<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO___________
COMMISSION FILE NUMBER 1-9666
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BATTLE MOUNTAIN GOLD COMPANY
(Exact name of registrant as specified in its charter)
NEVADA 76-0151431
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 CLAY STREET, 42ND FLOOR, HOUSTON, TEXAS 77002
(Address of principal executive offices including Zip Code)
(713) 650-6400
(Registrant's telephone number, including area code)
---------------------
NONE
(former name, former address and former fiscal year if
changed since last report)
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
Number of shares of common stock outstanding as of the latest practicable
date, November 10, 1994: 80,932,073.
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BATTLE MOUNTAIN GOLD COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Condensed Consolidated Balance Sheet at
September 30, 1994, and December 31, 1993 1
Condensed Consolidated Statement of Income
for the three and nine months ended
September 30, 1994, and 1993 2
Condensed Consolidated Statement of
Cash Flows for the nine months ended
September 30, 1994, and 1993 3
Notes to Condensed Consolidated Financial
Statements 4
Statistical Information 6
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8
Part II. Other Information 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 78,167 $ 115,338
Accounts receivable 24,300 37,349
Inventories 4,288 1,068
Materials and supplies, at average cost 26,485 22,916
Other current assets 2,906 3,949
--------- ---------
TOTAL CURRENT ASSETS 136,146 180,620
Investments 42,285 28,111
Net property, plant and equipment 490,543 453,242
Other assets 5,593 6,179
--------- ---------
TOTAL ASSETS $ 674,567 $ 668,152
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 13,431 $ 13,431
Accounts payable 10,499 13,171
Payroll and related benefits accrued 4,779 2,354
Accrued interest 6,048 6,527
Other current liabilities 2,375 4,789
--------- ---------
TOTAL CURRENT LIABILITIES 37,132 40,272
Long-term debt 172,288 179,053
Other liabilities 29,250 24,607
--------- ---------
TOTAL LIABILITIES 238,670 243,932
Minority interest 61,909 54,660
Shareholders' equity 373,988 369,560
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 674,567 $ 668,152
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
GROSS REVENUE $ 59,810 $ 53,271 $172,768 $155,390
Less: Freight, allowances and royalties 3,983 3,247 8,988 10,903
-------- -------- -------- --------
NET SALES 55,827 50,024 163,780 144,487
-------- -------- -------- --------
COSTS AND EXPENSES
Mining costs 3,121 7,934 20,768 29,250
Milling and other plant costs 29,092 23,719 66,515 68,312
Depreciation, depletion and amortization 12,394 9,836 36,465 29,200
Exploration, evaluation and other lease costs 4,301 1,848 10,208 7,108
General and administrative expenses 4,310 4,601 12,945 13,987
Taxes, other than income 753 601 1,813 2,100
-------- -------- -------- --------
Total 53,971 48,539 148,714 149,957
-------- -------- -------- --------
OPERATING INCOME (LOSS) 1,856 1,485 15,066 (5,470)
Interest income 1,603 1,377 4,630 3,168
Interest expense (2,565) (2,388) (7,303) (6,522)
Other income (expense), net 18 5,437 (676) 4,543
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 912 5,911 11,717 (4,281)
Income tax expense (benefit) (1,155) 2,495 1,098 (3,627)
Minority interest (616) (1,620) (3,236) (3,304)
-------- -------- -------- --------
NET INCOME (LOSS) 1,451 1,796 7,383 (3,958)
Preferred dividends 1,868 1,869 5,606 1,869
-------- -------- -------- --------
NET INCOME (LOSS) TO COMMON SHARES $ (417) $ (73) $ 1,777 $ (5,827)
======== ======== ======== ========
INCOME (LOSS) PER COMMON SHARE $ (.01) $ - $ .02 $ (0.07)
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE $ .025 $ .025 $ .05 $ .025
======== ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING
FOR INCOME (LOSS) PER SHARE PURPOSES 80,887 80,189 85,993 80,095
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 7,383 $ (3,958)
Adjustments to reconcile net income (loss) to cash flows from operating
activities:
Depreciation, depletion and amortization 36,465 29,200
Exploration and evaluation costs 7,300 4,868
Deferred taxes 2,113 -
Change in current assets and liabilities 6,856 (16,289)
Other net change 5,052 662
--------- ---------
Total Adjustments 57,786 18,441
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES 65,169 14,483
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 153 6,770
Acquisition of minority interest (5,200) -
Investment in Crown Jewel project (9,301) (5,595)
Capital expenditures (69,591) (42,683)
Exploration and evaluation expenditures (7,296) (4,868)
Other, net 204 1,098
--------- ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (91,031) (45,278)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from stock issuance 6,323 111,646
Cash proceeds from borrowing - 36,855
Cash dividend payments (9,636) (5,874)
Debt repayments (7,358) (53,077)
--------- ---------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (10,671) 89,550
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES (638) (408)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,171) 58,347
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 115,338 45,377
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 78,167 $ 103,724
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. General Information
The unaudited condensed consolidated financial statements
included herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and include all adjustments, consisting only
of normal recurring accruals, which are, in the opinion of management of Battle
Mountain Gold Company (BMG), necessary for a fair presentation. These financial
statements include the accounts of BMG and its wholly owned and majority-owned
subsidiaries (the Company). Certain information and footnote disclosures
required by generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements and the notes
thereto which are included in the Company's Annual Report on Form 10-K (File
No. 1-9666) for the year ended December 31, 1993.
