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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 1-9666
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
BATTLE MOUNTAIN GOLD COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
NEVADA 76-0151431
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
333 CLAY STREET, 42ND FLOOR, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-6400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<C> <C>
Common Stock New York Stock Exchange
$3.25 Convertible Preferred Stock New York Stock Exchange
Rights to Purchase Preferred Stock New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of
the registrant was approximately $835 million as of March 14, 1997, based on the
closing sales price of the registrant's common stock as reported on the New York
Stock Exchange Composite Tape on such date. As of such date, the aggregate
market value of the common stock and the Exchangeable Shares of the registrant's
wholly-owned subsidiary, Battle Mountain Canada Ltd., together, held by
non-affiliates was approximately $1,193 million. For purposes of the foregoing
sentence only, all directors and officers of the registrant are assumed to be
affiliates.
The number of shares outstanding of the registrant's common stock as of
March 14, 1997 is 115,109,272, not including 114,566,404 shares of Exchangeable
Shares of the registrant's wholly-owned subsidiary, Battle Mountain Canada Ltd.,
that entitle holders to the same rights as the registrant's common stock and are
exchangeable at any time into such common stock on a one-for-one basis.
DOCUMENTS INCORPORATED BY REFERENCE
LIST HEREUNDER THE FOLLOWING DOCUMENTS IF INCORPORATED BY REFERENCE AND THE
PART OF THE FORM 10-K INTO WHICH THE DOCUMENT IS INCORPORATED: PROXY STATEMENT
RELATING TO THE 1997 ANNUAL MEETING OF STOCKHOLDERS OF BATTLE MOUNTAIN GOLD
COMPANY TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
REGULATION 14A UNDER THE SECURITIES EXCHANGE ACT OF 1934 (TO THE EXTENT SET
FORTH IN ITEMS 10, 11 AND 12 OF PART III OF THIS ANNUAL REPORT).
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TABLE OF CONTENTS
<TABLE>
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Page
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PART I
Items 1. and 2. Business and Properties . . . . . . . . . . . . . . . 1
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 34
Item 4. Submission of Matters to a Vote of Security Holders . . . . 35
Executive Officers of the Registrant . . . . . . . . . . . . 35
PART II
Item 5. Market For Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . 37
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 39
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 40
Item 8. Financial Statements and Supplementary Data . . . . . . . . 53
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 87
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>
<PAGE> 3
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
BUSINESS AND PROPERTIES OF THE COMPANY
INTRODUCTION
Battle Mountain Gold Company ("BMG") and its subsidiaries (collectively
the "Company") are engaged in the mining and processing of gold, silver and
copper ore in the United States, Canada, Bolivia, Chile and Australia and in
the exploration, evaluation and development of precious metals properties in
North America, South America, Austral Pacific, and Africa. BMG was
incorporated in Nevada in 1985, is headquartered in Houston, Texas and its
common stock is traded principally on the New York Stock Exchange.
On July 19, 1996, BMG consummated a combination with Hemlo Gold Mines
Inc. ("Hemlo Gold"). The combination was treated as a pooling of interests for
accounting and financial reporting purposes. Under the terms of the combination
agreement, each Hemlo Gold share was exchanged for 1.48 shares of a newly issued
class of exchangeable shares of Battle Mountain Canada Ltd. ("BMC"), the new
name for the former Hemlo Gold, and BMG acquired all of the common shares of
BMC. The BMC exchangeable shares entitle holders to dividends and other rights
economically equivalent to BMG Common Stock, including the right through a
voting trust to vote at BMG stockholder meetings, and are exchangeable at the
option of holders into BMG Common Stock on a one-for-one basis. See
"Description of Exchangeable Shares of Battle Mountain Canada Ltd." under Item 5
herein.
As of December 31, 1996, the Company has seven operating mines in five
countries and on three continents: the Battle Mountain Complex near Battle
Mountain, Nevada; the Golden Giant mine, Holloway mine (in which BMG has a
84.7% attributable interest) and Silidor mine (55% attributable interest) in
Canada; the Kori Kollo mine (88% attributable interest) in Bolivia; the San
Cristobal mine (50.5% attributable interest) in Chile and the Red Dome mine
(50.5% attributable interest) in Australia. The Company also has a 50%
attributable interest in the Pajingo Complex in Queensland, Australia and an
8.7% attributable net interest in the Lihir project in Papua New Guinea.
Additionally, the Company has the right to earn a 54% attributable interest in
the Crown Jewel project in Washington state and has plans to develop the
Phoenix project at the Battle Mountain Complex. The Company is also carrying
out an international exploration and acquisition program for additional
reserve expansion.
The Company ceased mining operations at its San Luis mine and at the
Cindy deposit at the Pajingo Complex in 1996 and expects to phase out its
Silidor and Red Dome mines during 1997 as a result of the depletion of their
reserves. The Company expects commercial production to begin at the Vera/Nancy
ore body at the Pajingo Complex by mid-year 1997 and at the Lihir project during
the fourth quarter of 1997.
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BMG owns 88% of Empresa Minera Inti Raymi S.A. ("Inti Raymi"), a
Bolivian company that owns and operates the Kori Kollo mine. The remaining 12%
is owned by Zeland Mines S.A. BMG also owns approximately 50.5% of Niugini
Mining Limited ("Niugini Mining" or "NML"), a Papua New Guinea company publicly
traded on the Australian Stock Exchange. NML in turn owns and operates the San
Cristobal and Red Dome mines and owns a 17.15% interest in Lihir Gold Limited
("LGL"), a Papua New Guinea company publicly traded on the Australian Stock
Exchange that is developing the Lihir project. BMC also owns 60% of the
outstanding stock of Crown Butte Resources Ltd. ("CBR"), a Canadian public
company listed on The Toronto Stock Exchange whose wholly-owned subsidiary
Crown Butte Mines, Inc., a Montana corporation, owns the New World project in
Montana.
The Company's attributable gold production was 916,000 ounces in 1996.
In 1995 (prior to the combination with Hemlo Gold), production attributable to
BMG was 579,000 ounces of gold and Hemlo Gold's gold production was 264,000
ounces, resulting in combined attributable gold production of 843,000 ounces.
See Note 13 to the Consolidated Financial Statements in Item 8 of this
Report for information on BMG's revenues, operating income and identifiable
assets by geographic segment.
The following table provides aggregate operating data for all of the
Company's operating mines for 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995
--------------- --------------
AGGREGATE OPERATING DATA BMG NET(1) 100% BMG NET(1) 100%
------------------------ ------- --- ------- ---
<S> <C> <C> <C> <C>
Gold production (000s oz) . . . . . . . . . . . . . . . . . . . . . . 916 1,034 843 978
Gold sales (000s oz) . . . . . . . . . . . . . . . . . . . . . . . . 914 1,034 843 978
Average realized gold price per oz . . . . . . . . . . . . . . . . . $391 $391 $384 $384
Silver production (000s oz) . . . . . . . . . . . . . . . . . . . . . 1,451 1,924 1,866 2,427
Silver sales (000s oz) . . . . . . . . . . . . . . . . . . . . . . . 1,495 1,998 1,857 2,403
Average realized silver price per oz . . . . . . . . . . . . . . . . $5.13 $5.08 $5.23 $5.26
Copper production (000s lbs) . . . . . . . . . . . . . . . . . . . . 4,618 9,149 5,514 10,840
Copper sales (000s lbs) . . . . . . . . . . . . . . . . . . . . . . . 4,895 9,698 5,411 10,637
Average realized copper price per lb . . . . . . . . . . . . . . . . $1.01 $1.01 $1.19 $1.19
Weighted average cost per gold ounce sold (2):
Cash production costs . . . . . . . . . . . . . . . . . . . . . . $212 $219 $194 $195
Depreciation, depletion and amortization . . . . . . . . . . . . . 89 na 84 na
Reclamation and mine closure costs . . . . . . . . . . . . . . . . 11 10 3 3
----- ----- ------ ------
Total operating costs . . . . . . . . . . . . . . . . . . . $312 na $281 na
===== ===== ====== ======
</TABLE>
- ----------------------------------------------------------------------
(1) Reflects BMG's percentage ownership in mines or other companies,
including its average ownership of 50.5% of NML in 1996 and 50.9% in
1995.
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(2) The Company began reporting its operating costs on the basis adopted by
The Gold Institute in 1996. As a result, in addition to mining, milling
and plant level G&A expenses, cash production costs include royalties,
freight, smelting costs and allowances and production taxes. Credits
for by-product silver and copper are offset against these cash
production costs. Also, under this new North American standard, the
Company presents costs on the basis of cost per ounce of gold sold as
opposed to cost per equivalent ounce of gold produced.
GOLD PRICE VOLATILITY
The Company's profitability is significantly affected by changes in the
market price of gold. Gold prices can fluctuate and may be affected by
numerous factors such as expectations for inflation together with the
availability of inflation-indexed financial instruments, levels of interest
rates, currency exchange rates, central bank sales, forward selling by
producers, demand for precious metals, global or regional political and
economic crises and production costs in major gold-producing regions such as
South Africa, the United States and the Commonwealth of Independent States
(formerly the Soviet Union). The aggregate effect of these factors, all of
which are beyond the Company's control, is impossible for the management of the
Company to predict. The demand for and supply of gold affect gold prices, but
not necessarily in the same manner as supply and demand affect the prices of
other commodities. The supply of gold consists of a combination of new mine
production and existing stocks of bullion and fabricated gold held by
governments, public and private financial institutions, industrial
organizations and private individuals. As the amount produced in any single
year constitutes a small portion of the total potential supply of gold, normal
variations in current production do not necessarily have a significant impact
on the supply of gold or on its price. If gold prices decline substantially,
the Company would have to re-evaluate the carrying values of its properties and
could determine that a write-down of values would be needed. If gold prices
decline to a point below the Company's cash production costs and remain below
this level for any substantial period, the Company could determine that it is
not economically feasible to continue commercial production at any or all of
its operations. See "-- Certain Factors Affecting Reserves, Foreign
Investments and Properties."
The volatility of gold prices is illustrated by the following table of
the high, low and average afternoon fixing prices of gold per ounce on the
London Bullion Market:
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<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
High . . . . . . . . . . . . . $415 $397 $396 $406 $359
Low . . . . . . . . . . . . . . 367 374 369 326 330
Average . . . . . . . . . . . . 388 384 384 360 344
</TABLE>
To mitigate the impact of downturns in the gold, silver and copper
markets, the Company currently engages in limited hedging transactions with
respect to a portion of its production and reserves of gold, silver and copper.
