2000 third quarter, the Company recorded an $18.2
million write-down of property, plant and equipment at the
Homestake mine, in connection with restructuring discussed
above, $5.0 million to write down certain redundant
equipment primarily at the Plutonic mine in Western
Australia and $3.4 million to write off certain exploration
properties acquired as part of the 1998 Plutonic
acquisition. During the 1999 third quarter, the Company
recorded a $1.7 million charge to write down certain
redundant equipment at the Kalgoorlie operation in Western
Australia. Write-downs and unusual charges for the nine
months ended September 30, 2000 also include $0.5 million to
write down certain redundant equipment at the Eskay Creek
mine in British Columbia.
c) During the 2000 third quarter, following a review of its
reclamation liabilities, the Company recorded a charge of
$16.2 million to increase reclamation accruals for certain
non-operating properties. These charges include $10 million
for the former uranium millsite near Grants, New Mexico,
$2.4 million related to Whitewood Creek in South Dakota,
$1.9 million for the Cullaton Lake mine in Nunavut, Canada,
$1.5 million for the Bulldog mine in Colorado, and $0.4
million for other non-operating properties. Increased cost
estimates for future reclamation reflect new information and
changes in the scope of the required reclamation and closure
activities identified during the third quarter of 2000.
During the quarter ended September 30, 1999, the Company
recorded write-downs and unusual charges of $5.2 million to
increase the estimated reclamation liability for certain
non-operating properties in Australia following an
environmental audit of those properties.
d) Write-downs and unusual charges for the nine months ended
September 30, 1999 also include a $3.5 million write-down to
the carrying value of the Company's investment in an
exploration joint venture in Eastern Europe following a
decision to exit the venture.
5. Discontinued Operations
The Company has a 16.7% undivided joint-venture interest in
the Main Pass 299 sulfur mine in the Gulf of Mexico. In July
2000, in view of continued low sulfur prices and increased
operating costs, Freeport-McMoRan Sulphur LLC, the operator
and 83.3% owner of the Main Pass sulfur mine, announced a
phased closure of sulfur operations. Sulfur production ceased
in August 2000. The Company's joint venture interest was
reflected as a discontinued operation effective June 30, 2000.
The Company wrote off the carrying value of sulfur property,
plant and equipment in 1997. Results for the three and nine
months ended September 30, 2000 include provisions of $3.5
million for estimated operating losses
<PAGE>
Homestake Mining Company
during the closure period and $8.5 million for estimated
remaining unaccrued mine reclamation and closure costs.
Summarized results of the discontinued sulfur operations are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(in thousands) 2000 1999 2000 1999
------------ ------------ ------------ ------------
Revenues $ - $ 3,575 $ (5,367) $ 10,934
=========== =========== =========== ===========
Loss before income taxes $ - $ (1,006) $ (3,487) $ (3,032)
Income tax benefit - 62 141 166
------------ ------------ ------------ ------------
Loss from operations - (944) (3,346) (2,866)
Loss on shutdown, including provisions
of $3.5 million for operating losses
during the closure period and $8.5
million for reclamation (no tax effect) - - (12,000) -
------------ ------------ ------------ ------------
Loss from discontinued operations $ - $ (944) $ (15,346) $ (2,866)
=========== =========== =========== ===========
</TABLE>
6. Comprehensive Income (Loss)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(in thousands) 2000 1999 2000 1999
------------ ------------ ------------ ------------
Net Income (Loss) $ (75,743) $ 1,747 $(108,423) $ 914
Other Comprehensive Income (Loss)
Currency translation adjustments (28,575) (1,268) (69,699) 27,019
Unrealized gain (loss) on securities (1,323) 1,376 (4,673) 1,336
------------ ------------ ------------ ------------
Total Other Comprehensive Income (Loss) (29,898) 108 (74,372) 28,355
------------ ------------ ------------ ------------
Comprehensive Income (Loss) $(105,641) $ 1,855 $(182,795) $ 29,269
=========== =========== =========== ===========
</TABLE>
7. Inventory
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
(in thousands) 2000 1999
------------ ------------
Finished products $ 10,911 $ 7,452
Ore and in process 32,901 30,591
Supplies 21,091 25,294
------------ ------------
$ 64,903 $ 63,337
=========== ===========
</TABLE>
<PAGE>
Homestake Mining Company
8. Long-term debt and capital leases
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
(in thousands) 2000 1999
------------ ------------
Cross-border credit facility (due 2003):
Canadian dollar-denominated borrowings $ 197,608 $ 102,666
Pollution control bonds:
Lawrence County, South Dakota (due 2032) 38,000 38,000
State of California (due 2004) 17,000 ` 17,000
Capital leases 23,518 23,044
Convertible subordinated notes - 134,990
------------ ------------
276,126 315,700
Less current portion
Cross-border credit facility (49,768) -
Convertible subordinated notes - (34,990)
Capital leases (2,695) (2,216)
------------ ------------
$ 223,663 $ 278,494
=========== ===========
</TABLE>
During the first six months of 2000, the Company repurchased,
prior to maturity, convertible subordinated notes
("Convertible Notes") having a principal amount of $1.0
million. The remaining Convertible Notes were repaid upon
maturity on June 23, 2000.
On November 8, 2000, the Company repaid Canadian dollar-
denominated borrowings of $49.8 million (C$75 million)
outstanding under the Cross-border credit facility.
Accordingly, this amount was classified as current at
September 30, 2000.
9. Foreign Currency, Gold Commitments
Foreign Currency Contracts
Under the Company's foreign currency protection program, the
Company has entered into a series of foreign currency option
contracts which establish trading ranges within which the
United States dollar may be exchanged for foreign currencies
by setting minimum and maximum exchange rates.
<PAGE>
Homestake Mining Company
At September 30, 2000, the Company had foreign currency option
contracts outstanding as follows:
Expected Maturity or Transaction Date
-------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total or
2000 2001 2002 Average
----------- ----------- ----------- -----------
(US$ in millions)
Canadian $ / US $ option contracts:
US $ covered $26.6 $62.1 - $88.7
Written puts, average exchange rate (1) 0.69 0.66 - 0.67
US $ covered $26.6 $66.1 - $92.7
Purchased calls, average exchange rate (2) 0.72 0.69 - 0.70
US $ covered $26.6 $38.3 - $64.9
Purchased puts, average exchange rate (3) 0.65 0.65 - 0.65
Australian $ / US $ option contracts:
US $ covered $38.2 $96.8 $33.0 $168.0
Written puts, average exchange rate (1) 0.66 0.65 0.68 0.66
US $ covered $38.2 $96.8 $33.0 $168.0
Purchased calls, average exchange rate (2) 0.67 0.66 0.68 0.67
US $ covered $38.2 $85.8 $33.0 $157.0
Purchased puts, average exchange rate (3) 0.63 0.63 0.65 0.64
</TABLE>
(1) Assuming exercise by the counterparty at the expiration
date, the Company would exchange US dollars for Canadian
or Australian dollars at the put exchange rate. The
counterparty would be expected to exercise the option if
the spot exchange rate was below the put exchange rate.