Note 2. Income (Loss) Per Common Share
For the nine months ended September 30, 1994, income per
common share is computed based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period.
Common stock equivalents include shares reserved for issuance upon conversion
of the Company's $100 million 6 percent convertible subordinated debentures due
January 2005 and upon exercise of outstanding stock options. Common stock
equivalents are not included in the computation of the loss per share for the
three months ended September 30, 1994 and the three and nine months ended
September 30, 1993 because of their anti-dilutive effect. Because the effect
of conversion of the Company's $3.25 convertible preferred stock into common
stock would be anti-dilutive, fully diluted earnings per share are not
presented.
Note 3. Debt
During the second quarter of 1994, the Company's majority
owned subsidiary Empresa Minera Inti Raymi, S.A. (Inti Raymi) successfully
obtained lender acceptance of project completion status under the Kori Kollo
project financing agreements. Accordingly, BMG is no longer required to
provide financial support to Inti Raymi under the terms of these agreements.
On March 21, 1994, Inti Raymi paid $.7 million to purchase
interest rate
4
<PAGE> 7
caps to mitigate its exposure to interest rate increases for the floating rate
debt associated with the financing of Inti Raymi's Kori Kollo project. These
caps gradually escalate from 4.5 percent currently to 7.2 percent in late 1997.
Inti Raymi has hedged 33% of its interest rate exposure currently related to
the Kori Kollo project financing. The hedge increases to 100% of its exposure
by December 1997. Inti Raymi has not hedged any of its exposure
subsequent to December 1997.
Note 4. Acquisitions
In March 1994, an arbitrator held that BMG was entitled, under
"force majeure" provisions of BMG's joint venture agreement covering its Crown
Jewel project, to suspend quarterly payments of $1 million to its co-venturer
for the third and fourth quarters of 1993 because of delays in the permitting
process. On May 10, 1994, BMG announced that it had resolved outstanding
contractual issues with the co-venturer, including all issues relating to BMG's
obligation to subsequently make such quarterly $1 million payments. As part of
the agreement to resolve these issues, BMG acquired the right to earn an
additional 3 percent joint venture interest in the Crown Jewel project. The
consideration paid by BMG to the co-venturer totaled $4.25 million in cash and
435,897 shares of BMG common stock. As a result of this agreement, BMG has the
right to earn a 54 percent interest in the project, and the joint venture
agreement has been amended to delete the terms requiring $1 million quarterly
payments to the co-venturer. The 3 percent additional interest will apply only
until the joint venture recovers 1.6 million ounces of gold from the project at
which time BMG's interest will be reduced to 51 percent.
5
<PAGE> 8
PART I. FINANCIAL INFORMATION - Continued
STATISTICAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
BATTLE MOUNTAIN COMPLEX Operating Data
Production statistics
Gold recovered (000s oz) 10 10 32 50
Silver recovered (000s oz) 19 18 65 94
- ----------------------------------------------------------------------------------------------------------------------------------
Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 208 $326 $ 214 $ 365
Taxes, other than income 23 10 17 14
DD&A 90 77 147 41
----- ----- ----- -----
Total operating costs $ 321 $ 413 $ 378 $ 420
- ----------------------------------------------------------------------------------------------------------------------------------
SAN LUIS Operating Data
Production statistics
Gold Recovered (000s oz) 18 19 56 52
Silver Recovered (000s oz) 6 7 15 21
- ----------------------------------------------------------------------------------------------------------------------------------
Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 261 $ 236 $ 234 $ 240
Taxes, other than income 18 12 12 13
DD&A 69 83 66 83
----- ----- ----- -----
Total operating costs $ 348 $ 331 $ 312 $ 336
- ----------------------------------------------------------------------------------------------------------------------------------
PAJINGO Operating Data
Production statistics
Gold recovered (000s oz) 8 9 23 26
Silver recovered (000s oz) 17 27 69 95
- ----------------------------------------------------------------------------------------------------------------------------------
Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 119 $ 209 $ 149 $ 193
Taxes, other than income 3 2 2 2
DD&A 53 49 43 45
----- ----- ----- -----
Total operating costs $ 175 $ 260 $ 194 $ 240
- ----------------------------------------------------------------------------------------------------------------------------------