See "-- Sales and Precious Metals Hedging Activities" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." Also see Note 15 "Forward Sales and Hedging"
in Notes to Consolidated Financial Statements under Item 8 of Part II herein.
3
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OPERATIONS, COSTS AND RESERVE DATA
FOR GOLD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MINE OR PROJECT OPERATIONS AND COST DATA RESERVE DATA
- ---------------------------------------------------------------------------------------------------------------------------------
GOLD PERCENT OF PROVEN
ATTRIBUTABLE OUNCES TOTAL CASH TOTAL PROBABLE AVERAGE
% OF MINE RECOVERED BMG PRODUCTION OPERATING RESERVES GRADE
PRODUCTION YEAR (000S) PRODUCTION COSTS ($/OZ) COSTS ($/OZ) (000S TONS) (OZ/TON)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Golden Giant 100% 1996 371 41% $137 $202 10,091 0.291
---------------------------------------------------------------------------------------------------------
1995 234 28 128 187 10,968 0.322
- ---------------------------------------------------------------------------------------------------------------------------------
Kori Kollo 88% 1996 270 29 225 339 43,901 0.054
---------------------------------------------------------------------------------------------------------
1995 298 35 178 273 49,442 0.061
- ---------------------------------------------------------------------------------------------------------------------------------
Battle Mountain Complex(1) 100% 1996 73 8 307 400 52,906 0.038
---------------------------------------------------------------------------------------------------------
1995 75 9 328 395 60,290 0.036
- ---------------------------------------------------------------------------------------------------------------------------------
Holloway 84.7% 1996 11 1 393 569 5,273 0.195
---------------------------------------------------------------------------------------------------------
1995 -- -- -- -- 5,380 0.197
- ---------------------------------------------------------------------------------------------------------------------------------
San Cristobal 50.5% 1996 39 4 362 448 3,504 0.034
---------------------------------------------------------------------------------------------------------
50.9% 1995 41 5 307 403 5,676 0.029
- ---------------------------------------------------------------------------------------------------------------------------------
Red Dome 50.5% 1996 43 5 240 395 506 0.049
---------------------------------------------------------------------------------------------------------
50.9% 1995 57 7 144 301 1,017 0.056
- ---------------------------------------------------------------------------------------------------------------------------------
Silidor 55% 1996 26 3 333 412 73 0.151
---------------------------------------------------------------------------------------------------------
1995 31 4 327 416 374 0.136
- ---------------------------------------------------------------------------------------------------------------------------------
San Luis 100% 1996 54 6 316 560 na na
---------------------------------------------------------------------------------------------------------
1995 72 8 261 363 2,155 0.043
- ---------------------------------------------------------------------------------------------------------------------------------
Pajingo Complex 100% 1996 28 3 226 309 na na
---------------------------------------------------------------------------------------------------------
1995 36 4 182 279 77 0.217
- ---------------------------------------------------------------------------------------------------------------------------------
Lihir Project 8.7% 1996 -- -- -- -- 9,925 0.128
- ---------------------------------------------------------------------------------------------------------------------------------
Crown Jewel Project(2) 54% 1996 -- -- -- -- 4,595 0.182
- ---------------------------------------------------------------------------------------------------------------------------------
Totals 1996 916 100% $212 $312
---------------------------------------------------------------------------------------------------------
1995 843 100% $194 $281
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------
MINE OR PROJECT RESERVE DATA
- -------------------------------------------------------------
PERCENT OF
CONTAINED TOTAL
OUNCES RECOVERY BMG
(000S) FACTOR RESERVES
- ------------------------------------------------------------
<S> <C> <C> <C>
Golden Giant 2,935 96% 28%
------------------------------------
3,535 96 29
- ------------------------------------------------------------
Kori Kollo 2,350 70 22
------------------------------------
3,065 70 25
- ------------------------------------------------------------
Battle Mountain Complex(1) 2,030 81 19
------------------------------------
2,185 81 18
- ------------------------------------------------------------
Holloway 1,030 95 10
------------------------------------
1,060 95 9
- ------------------------------------------------------------
San Cristobal 120 72 1
------------------------------------
165 72 1
- ------------------------------------------------------------
Red Dome 25 89 *
------------------------------------
60 92 *
- ------------------------------------------------------------
Silidor 10 94 *
------------------------------------
50 94 *
- ------------------------------------------------------------
San Luis na na na
------------------------------------
95 90 *
- ------------------------------------------------------------
Pajingo Complex na na na
------------------------------------
15 96 *
- ------------------------------------------------------------
Lihir Project 1,265 92 12
- ------------------------------------------------------------
Crown Jewel Project(2) 835 88 8
- ------------------------------------------------------------
Totals 10,600 87% 100%
------------------------------------
12,330 87% 100%
- ------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Includes the Phoenix project and assumes permitting and approvals of that
project.
(2) Assumes permitting and approvals.
OPERATIONS AND RESERVE DATA
FOR SILVER AND COPPER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MINE OR PROJECT OPERATIONS DATA RESERVE DATA
- ------------------------------------------------------------------------------------------------------------------------------
SILVER OUNCES COPPER POUNDS SILVER CONTAINED
RECOVERED (000S) RECOVERED (000S) OUNCES (000S)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Golden Giant 100% 1996 18 na na
---------------------------------------------------------------------------------------------------------
1995 13 na na
- ------------------------------------------------------------------------------------------------------------------------------
Kori Kollo 88% 1996 801 na 13,727
---------------------------------------------------------------------------------------------------------
1995 1,153 na 17,624
- ------------------------------------------------------------------------------------------------------------------------------
Battle Mountain Complex 100% 1996 201 na 11,058
---------------------------------------------------------------------------------------------------------
1995 207 na 12,220
- ------------------------------------------------------------------------------------------------------------------------------
San Cristobal 50.5% 1996 93 na na
---------------------------------------------------------------------------------------------------------
50.9% 1995 97 na 830
- ------------------------------------------------------------------------------------------------------------------------------
Red Dome 50.5% 1996 278 4,618 na
---------------------------------------------------------------------------------------------------------
50.9% 1995 320 5,514 na
- ------------------------------------------------------------------------------------------------------------------------------
San Luis 100% 1996 32 na na
---------------------------------------------------------------------------------------------------------
1995 32 na na
- ------------------------------------------------------------------------------------------------------------------------------
Pajingo Complex 100% 1996 28 na na
---------------------------------------------------------------------------------------------------------
1995 44 na na
- ------------------------------------------------------------------------------------------------------------------------------
Crown Jewel Project 54% 1996 -- -- 464
- ------------------------------------------------------------------------------------------------------------------------------
Totals 1996 1,451 4,618 25,250
---------------------------------------------------------------------------------------------------------
1995 1,866 5,514 31,138
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------
MINE OR PROJECT RESERVE DATA
- ----------------------------------------------
COPPER CONTAINED
POUNDS (000S)
- ----------------------------------------------
<S> <C>
Golden Giant na
- ----------------------------------------------
na
- ----------------------------------------------
Kori Kollo na
- ----------------------------------------------
na
- ----------------------------------------------
Battle Mountain Complex na
- ----------------------------------------------
na
- ----------------------------------------------
San Cristobal na
- ----------------------------------------------
na
- ----------------------------------------------
Red Dome 6,896,000
- ----------------------------------------------
8,432,000
- ----------------------------------------------
San Luis na
- ----------------------------------------------
na
- ----------------------------------------------
Pajingo Complex na
- ----------------------------------------------
na
- ----------------------------------------------
Crown Jewel Project na
- ----------------------------------------------
Totals 6,896,000
- ----------------------------------------------
8,432,000
- ----------------------------------------------
</TABLE>
Estimating reserves is inherently difficult, and future operations and
costs can be affected by numerous factors. See "Certain Factors Affecting
Reserves, Foreign Investments and Properties."
4
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[MAP OF NORTH AMERICA]
The graphics on pages 5 and 6 consist of maps depicting the Company's mines and
offices in North America, the Austral Pacific, South America, and Africa. The
North America map references the following Company offices: BMG's corporate
headquarters in Houston, Texas; BMC's corporate headquarters in Toronto,
Ontario; and Exploration Offices in Tucson, Arizona; Reno, Nevada; Timmins,
Ontario; Manitouwadge, Ontario; and Hermosillo, Mexico. The North America map
also includes the following operating locations: the San Luis Mine in southern
Colorado, the Battle Mountain Complex in northern Nevada, the Crown Jewel
project in northeast Washington, the Silidor Mine in Quebec, and the Golden
Giant and Holloway Mines in Ontario. The Austral Pacific map references Niugini
Mining's office in Sydney, Australia; Exploration Offices in Perth, Australia
and Jakarta, Indonesia; the Red Dome and Pajingo Mines in northeastern
Australia; and the Lihir Project northeast of mainland Papua New Guinea. The
South America map references Inti Raymi's headquarters in La Paz, Bolivia;
the Kori Kollo Mine in central Bolivia; the San Cristobal Mine in northern
Chile; and Exploration Offices in Lima, Peru and San Juan, Argentina. The Africa
map references an Exploration Office in Accra, Ghana.
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[MAP OF AUSTRAL PACIFIC]
[MAP OF SOUTH AMERICA] [MAP OF AFRICA]
6
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OFFICES
BMG's corporate headquarters are located in Houston, Texas. BMC's
corporate headquarters are located in Toronto, Ontario. BMG's worldwide
exploration program is headquartered in Houston, Texas. Other exploration
offices are located in Reno, Nevada; Manitouwadge, Ontario; Timmins, Ontario;
Hermosillo, Mexico; San Juan, Argentina; Lima, Peru; Townsville, Queensland;
Perth, Western Australia; Jakarta, Indonesia; and Accra, Ghana.
Inti Raymi's corporate headquarters are located in La Paz, Bolivia.
Niugini Mining's administrative offices are located in Sydney, Australia
and Kainantu, Papua New Guinea, with subsidiary branch offices in Santiago and
Antofagasta, Chile and Cairns, Australia.
CBR maintains corporate headquarters in Toronto, Ontario and operating
offices at its wholly-owned subsidiary Crown Butte Mines, Inc. in Missoula,
Montana.
OPERATING MINES
GOLDEN GIANT
The Golden Giant mine is owned by BMC and is located in the Hemlo gold
district approximately 35 miles east of the city of Marathon in Ontario,
Canada. The main access to the Golden Giant mine is by a 1.2 mile road from
the Trans-Canada Highway. The shaft and some of the surface facilities of the
Golden Giant mine are located on approximately one-quarter of a mining claim
and other related surface rights acquired from Teck Corporation and Homestake
Canada Inc., the owners of the adjacent David Bell mine. The Golden Giant ore
deposits were discovered in 1982. Construction of the mine began in 1983, and
the first gold bullion was poured on April 6, 1985. In the fourth quarter of
1988, mine production first reached the design rate of 3,300 tons of ore per
day. In 1995, Golden Giant produced approximately 234,000 ounces of gold. The
production in 1995 was not indicative of past or future performance as the mine
did not operate for a total of 20 weeks due to a strike and a shut down for
shaft rehabilitation purposes. The Golden Giant mine produced approximately
371,000 ounces of gold in 1996.