(2) Assuming exercise by the Company at the expiration date,
the Company would exchange US dollars for Canadian or
Australian dollars at the call exchange rate. The Company
would exercise the option if the spot exchange rate was
above the call exchange rate.
(3) Assuming exercise by the Company at the expiration date,
the Company would exchange Canadian or Australian dollars
for US dollars at the put exchange rate. The Company
would exercise the option if the spot exchange rate was
below the put exchange rate.
In July 2000, the Company discontinued it foreign currency
protection program. Option contracts outstanding at September
30, 2000 are expected to remain in place until maturity.
Gold and Silver Contracts
Homestake's hedging policy provides for the use of forward
sales contracts to hedge up to 30% of each of the following
ten year's expected annual gold production, and up to 30% of
each of the following five year's expected annual silver
production, at prices in excess of certain target prices. The
policy also provides for the use of combinations of put and
call option contracts to establish minimum floor prices.
In March 2000, the Company closed out and financially settled
its remaining US dollar denominated silver forward sales
contracts covering 3.6 million ounces maturing in 2000
<PAGE>
Homestake Mining Company
and 2001. The pretax gain of $3.3 million was deferred and is
being recorded in income as the originally designated
production is sold. At September 30, 2000, the unamortized
portion of this gain was $1.6 million, of which $0.2 million
was classified as noncurrent. The noncurrent deferred gain on
closeout of forward sales contracts at September 30, 2000 also
includes $25.3 million related to the 1999 closeout of gold
forward sales contracts maturing in the years 2001, 2002 and
2003. An additional $9.6 million of deferred gains related to
this transaction are classified as current and are included in
accrued liabilities in the accompanying balance sheet at
September 30, 2000.
At September 30, 2000, the Company had gold forward sales and
option contracts outstanding as follows:
Expected Maturity or Transaction Date
-------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
There- Total or
2000 2001 2002 2003 2004 after Average
-------- -------- -------- -------- -------- -------- --------
US $ denominated contracts:
----------------------------
Forward sales contracts:
Ounces (thousands) 21.3 10.0 10.0 - - 649.2 690.5
Average price ($ per oz.) $ 436 $ 400 $ 403 - - $ 415 $ 416
Put options owned:
Ounces (thousands) 20.0 80.0 - - - - 100.0
Average price ($ per oz.) $ 350 $ 253 - - - - $ 272
Call options written:
Ounces (thousands) 10.0 80.0 - - - - 90.0
Average price ($ per oz.) $ 397 $ 253 - - - - $ 269
Call options purchased:
Ounces (thousands) - 80.0 - - - - 80.0
Average price ($ per oz.) - $ 268 - - - - $ 268
Australian $ denominated contracts: (1)
-----------------------------------
Forward sales contracts:
Ounces (thousands) - - 144.8 24.8 24.8 26.0 220.4
Average price (US$ per oz.) - - $ 296 $ 286 $ 286 $ 286 $ 293
Put options owned:
Ounces (thousands) 30.0 240.0 240.0 240.0 84.0 - 834.0
Average price (US$ per oz.) $ 282 $ 272 $ 265 $ 265 $ 277 - $ 269
Call options written:
Ounces (thousands) - 120.0 120.0 120.0 - - 360.0
Average price (US$ per oz.) - $ 254 $ 254 $ 254 - - $ 254
Call options purchased:
Ounces (thousands) - 120.0 120.0 120.0 - - 360.0
Average price (US$ per oz.) - $ 265 $ 265 $ 265 - - $ 265
</TABLE>
(1) Expressed in US dollars at an exchange rate of A$ = US$ 0.5428
10. Segment 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: North
America (United States and Canada), Australia and South
America. The Company also has other foreign exploration
activities and an oil recovery operation in the Gulf of
Mexico, which are included in "Corporate and All Other."
Within each geographic segment, operations are
<PAGE>
Homestake Mining Company
managed on a mine-by-mine basis. However, because each mine has similar
characteristics, the Company has geographically aggregated its
operations. As discussed in note 5, the Company's results
from its sulfur operations are reflected as a discontinued
operation, and therefore, have been excluded from the segment
information.
Segment information for the three and nine months ended
September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Corporate
North South and All Reconciling
(in thousands) America Australia America Other Items (a) Total
---------------------------------------------------------------------------
For the three months ended:
September 30, 2000
Product sales $103,904 $ 57,870 $ 1,820 $ - $ - $163,594
Other revenues 342 (414) (72) 1,374 (2,755) (1,525)
Total revenues 104,246 57,456 1,748 1,374 (2,755) 162,069
Operating earnings 11,137 7,245 (398) 285 (2,755) 15,514
September 30, 1999
Product sales $106,388 $ 56,999 $ 1,892 $ - $ - $165,279
Other revenues 3,465 891 (122) 5,130 (2,250) 7,114
Total revenues 109,853 57,890 1,770 5,130 (2,250) 172,393
Operating earnings 21,660 4,022 (217) 4,469 (2,250) 27,684
For the nine months ended:
September 30, 2000
Product sales $305,797 $178,948 $ 8,780 $ - $ - $493,525
Other revenues (636) (9,173) 356 11,930 (8,029) (5,552)
Total revenues 305,161 169,775 9,136 11,930 (8,029) 487,973
Operating earnings 38,304 14,737 113 8,157 (8,029) 53,282
September 30, 1999
Product sales $313,387 $171,341 $ 8,854 $ - $ - $493,582
Other revenues 15,124 11,721 193 26,880 (4,512) 49,406
Total revenues 328,511 183,062 9,047 26,880 (4,512) 542,988
Operating earnings 62,849 24,782 92 23,989 (4,512) 107,200
</TABLE>
(a) Primarily intercompany financing.
11. Contingencies
Environmental Contingencies
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 imposes heavy liabilities on any
person who discharges hazardous substances. The
Environmental Protection Agency publishes a National
Priorities List ("NPL") of known or threatened releases of
such substances.
Homestake's former uranium millsite near Grants, New Mexico
is listed on the NPL. 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
<PAGE>
Homestake Mining Company
accordance with Nuclear Regulatory
Commission license requirements. Through September 30,
2000, Homestake had received $31.4 million from the DOE and
the balance sheet at September 30, 2000 includes an
additional receivable of $4.3 million for the DOE's share of
reclamation expenditures made by Homestake through 1999.
In 1983, the State of New Mexico filed claims against
Homestake for natural resource damages resulting from the
Grants site. To date, the State has taken no action to
enforce its claims.
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.
12. Homestake Canada Inc. ("HCI")
In connection with the 1998 acquisition of the minority
interests in Prime Resources Group Inc., 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 Hometake common share. A 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.
Homestake, through a wholly owned subsidiary, owns all the
common shares outstanding of Homestake Canada Inc.
("HCI"). At September 30, 2000, HCI had 3.6 million HCI
exchangeable shares outstanding, which were held by the
public.