KORI KOLLO Operating Data
Production statistics
Gold recovered BMG share (000s oz) (2) 66 49 199 128
Silver recovered BMG share (000 oz) (2) 300 338 938 932
Gold recovered (000s oz) 74 59 227 151
Silver recovered (000s oz) 341 397 1,075 1,096
- ----------------------------------------------------------------------------------------------------------------------------------
Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 162 $ 175 $ 152 $ 166
Taxes, other than income - - - 1
DD&A 99 99 96 110
----- ----- ----- -----
Total operating costs $ 261 $ 274 $ 248 $ 277
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</TABLE>
See Page 7 for footnotes
6
<PAGE> 9
PART I. FINANCIAL INFORMATION - Continued
STATISTICAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
SAN CRISTOBAL Operating Data
Production statistics
Gold recovered BMG share (000s oz)(3) 11 6 28 19
Silver recovered BMG share (000s oz)(3) 26 20 70 58
Gold recovered (000s oz) 20 12 53 34
Silver recovered (000s oz) 50 34 133 100
- ----------------------------------------------------------------------------------------------------------------------------------
Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 259 $ 362 $ 258 $ 376
Taxes, other than income - - - -
DD&A 80 86 78 82
----- ----- ----- -----
Total operating costs $ 339 $ 448 $ 336 $ 458
- ----------------------------------------------------------------------------------------------------------------------------------
RED DOME Operating Data
Production statistics
Gold recovered BMG share (000s oz)(3) 6 5 12 22
Silver recovered BMG share(000s oz)(3) 75 38 107 156
Copper recovered BMG share (000s lbs)(3) 2,761 1,547 5,299 4,082
Gold recovered (000s oz) 11 10 23 42
Silver recovered (000s oz) 145 68 206 275
Copper recovered (000s lbs) 5,363 2,740 10,185 7,229
- ----------------------------------------------------------------------------------------------------------------------------------
Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 231 $ 193 $ 277 $ 187
Taxes, other than income - - - -
DD&A 24 2 15 11
----- ----- ----- -----
Total operating costs $ 255 $ 195 $ 292 $ 198
- ----------------------------------------------------------------------------------------------------------------------------------
AGGREGATE DATA
Gold recovered BMG share (000s oz) 119 98 350 297
Gold sales BMG share (000s oz) 114 104 343 312
Gold recovered (000s oz) 141 119 414 355
Gold sales (000s oz) 135 125 405 378
Average price per oz realized $ 386 $ 376 $ 386 $ 363
- ----------------------------------------------------------------------------------------------------------------------------------
Silver recovered BMG share (000s oz) 443 448 1,264 1,356
Silver sales BMG share (000s oz) 415 479 1,228 1,449
Silver recovered (000s oz) 578 551 1,563 1,683
Silver sales (000s oz) 533 601 1,505 1,840
Average price per oz realized $ 5.38 $4.72 $5.37 $4.22
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost Per Equivalent Gold Ounce (1)
Cash production costs $ 192 $ 216 $186 $ 227
Taxes, other than income 4 3 3 5
DD&A 82 81 85 77
----- ----- ----- -----
Total operating costs $ 278 $ 300 $ 274 $ 309
==================================================================================================================================
</TABLE>
(1) Represents production costs incurred which, because of changes in
inventory, may not be included in operating results for the period.
(2) Reflects BMG's 85 percent equity interest through February 1994 and an
88 percent interest thereafter.
(3) Reflects BMG's 56.5 percent equity interest for 1993, a 52.6 percent
equity interest for January 1994 through May 1994 and a 51.5 percent
equity interest for June through September, 1994.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This discussion should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K (File No.
1-9666) for the year 1993 (1993 Form 10-K) and the historical condensed
consolidated financial statements and notes thereto preceding this discussion.
Liquidity and Capital Resources
At September 30, 1994, the Company had cash and cash
equivalents of $78.2 million, of which $21.7 million was held by BMG, $38.1
million was held by BMG's majority-owned subsidiary Niugini Mining Limited,
a Papua New Guinea precious metals mining company (Niugini Mining), and
$18.4 million was held by Inti Raymi.
The Company generated cash flow of $65.2 million from
operating activities during the nine months ended September 30, 1994. This
includes a decrease of approximately $8.0 million in customer accounts
receivable and a decrease of approximately $7.9 million in refundable value
added taxes from the Bolivian government related to the construction of the
Kori Kollo sulfide mining facilities.