A pastefill plant was constructed during 1996, allowing Golden Giant to
recycle mill tailings for backfilling the mined-out areas underground. The
pastefill plant replaces an alternate method whereby rock from a surface quarry
was crushed and used for backfilling. The benefits of the pastefill method
include lower operating costs and decreased amounts of waste material sent to
the tailings facility for disposal, which in turn decreases the environmental
impact and defers future capital expenditures related to the tailings facility.
Around the Golden Giant mine, BMC holds a land position consisting of an
area of 6,155 acres under eight standard Crown mining leases and four freehold
patents. The mine property consists of approximately 64 acres. The mine and
most facilities are located on the
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freehold patents. The leases are for 21-year terms ending in the years 2004
and 2005, and are renewable for additional 21-year terms at the discretion of
the Crown. See "--Property Interests--Canada."
Exploration continues at the Golden Giant mine and in the surrounding
area. Surface exploration has been undertaken on the Sceptre property which
adjoins the neighboring Williams mine on the west end of the Hemlo camp.
The total cost of the property and its associated plant and equipment is
$239 million with a net book value of $138 million at December 31, 1996.
Geology. The Golden Giant orebody consists of a main zone and a lower
zone. The main ore zone has an indicated strike length of 500 meters at an
azimuth of 115degrees, a dip to the northeast of 60degrees to 70degrees and an
average thickness of about 20 meters. The gold mineralization occurs along the
contact between metasedimentary and felsic metavolcanic rocks. The ore zone is
pyrite-rich and occasionally barite-rich. The main zone is tabular in nature
and is characterized by its regularity and consistent gold values. The main
zone is cut by several diabase dykes. The gold occurs primarily as finely-
disseminated native gold with minor quantities of silver in pyritiferous
schists. The lower zone lies 30 to 80 meters stratigraphically below the main
zone. It is similar to the main zone, is narrower and less continuous, and for
the most part is below the lowest current mining level.
Mining, Processing and Environmental Compliance. The Golden Giant
reserves are mined using underground mining methods. After being fed to an
underground primary jaw crusher, ore is hoisted to the surface and conveyed to
another crushing facility, a ball mill grinding circuit and finally a cyanide
carbon-in-leach circuit. The mine is subject to Canadian and provincial
environmental laws. See "--Environmental Matters--Canada."
KORI KOLLO
The Kori Kollo mine, Inti Raymi's principal asset, is located on the
altiplano, or high plain, near Oruro in western Bolivia on government mining
concessions issued to Inti Raymi covering approximately 43.7 square miles. See
"-- Property Interests -- Bolivia." Access to the mine site is by way of a 27-
mile dirt and gravel road connected to a national highway.
Commercial production from the milling facility at the Kori Kollo mine
commenced in February 1993, at which time heap leaching of oxide ore was
discontinued. The cost of constructing the milling facility was partially
project financed. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
After nearly three years of better than expected production and cost
performance, Kori Kollo experienced lower grades and higher mining costs in
1996. A review of the reserves at Kori Kollo has resulted in a downward
adjustment of 320,000 attributable ounces, or approximately 10% of the year-end
1995 Kori Kollo ore reserve. The reduction is a result of
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<PAGE> 11
refinements to the block model of the ore body incorporating data collected
from the past four years of mining and results from 18 new diamond drill holes
completed during 1996. The recovery enhancement system constructed at Kori
Kollo in 1995 ceased operating in 1996 pending further analysis because it was
not providing the additional recoveries that had been anticipated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The total cost of the property and its associated plant and equipment is
$316 million with a net book value of $190 million at December 31, 1996.
Geology. The project is in the Andean tectonic belt of western Bolivia
between the Cordillera Occidental and the Cordillera Real, and within an area
of lacustrine deposits on the altiplano. Deformed Paleozoic sediments and a
Tertiary volcanic sequence underlie the lacustrine deposits. Locally these
rocks form topographic highs, reflecting block-faulting. Irregular masses of
biotite-hornblende dacite porphyry intrude the Paleozoic sediments. The
deposit is contained within two varieties of dacite porphyry intrusions. Both
varieties of dacite have been pervasively quartz-sericite altered throughout
the deposit. The most important structural controls of mineralization are
fault systems which trend in two directions and contain auriferous sulfide
veins and veinlets. Some veins contain minor stibnite, tetrahedrite, galena,
sphalerite and realgar.
Mining, Processing and Environmental Compliance. Inti Raymi utilizes
conventional open pit mining methods at Kori Kollo. Ore from the Kori Kollo
mine is processed at the mill in a cyanide carbon-in-leach circuit. The mill
processes an average of approximately 19,000 tons of ore per day. The Kori
Kollo operations are subject to Bolivian environmental laws and regulations.
See "-- Environmental Matters -- Bolivia."
BATTLE MOUNTAIN COMPLEX
The Battle Mountain Complex is owned by BMG and is located near the town
of Battle Mountain in north central Nevada. The complex covers approximately
50 square miles and includes the Copper Basin Leach project, Reona Leach
project and the proposed Phoenix project (discussed below under "Development
Projects"). Access to the complex is by way of a two-mile paved road that
connects to a state highway. Leaching of ore at the Copper Basin heap leach
facility commenced in 1991 and is expected to contribute minor production
through 1999. Mining operations at the Reona mine are expected to cease by
November 1997, but production from residual leaching could continue beyond
2000.
In the third quarter of 1996, BMG recorded a $17.5 million reduction in
the carrying value of the Reona mine assets to reflect lower performance
expectations resulting from an analysis of actual heap leach performance in the
prior six months of operations, updated projections of heap leach performance
as contrasted with previously anticipated performance, and higher estimates of
reclamation costs.
BMG holds title to the Battle Mountain property in the form of fee land,
unpatented lode, placer and millsite claims and leased claim acreage. See
"-- Property Interests -- United States."
The total cost of the property and its associated plant and equipment is
$81 million with a net book value of $33 million at December 31, 1996.
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Geology. The mines at the Battle Mountain Complex are located in the
Battle Mountain Range. The range consists of predominantly faulted and folded
Paleozoic rocks which have been locally intruded by plutonic masses. Marginal
to and associated with the plutons, sulfide mineralization containing base and
precious metals has locally formed. Economic concentrations of gold and silver
are typically associated with carbonate sediments that have been converted to
"skarn" through the process of contact metamorphism. Economic mineralization
is also associated with faulting and shearing which formed contemporaneously
with the intrusive events. Mill grade gold and silver mineralization has been
mined from several areas within the district where strong sulfide
mineralization was deposited. Natural weathering has altered areas of sulfide
mineralization to form iron oxides and other secondary minerals that are
generally favorable for heap leach recovery of precious metals.
Mining, Processing and Environmental Compliance. BMG conducts its
operations at the Battle Mountain Complex utilizing conventional open pit
mining methods. Leach grade ore is processed at Reona and Copper Basin by heap
leaching. The precious metals refinery and desorption plant at Copper Canyon
processes solution from the Reona and Copper Basin heap leach facilities. The
Battle Mountain Complex is subject to federal and state environmental laws and
regulations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Government Regulation" and "--Environmental
Matters -- United States -- Battle Mountain Complex."
HOLLOWAY
The Holloway mine in which BMC has an 84.7% interest through a joint
venture (the "Holloway Joint Venture") is located approximately 35 miles east
of Matheson in Ontario, Canada. The Holloway Joint Venture was formed in 1992
and covers a three-dimensional block including the Holloway mine. BMC is the
operator. The three separate claims within the mine are subject to net profits
royalty interests. The remaining 15.3% interest in the Holloway Joint Venture
is held by Teddy Bear Valley Mines Limited. As of December 31, 1996, BMC also
had a 9.3% equity interest in Teddy Bear Valley Mines, giving it an 86.1%
direct and indirect interest in the mine. Construction of the Holloway mine
began in 1994 and start-up commenced in the fourth quarter of 1996.
The Holloway mine experienced a slower than anticipated start-up in late
1996, producing approximately 11,000 attributable ounces of gold for 1996.
The Company's joint venture share of the property and its associated
plant and equipment is $91 million with a net book value of $90 million at
December 31, 1996 in late 1996.
Geology. The various claim blocks contain a gold deposit called the
Lightning Zone. The Lightning Zone gold deposit occurs at the contact between
altered mafic volcanic rocks and underlying ultramafic rocks. The deposit
occurs adjacent to the Destor-Porcupine Fault Zone which runs east-west from
Timmins, Ontario to Destor, Quebec, through Harker and Holloway
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Townships. The Destor-Porcupine Fault Zone is a regional structural feature
which is closely associated with many gold deposits in the area. The deposit
strikes east and west for 2,600 feet and dips an average 50 degrees to 70
degrees to the south. The deposit starts at 660 feet below the surface and
extends to 2,600 feet below surface. The deposit is open at depth. The average
thickness of the deposit is 26 feet. The Lightning Zone exhibits variability in
width, grade, dip and continuity, notably in the central part of the zone. Most
commonly, gold values occur within massive grey silicified and albitised zones
containing 5-10% disseminated fine pyrite.
Mining, Processing and Environmental Compliance. BMC conducts its
operations at Holloway using underground mining methods, and the ore is custom
milled at two nearby operations. The mine is subject to Canadian and
provincial environmental laws. See "--Environmental Matters--Canada."
SAN CRISTOBAL
Through Niugini Mining, the Company owns 50.5% of the San Cristobal gold
mine located on 52.5 square miles of government-issued mining concessions in
northern Chile, 68 miles from the port city of Antofagasta. See "-- Property
Interests -- Chile." The San Cristobal mine is owned and operated by Niugini
Mining's wholly-owned Chilean subsidiary Inversiones Mineras del Inca, S.A.
The mine is readily accessible by existing roads. Commercial production of the
mine began in July 1991.
In the third quarter of 1996, BMG recorded an $18 million reduction
(approximately $9 million attributable to BMG) in the carrying value of the San
Cristobal mine assets to reflect recent detailed mine studies and a review of
related projects. Niugini Mining continues to evaluate mineralization near the
mine which could extend the life of the facility. An option to purchase the
Three Sisters prospect, near San Cristobal, was exercised in January 1996.