Following the 1999 business combination with Argentina Gold,
Homestake's investment in Argentina Gold was transferred to
HCI in exchange for a Canadian dollar-denominated
intercompany note payable by HCI to its parent company of
approximately C$282 million (US$191 million). In accordance
with United States generally accepted accounting principles,
the assets, liabilities and shareholder's equity of
Argentina Gold have been recorded in HCI's financial
statements at the historical cost basis to the parent
company. The difference between the historical cost basis
of Argentina Gold shareholder's equity and its fair value at
the date of transfer has been recorded as a reduction to
HCI's shareholder equity.
<PAGE>
Homestake Mining Company
Summarized consolidated financial information for HCI,
including Argentina Gold for all periods presented, is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
(in thousands) 2000 1999
----------- -----------
Current assets $ 49,846 $ 43,666
Noncurrent assets 445,695 498,567
----------- -----------
Total assets $ 495,541 $ 542,233
=========== ===========
Current portion of notes payable to the Company $ 149,655 $ 138,233
Other current liabilities 21,649 19,521
Long-term debt 197,608 102,666
Notes payable to the Company 190,872 190,872
Other long-term liabilities 20,267 10,843
Deferred income and mining taxes 177,506 199,979
Shareholders' equity
HCI's shareholders' equity (71,144) 70,991
Adjustment to conform to the
Company's accounting basis (190,872) (190,872)
----------- -----------
Total liabilities and shareholders' equity $ 495,541 $ 542,233
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
(in thousands) 2000 1999 2000 1999
----------- ----------- ----------- -----------
Total revenues $ 49,854 $ 56,601 $ 160,707 $ 182,632
Costs and expenses 60,848 55,868 182,237 169,646
----------- ----------- ----------- -----------
Income (loss) before taxes
and minority interests $ (10,994) $ 733 $ (21,530) $ 12,986
=========== =========== =========== ===========
Net loss $ (8,637) $ 3,840 $ (23,771) $ 3,085
=========== =========== =========== ===========
</TABLE>
13. Subsequent Event
On October 26, 2000, the Company declared a dividend of
US$0.025 per share of common stock, payable on December 7,
2000 to shareholders of record at the close of business on
November 16, 2000. Homestake Canada Inc. ("HCI") also
declared a dividend of C$0.038 (US$0.025) per HCI exchangeable
share, payable on December 7, 2000 to shareholders of record
at the close of business on November 16, 2000.
<PAGE>
Homestake Mining Company
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unless specifically stated otherwise, the following information
relates to amounts included in the consolidated financial
statements without reduction for minority interests. Homestake
reports per ounce production costs in accordance with the "Gold
Institute Production Cost Standard.")
The following provides information which management believes is
relevant to an assessment and understanding of Homestake Mining
Company's ("Homestake" or the "Company") consolidated results
of operations and financial condition. The discussion should be
read in conjunction with the Management's Discussion and Analysis
included in Homestake's 1999 Annual Report on Form 10-K.
Effective July 1, 2000, Homestake acquired Case Pomeroy &
Company, Inc.'s ("Case") 25% interest in the Round Mountain
mine for $42.6 million, increasing Homestake's ownership in the
mine from 25% to 50%. The transaction was effected by Homestake
purchasing 100% of the shares of Bargold Corporation, a wholly
owned subsidiary of Case. Purchase consideration consisted of
2.6 million newly issued Homestake common shares and $25.9
million in cash. The transaction was accounted for as a
purchase.
On April 29, 1999 Homestake issued 20.9 million common shares to
acquire Argentina Gold Corp. ("Argentina Gold"), a Canadian
gold exploration company whose principal asset is its 60%
interest in the Veladero property located in northwest Argentina.
The business combination was accounted for as a pooling of
interests, and accordingly, the Company's consolidated financial
statements include Argentina Gold for all periods.
RESULTS OF OPERATIONS
SUMMARY
Homestake recorded losses from continuing operations of $75.7
million ($0.29 per share) and $93.1 million ($0.36 per share) in
the quarter and nine months ended September 30, 2000,
respectively, compared with income from continuing operations of
$2.7 million ($0.01 per share) and $3.8 million ($0.01 per share)
in the respective 1999 periods. Third quarter and year-to-date
2000 results include after-tax foreign currency exchange losses
of $12.7 million ($0.05 per share) and $30.1 million ($0.12 per
share), respectively, and after-tax non-recurring charges of
$63.5 million ($0.24 per share) and $64 million ($0.25 per
share), respectively. Third quarter and year-to-date results in
1999 included after-tax foreign currency exchange losses of $2.3
million ($0.01 per share) and gains of $16.9 million ($0.06 per
share), respectively, and after-tax non-recurring charges of $4.4
million ($0.02 per share) and $12.7 million ($0.05 per share),
respectively.
<PAGE>
Homestake Mining Company
After-tax non-recurring charges are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
(in thousands) 2000 1999 2000 1999
----------- ----------- ----------- -----------
Homestake mine restructuring charges $ 22.2 $ - $ 22.2 $ -
Resource asset write-downs 23.8 1.1 24.3 1.1
Increase in the estimated accrual for
reclamation expenditures 14.9 3.3 14.9 3.3
Business combination and integration costs - - - 4.8
Write-down of noncurrent investments - - - 3.5
Other 2.6 - 2.6 -
----------- ----------- ----------- -----------
$ 63.5 $ 4.4 $ 64.0 $ 12.7
=========== =========== =========== ===========
</TABLE>
Excluding the effect of the foreign exchange gains and losses and
non-recurring charges, the Company recorded income from
continuing operations of $0.5 million ($0.00 per share) and $1.1
million ($0.00 per share), in the third quarter and year-to-date
2000 periods, respectively, compared with income of $9.4 million
($0.04 per share) and a loss of $0.4 million ($0.00 per share)
for the respective 1999 periods. Lower operating income in the
2000 third quarter reflects lower sales volumes, higher cash and
total production costs per ounce and a smaller tax benefit than
in the 1999 third quarter. For the year-to-date, higher
operating earnings reflect higher interest income, lower cash
costs per ounce and lower taxes, partially offset by higher
depreciation charges and interest expense.
On July 20, 2000, Freeport-McMoRan Sulphur LLC, the operator and
83.3% owner of the Main Pass joint venture, located in the Gulf
of Mexico, announced a phased closure of the sulfur operations.
Homestake's 16.7% interest in the joint venture was reflected as
a discontinued operation effective June 30, 2000. Year-to-date
2000 losses from discontinued operations amounted to $15.3
million ($0.06 per share), compared to $0.9 million ($0.00 per
share) and $2.9 million ($0.01 per share) during the 1999 third
quarter and year-to-date periods, respectively. The 2000 year-
to-date loss included a non-recurring charge of $12 million,
reflecting Homestake's $8.5 million share of unaccrued
reclamation and closure costs and a $3.5 million allowance for
projected operating losses during the closure period. Homestake
wrote off the carrying value of its interest in Main Pass in
1997. Including losses from discontinued operations, Homestake
recorded net losses of $75.7 million ($0.29 per share) and $108.4
million ($0.42 per share) in the three and nine months ended
September 30, 2000, compared with net income $1.7 million ($0.01
per share) and $0.9 million ($0.00 per share) in the respective
1999 periods.