Product inventories and inventories of materials and supplies
increased by $3.2 million and $3.6 million, respectively, for the nine
months ended September 30, 1994. The increase in product inventories is
primarily attributable to the accumulating of gold, silver and copper
concentrates from the Red Dome mine in Australia. Since this product is
shipped overseas, the Company realizes significant savings by shipping this
product in large quantities. The Red Dome mine produces sufficient quantities
to allow for approximately 4 or 5 shipments annually. Inventories of materials
and supplies continue to increase at the Kori Kollo mine in Bolivia due to
increases in the cost and quantities of the materials which must be retained at
the mine due to its remote location.
In March 1994, the Company increased its ownership interest
in Inti Raymi to 88 percent from 85 percent for $5.2 million.
The Company has expended $81.6 million for capital
expenditures for the nine months ended September 30, 1994, of a total of $98.9
million projected for the year. Total projected 1994 expenditures include
$22.2 million for construction and development of the Reona project, $12.6
million for the Red Dome expansion, $9.9 million for the development of Lihir,
$24.3 million for the expansion of the Kori Kollo processing facilities,
8
<PAGE> 11
and lesser amounts for permitting and development of Crown Jewel, the Phoenix
and the Cindy projects. Of the total 1994 budget, 40 percent is expected to be
spent in North America, 31 percent in Latin America, 26 percent in various
countries by Niugini Mining and 3 percent in the South Pacific. The Company
routinely evaluates additional capital project, acquisition and merger
opportunities.
BMG is in the initial startup phase of the Reona project
which contains reserves of approximately 370,000 ounces of gold in the Copper
Canyon area of the Battle Mountain complex. The cost of developing this
project was approximately $23.7 million through September 30, 1994. The cost
of the project was greater than originally estimated because of delays in the
permitting process and the establishment of a more aggressive completion
schedule to make up for these delays. Also, certain pre-mining costs were not
included in the original cost estimate.
Niugini Mining has completed the expansion of the existing
Red Dome pit. The total cost of this expansion project was $32.4 million as of
September 30, 1994. Total costs exceeded previous estimates primarily due to
corrections of problems related to an unexpected pit wall slippage. The
expansion is expected to extend the life of the mine through 1996.
Inti Raymi is implementing a $25.5 million capital expansion
program at the Kori Kollo mine. The capital program includes the construction
of a recovery enhancement project designed to increase recovery rates from the
present range of approximately 67 to 68 percent to approximately 75 to 80
percent. The program also includes the addition of a detoxification circuit and
the acquisition of additional haul trucks. Completion of the recovery
enhancement and detoxification circuit projects is expected by the end of the
first quarter of 1995. Inti Raymi expects to use cash generated from
operations to fund these projects.
During the nine months ended September 30, 1994, the Company
spent approximately $10.5 million on exploration and evaluation and related
capital expenditures. The Company currently estimates that it will spend
approximately $15.0 million on its 1994 exploration programs. Of this amount,
approximately 19 percent is budgeted to be spent in North America, 25 percent
in Latin America and the Caribbean, 31 percent in Australia and the South
Pacific and 25 percent in various countries by Niugini Mining.
When a Special Mining lease is granted by the government of
Papua New Guinea, Niugini Mining expects to acquire an additional 16 percent
ownership interest in the Lihir joint venture for $48 million and to make
additional cash contributions to the Lihir joint venture to fund preliminary
development in anticipation of reaching final agreement on the allocation of
equity interests and completion of debt and equity project financing
arrangements. Niugini Mining has
9
<PAGE> 12
obtained a line of credit for A$25 million (US$18.5 million) to help meet its
cash needs. No funding by BMG is expected to meet Niugini Mining's cash needs.
During the nine months ended September 30, 1994, Niugini
Mining issued 2.1 million shares of its common stock upon the exercise of stock
options which provided net proceeds of $5.7 million. As a result of these
issuances, BMG's ownership interest in Niugini Mining decreased from 52.6
percent to 51.5 percent. The Company recorded a $1.2 million adjustment to
reduce the carrying value of its investment in Niugini Mining to reflect this
reduction in ownership interest. Pursuant to the Company's policy, this
adjustment was charged directly to shareholders' equity.
In May 1994, BMG's revolving credit agreement was amended to
permit Niugini Mining to pledge its Red Dome mine assets to secure a portion of
the financing for its acquisition of an additional ownership interest in the
Lihir project.
In 1994, Inti Raymi successfully obtained lender acceptance of
project completion status under the Kori Kollo project financing agreements.
Accordingly, BMG is no longer required to provide financial support to Inti
Raymi under the terms of these agreements. Subject to other restrictions in the
financing agreements and general operating needs, Inti Raymi may generally pay
dividends up to the amount of Inti Raymi's net income for the preceding fiscal
year, which ends September 30. In 1994, Inti Raymi paid dividends of $8.1
million to its shareholders ($7.1 million to BMG). This represented Inti
Raymi's net income for the year ended September 30, 1993. Currently, Inti
Raymi's Board of Directors has elected to retain the fiscal 1994 earnings in
order to fund its $25.5 million capital expansion program.