If no additional reserves are found, mining at San Cristobal is expected to
cease in 1998 or 1999.
The total cost of the property and its associated plant and equipment is
$53 million with a net book value of $8 million at December 31, 1996.
Geology. The San Cristobal mine is located in a low-grade porphyry-
breccia style gold deposit. A system of quartz feldspar porphyries, rhyolites
and breccias is hosted within a major structure at the margin of a larger
granite porphyry. The main part of the deposit occurs in the upper part of the
porphyry-breccia system. Several styles of gold mineralization have been
defined with the majority of the gold contained within the dikes and breccias,
particularly at dike contacts.
Mining, Processing and Environmental Compliance. Niugini Mining
conducts its operations at San Cristobal utilizing conventional open pit mining
methods. Ore is processed by heap leaching. San Cristobal operations are
subject to Chilean environmental laws and regulations. See "-- Environmental
Matters -- Chile."
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SILIDOR
BMC owns a 55% interest in and operates the underground Silidor mine
located near Rouyn-Noranda, Quebec. The mine is a joint venture between BMC
and Cambior Inc. that commenced production in April 1990. The property is held
under a mining license covering 220 acres. The license has a 20-year term,
expiring in 2010. In 1995, the Silidor mine produced approximately 31,000
attributable ounces of gold and in 1996 it produced approximately 26,000
attributable ounces.
The Silidor reserves are expected to be depleted with mining operations
ceasing in mid-year 1997. Reclamation, consisting of dismantling the surface
infrastructure, sealing underground accesses and recontouring and revegetating
the site will be completed during 1998.
The Company's joint venture interest share of the property and its
associated assets is $6 million with a net book value of $.5 million at
December 31, 1996.
Geology. The Silidor deposit is hosted by Archean intrusive rocks,
primarily tonalite. The gold mineralization occurs in a quartz vein which
strikes northwest and dips northeast at 55degrees to 70degrees. The quartz
vein varies in width up to 26 feet and averages about 11.5 feet.
Mining, Processing and Environmental Compliance. Operations at the
Silidor mine are carried out using underground mining methods, and the ore is
custom milled at two nearby operations. The operations at Silidor are subject
to Canadian and provincial environmental laws. See "-- Environmental
Matters -- Canada."
RED DOME
The Red Dome mine owned by Niugini Mining is located on a 5.6 square
mile state-issued block of four mining leases located 84 miles west of Cairns
in Queensland, Australia. It is accessible by a 44-mile dirt and gravel road
from a state highway. Production from the state-issued mining lease is subject
to an annual royalty payable to the State of Queensland. See "--Property
Interests -- Australia" and "--Taxes --Australia."
Expansion of the existing Red Dome pit was completed in 1994. Ore
reserves from the Red Dome mine are expected to be depleted and mining
operations to cease in the third quarter of 1997. Reclamation activities are
expected to continue through 1999.
The total cost of the property and its associated plant and equipment is
$50 million and is fully amortized at December 31, 1996.
Geology. The Red Dome deposit is hosted by Siluro-Devonian sedimentary
rocks of the Chillagoe Formation and is located between one-half and one and
one-half miles to the east of the Palmerville Fault, which is a major regional
feature that marks the western boundary between this
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<PAGE> 15
unit and the Precambrian Dargalong Metamorphics to the west. The Chillagoe
Formation consists predominantly of fossiliferous limestone and chert with
intercalated beds of quartz greywacke and siltstone. At the mine, narrow
porphyritic rhyolite dikes were intruded into a calcareous unit of the
Chillagoe Formation and produced skarns. Detailed electron microprobe analysis
has indicated that the gold occurs predominantly as isolated grains of native
gold either as inclusions within sulfides or as free gold associated with
silicates. Electrum is minor and has been identified only in the retrograde
skarn.
Mining, Processing and Environmental Compliance. Niugini Mining's
operations at Red Dome are conducted utilizing conventional open pit mining
methods. The open pit mine has been in operation since 1986, first utilizing
heap leach processing and later adding a milling facility. Ore is processed by
heap leach, flotation and carbon-in-leach methods. Red Dome operations are
subject to environmental laws and regulations including reclamation
requirements under Queensland legislation. See "--Environmental Matters --
Australia."
SAN LUIS
The San Luis mine is located approximately three miles northeast of San
Luis in southern Colorado and is accessed by way of a five mile dirt road that
connects to a state highway. The mine lies within land leased from a private
party, and BMG owns fee lands in the proximity of the mine. The mine began
commercial production in 1991. High levels of copper impeded gold recovery and
caused the cessation of mining in October 1996, with production ending in
November 1996. The San Luis mine is no longer operational and all chemicals and
chemical waste products have been removed from the site. Reclamation is ongoing
with the majority of the reclamation work expected to be completed in 1997.
Regulatory obligations for monitoring of site groundwaters will continue until
2006.
The total cost of the property and its associated plant and equipment is
$60 million with a net book value of $3 million at December 31, 1996.
Mining, Processing and Environmental Compliance. BMG conducted its
mining operations at San Luis utilizing conventional open pit mining methods.
Ore was processed at a mill in a carbon-in-pulp cyanide leach circuit.
Operations at San Luis are subject to federal and state environmental laws and
regulations. See "--Environmental Matters--United States--San Luis."
PAJINGO COMPLEX
The Pajingo Complex is located on a 10.5 square mile state-issued mining
lease, 44 miles southeast of Charters Towers and 120 miles southwest of
Townsville in Queensland, Australia. Access to the Pajingo Complex is by way
of a 13-mile gravel road, which connects to a state highway. Production from
the state-issued mining lease is subject to an annual royalty payable to the
State of Queensland. See "-- Property Interests -- Australia" and "-- Taxes --
Australia." In 1996, production from the Cindy deposit at the Complex was
subject to a 3% royalty payable to a private party.
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The Pajingo mine commenced production in 1987 and ceased in 1993, with
the processing of stockpiled ore continuing into 1995. Open pit mining of the
Cindy deposit began in 1993 and ceased in 1994. Underground mining of the
Cindy deposit began in 1995 and processing ceased in October 1996 upon the
depletion of reserves.
In late 1996, the Company contributed all of the Pajingo assets to the
Pajingo Joint Venture in which it has a 50% interest. Normandy Mining Limited,
an Australian gold mining company, owns the other 50% interest and is the
operator. The Pajingo Joint Venture was formed to develop the Vera/Nancy ore
body at the Complex. Open pit mining of the Vera/Nancy ore body is under way,
and ore is being stockpiled for treatment at the nearby refurbished Pajingo
mill. Full production from the underground Vera/Nancy ore body is anticipated
by the third quarter of 1997. Additional exploration and final reserve
definition will be carried out as underground mining progresses.
The Company's joint venture interest share of the property and its
associated plant and equipment is $2 million at December 31, 1996.
Geology. The Cindy deposit and Vera/Nancy ore body are located in rocks
of Paleozoic age in the Drummond Basin. The host rocks are volcanic
pyroclastic and lava rocks intermixed with sandstone and siltstone sedimentary
rocks. The gold ores occur as quartz veins emplaced in steeply dipping
fractures in the host rocks.
Mining, Processing and Environmental Compliance. BMG conducted its most
recent mining operations at the Cindy deposit utilizing underground mining
methods. Ore from the Cindy deposit was transported by truck over a 1.2 mile
road and processed at the Pajingo mill in a carbon-in-pulp cyanide leach
circuit. Mining of the Vera/Nancy ore body presently utilizes open pit mining
methods and will later utilize underground methods. The Pajingo Complex is
subject to environmental laws and regulations including reclamation requirements
under Queensland legislation. See "-- Environmental Matters -- Australia."
DEVELOPMENT PROJECTS
LIHIR
Niugini Mining owns a 17.15% interest in LGL, which is developing and
constructing the Lihir project. The Lihir project is located on the east coast
of Lihir Island, 375 miles northeast of mainland Papua New Guinea ("PNG").
See "--Certain Factors Affecting Reserves, Foreign Investments and Properties."
The Lihir project will consist of an open pit mine, crushing and
grinding circuit, a pressure oxidation circuit, a carbon-in-leach circuit, gold
smelting facilities to produce gold dore, and associated infrastructure. The
Lihir ore is refractory in nature, requiring complex processing methods. The
ore body is associated with an active geothermal system, and an extensive
dewatering and geothermal control system will be necessary to avoid problems
with hot water or steam during mining. In March 1995, the Special Mining Lease
for the Lihir project was executed by the Papua New Guinea government.
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<PAGE> 17
Development and construction of the project are currently underway. Based on
the current proposals of LGL's manager, the milling facility will begin
processing oxide ore in mid-1997. Sulfide ore is expected to start being
processed utilizing pressure oxidation in October 1997. According to the
manager, production in 1997 is expected to be 19,000 ounces attributable to BMG.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "--Environmental Matters--Papua
New Guinea."
The carrying value of the Company's equity-accounted investment in LGL
is $231 million at December 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CROWN JEWEL
BMG has an option to earn a 54% joint venture interest in the Crown
Jewel project near Oroville, Washington. After the joint venture produces 1.6
million ounces of gold, BMG's joint venture interest would be reduced to 51%.
In order to acquire its interest, BMG is required to fund, on a nonreimbursable
basis, all expenditures for exploration, evaluation and development of the
project through commencement of commercial production. BMG announced a
decision to develop the Crown Jewel project in 1992, subject to obtaining
requisite permits and approvals. Total capital costs for the project,
including plant construction, exploration, evaluation and option payments, are
anticipated based on recently revised estimates to be approximately $142 million
excluding capitalized interest, of which approximately $64 million has been
spent ($55 million of which has been capitalized) through December 31, 1996.
These revised estimates anticipate that cash production costs per gold ounce
sold will average approximately $179 over the life of the mine. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The project is located in northeastern Washington state on lands
consisting of patented lands and unpatented mining claims, mill sites and lease
holdings. A First Half - Mineral Entry Final Certificate has been issued with
respect to the unpatented portion of the Crown Jewel ore body. See "-- Property
Interests -- United States." The Crown Jewel milling facility will have a
throughput capacity of 3,000 tons per day which is expected to produce an
average of approximately 130,000 ounces of gold per year attributable to BMG.
BMG will be the operator.
BMG is proceeding with permitting of the Crown Jewel project. The
Environmental Impact Statement ("EIS") has been finalized and a favorable Record
of Decision issued. Certain public interest groups have challenged the adequacy
of the EIS and appealed the Forest Service's Record of Decision in
administrative proceedings. Work is now underway to obtain the various operating
and development permits. Historically, there are appeals associated with the
permitting process, and it is difficult to predict their duration or effect.