<PAGE>
Homestake Mining Company
GOLD OPERATIONS
The following charts detail Homestake's gold production and total
cash costs per ounce by location:
Production
(Ounces in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
Mine (Percentage interest) 2000 1999 2000 1999
---------------------------- ----------- ----------- ----------- -----------
United States
Homestake (100) 40.6 55.5 132.4 158.3
Ruby Hill (100) 35.6 33.0 97.0 91.3
McLaughlin (100) 25.8 29.9 81.7 93.7
Round Mountain (50) (5) 77.8 37.2 152.0 102.4
Marigold (33) 4.2 4.8 15.9 17.6
Pinson (50) - 0.7 - 5.6
----------- ----------- ----------- -----------
Total United States 184.0 161.1 479.0 468.9
Canada
Eskay Creek (100) (2) 81.9 80.4 249.9 240.9
Hemlo: 75.0 75.8 236.5 225.2
Williams (50) 52.9 51.4 161.7 157.1
David Bell (50) (1) 22.1 24.4 74.8 68.1
Snip (100) (2) - 0.2 - 42.1
----------- ----------- ----------- -----------
Total Canada 156.9 156.4 486.4 508.2
Australia
Kalgoorlie (50) 92.4 98.1 289.5 254.0
Yilgarn: 122.2 114.3 346.2 334.6
Plutonic (100) 61.0 62.1 176.9 167.6
Darlot (100) 35.0 28.4 98.8 83.4
Lawlers (100) 26.2 23.8 70.5 83.6
Peak Hill (67) - 5.5 - 17.5
----------- ----------- ----------- -----------
Total Australia 214.6 217.9 635.7 606.1
Chile
Agua de la Falda (51) 3.4 3.8 15.9 16.4
----------- ----------- ----------- -----------
Total Production 558.9 539.2 1,617.0 1,599.6
========== ========== ========== ==========
</TABLE>
<PAGE>
Homestake Mining Company
Total Cash Costs (6)
(Dollars per ounce)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
Mine (Percentage interest) 2000 1999 2000 1999
---------------------------- ----------- ----------- ----------- -----------
United States
Homestake (100) $ 287 $ 250 $ 276 $ 257
Ruby Hill (100) 97 94 101 103
McLaughlin (100) 240 232 234 223
Round Mountain (50) (5) 202 198 221 200
Marigold (33) 339 180 257 206
Pinson (50) - - - 242
----------- ----------- ----------- -----------
Total United States 209 200 215 206
Canada
Eskay Creek (100) (3) 33 1 24 9
Hemlo: 187 183 190 200
Williams (50) 185 192 194 205
David Bell (50) 194 165 182 187
Snip (100) - - - 208
----------- ----------- ----------- -----------
Total Canada 107 89 105 110
Australia
Kalgoorlie (50) (4) 183 231 195 237
Yilgarn: 197 191 203 206
Plutonic (100) 201 194 201 229
Darlot (100) 168 195 192 194
Lawlers (100) 227 180 226 170
Peak Hill (67) - 179 - 179
----------- ----------- ----------- -----------
Total Australia 191 209 200 218
Chile
Agua de la Falda (51) 224 167 212 188
----------- ----------- ----------- -----------
Weighted Average $ 173 $ 171 $ 176 $ 180
=========== =========== =========== ===========
</TABLE>
<PAGE>
Homestake Mining Company
Consolidated Production Costs per Ounce (6)
(dollars per ounce of gold)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Realized Gold Price $ 284 $ 280 $ 290 $ 287
========== ========== ========== ==========
Per Ounce Costs
Direct mining costs $ 183 $ 189 $ 189 $ 198
Deferred stripping adjustments - (3) (1) (5)
Costs of third-party smelters 17 17 17 17
By-product credits (33) (37) (35) (35)
----------- ----------- ----------- -----------
Cash Operating Costs 167 166 170 175
Royalties 6 4 5 4
Production taxes - 1 1 1
----------- ----------- ----------- -----------
Total Cash Costs 173 171 176 180
Depreciation and amortization 57 53 56 54
Reclamation and mine closure 11 7 9 7
----------- ----------- ----------- -----------
Total Production Costs $ 241 $ 231 $ 241 $ 241
========== ========== ========== ==========
</TABLE>
1) Ounces produced include 2,900 and 8,500 in the quarter and
year-to-date periods, respectively, from the Quarter Claim in
both 2000 and 1999.
2) Includes ounces of gold contained in dore, ore and
concentrates.
3) Eskay Creek's costs per ounce were calculated on a by-product
basis. Included as a credit against costs in the third
quarter 2000 were revenues from the sale of 3.6 million (3.6
million in 1999) ounces of silver at an average price of $4.86
($5.38 in 1999) per ounce and 10.7 million (10.3 million in
1999) ounces of silver in the first nine months of 2000 at an
average price of $5.02 ($5.26 in 1999) per ounce. For
comparison purposes, costs per ounce include estimated third-
party costs incurred by smelter owners and others to produce
marketable gold and silver.
4) Includes the effect of insurance proceeds received and
credited to processing costs of $1.1 million in the 2000 year-
to-date period and $0.2 million and $4.8 million in the 1999
third quarter and year-to-date periods, respectively.
5) Homestake acquired an additional 25% interest in the Round
Mountain mine effective July 1, 2000. Homestake's share of
production in the third quarter of 2000 was determined in
accordance with the purchase agreement.
6) Homestake reports per ounce production costs in accordance
with the "Gold Institute Production Cost Standard".
Revenues from gold, ore and concentrate sales totaled $163.6
million and $493.5 million in the third quarter and first nine
months of 2000, respectively, compared to $165.3 million and
$493.6 million, for the comparable periods in 1999. Revenues in
the 2000 periods reflect slightly lower sales volumes, partially
<PAGE>
Homestake Mining Company
offset by higher average realized gold prices. In the third
quarter and year-to-date 2000 periods, 544,100 and 1,601,100
ounces of gold were sold at average realized prices of $284 and
$290 per ounce, respectively, compared to 549,900 and 1,609,100
ounces at average realized prices of $280 and $287 per ounce in
the previous year's comparable periods.
During the 2000 third quarter and year-to-date periods, the
Company produced 558,900 and 1,617,000 ounces of gold at average
total cash costs of $173 and $176 per ounce, respectively,
compared to 539,200 and 1,599,600 ounces at average total cash
costs of $171 and $180 per ounce in the comparable periods in
1999. Higher production in the 2000 third quarter reflects
primarily higher production from the United States operations.
Higher production in the 2000 year-to-date reflects higher
production from the Australian and the United States operations,
partially offset by decreased production from the Canadian
operations.