The Company does not currently expect Niugini Mining to pay
dividends because of Niugini Mining's business commitments and plans for its
working capital (see above and "Development Projects" below).
BMG has effective a registration statement under the
Securities Act of 1933 for what is commonly referred to as a "universal shelf"
filing covering up to $200 million of debt securities, preferred stock,
depositary shares, common shares and warrants, which BMG may elect to offer
from time to time and in any combination. BMG currently has no plans for the
issuance of any securities under this registration statement.
Conclusion
The Company expects the cash on hand along with cash flows
from operations and financing facilities currently in place to be adequate to
meet its foreseeable future cash needs. Funding may also be provided from
offerings of additional securities
10
<PAGE> 13
under the Company's $200 million universal shelf registration statement,
assuming any such offering could be completed under satisfactory terms.
Factors That May Affect Future Results
Development Projects
At present, the Company has interests in three projects which
have matured beyond the evaluation stage.
Cindy Project - In Queensland, Australia, BMG is proceeding
with the $4.3 million development of the Cindy ore deposit, containing
approximately 42,500 ounces of gold. Through September 30, 1994, $2.4 million
has been spent on this development project. Ore from the Cindy deposit is to be
processed at the existing Pajingo milling facility beginning in December 1994,
and is expected to extend the productive life of the Pajingo district to the
end of 1995. The cost of this project has increased because of the inclusion
of certain pre-operating mining costs that had not been previously included
in the cost estimate.
Crown Jewel Project - BMG is continuing to seek permits for
the Crown Jewel project in Washington state. BMG expects to construct a 3,000
ton per day milling facility with start-up possible in early 1997, depending on
the length of the permitting process, the effect of possible legal challenges
by project opponents, the potential impact of legislation recently enacted in
the State of Washington and possible attempts to re-evaluate federal mining
legislation. Implementing regulations which are expected to clarify several
aspects of the State of Washington legislation are expected to be developed.
The delays in obtaining permits for the Crown Jewel project relate primarily
to delays in regulatory approvals for certain site data collection activities,
the time taken for agency development of certain wildlife studies and the time
taken to process agency comments on the draft environmental impact statement.
In March, 1994, an arbitrator held that BMG was entitled,
under "force majeure" provisions of BMG's joint venture agreement covering its
Crown Jewel project, to suspend quarterly payments of $1.0 million to its
co-venturer for the third and fourth quarters of 1993 because of delays in the
permitting process. On May 10, 1994, BMG announced that it had resolved
outstanding contractual issues with the co-venturer, including all issues
relating to BMG's obligation to subsequently make such quarterly $1.0 million
payments. As part of its agreement to resolve these issues, BMG acquired the
right to earn an additional 3 percent joint venture interest in the Crown Jewel
project. The consideration paid by BMG to the co-venturer was $4.25
million in cash and 435,897 shares of BMG common stock. As a result of this
agreement, BMG has the right to earn a 54 percent interest in the project, and
the joint venture agreement has been amended
11
<PAGE> 14
to delete the terms requiring $1.0 million quarterly payments to the
co-venturer. The 3 percent additional interest will apply only until the joint
venture recovers the currently identified gold reserve of 1.6 million ounces of
gold from the project at which time BMG's interest will be reduced to 51
percent.
To earn the 54 percent ownership interest in the Crown Jewel
project, BMG will have to fund all expenditures for exploration, evaluation and
development of the project through commencement of commercial production. Under
the amended terms of the joint venture agreement, the minority partner will not
reimburse BMG for any portion of funding provided through the commencement of
commercial production. These expenditures, plus acquisition costs, are
currently estimated to be approximately $107.8 million, of which, as of
September 30, 1994, $46.6 million ($38.3 million of which has been capitalized)
has been incurred. The current estimate includes approximately $8.5 million
related to the acquisition of the additional 3 percent interest in the project
and the resolution of certain contractual issues.
Lihir Project - The current term of the Exploration License
is expected to continue in respect to the Lihir project area until a decision
is made by the Papua New Guinea (PNG) government regarding the Special Mining
Lease application which has been submitted by the joint venture. Discussions
are continuing among the PNG government and the joint venturers regarding the
timing and conditions of project development and the allocation of equity
interests in the project. Discussions by the joint venture partners are also
being held with commercial and investment bankers and lenders regarding the
terms and conditions for debt and equity financing for the project. As of
September 30, 1994, the carrying value of the Company's investment in the Lihir
Project was approximately $138.1 million.
New Reserve Potential
BMG is continuing to evaluate the feasibility of mining and
milling the low grade sulfide mineralization known as the Phoenix project
located in the Copper Canyon area of the Battle Mountain complex. Feasibility
of this project is expected to be determined by the end of 1994. A Plan of
Operations has been submitted to the Bureau of Land Management to initiate the
permitting process.