Construction will begin once the appropriate permits are received. See
"--Environmental Matters--United States--Crown Jewel Project."
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PHOENIX
BMG announced a development decision in March 1995 for its Phoenix
project in Copper Canyon at the Battle Mountain Complex. The Company is
continuing to evaluate the project and consider alternatives to enhance its
economics. Preliminary engineering for the project commenced in the fall of
1995. Permitting and engineering for the Phoenix project are moving ahead,
although not as quickly as originally projected. The delays are largely due to
an increase in the actual time required to complete the water-quality modeling
now required by the Bureau of Land Management. Current projections are that
the draft EIS will be released in 1997, with the final EIS in late 1997 or 1998.
Production is anticipated to begin in 1999 assuming timely permitting. See "--
Environmental Matters -- United States -- Battle Mountain Complex."
Total capital costs of the Phoenix project are estimated at $142
million, excluding capitalized interest. Annual production of approximately
190,000 ounces per year is expected over the nine-year life of the mine. The
Phoenix project reserves are included in the data for the Battle Mountain
Complex. See "Operations, Costs and Reserve Data for Gold Mines" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
NEW WORLD
The New World project, owned by a subsidiary of CBR, is located in south
central Montana, four miles north of Cooke City and two miles northeast of the
Yellowstone National Park boundary. In 1993, several special interest groups
filed a complaint in U.S. District Court against Crown Butte Resources Ltd., a
publicly-traded Canadian corporation in which the Company (through BMC) owns a
60% interest, and others, alleging that certain discharges from the
CBR-controlled New World site were in violation of the federal Clean Water Act.
On October 13, 1995, the District Court found CBR and other defendants liable
for violations of the Clean Water Act. As a result of that ruling, CBR and
other defendants may be liable for costs of remediation, civil penalties and
attorneys fees. It is not possible to predict the amount of such liability at
this time. Additionally, the federal judge hearing the case has stayed all
matters in the case in light of an August 12, 1996 agreement between CBR, the
United States government and certain special interest groups.
In August 1996, BMG announced that it would vote its 60% interest in CBR
in favor of an agreement entered into with the U.S. government and certain
special interest groups that provides a framework for CBR to exchange property
interests within the New World Mining District for government-owned property
interests or assets having a value of $65 million. The agreement provides that
subsequent to the exchange, CBR would set aside $22.5 million in an escrow
account for reclamation and restoration purposes in the New World Mining
District. Pursuant to the agreement, CBR has suspended permitting efforts
pending the completion of the exchange. The exchange would result in the
settlement of litigation under the Clean Water Act relating to historic mining
impacts and releases between the parties as to any further environmental
liabilities. The Company's decision to support the agreement was based on,
among other things, reduced economic expectations as a result of protracted
permitting and potential environmental liabilities related to historic mining at
New World. The agreement contains a number of conditions beyond the control of
CBR, including acquisition of certain property interests by CBR, negotiation of
an acceptable reclamation and restoration program, governmental identification
and acceptance by CBR of the exchange properties and subsequent approval by CBR
shareholders, and it may require Congressional approval. CBR has the ability to
withdraw from the agreement at certain times in the event that the U.S.
government has not identified exchange properties acceptable to CBR or if the
government does not transfer the properties within 18 months after CBR has
accepted the properties. Failure to complete the exchange would result in the
legal action under the Clean Water Act proceeding and, as was the case prior to
the exchange agreement, there can be no assurance that any renewed permitting
efforts would be successful. The carrying value of the New World project at
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December 31, 1996 was $37 million on a consolidated basis, of which the
Company's 60% share was $22 million.
EXPLORATION
The Company, through subsidiaries and joint ventures, currently conducts
exploration and evaluation activities in search of precious metals
internationally, including the United States, Canada, Mexico, Argentina,
Bolivia, Peru, Brazil, Chile, Panama, Honduras, Australia, Indonesia, China and
Ghana. The Company's primary objective is to develop high-quality ore deposits
with low operating costs per ounce. The Company seeks to do this through
exploration for extensions of ore zones at operating properties, in areas
proximate to other gold production and through frontier exploration. For
additional information concerning the Company's exploration expenditures, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Factors Affecting
Reserves, Foreign Investments and Properties."
SALES AND PRECIOUS METALS HEDGING ACTIVITIES
Sales. The Company primarily produces dore at its mines which it sells
under sales and/or refining agreements. It also produces concentrates
containing gold, silver and copper at the Red Dome mine. Two buyers of
production from the Company each accounted for more than 10% of the Company's
total 1996 sales. Because of the availability of several alternative buyers,
the Company believes that it would suffer no material adverse effect should it
cease to market its gold, silver and copper through its present buyers.
The table under "Introduction" sets forth information regarding the
percent of total gross revenues of the Company attributable to each of its
mines. Sales in Australia are denominated in either U.S. or Australian dollars
at the Company's election. See "-- Explanatory Note Regarding Exchange Rates";
Note 9, "Major Customers and Export Sales" and Note 13, "Geographic Segment
Information," of Notes to Consolidated Financial Statements under Item 8 of
Part II herein.
Precious Metals Hedging. The Company may employ a number of hedging
techniques with the objective of mitigating the impact of downturns in the gold
market. The Company also engages in limited hedging of its silver and copper
production. Hedging techniques used by the Company have included selling
and/or delivering against fixed forward and "spot deferred" forward sales
contracts and entering into put options with unaffiliated parties. Fixed
forward sales contracts require the future delivery at a specified price on a
specified date. Forward sales contracts that are made on a spot deferred basis
allow the Company to defer the delivery of gold under the contract to a later
date at the original contract price plus the prevailing premium (contango) at
the time of deferral, as long as certain conditions are satisfied. Various
factors influence the decision to close a spot deferred contract or roll the
contract to a later date.
Future decisions with respect to hedging will depend upon gold market
conditions and management's assessment of the potential impacts of gold price
risk. Volatility in the price of gold can have a significant effect on the
Company's sales revenue and income. The volatility can be
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reduced by the use of forward sales and other hedging techniques, but these
techniques may at the same time reduce the Company's ability to fully realize
the benefits of increases in gold prices.
The forward sales contracts associated with Red Dome gold production are
denominated in Australian dollars. The value of Red Dome's forward sales
contracts will fluctuate depending on the exchange rate between U.S. and
Australian dollars. During 1996, the Australian dollar fluctuated from a low
of one Australian dollar to 0.7339 U.S. dollars to a high of one Australian
dollar to 0.8162 U.S. dollars. See "-- Explanatory Note Regarding Exchange
Rates." For more information regarding the Company's hedging activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 15, "Forward Sales and
Hedging," of Notes to Consolidated Financial Statements under Item 8 of Part II
herein. For more information concerning gold prices and the gold market, see
"-- Gold Price Volatility."
CERTAIN FACTORS AFFECTING RESERVES, FOREIGN INVESTMENTS AND PROPERTIES
The ore reserve figures presented herein are estimates, and no assurance
can be given that the indicated level of recovery of gold, silver and copper
will be realized. The ore reserve figures presented herein were calculated
using a gold price ranging from $365 to $385 per ounce. Market price
fluctuations of gold, silver and copper, as well as increased production costs
or reduced recovery rates, may render ore reserves uneconomic and may
ultimately result in a restatement of ore reserves. See "-- Gold Price
Volatility." Additionally, changes in the various assumptions on which the
reserve estimates are based, such as the cutoff grade, may result in increases
or decreases in the reserve estimates from year to year. Reserve estimates for
properties that have not yet commenced production may require revision based on
actual production experience. Moreover, many factors relating to each mine,
such as the design of the mine plan, unexpected operating and processing
problems, increases in the stripping ratio and the complexity of the metallurgy
of an ore body, may adversely affect cash production and operating costs of a
project. Reserves for the Lihir project, as well as projected cost and
production estimates, are based on information provided by LGL's manager. Such
information has been reviewed, but not independently confirmed, by the Company.
Neither reserves nor projections of future operations should be interpreted as
assurances of the economic life or profitability of future operations.
A majority of the Company's production in 1996 was attributable to non-
U.S. operations. Foreign operations, which include significant operations in
Canada, Latin America and Australia, are subject to the risks normally
associated with conducting business in foreign countries, including foreign
exchange controls and currency fluctuations, limitations on the repatriation of
earnings, changes in domestic and foreign taxation, labor disputes, civil
disturbances and uncertain political and economic environments as well as risks
of war and civil disturbances or other risks which may limit or disrupt
production and markets, restrict the movement of funds or result in the
deprivation of contract rights or the taking of property by nationalization or
appropriation without fair compensation. Although the Company has not
experienced any significant problem in foreign countries arising from such
risks, there can be no assurance that such problems will not arise in the
future.
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A significant portion of the Company's reserves and production comes
from Inti Raymi's Kori Kollo mine in Bolivia. Risks associated with conducting
business in Bolivia are therefore significant to the Company. For several
decades, Bolivia experienced periods of slow or negative growth, high
inflation, large devaluations of the Bolivian currency and imposition of
exchange controls. Limited availability of foreign exchange required the
Bolivian government to restructure its foreign currency denominated
indebtedness. Since 1985, the Bolivian government has pursued economic
stabilization and reform policies which have significantly reduced inflation
and budget deficits and which have eliminated exchange controls. There are
currently no restrictions on the transfer of funds out of Bolivia. Since 1986,
the exchange rate for Bolivian currency has been relatively stable. A
recurrence of adverse economic conditions, high levels of inflation, the
imposition of exchange controls or restrictions on payments to non-Bolivians
could adversely affect Inti Raymi's ability to pay dividends or repay funds
borrowed outside Bolivia and adversely affect the Company's financial condition
and results of operations.
Since 1982, Bolivian governments have been elected through a democratic
process as required under the Bolivian Constitution. The Company considers the
Bolivian government to be stable and its current relations with the government
to be good. However, should there be a deterioration in Bolivia's political
stability or an adverse change in the Bolivian government's policy towards
foreign-owned companies in Bolivia, the Company's financial condition and
results of operations could be adversely affected. Although Bolivia has not
suffered from civil disturbances, acts of terrorism and sabotage to the same
extent as neighboring South American countries, there can be no assurance that
the occurrence of civil unrest or terrorist activities against Inti Raymi's
facilities will not occur. BMG has, in connection with its investment in Inti
Raymi, obtained political risk insurance from the U.S. Overseas Private
Investment Corporation. This insurance provides coverage of $15 million for
expropriation, $25 million for inconvertibility and $25 million for political
violence. The policy is renewed annually at the option of BMG and is expected
to be available for the life of the Kori Kollo mine.