Production costs for the three and nine-month periods ended
September 30, 2000 declined to $108.6 million and $326.6 million,
respectively, from $111.3 million and $334.5 million for the
comparable periods in 1999. Lower costs reflect ongoing cost
containment efforts at the Company's operations and the impact of
the weaker Australian dollar. Cash costs per ounce during the
third quarter slightly increased by 1% to $173 per ounce,
primarily due to higher cash costs from the Canadian and the
United States operations, partially offset by lower costs from
the Australian operations. Year-to-date 2000 cash costs declined
by 2% to $176 per ounce compared to the corresponding period in
1999, primarily due to lower cash costs from the Australian and
the Canadian operations, partially offset by higher costs from
the United States operations.
Prior to the 2000 third quarter, Homestake reported its gold
production and costs per ounce using equivalent ounces (co-
product reporting) at the Eskay Creek mine. Under the co-product
reporting method, silver production from the Eskay Creek mine was
expressed in terms of an equivalent amount of gold. This method
was originally selected in 1995, when the mine commenced
production, due to the significance of silver production from the
mine (approximately 40%-45% of revenue depending on the relative
market values of gold and silver). It is now a more common
practice in the industry to report gold production using by-
product reporting, where silver revenue is credited against
operating costs in the calculation of cost per ounce. Either
method is acceptable under the Gold Institute Production Cost
Standard. Effective July 1, 2000, Homestake adopted the by-
product reporting basis in reporting its gold production and
operating costs. All periods presented have been restated to
conform to by-product reporting.
United States
United States production increased by 14% to 184,000 ounces
during the third quarter of 2000 compared to 161,100 ounces a
year ago. The increase reflects the increase in Homestake's
ownership interest in the Round Mountain mine in Nevada, from 25%
to 50%, partially offset by a decrease production from the
Homestake mine. The weighted average United States cash cost
increased 5% to $209 per ounce during the third quarter of 2000
compared to $200 per ounce a year ago.
Production from the Homestake mine decreased 27% during the third
quarter of 2000 to 40,600 ounces compared to 55,500 ounces in
1999. The lower production primarily was due to completion of
milling of the remaining open-pit stockpiles in December 1999 and
lower ore
<PAGE>
Homestake Mining Company
grade and recoveries from underground operations,
partially offset by increased underground tonnage. Cash costs
per ounce during the third quarter of 2000 averaged $287 per
ounce compared to $250 per ounce in 1999, primarily due to the
absence of the lower cost open-pit ore. In the first eight months
of 2000, underground ore grades were lower and development costs
were higher than planned due to the discontinuous nature of the
remaining ore lodes. As a result of these conditions, which are
not expected to improve significantly, and the continued weakness
in the price of gold, a decision was made to implement a phased
closure at the Homestake mine. The new "mine-out" plan
contemplates extraction of remaining developed ore over a period
of up to 16 months.
Homestake's wholly-owned Ruby Hill mine continued to perform
well, producing 35,600 ounces as a cash cost of $97 per ounce
during the third quarter of 2000 compared to 33,000 ounces at a
cash cost of $94 per ounce during the prior year's third quarter.
During the third quarter of 2000, gold production from the
processing of residual stockpiles at the McLaughlin mine
decreased 14% to 25,800 ounces at a cash cost of $240 per ounce
compared to 29,900 ounces at a cash cost of $232 per ounce a year
ago. Lower production and higher unit costs primarily were due
to lower ore grade and recovery as the higher-grade stockpiles
were depleted in the third quarter of 1999.
Effective July 1, 2000, Homestake increased its ownership
interest in the Round Mountain mine from 25% to 50%.
Homestake's share of production increased to 77,800 ounces (50%
basis) during the third quarter of 2000 compared to 37,200 ounces
(25% basis) a year ago. In addition to the increased ownership
interest, the higher production was attributable to increased
tonnage processed on the dedicated pad. Cash costs per ounce
increased 2% to $202 per ounce in the third quarter of 2000
despite the higher production, primarily due to lower tonnage,
ore grade and recovery from the reusable leach pads.
Canada
Canadian gold production of 156,900 ounces during the third
quarter of 2000 approximated third quarter 1999 production. The
weighted average total cash costs per ounce from the Company's
Canadian mines increased to $107 per ounce in the 2000 third
quarter, from $89 per ounce in 1999. Higher cash costs were
primarily due to lower by-product credits and higher cash costs
per ounce at the Eskay Creek mine.
At the Eskay Creek mine, third quarter 2000 production totaled
81,900 ounces at an average cash cost of $33 per ounce compared
to 80,400 ounces at an average cash cost of $1 per ounce a year
ago. Increased production in 2000 primarily was due to higher
ore grade for direct shipped ore. Higher cash costs per ounce
reflect lower by-product credits, due to lower silver prices, and
higher smelter and site administration costs.
At the Hemlo operations, Homestake's 50% share of third quarter
2000 production from the combined Williams and David Bell mines
was 75,000 ounces, down slightly from the 75,800 ounces produced
in the prior year, primarily due to lower ore grade. The
weighted average cash costs per ounce increased 2% to $187 per
ounce during the third quarter of 2000 compared to $183 per ounce
a year ago, primarily due to the lower ore grade.
<PAGE>
Homestake Mining Company
Australia
Australian gold production decreased 2% to 214,600 ounces during
the third quarter of 2000 from 217,900 ounces in the comparable
1999 period. The lower Australian production reflects lower
production at the Kalgoorlie operations and the absence of
production from the Peak Hill mine which was closed in 1999,
partially offset by higher production from the Yilgarn
operations. During the third quarter of 2000, Australian
weighted average total cash costs per ounce decreased 9% to $191
per ounce from $209 per ounce in 1999 reflecting the weaker
Australian dollar and the benefit of lower-cost owner mining at
the Kalgoorlie operations.
During the third quarter of 2000, Homestake's 50% share of
production from the Kalgoorlie operations decreased 6% to 92,400
ounces at a cash cost of $183 per ounce from 98,100 ounces at a
cash cost of $231 per ounce a year ago. Lower production in the
third quarter of 2000 was due to lower ore grade and the build-up of
in-process concentrate inventories at the Gidgi roaster in the
2000 third quarter. Higher in-process inventories at the roaster
reflect increasingly stringent sulfur dioxide emission
constraints coupled with higher sulfur levels in the ore and
unfavorable weather conditions during the quarter. Lower cash
costs per ounce during the 2000 third quarter reflect a weaker
Australian dollar and the benefit of lower cost owner mining.
The Super Pit operations completed the transition from contract
to owner mining in the first quarter of 2000.
At Homestake's 100%-owned Yilgarn operations, consisting of the
Plutonic, Lawlers, and Darlot mines, third quarter 2000
production increased 7% to 122,200 ounces from 114,300 ounces a
year ago, primarily due to higher production at the Darlot mine
due to improved ore grades. During the third quarter of 2000,
the weighted average cash cost at the Yilgarn operations
increased 3% to $197 per ounce compared to $191 per ounce in 1999
as the benefit of the weaker Australian dollar was more than
offset by the impact of higher mining costs and lower ore grades
at the Plutonic and Lawlers mines. The Company plans to invest
$7.5 million in a new fleet of haul trucks, loaders and other
ancillary underground equipment to convert the Darlot mine to
owner mining in the first half of 2001.