Government Regulation
All of the Company's mining and processing operations are
subject to reclamation requirements, as more fully described in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the 1993 Form 10-K.
12
<PAGE> 15
Legislative efforts by the U.S. Senate and House of
Representatives to amend or replace the General Mining Law under which the
Company holds claims on public lands have not been successful to date. The
Company cannot predict whether such efforts will be renewed in future
legislative sessions or the impact of such efforts, if successful, on its U.S.
activities.
Bolivia is currently developing new environmental regulations
which may be effective as early as the first quarter of 1995. The impact, if
any, of these regulations on Kori Kollo operations cannot be determined at
this time, but it is not expected that these regulations will have a material
adverse effect on the Company's financial position or results of operations.
Forward Sales and Hedging
In order to minimize exposure to decreasing prices for
portions of its production, the Company has in the past, and may in the
future, hedge the sale prices of future production by entering into contracts,
such as spot deferred sales contracts, fixed forward sales contracts and put
options.
As of September 30, 1994, the following table summarized the
Company's hedging positions:
<TABLE>
<CAPTION>
Weighted Average
Price per Unit Period
---------------- ------
<S> <C> <C>
BMG:
Spot deferred contracts
145,000 oz gold $ 372 Oct 94 - Jun 95
Niuguini Mining:
Spot deferred sales contracts
47,000 oz gold $ 384 Oct 94
243,000 oz silver $5.64 Oct 94
Fixed forward sales contracts
176,000 oz gold $ 365 Oct 94 - Dec 96
150,000 oz silver $5.67 Oct 94
2,205,000 lbs copper $ .96 Nov 94
Inti Raymi:
Spot deferred sales contracts
98,500 oz gold $ 374 Oct 94 - Feb 95
</TABLE>
Gains and losses related to these hedging transactions are
recognized in revenue when the related production is sold. In addition, $1.5
million of costs associated with the purchase of Inti Raymi's open spot
deferred sales contracts are also deferred and will be recognized concurrently
with the revenues related to the hedged production.
The aggregate amount by which the net market value of the
Company's open
13
<PAGE> 16
fixed forward and spot deferred sales contracts is less than the spot price of
$384 per ounce of gold as of November 8, 1994, is $6.0 million, of which
$1.7 million is attributable to minority interests.
During the third quarter of 1994, the Company allowed options
contracts covering 45,000 ounces of gold to expire. In October 1994, the
Company rolled forward spot deferred sales contracts covering 78,000 ounces of
gold and 243,000 ounces of silver to future periods. At the November 8, 1994,
market price of $384 per ounce of gold, open spot deferred sales contracts
would be evaluated to determine if it would be in the best long-term interests
of the Company to either "roll the contracts forward" or deliver against them.
Delivery against spot deferred sales contracts in a period in which current
market prices exceed contract prices will result in recognition of revenues at
prices below the current market.
In future periods, the Company may continue to employ
selective hedging strategies, where appropriate, to protect cash flow for
specific needs.
Foreign Operations
The Company's identifiable assets attributable to foreign
mining as of September 30, 1994, were approximately $509 million and foreign
mining operations represented approximately 81 percent of the total gross
revenues of the Company for the nine months ended September 30, 1994. As a
result, the Company is exposed to risks normally associated with foreign
operations, including political, economic, social and labor instabilities, as
well as foreign exchange controls and currency fluctuations. Foreign
operations and investments may also be subject to laws and policies of the
United States affecting foreign trade, investment and taxation which could
affect the conduct or profitability of those operations.
Results of Operations
The following table presents results of operations data on a per equivalent
ounce of gold sold basis:
<TABLE>
<CAPTION>
Three months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross revenue $ 385 $ 375 $ 384 $ 359
Freight, allowances and royalties $ 26 $ 23 $ 20 $ 25
Mining, milling and other plant costs $ 207 $ 224 $ 195 $ 228
Depreciation, depletion and amortization $ 80 $ 69 $ 81 $ 68
</TABLE>
14
<PAGE> 17
Gross Revenue
Gross revenue increased for the three and nine months ended
September 30, 1994 from the same periods in 1993 due primarily to increased
sales volumes from the Kori Kollo mine and higher average realized gold prices.
Production volumes from the Kori Kollo mine increased due to increased
recoveries and the re-treatment of used cathodes by electro-winning. Upgrading
of the crushing facilities at the San Cristobal mine was the main factor
contributing to the increase in the mine's sales volume. These increases were
partially offset by a significant decrease in sales volumes at the Red Dome
mine which was caused primarily by the slippage of a pit wall in the second
quarter of this year. The pit wall slippage has delayed startup of production
from the push back of the mine and also delayed access to the better grade
ore. Normal mining operations are expected in the fourth quarter of 1994.