Presidential and congressional elections are scheduled for mid-1997 in
Bolivia. Under the Bolivian constitution, a sitting president cannot serve
consecutive terms. Therefore, a change in administration will occur in 1997.
The current administration has initiated far reaching programs to decentralize
central government's authority, to decentralize the distributions of the tax
revenues, to reform the education and tax systems and to promote private
ownership of previously state-owned companies. While the Company believes
these reforms are beneficial to the Bolivian people and Bolivian economy, it is
difficult to predict the ultimate impacts of these and associated reforms, and
a change in administration, on the Company's Bolivian operations.
The Company also has a significant investment in the Lihir project
located in PNG. PNG achieved independence in 1974. Since 1974, PNG has
maintained a policy favoring direct foreign investment in general, and foreign
investment in the mining sector in particular. The PNG Constitution and major
statutes governing foreign investment also provide significant safeguards
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for investors and lenders. The Investment Promotion Act assures investors the
right to remit after-tax profits and make debt-service and supplier payments.
The Investment Promotion Act also provides that expropriation will not occur
without adequate compensation. It has been the practice of the PNG government
to acquire direct ownership interests in large natural resource projects. Most
such projects have experienced some level of civil unrest. Although the
Company does not expect acts of civil unrest from the inhabitants of Lihir
Island to have a materially adverse impact on operations, there can be no
assurance that material adverse effects will not occur. Furthermore, a
deterioration in PNG's political stability or an adverse change in the PNG
government's policy towards foreign-owned companies in PNG could adversely
affect the Lihir project and the Company's financial condition.
Foreign operations and investments may also be adversely affected by
laws and policies of the United States affecting foreign trade, investment and
taxation which could affect the conduct or profitability of these operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Operations."
PROPERTY INTERESTS
UNITED STATES
Mineral interests in the United States are owned variously by federal
and state governments and private parties. In addition to the acquisition of
mineral rights held by states or private parties, the Company also may acquire
rights to explore for and produce minerals on federally owned lands that are
open to location. This acquisition is accomplished through the location of
unpatented mining claims upon unappropriated federal land pursuant to
procedures established by the General Mining Law of 1872, the Federal Land
Policy and Management Act of 1976 and various state laws (or the acquisition of
previously located mining claims from a private party). These laws generally
provide that a citizen of the United States, including a corporation, may
acquire a possessory right to explore for and develop valuable mineral deposits
discovered upon unappropriated federal lands, provided that such lands have not
been withdrawn from mineral location. These laws also provide that a
proprietor of a valid mining claim may obtain a possessory right to
nonwithdrawn, unappropriated nonmineral federal lands for mining or milling
purposes through the location of unpatented millsite claims.
The location of a valid mining claim on federal lands requires the
discovery of valuable minerals and compliance with certain procedures, while
the location of a valid millsite claim requires use or occupancy and the
compliance with certain procedures. Failure to follow the required procedures
may render the mining or millsite claim void. Upon compliance with the
statutes and regulations for the location of a mining claim, the locator
obtains a possessory property interest and the right to explore, develop and
produce minerals from the claim. Upon compliance with the statutes and
regulations for the location of a millsite claim, the locator obtains a
possessory property interest and the right to use the millsite for mining and
milling purposes. Such property rights can be freely transferred and are
protected against appropriation by the government without just compensation.
Historically, the claim locator could also make application to obtain a patent
(or deed) conveying fee title to his claim from the federal government upon
payment of fees and
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compliance with certain additional procedures. However, a legislative
moratorium currently precludes the acceptance of new patent applications.
The interests represented by unpatented mining claims and millsites
possess certain unique risks not associated with other types of property
interests. For example, in order to maintain each unpatented mining claim, the
claimant must pay fees to the United States Department of the Interior.
Failure to make the required payments constitutes abandonment of the claim.
Further, because mining claims are often located with less than sophisticated
surveying techniques, difficulty may arise in determining the validity and
ownership of specific mining claims. Moreover, under applicable regulations
and court decisions, in order for an unpatented mining claim to be valid
against a governmental challenge, the claimant must be able to prove that the
minerals on which the claim is based can be mined at a profit. Thus, it is
conceivable that, during times of declining metal prices, claims that were
valid when located could be later invalidated by the federal government.
The validity of unpatented mining claims, which constitute most of the
Company's undeveloped property holdings in the United States, is often
uncertain and may be contested by the federal government and third parties.
Although the Company has attempted to acquire satisfactory title to its
undeveloped properties, the Company, in accordance with mining industry
practice, does not generally obtain title opinions or title insurance until a
decision is made to develop a property, with the attendant risk that some
titles, particularly titles to undeveloped properties, may be defective.
Legislative amendment of the General Mining Law under which the Company
holds claims on federal lands could take place in 1997. Such legislation could
impose a royalty. Valid existing claims, or claims with respect to which a
certain portion of the patenting process has been completed, might be exempted
from such a royalty. Approximately 40% of the Reona reserves, 23% of the
Phoenix project reserves and 80% of the Crown Jewel reserves are on federal
lands. A patent covering the unpatented portion of the Crown Jewel reserves
was applied for in 1992 and a First Half-Mineral Entry Final Certificate was
received in 1995. Mineral surveys and official plats have been completed for
the claims constituting the unpatented portions of the Reona and Phoenix
reserves, but no patent applications can be made unless the legislative
moratorium on the acceptance of new patent applications is lifted. The extent
to which existing law might change is not yet known. The Company cannot yet
predict the impact of any such change on its U.S. activities. However, the
passage of legislation that can be reasonably anticipated is not expected to
render uneconomic any of the Company's existing operating mines or development
projects, assuming current gold prices.
CANADA
Certain of the Company's mineral rights are held on provincial "Crown
Lands" (i.e. public lands) in Canada. Operations in Canada are currently being
conducted primarily in the Provinces of Ontario and Quebec.
In Ontario, mineral rights on public land are initially reserved to the
Crown. An individual who is the holder of a prospector's license issued by the
Crown may stake a mining claim on public
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land to the exclusion of third parties. Upon performance of the prescribed
assessment work, the holder of the claim may become entitled to a lease from
the Crown of the mining and/or surface rights of the lands comprising the area
staked. Each lease is granted for an initial term of 21 years subject to a
right of renewal in favor of the lessee for a further term of 21 years upon
application to the appropriate Ministry and the payment of the prescribed fees.
Such renewal is subject to the provision of evidence of mineral production
occurring continuously on the lands subject to such lease for more than one
year since issuance or last renewal of such lease, or the lessee having
demonstrated a reasonable effort to bring the lands into production. The Crown
can also issue or renew such leases in such circumstances and on such terms as
it deems appropriate.
Under the provisions of the predecessor legislation to the current
Mining Act (Ontario) (i.e. prior to 1990) a holder of a Crown lease was
entitled to a fee simple patent of the lands or mining rights subject to such
lease, upon producing satisfactory evidence to the Crown that substantial
quantities of minerals had been produced from such lands continuously for more
than one year. The current Mining Act (Ontario) eliminated such rights to a
fee simple patent, however, previously issued fee simple patents in good
standing remain of full force and effect.
In Quebec, mining rights reserved to the Crown may be staked by an
individual who is the holder of a prospector's license. A claim is valid from
the date of staking and remains in force for a first term of two years from the
day it is registered and can be renewed, under certain conditions, for a
further term of two years. To mine mineral substances, the holder has to
obtain a mining lease upon establishment of the existence of indicators of the
presence of a workable deposit.
In both provinces, the rental, lease or concession fees payable to the
Crown are nominal and the holder of a mining claim, mining lease or mining
concession has or may obtain a lease of the surface rights of the lands subject
thereto from the Crown if the lands are public lands and, subject to payment of
adequate compensation to the surface rights holder, rights of access to the
surface rights of the lands in question for the purpose of prospecting,
developing and mining if the surface rights are private lands.
In some instances, for example in option agreements, it is common that
mineral rights in both provinces are held by third parties and, by agreement, a
person may acquire all or a percentage interest therein upon performing work on
the property or by making payments to the third party, or both, and it is
common for such agreements to provide for a residual royalty interest for the
third party.
BOLIVIA
Mineral interests in Bolivia are under the domain of the federal
government. Concessions for exploration and mining are issued pursuant to the
Bolivian Mining Code. Inti Raymi owns a group of concessions which include the
Kori Kollo mine and operating facilities. A concession constitutes a right
other than that of ownership of the land where the concession is located.
Among other things, the payment of patents (fees) and engaging in certain work
is required to keep concessions in good standing. A valid exploration
concession also gives the concessionaire the exclusive option to obtain, in
accordance with provisions of the Bolivia Mining Code, exploitation concessions
within the exploration area. A valid exploitation concession gives the
concessionaire
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the exclusive right to exploit minerals subject to the concession from the area
covered by the concession.
CHILE
Mineral interests in Chile are under the domain of the federal
government, which issues mining claims pursuant to the Chilean Mining Code.
Niugini Mining, through subsidiaries, owns the group of mining concessions
including the San Cristobal mine and operating facilities.
AUSTRALIA
The High Court of Australia recognized "native title" in relation to
land for the first time in 1992 in Mabo v. Queensland. Native title is the
name for the bundle of rights held by an Aboriginal group to use land in
accordance with their traditional laws and customs for traditional purposes,
such as subsistence or ceremonial worship. Native title will survive in
respect of portions of land where the traditional landholders have maintained
an ongoing connection with this land, and there has been no inconsistent grant
of tenure made by the Government.
Federal and state governments have formulated a complementary
legislative response to the recognition of native title in order to provide a
central procedure for the assessment of native title claims, and to validate
titles granted prior to January 1, 1994.
The legislation, as well as the Mabo decision, indicates that native
title may co-exist with other titles, such as mining leases or partial leases
over Crown land. The recent High Court decision, in Wik Peoples v. Queensland;
Thayoore People v. Queensland, confirmed this co-existence when it held that a
lease granted over Crown land did not necessarily extinguish native title. The
Court found that if the rights claimed by the leaseholder and the native title
holders permit, then the two interests will be held to co-exist. If these
interests could not co-exist, then the grant will extinguish native title to the
extent of the inconsistency.
Most of the Company's exploration and mining properties in Australia are
located in Queensland and in Western Australia. Much of this land is Crown
land held under pastoral leases by third parties. The Company holds the lands
under mining leases, authorities to prospect and exploration licenses. The
Pajingo Complex and Red Dome mine and associated operating facilities are on
lands held pursuant to mining leases in the State of Queensland. The Company
believes that the Mabo decision (as impacted by the recent legislation and High
Court decision) will neither affect the Company's Red Dome mine and Pajingo
Complex nor have an adverse impact on the Company's exploration properties in
Australia. However, the Mabo decision has increased the risk that title to
properties may be challenged or invalidated in the future or that title
claimants will have the right to negotiate compensatory terms with the Company.