South America
Homestake's share of production at its 51%-owned Agua de la Falda
mine amounted to 3,400 ounces of gold at an average cash cost of
$224 per ounce in the third quarter of 2000 compared to 3,800
ounces at a cash cost of $167 per ounce in the prior year.
Production decreased primarily due to lower grade, and cash cost
per ounce increased primarily due to higher processing costs and
lower grade.
Homestake completed its first field season at the 60%-owned
Veladero project, located in northwestern Argentina, and
announced on August 1, 2000, an update of proven and probable
reserves and mineralized material on the property. Proven and
probable gold reserves are now estimated to contain 5.5 million
ounces of gold (Homestake's share: 3.3 million ounces) contained
in 118.3 million tons of ore grading 0.046 ounces of gold per
ton. The reserve, which also contains 0.69 ounces of silver per
ton, is part of the recently announced and much larger
mineralized material totaling 391 million tons at a grade of
0.034 ounces of gold and 0.55 ounces of silver per ton. The
2000/2001 field season commenced during the third quarter of
2000. Fifteen drill rigs have been mobilized to the property and
are expected to complete at least 200,000 feet of drilling.
<PAGE>
Homestake Mining Company
Other income for the three and nine months ended September 30,
2000, includes foreign currency exchange losses of $13.6 million
and $35.5 million, respectively. The foreign currency exchange
losses in the nine-month period include $16 million related to
foreign currency exchange contracts and $19.5 million primarily
related to foreign currency denominated intercompany loans.
Other income for the three and nine months ended September 30,
1999 includes foreign currency exchange losses of $4.2 million
and foreign exchange gains of $22.6 million, respectively. The
foreign currency exchange gains for the nine-month period in 1999
include gains of $14 million related to foreign currency exchange
contracts and $8.6 million primarily related to foreign currency
denominated intercompany loans.
Depreciation, depletion and amortization expense increased to
$108.1 million during the first nine months of 2000 compared to
$101.2 million in the comparable 1999 period. The increase
reflects $2.5 million of depreciation related to the new owner-
mining equipment held under a capital lease at Kalgoorlie, higher
production and changes in the production mix, including the
effect of increases in production at mines with higher per-unit
depreciation and amortization rates.
Exploration expense for the first nine months of 2000 was $29.5
million compared to $29.2 million in the corresponding period of
1999. The slight increase relates to increased prefeasibility
costs on the Jeronimo project in Chile, offset by lower overall
exploration spending in other areas.
Write-downs and other unusual charges for the first nine months
of 2000 and 1999 were $68.3 million and $10.4 million,
respectively. During 2000, these charges included $41.9 million
related to the Homestake mine restructuring, $16.2 million of
additional reclamation accruals at non-operating properties, $5.5
million to write-down redundant assets, primarily at the Plutonic
mine in Western Australia and $4.7 million to write-off
exploration properties and other assets. Write-downs and other
unusual charges in 1999 include $5.2 million to increase the
estimated reclamation liability for certain non-operating
properties in Australia following an environmental audit, $3.5
million to write-off the carrying value and investment in an
exploration joint venture in Eastern Europe, and $1.7 million to
write-down redundant equipment.
On September 11, 2000, Homestake announced a restructuring and
new mine plan at the Homestake mine in South Dakota, which
substantially shortened the remaining life of the mine and
contemplates the completion of operations over a period of up to
16 months. Despite gains in productivity, the mine has had
negative cash flows since completion of milling of stockpiled
open-pit ore in December 1999. In the first eight months of
2000, underground ore grades were lower and development costs
were higher than planned due to the discontinuous nature of the
remaining ore lodes. These conditions, which are not expected to
improve significantly, and the continued weakness in the price of
gold, resulted in the implementation of a "mine-out" plan as
the optimum strategy to both extract the remaining economically
recoverable gold from the mine and help provide an orderly social
transition for the local community. In connection with the
restructuring and planned closure, the Company recorded a third
quarter 2000 non-recurring charge of $41.9 million. The charge
included $18.2 million to write-down the carrying value of
property, plant and equipment, $22.2 million for employee
termination benefits and other exit costs and $1.5 million of
other write-downs. Over the next eight years, Homestake expects
to spend approximately $66 million, of which $48 million was
accrued at September 30, 2000, on final reclamation and
remediation at the Homestake mine. The unaccrued balance will be
accrued on a units of production basis over the remaining life of
the Homestake mine.
<PAGE>
Homestake Mining Company
During the 2000 third quarter, following a review of its
reclamation liabilities, the Company recorded a provision of
$16.2 million to increase reclamation accruals for certain non-
operating properties. These charges include $10 million for the
former uranium millsite near Grants, in New Mexico, $2.4 million
related to Whitewood Creek in South Dakota, $1.9 million for the
Cullaton lake mine in Nunavut, Canada, $1.5 million for the
Bulldog mine in Colorado, and $0.4 million for other non-
operating properties. Increased cost estimates for future
reclamation reflect new information and changes in the scope of
the required reclamation and closure activities identified during
the third quarter of 2000.
The $5.5 million charge related to redundant assets includes
$4.5 million at the Plutonic mine to write-off the remaining
carrying value of the now redundant diesel power
station and $1 million at the Eskay Creek mine related to
modifications to the mill and backfill processes. Since 1997,
the Plutonic mine has generated 70-80% of its power requirements
from an on-site gas-fired power plant and 20-30% from the
operation's original diesel power station. As a result of
increasing diesel fuel prices, power was being generated from the
diesel station at a cost approximately three times that of the
gas plant. Recent focus on improving gas plant performance
resulted in, during the third quarter of 2000, an increase in
utilization of the gas plant to 100%, rendering the diesel plant
redundant.
Income and mining tax expense for the first nine months in 2000
decreased to $2.3 million compared to $11.3 million for the same
period in 1999, primarily due to the lower pretax income in 2000.
In addition, the first nine months of 1999 included a charge of
approximately $3 million related to the repatriation of cash to
the United States from the Company's Canadian subsidiaries. The
$2.3 million tax expense incurred in the first nine months of
2000 primarily reflects the geographic mix of pretax income and
losses, foreign withholding taxes on intercompany interest
income, and Canadian mining taxes. The Company's consolidated
effective income and mining tax rate will fluctuate depending on
the geographical mix of pretax income and losses.
Minority interests: Minority interests' share of losses in
consolidated subsidiaries was $1.9 million for the first nine
months in 2000 compared to $1 million for the same period in
1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $94 million during the first
nine months of 2000 compared to $100.2 million during the same
period in 1999. Working capital at September 30, 2000 amounted
to $195 million, including cash and equivalents and short-term
investments of $248.1 million.