Volumes increased at the San Luis mine for the nine months ended September 30,
1994 due to higher ore grades.
Selling and Operating Costs
Freight, allowances and royalties decreased in total and on a
cost per equivalent ounce of gold basis for the nine months ended September 30,
1994, compared to the same period of the previous year, due to fewer
concentrate sales from the Red Dome mine in 1994. Shipments from the Red Dome
mine carry high freight charges. Conversely, the freight, allowance and
royalties costs were higher for the third quarter of 1994 compared to the third
quarter 1993 due to a royalty settlement paid to a land holder by Niuguini
Mining related to mining activities at the San Cristobal mine.
Mining, milling and other plant costs per equivalent ounce of
gold sold decreased for the nine month period ended September 30, 1994 from the
same period in 1993 because of an increased percentage of sales volumes from
the lower per ounce cash operating cost Kori Kollo mine (from approximately 40
percent to approximately 56 percent). The cash operating costs per equivalent
ounce of gold sold at the Kori Kollo mine were lower due to improved recoveries
and the re-treatment of used cathodes by electro-winning. Also, the San
Cristobal mine costs have decreased on an equivalent ounce of gold sold basis
due to improved efficiencies resulting from the addition of more efficient
crushing equipment. Lower per equivalent ounce sold cash costs at the Battle
Mountain Complex, the San Luis mine and the Pajingo mine also contributed to
the decrease in total mining, milling and other plant costs on a per ounce and
total basis. These costs decreased on a cost per equivalent ounce produced
basis for the third quarter of 1994 compared to the third quarter of 1993
primarily because of reductions in mining costs at the Battle Mountain Complex
and the Pajingo mine and also because of increased sales volumes attributable
to the lower cost Kori Kollo mine. The mining costs decreased at these mines
primarily due to the completion of mining activities in older pit areas where
there were stockpiles of mined ore whose mining costs had previously been
capitalized as
15
<PAGE> 18
part of the mines development costs.
The increase in depreciation, depletion and amortization, in
total and on a cost per equivalent ounce of gold sold basis for the three and
nine months ended September 30, 1994, when compared to the same periods of
1993, resulted primarily from increased sales volumes and from a higher
percentage of such volumes being sold from the Kori Kollo mine. The Kori Kollo
mine has higher capitalized costs compared to the Company's other mines.
Other
Interest income increased for the three and nine months ended
September 30, 1994 compared to similar periods in the prior year, as a result
of the investment of cash remaining from the Company's preferred stock
offering completed during May 1993 and the stock offering completed by Niugini
Mining in December 1993.
Interest expense increased for the nine months as a result of
the commencement of commercial production at the Kori Kollo mine on February 1,
1993. The interest on borrowing used for the construction of the Kori Kollo
mining facilities was capitalized prior to the commencement of commercial
production.
The Company's effective income tax rate is 13 percent for
1994, as compared with an income tax benefit of 48 percent in 1993. The
effective income tax rate for 1994 has been influenced by a reduction in the
Company's deferred tax valuation allowance. The Company has determined that it
is more likely than not that additional deferred tax benefits will be realized
as a result of the Company's profitability in 1994 which has created additional
taxable temporary differences.
16
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings per Share
12 Computation of Ratio of Earnings to Fixed
Charges and Earnings to Combined Fixed
Charges and Preferred Dividends
27 Financial Data Schedule for the nine month
period ended September 30, 1994
(b) No report on Form 8-K has been filed by BMG during
the quarter for which this report is filed.
17
<PAGE> 20
SIGNATURE
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.