PAPUA NEW GUINEA
Exploration and mining activities in PNG are regulated by the Mining Act
and administered by the Department of Minerals and Energy. Before
construction and mining operations can begin, an exploration license must be
converted, at the government's discretion, to a Special Mining Lease
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which may be granted for an initial term of 40 years. On March 17, 1995, the
Special Mining Lease for the Lihir project was executed by the PNG government.
See "-- Niugini Mining Limited -- Lihir Project" for the current status of the
Lihir project. See also "Certain Factors Affected Reserves, Foreign Investments
and Properties."
ENVIRONMENTAL MATTERS
Set forth below is a summary description of various environmental
matters affecting the Company, including various domestic and foreign,
national, state and local legislation and regulations governing, among other
things, mineral exploration, development, production and refining.
Environmental laws and regulations in most countries allow the imposition of
civil and criminal penalties for violations. Except as discussed below under
"United States--New World Project," the Company believes it is in substantial
compliance with all material aspects of such applicable laws and regulations
and the Company is not aware of any material environmental constraint affecting
its existing mines or development properties that would preclude the economic
development or operation of any of the Company's mines or projects.
UNITED STATES
General. The Company is required to obtain a full range of
environmental permits and approvals of reclamation plans to develop new
properties and to maintain such permits for ongoing operations, reclamation,
closure, and post-closure activities. Existing and possible future legislation
and regulations could cause additional expense, capital expenditures,
restrictions and delays in the development, operation and closure of the
Company's properties, the extent of which cannot be predicted by management of
the Company. The Company expects environmental constraints to become
increasingly strict and that the cost of compliance will continue to grow. In
the context of environmental permitting, including the approval of reclamation
plans, the Company must comply with standards and regulations which may entail
greater or lesser costs and delays depending on the nature of the activity to
be permitted and how stringently the regulations are implemented by the
permitting authority. It is possible that the costs and delays associated with
the compliance with such standards and regulations could become such that the
Company would not proceed with the development or operation of a mine.
Each of the Company's mining properties has many environmental controls.
The principal environmental control facilities at the Company's heap leaching
operations include engineered heap leach facilities to contain process fluids.
The principal environmental control facilities at the Company's milling
operations consist of tailings treatment circuits to process plant effluent and
tailings facilities designed to hold the processed effluent. These facilities
are constructed as an integral part of processing facilities. The Company will
also incur reclamation expenditures as reserves at existing mines are exhausted
and the facilities are closed. The Company is making accruals for estimated
reclamation expenditures over the lives of the respective mines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Laws and Regulations. The Company is subject to federal, state and
local laws and regulations relating to the protection of the environment. At
the federal level, these laws include, among others, the Resource Conservation
and Recovery Act ("RCRA"), the Clean Water Act
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("CWA"), the Clean Air Act ("CAA"), the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the National Environmental Policy
Act of 1969 ("NEPA"), and the Endangered Species Act of 1973 ("ESA").
In the various states in which the Company operates or has projects, laws
and regulations have been promulgated that are at least as stringent as RCRA,
CWA and CAA and the regulations promulgated thereunder. Such states have
assumed authority from the Environmental Protection Agency ("EPA") for
permitting and enforcement of these federal laws and regulations. Should the
EPA promulgate more stringent regulations, the states must conform their
regulations or risk having permitting and enforcement authority revert to the
EPA.
The various states in which the Company operates have groundwater
protection statutes and regulatory programs that typically require site
discharge permits, spill notification and corrective action measures, and
impose civil and criminal penalties for violations.
Changes in the aforementioned federal and state environmental laws and
regulations, the enactment or promulgation of new laws and regulations or the
imposition of new requirements pursuant to such laws or regulations could
require capital expenditures, increases in operating costs and delays or
interruptions of operations, render certain mining operations uneconomic and
prevent or delay the development of new operations.
Battle Mountain Complex. BMG has been issued two water pollution
control permits for the Battle Mountain Complex project facilities by the
Nevada Division of Environmental Protection. One permit covers the activities
of the Surprise Heap Leach operations and the other covers the remaining
operations at the Complex. These permits were amended in 1994 to include the
Reona operations. The Battle Mountain Complex has also been included in a
stormwater discharge general permit issued by the State of Nevada.
BMG has applied for a reclamation permit covering the Battle Mountain
Complex area which is currently under review. The Company has investigated the
discharge to groundwater of chloride (salt) from the tailings facility at the
Battle Mountain Complex. This facility was unlined at the time it was
constructed in keeping with then-accepted practice. The Company is continuing
to evaluate mitigation alternatives to achieve applicable water quality
standards. The Company currently expects to achieve the applicable standards
by utilizing the high chloride water in connection with its proposed Phoenix
operations. Pursuant to the State-issued water pollution control permit
covering the site, the Company has prepared, submitted and implemented a work
plan for further investigation of groundwater in a highly mineralized area
where sampling has indicated that the groundwater is acidic and high in metals.
Due to the preliminary nature of this investigation, it is not possible to
estimate what, if any, remediation might be required with respect to this area.
BMG is currently conducting further site characterization studies for
the Battle Mountain Complex area and is communicating with the Nevada Division
of Environmental Protection to determine the ultimate reclamation and closure
requirements. Adverse site characterization results or the imposition by
regulatory authorities of unanticipated reclamation and closure standards could
substantially increase future reclamation and closure requirements and
expenditures. Based on data
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collected to date, management has not identified any adverse site
characterization results that are expected to have a material adverse effect on
the Company's financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Government Regulation."
Crown Jewel Project. The State of Washington, site of the proposed
Crown Jewel mine, has a comprehensive regulatory regime controlling the
development and operation of new mining operations. Approximately two dozen
permits and approvals must be obtained from federal, state and local agencies
before the mine can be put into operation. The State Environmental Policy Act
("SEPA") mandates an exhaustive review of the environmental impact of the
project. In addition, NEPA compliance is necessary, including the preparation
of an EIS which is also used to satisfy the SEPA requirements. The completion
of the NEPA/SEPA process is a prerequisite to agency determinations with
respect to most permits for the Crown Jewel project. The final EIS was issued
in February 1997 and a favorable Record of Decision has been rendered from the
U.S. Forest Service and the Bureau of Land Management. Certain public interest
groups have challenged the adequacy of the EIS and appealed the Forest
Service's Record of Decision in administrative proceedings. In 1996, BMG
completed negotiations with relevant Washington State permitting agencies to
develop a schedule for agency decisions on all major state permit applications.
However, due to delays in the release of the final EIS, this schedule is under
re-negotiation. Start-up of the Crown Jewel project is difficult for the
management of BMG to predict since it is contingent upon many variables not
within BMG's control, including the granting of the necessary permits and water
rights, administrative and judicial appeals, and inter- governmental
coordination.
CANADA
The mining industry in Canada is subject to legislation at both the
federal and provincial levels related to protection of the environment. The
Company is required to obtain and maintain compliance with a full range of
permits and approvals for various activities during exploration, development,
production and closure and reclamation. Existing and possible future
legislation could cause additional expense, capital expenditures, restrictions
and delays in the development, operation and closure of the company's
properties, the extent of which cannot be predicted by management of the
Company. Recent commitments by both the federal and provincial governments to
reduce bureaucratic delays and jurisdictional overlap may result in reduced
costs and streamlining of the environmental permitting process. However, the
Company expects the continued proliferation and tightening of environmental
standards and requirements over the long term. In the context of these two
driving forces, the Company may incur greater or lesser costs and delays
depending on the nature of the activity and the degree of standards and
requirements that are applied. It is possible that the costs and delays
associated with meeting such standards and requirements could become such that
the Company would not proceed with the further development or operation of a
mine.
Each of the Company's Canadian mining properties has an extensive array
of environmental controls installed to meet regulatory requirements. All of
the environmental controls and pollution prevention projects are designed to
minimize the release of any substances that may be potentially harmful to the
environment. The principal controls include treatment facilities for final
effluent discharges, tailings disposal facilities, dust recovery on material
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transfer operations and spill containment facilities for storage vessels and
along tailings pipeline corridors. With respect to pollution prevention, one
or more of the following programs have been implemented at the various mine
sites: hazardous and non-hazardous waste separation and recycling, waste water
recycling, freshwater use minimization, power conservation, product
substitutions, new materials review/approval program, re-usable product
shipping containers and other process changes benefiting the environment.
Certain Canadian federal and provincial environmental requirements
include requirements for treatment of water prior to discharge to achieve
certain effluent water quality limits. In some cases these limits are
objectives only, while in other cases the limits apply as compliance limits.
The Holloway mine has had difficulties meeting sediment limits and has
constructed a new sediment control system and implemented underground controls
to meet the sediment limits. In addition, in May 1997 the Holloway mine
will be subject to additional compliance limits for ammonia. The mine is
making adjustments to treat the water prior to discharge in order to meet
these limits, but the effectiveness of the treatment during full scale
operations cannot be evaluated until the system is fully operational. The
Golden Giant mine currently has ammonia limits as objectives only, but during
permit certificate renewal, these limits could become compliance limits. The
exact effects of ammonia compliance limits on the Golden Giant mine cannot
be evaluated until an actual limit is proposed.
The Company will also incur reclamation expenditures as reserves at
existing mines are exhausted and the facilities are closed. The Company is
making accruals for estimated reclamation expenditures over the lives of the
respective mines. New and existing mines are required to submit
reclamation/closure plans to the provincial government for review and approval
by the various regulatory authorities. As part of the submissions, estimated
costs to implement the plans and financial assurance to cover the
implementation of the plans is required with the financial assurance in a form
and amount acceptable to the government. All three of the Company's operations
in Canada have submitted their respective reclamation/closure plans to the
appropriate provincial agency. A final letter of acceptance was received for
the Holloway mine plan in 1996. Final approval and acceptance for the Silidor
mine plan and Golden Giant mine plan are expected in 1997.
Failure to comply with government imposed requirements may result in
charges and legal impositions including but not limited to control orders for
the cessation of operations, cleanup and restoration of the natural
environment, modifications to operating practices or the installation of
additional equipment necessary to monitor and protect the environment.
Depending on the nature of the violations, a mining company and its employees
and officers may be individually charged and, if convicted, be required to pay
substantial fines with the additional possibility of jail terms for more
serious offenses.