Short-term investments decreased by $130.6 million during the
first nine months of 2000, primarily reflecting an increase in
the proportion of Homestake's interest-bearing securities
portfolio with original maturities of less than three months.
Capital expenditures decreased 12% to $61.7 million during the
first nine months of 2000 compared to $70.3 million a year ago.
Capital expenditures in 2000 include $22 million at the Yilgarn
operations primarily for underground development, development
drilling and camp upgrades, $13.8 million at Kalgoorlie primarily
for owner-mining equipment and the flotation circuit upgrade,
$6.1 million for Veladero project development costs and $5.5
million at the Eskay Creek mine for a new tailings pipeline and
other capital improvements. The balance in 2000 was incurred
<PAGE>
Homestake Mining Company
primarily on sustaining capital at the Company's other operating
mines. Capital expenditures of $70.3 million during the first
nine months of 1999 included approximately $27.9 million at
Yilgarn operations primarily for underground development and
$18.5 million at the Kalgoorlie operations primarily for owner-
mining equipment. The balance in 1999 primarily was for
underground mobile mining equipment purchases at the Homestake
mine and sustaining capital at the Company's other operating
mines.
Effective July 1, 2000, Homestake acquired Case & Pomeroy &
Company, Inc's ("Case") 25% interest in the Round Mountain mine
for $42.6 million, increasing Homestake's ownership in the mine
from 25% to 50%. The transaction was effected by Homestake
purchasing 100% of the shares of Bargold Corporation, a wholly
owned subsidiary of Case. Purchase consideration consisted of
2.6 million newly issued Homestake common shares and $25.9
million in cash. The transaction was accounted for as a purchase
with the purchase price allocated $3.4 million for net working
capital and $44.7 million for property, plant and equipment, less
$5.5 million for accrued reclamation.
The Company has a credit facility ("Credit Facility") providing
a total availability of $430 million. This facility is available
through July 14, 2003 and provides for borrowings in United
States, Canadian or Australian dollars, or gold, or a combination
of these. At September 30, 2000, Canadian dollar borrowings
under the Credit Facility of $197.6 million (C$297.8 million)
were outstanding. The Company pays a commitment fee on the
unused portion of this facility ranging from 0.15% to 0.35% per
annum, depending upon rating agencies' ratings for the Company's
senior debt. The credit agreement requires a minimum
consolidated net worth, as defined in the agreement (primarily
shareholders' equity plus the amount of all noncash write-downs
made after December 31, 1997), of $500 million. Interest on the
Canadian dollar borrowings is payable quarterly and is based on
the Bankers' Acceptance discount rate plus a stamping fee. At
September 30, 2000, this rate was 6.96%.
Debt repayments, net of borrowings under the Credit Facility
during the first nine months of 2000 were $37.2 million compared
to $64.3 million for the same period in 1999. Net debt
repayments in 2000 reflect the repayment of $135.0 million of the
5.5% convertible subordinated notes ("Convertible Notes") which
matured on June 23, 2000, and principal payments of $1.4 million
under capital leases, less Canadian dollar-denominated borrowings
of $99.2 million (C$149.5 million) drawn under the credit
facility. The repayment of the Convertible Notes was financed by
the Credit Facility borrowings and from existing cash balances.
During the first nine months of 2000, the Company also received
$6.7 million of capital lease proceeds related to additional
owner-mining equipment at Kalgoorlie. In the first nine months
of 1999, the Company repaid $149.6 million of Australian dollar-
denominated borrowings under the Credit Facility and $10.0
million of South Dakota pollution control bonds and repurchased
$2.4 million of Convertible Notes. The 1999 debt repayments were
financed from existing cash balances and by Canadian dollar-
denominated borrowings of $99.8 million (C$150 million) under the
Credit Facility.
On November 8, 2000, the Company repaid Canadian dollar-
denominated borrowings of $49.8 million (C$75 million)
outstanding under the Cross-border credit facility. Accordingly,
this amount was classified as current at September 30, 2000.
<PAGE>
Homestake Mining Company
Subsequent event
On October 26, 2000, the Company declared a dividend of US$0.025
per share of common stock, payable on December 7, 2000 to
shareholders of record at the close of business on November 16,
2000. Homestake Canada Inc. ("HCI") also declared a dividend
of C$0.038 (US$0.025) per HCI exchangeable share, payable on
December 7, 2000 to shareholders of record at the close of
business on November 16, 2000.
Foreign currency, gold and other commitments
Homestake's precious metals 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. Homestake
does not hold or issue financial instruments or derivative
financial instruments for trading purposes or to create hedge
positions in excess of forecast identifiable exposures.
During the third quarter and year-to-date 2000 periods, the
Company delivered or financially settled 101,270 and 243,810
ounces of gold at average prices of $312 and $325 per ounce,
respectively, under maturing forward sales and option contracts.
In addition, during the first quarter 2000, the Company delivered
or financially settled 655,000 ounces of silver at an average
price of $6.30 per ounce under maturing forward sales option
contracts. During the third quarter and year-to-date 1999
periods, the Company delivered or financially settled 157,500 and
392,500 ounces of gold at average prices of $295 and $312 per
ounce, respectively, and 755,000 and 2,340,000 ounces of silver
at average prices of $6.34 and $6.35 per ounce, respectively,
under maturing forward sales and option contracts.
In March 2000, the Company closed out and financially settled its
then-remaining US dollar-denominated silver forward sales
contracts covering 3.6 million ounces maturing in 2000 and 2001.
The pretax gain of $3.3 million realized on this transaction was
deferred and is being recorded in income as the originally
designated production is sold. At September 30, 2000, the
unamortized portion of this gain was $1.4 million, of which $0.2
million was classified as noncurrent. The noncurrent deferred
gain on closeout of forward sales contracts at September 30, 2000
also includes $25.3 million related to the 1999 closeout of gold
forward sales contracts maturing in the years 2001, 2002 and
2003. An additional $9.6 million of deferred gains related to
this transaction are classified as current and are included in
accrued liabilities in the accompanying balance sheet at
September 30, 2000.
The foregoing hedging activities increased revenues in the third
quarter and year-to-date 2000 periods by approximately $4 million
and $8 million, respectively, compared to increases in revenues
in the 1999 third quarter and year-to-date periods of
approximately $10 million and $24 million, respectively.
The Company's hedge portfolio has no floating lease rate exposure
or margin call requirements. The estimated fair value of the
Company's remaining gold hedging position at September 30, 2000
is approximately $32.4 million and encompasses approximately 1.8
million ounces at an average price of $327 per ounce.
<PAGE>
Homestake Mining Company
Under the Company's foreign currency protection program, the
Company has entered into foreign currency option contracts to
minimize the effects of a strengthening of either the Canadian of
Australian currencies in relation to the United States dollar.
Realized and unrealized gains and losses on this program are
recorded in other income. At September 30, 2000, the Company had
a net unrealized loss of $6.4 million on open contracts under
this program. In July 2000, the Company discontinued its foreign
currency protection program. Option contracts outstanding at
September 30, 2000 are expected to remain in place until
maturity.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 requires that derivatives be
recognized as assets or liabilities and be measured at fair
value. Gains or losses resulting from changes in the value of
derivatives are to be accounted for depending on the use to 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, 2000. In June 2000, the FASB issued SFAS 138,
"Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of SFAS 133" ("SFAS 138").