BATTLE MOUNTAIN GOLD COMPANY
Date: November 14, 1994 /s/ R. DENNIS O'CONNELL
R. Dennis O'Connell, Vice President-
Finance and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
18
<PAGE> 21
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
11 Computation of Earnings per Share
12 Computation of Ratio of Earnings to Fixed Charges and
Earnings to Combined Fixed Charges and Preferred
Dividends
27 Financial Data Schedule for the nine month period
ended September 30, 1994
</TABLE>
<PAGE> 1
Exhibit 11
BATTLE MOUNTAIN GOLD COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings
Net income (loss) $ 1,451 $ 1,796 $ 7,383 $ (3,958)
Deduct dividends on preferred shares 1,868 1,869 5,606 1,869
---------- ---------- ---------- ----------
Net income (loss) applicable to common stock $ (417) $ (73) $ 1,777 $ (5,827)
========== ========== ========== ==========
Shares
Weighted average number of common shares outstanding 80,887,150 80,188,882 80,604,867 80,094,607
Assuming exercise of stock options reduced by the number of shares
which could have been purchased with the proceeds from exercise of - - 540,037 -
such options
Assuming conversion of 6% convertible debentures - - 4,848,485 -
---------- ---------- ---------- ----------
Weighted average number of common shares outstanding,
as adjusted 80,887,150 80,188,882 85,993,389 80,094,607
========== ========== ========== ==========
Primary earnings (loss) per common share $ ( 0.01) $ - $ 0.02 $ (0.07)
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE (1)
Earnings
Net income (loss) $ 1,451 $ 1,796 $ 7,383 $ (3,958)
========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 80,887,150 80,188,882 80,604,867 80,094,607
Assuming conversion of 6% convertible debentures 4,848,485 4,848,485 4,848,485 4,848,485
Assuming exercise of stock options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options 593,211 223,190 571,566 185,324
Assuming conversion of preferred stock 10,952,600 10,952,600 10,952,600 1,885,612
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding, as adjusted 97,281,446 96,213,157 96,977,518 87,014,028
========== ========== ========== ==========
Net income (loss) per common share assuming full dilution $ 0.01 $ 0.02 $ 0.08 $ (0.05)
========== ========== ========== ==========
ADDITIONAL PRIMARY COMPUTATION (1)
Net income (loss) applicable to common stock, as adjusted per
primary computation above $ (417) $ (73) $ 1,777 $ (5,827)
========== ========== ========== ==========
Additional adjustment to weighted average number of shares
outstanding:
Weighted average number of shares outstanding,
as adjusted per primary computation above 80,887,150 80,188,882 80,604,867 80,094,607
Anti-dilutive effect of outstanding options (as
determined by the application of the treasury stock method) 546,865 100,642 540,037 148,810
Anti-dilutive effect of conversion of 6% convertible debentures 4,848,485 4,848,485 4,848,485 4,848,485
---------- ----------- ---------- ----------
Weighted average number of common shares, as adjusted 86,262,500 85,138,009 85,993,389 85,091,902
========== ========== ========== ==========
Primary earnings(loss) per share, as adjusted $ - $ - $ 0.02 $ (0.07)
========== ========== ========== ==========
</TABLE>
(1) These calculations are submitted in accordance with Regulation S-K
Item 601(b)(11) although it is contrary to paragraphs 30 and 40 of APB
Opinion No. 15 because it produces an anti-dilutive result.
<PAGE> 1
Exhibit 12
BATTLE MOUNTAIN GOLD COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
(in thousands, except ratios)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
1994 1993
--------- ---------
<S> <C> <C>
EARNINGS COMPUTATION USING
CONSOLIDATED INCOME STATEMENT DATA
Income (loss) before income taxes and
minority interest $ 11,717 $ (4,281)
Minority interest in income of
majority-owned subsidiaries (3,236) (3,304)
--------- --------
Income (loss) before income taxes 8,481 (7,585)
--------- --------
Add fixed charges included in income (loss):
Interest expense 7,303 6,522
Amortization of deferred financing costs 156 1,015
Interest portion of rental expenses (33%) 1,829 775
--------- --------
Sub-total fixed charges included in income (loss) 9,288 8,312
--------- --------
Earnings (loss) $ 17,769 $ 727
========= ========
Fixed Charges
Included in income (loss) $ 9,288 $ 8,312
Capitalized interest 4,488 4,691
--------- --------
Total fixed charges 13,776 13,003
--------- --------
Preferred dividends 6,440 3,582
--------- --------
Combined fixed charges and
preferred dividends $ 20,216 $ 16,585
========= ========
Ratio of earnings to fixed charges 1.29 -
Amount by which fixed charges exceed earnings - $ 12,276
Ratio of earnings to combined fixed charges
and preferred dividends - -
Amount by which combined fixed charges and
preferred dividends exceed earnings $ 2,447 $ 15,858
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Battle
Mountain Gold Company's Condensed Consolidated Balance Sheet at September 30,
1994 and December 31, 1993 and Condensed Consolidated Statement of Income for
the three and nine months ended September 30, 1994 and 1993, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 78,167
<SECURITIES> 0
<RECEIVABLES> 24,300
<ALLOWANCES> 0
<INVENTORY> 4,288
<CURRENT-ASSETS> 136,146
<PP&E> 719,130
<DEPRECIATION> (228,587)
<TOTAL-ASSETS> 674,567
<CURRENT-LIABILITIES> 37,132
<BONDS> 0
<COMMON> 8,092
0
110,578
<OTHER-SE> 255,318
<TOTAL-LIABILITY-AND-EQUITY> 674,567
<SALES> 163,780
<TOTAL-REVENUES> 163,780
<CGS> 87,283
<TOTAL-COSTS> 148,714
<OTHER-EXPENSES> 676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,303
<INCOME-PRETAX> 11,717
<INCOME-TAX> 1,098
<INCOME-CONTINUING> 7,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,383
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