Under the amended standard, certain components of the Company's
precious metal hedging program may be excluded from the
accounting requirements of SFAS 133 provided they meet certain
criteria to qualify as a normal purchase and sale transaction.
The Company has not determined whether its precious metals
hedging contracts will meet the criteria for exclusion. The
Company believes that changes in unrealized gains and losses on
Homestake's derivative activities, to the extent subject to the
requirements of SFAS 133 and SFAS 138, will qualify for hedge
accounting and, to the extent effective, be deferred in other
comprehensive income. However, there are many complexities to
SFAS 133 and SFAS 138, and the Company currently is evaluating
their impact on reported operating results and financial
position. The effects of adopting the new standard are not
reasonably determinable at this time. The Company expects to
adopt SFAS 133 and SFAS 138 effective January 1, 2001.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements" which outlines the basic
criteria required to recognize revenue, and provides guidance on
the presentation and disclosure of revenue in financial
statements filed with the SEC. The Company will adopt SAB 101 in
the fourth quarter of 2000 and does not expect the effect of
adoption will be material to the consolidated financial
statements.
Gold Prices
The market price of gold is based on a worldwide market. Gold
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
rates 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, speculation, and sales by
central banks and other holders and producers of gold in response
to these factors.
<PAGE>
Homestake Mining Company
On November 1, 2000, the Company announced it intends to reduce
the average gold price, which it uses to calculate proven and
probable reserves, from US$325 to US$300 per ounce. Despite the
weakness in the Australian dollar, the Company will likely
continue calculating ore reserves at its Australian operations
using gold prices of A$475 to A$500 per ounce, compared to
approximately A$575 per ounce implied by the US$300 per ounce
gold price and the current Australian/US dollar exchange rate.
Canadian operations are expected to calculate ore reserves using
a gold price of C$450 per ounce, compared to C$475 per ounce
implied by the current Canadian/US dollar exchange rate. These
changes are not expected to have a material impact on Homestake's
currently stated reserves.
Future results will be impacted by such factors as the market
price of gold and, to a lesser extent, silver, the Company's
ability to expand its ore reserves, and fluctuations of foreign
currency exchange rates. The Company believes that the
combination of cash, short-term investments, available lines of
credit and future cash flows from operations will be sufficient
to meet normal operating requirements, planned capital
expenditures, and anticipated dividends.
Year 2000 Compliance
The Year 2000 (Y2K) issue is the result of computerized systems
using two digits rather than four to identify an applicable year.
Date-sensitive systems may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a
system failure or miscalculation causing disruptions to business
operations. In 1999, the Company completed a review of its
computer-based information systems and, where needed, Y2K
compliant upgrades for the Company's core financial systems were
installed and tested. To date, no significant Y2K problems have
been encountered and none are expected. Homestake's management
information systems and operations staff will again monitor
critical operations during the December 31, 2000 - January 1,
2001 Y2K rollover dates.
Part ll - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
On July 14, 2000, Homestake acquired the outstanding capital
stock of Bargold Corporation from Bargold's sole stockholder,
Case, Pomeroy & Company, Inc., for $42.6 million, consisting of
2.6 million shares of Homestake Common Stock, $1.00 par value
(the "Shares"), and $25.9 million in cash. Prior to the
acquisition, Bargold held a 25% interest in the Round Mountain
mine located in Nevada. As a result of the acquisition,
Homestake now owns 50% of the Round Mountain mine interests. The
Shares were issued in reliance on the exemption for non-public
offerings provided by Section 4(2) of the Securities Act of 1933,
as amended.
Homestake subsequently filed a registration statement providing
for the resale of the Shares (File No. 333-41434), which was
declared effective by the Securities and Exchange Commission on
August 4, 2000.
<PAGE>
Homestake Mining Company
Item 5 - Other Information
(a) CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements contained in this Form 10-Q that are not
statements of historical facts are "forward looking
statements" with in the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on
beliefs of management, as well as assumptions made by and
information currently available to management. Forward
looking statements include those preceded by the words
"believe," "estimate," "expect," "intend," "will,"
and similar expressions, and include estimates of reserves,
future production, costs per ounce, dates on construction
completion, costs of capital projects and commencement of
operations. Forward-looking statements are subject to
risks, uncertainties and other factors that could cause
actual results to differ materially from expected results.
Some important factors and assumptions that could cause
actual results to differ materially from expected results
are discussed below. Those listed are not exclusive.
Estimates of reserves and future production for particular
properties and for the Company as a whole are derived from
annual plans that have been developed based on mining
experience, assumptions regarding ground conditions and
physical characteristics of ore (such as hardness and
metallurgical characteristics), expected rates and costs of
production, and estimated future sales prices. Actual
production may vary for a variety of reasons, such as the
factors described above, ore mined varying from estimates of
grade and metallurgical and other characteristics, mining
dilution, actions by labor, and government imposed
restrictions. Estimates of production from properties and
facilities not yet in production are based on similar
factors but there is a greater likelihood that actual results
will vary from estimates due to lack of actual experience.
Cash cost estimates are based on such things as past
experience, reserve and production estimates, anticipated
mining conditions, estimated costs of materials, supplies
and utilities, and estimated exchange rates. Noncash cost
estimates are based on total capital costs and reserve
estimates, changes based on actual amounts of unamortized
capital, changes in reserve estimates, and changes in
estimates of final reclamation. Estimates of future capital
costs are based on a variety of factors and include past
operating experience, estimated levels on future production,
estimates by and contracts terms with third-party suppliers,
expectations as to government and legal requirements,
feasibility reports by Company personnel and outside
consultants, and other factors. Capital cost estimates for
new projects are subject to greater uncertainties than
additional capital costs for existing operations. Estimated
time for completion of capital projects is based on such
factors as the Company's experience in completing capital
projects, and estimates provided by and contract terms with
contractors, engineers, suppliers and other involved in
design and construction of projects. Estimates reflect
assumptions about factors beyond the Company's control, such
as the time government agencies take in processing
applications, issuing permits and otherwise completing
processes required under applicable laws and regulations.
Actual time to completion can vary significantly from
estimates.
See the Company's Form 10-K Report for the year ended
December 31, 1999, "RISK FACTORS" and "CAUTIONARY
STATEMENTS" included under Part I - Item 1, for a more
detailed discussion of factors that may impact on expected
future results.
<PAGE>
Homestake Mining Company
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
<PAGE>
Homestake Mining Company
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date: November 10, 2000 By /s/ David W. Peat
David W. Peat
Vice President, Finance and
Chief Financial Officer
(Principal Accounting Officer)
Date: November 10, 2000 By /s/ James B. Hannan
James B. Hannan
Vice President & Controller
(Principal Accounting Officer)