BOLIVIA
In Bolivia, new environmental regulations to implement federal
legislation passed in 1992 became effective in December 1995. The new
regulations generally require obtaining environmental licenses for both
existing and new projects, including where needed the preparation of
environmental impact studies, set air and water quality discharge standards,
provide protocols for
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dealing with and remediating the effects on the environment of hazardous
substances, set site environmental management standards and provide procedures
and schedules for existing operations to come into compliance. Such
regulations contain new environmental standards and requirements applicable to
the Company's Kori Kollo project which, depending on how the regulations are
implemented and interpreted, could require expenditures and changes in
operations, and it is possible that such expenditures and changes could have a
material adverse effect on the Company's financial condition or results of
operations. As contemplated by the requirements for existing operations, the
Company has commenced preparation of an Environmental Statement that will
describe and evaluate the operation under the new regulations. Based on the
Company's evaluation of the data collected to date and assuming reasonable
interpretation and implementation of the regulations, the Company does not
anticipate that compliance will have a material adverse effect on the Company's
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Government Regulation."
CHILE
Chile maintains an environmental regulatory structure which applies to
various aspects of mining operations including tailings management, water
discharges and airborne emissions. In 1994 an environmental framework law
entitled "Ley de Bases del Medio Ambiente" was approved by the Chilean
legislature and enacted into law. Regulations under the legislation pertinent
to ambient environmental standards, prevention and documentation plans and
certain administrative authorities have been adopted, and regulations
regarding environmental impact statements and certain other matters arising
under the legislation have not yet been published. Existing and future
legislation is expected to impact mining activities in Chile; however, the full
impact and costs associated with the legislation cannot be assessed accurately
until the complete regulation program has been promulgated and implemented.
Based upon the information available to date and assuming a continuation of the
reasonable development, interpretation and implementation of the regulations,
the Company does not anticipate that the applicable regulations will materially
impact operations in Chile.
AUSTRALIA
The mining industry in Australia is primarily regulated by State
regulation. This regulation deals with general environmental matters such as
the licensing of industrial activities, the setting of standards and the
establishment of a range of enforcement mechanisms.
In addition, mines in Queensland (Pajingo, Red Dome and Vera/Nancy) are
also regulated by legislation which specifically deals with the major
environmental impacts of mining. It requires each miner to develop an
environmental management overview strategy (EMOS) which sets out the life of
mine strategies for dealing with these impacts. In addition, a plan of
operations is required which sets out in detail what environmental management
measures will be undertaken over a stated period. The plan of operation must
be independently audited to ensure that it complies with the overarching
strategies of the environmental management overview strategy.
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These planning measures are complemented by a requirement for the miner
to lodge a security deposit calculated by taking the real cost of
rehabilitation for the maximum area of disturbance and allowing a discount for
proven environmental performance. Prior to a mine closing, a final
rehabilitation report must be prepared and approved which addresses final
landform and landuse and how the strategies of the EMOS with respect to
rehabilitation and remediation have been implemented.
Under the provisions of a memorandum of understanding between the
Department of Environment and the Department of Mines and Energy, mines in
Queensland are also required to hold licenses for industrial processes which
are specified in the Environmental Protection Act. However, the major
environmental impacts which are associated with mining and stockpiling continue
to be dealt with by virtue of the specific mining legislation. Accordingly,
there are only minor ancillary activities which now require licensing under the
Environmental Protection Act. A process is underway to bring together these
two environmental legislative schemes into one approval and regulatory system.
It is hoped that this will be completed towards the end of 1997.
Finally, there is a range of both state and federal legislation targeted
at specific areas of the environment. Examples include dealing with
environmentally sensitive areas, aboriginal cultural heritage, preservation of
rare and endangered flora and fauna and the implementation of international
agreements. By focusing on specific areas or parts of the broader environment,
these legislative provisions do not automatically affect all mining projects
but may be triggered by specific circumstances of an individual operation.
In addition to complying with various environmental protection
statutes, both the Pajingo and Red Dome mines in Queensland are required to
obtain plan of operations approvals from the Minister of Mines pursuant to the
Mineral Resources Act. When approved, the plan of operations becomes part of
the conditions of the mining lease issued by the state. The plans of
operations at the Pajingo and Red Dome mines have been approved, including an
approved Environmental Management Overview Strategy ("EMOS"), which covers
environmental protection and rehabilitation requirements. The Vera/Nancy ore
deposit at the Pajingo Complex was added to the plan of operations and the EMOS
document in 1996.
PAPUA NEW GUINEA
Mining operations in PNG are subject to comprehensive environmental
regulations pursuant to legislation requiring the preparation of an EIS and
legislation setting environmental standards and approval requirements for
activities which may affect air, land or water.
TAXES
UNITED STATES
The Company is subject to federal income tax by the United States on its
worldwide earnings, although earnings of the Company's foreign subsidiaries are
not generally subject to current tax until repatriated to the United States.
While the United States allows a credit for foreign income taxes paid, the
limitations on such credit may substantially reduce or eliminate the benefit
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of the credit. The top marginal U.S. statutory corporate rates are presently
35% for regular tax and 20% for alternative minimum tax. Alternative minimum
taxes paid are available as credits against regular tax in subsequent years.
At December 31, 1996, the Company had approximately $72.0 million of regular
net operating losses and $13.3 million of alternative minimum tax net operating
loss carryforwards, expiring beginning in 2007, available to offset future U.S.
federal income tax, and approximately $4.7 million of alternative minimum tax
credits available on an indefinite carryforward basis. These amounts are
subject to adjustment upon a subsequent audit by the Internal Revenue Service.
The Company is also subject to state and local taxes in jurisdictions in which
it is engaged in business operations.
CANADA
The Company's Canadian operations are conducted by Battle Mountain
Canada Ltd. and are subject to Canadian federal and provincial income taxes as
well as provincial mining taxes and duties. The Golden Giant mine and Holloway
mine are located in Ontario and the Silidor mine is in Quebec.
Federal income tax is levied under the federal Income Tax Act. The
basic federal rate on mining income is 28%, but a resource allowance (equal to
25% of "resource profits," as defined) is deductible each year in computing
taxable income. Ontario and Quebec administer their own income and capital tax
regimes under separate provincial statutes. Both provinces offer certain
resource incentives. Ontario and Quebec income tax rates on mining operations
are 13.5% and 8.9%, respectively. Capital tax rates for Ontario and Quebec are
0.3% and 0.64%, respectively.
The Ontario Mining Tax (OMT) and Quebec Mining Duties (QMD) are mineral
royalties or duties paid to the provinces under unique statutes. OMT is levied
at 20% of the operator's profits from Ontario mining operations, as defined.
An exemption from OMT will be allowed for the first C$10 million of taxable
profits earned in the first thirty-six months after commencement of operations
at the new Holloway mine. The current QMD rate is 12%.
Dividends paid by BMC to BMG were subject to a 6% Canadian withholding
tax in 1996. The withholding tax on dividends remitted after 1996 will be
subject to a 5% withholding rate.
BOLIVIA
In 1996, Inti Raymi operated pursuant to certain provisions under the
Bolivian Mining Code and tax legislation which exempted it, on an interim
basis, from income tax. Under these provisions, until September 1999, at which
time the exemption was to terminate, Inti Raymi was subject to a 5% royalty
assessed on gold sales. The Company believes that Inti Raymi was the only
large mining company in Bolivia which was benefiting from such exemption.
Legislation was passed in March 1997, however, which will terminate this
exemption and subject Inti Raymi, effective April 1, 1997, to a 25% income tax
and a sliding royalty on gold sales. The royalty will range from 3.5 to 7%,
depending on the price of gold, but any income tax incurred will be creditable
against the royalty imposed. See "-- Certain Factors Affecting Reserves,
Foreign
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Investments and Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Government Regulation."
Dividends and interest paid by Inti Raymi to BMG are subject to a 12.5%
Bolivian withholding tax. Inti Raymi generally pays import duties and Bolivian
Value Added Tax on all purchases. Inti Raymi subsequently claims refunds from
the Bolivian government of the import duties and the domestically sourced Value
Added Tax by means of tax certificates used to pay taxes due on its sales.
Inti Raymi is also subject to transaction taxes on domestic transactions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CHILE
The San Cristobal mine is owned and operated by Niugini Mining's wholly-
owned Chilean subsidiary Inversiones Mineras del Inca, S.A. After utilization
of existing tax loss carryforwards, Inversiones Mineras del Inca, S.A. will be
subject to income tax at the rate of 15%. Repatriated profits are generally
taxed at an effective rate of 20%. Inversiones Mineras del Inca, S.A. pays
Chilean Value Added Tax on all purchases and imports and subsequently claims a
refund of Value Added Tax with respect to its exports.
AUSTRALIA
Battle Mountain (Australia) Inc. and Pajingo Gold Mine Pty. Ltd. are
subject to tax on income derived from 1996 exploration and mining operations.
However, no taxes are expected to be paid. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations." Australian dividends are currently subject to a 15% Australian
withholding tax.
Niugini Mining (Australia) Pty. Ltd., a wholly-owned Australian
subsidiary of Niugini Mining, is subject to tax at the corporate rate of 36% on
its mining, hedging and investment income. However, such income is expected to
be offset by certain deductions and loss carryforwards available to Niugini
Mining (Australia) Pty. Ltd.
The Company's Australian operations are also subject to various state
and local taxes and the payment of certain gold and silver royalties. Under
each of the mining leases, the Company pays to the State of Queensland an
annual royalty equal to the greater of 2% of gross sales after deducting
A$30,000 or 5% of the operating income that exceeds A$30,000.
PAPUA NEW GUINEA
Niugini Mining is subject to corporate tax in PNG. Assessable income,
after utilization of existing tax loss carryforwards, will be subject to a 35%
income tax because Niugini Mining is a PNG resident corporation. The dividend
withholding tax rate is currently 17%. Niugini Mining did not pay any
dividends in 1996.
31
<PAGE> 34
INSURANCE
The Company carries insurance against property damage risks and
comprehensive general liability insurance. The Company is also insured against
losses from dishonesty, including limited losses from the theft of gold, as
well as losses of other goods in transit. From time to time, the Company
reviews and modifies its insurance coverages and may obtain additional
policies, cancel existing policies or self-insure as it deems appropriate.
The Company is not insured against most environmental risks. Insurance
against most environmental risks (including potential liability for pollution
or other hazards as a result of the disposal of waste products occurring from
exploration and production) is not generally available to the Company or to
other companies within the industry. The Company periodically evaluates the
cost and coverage of the insurance against certain environmental risks that is
available to determine if it would be appropriate to obtain such insurance.
Without such insurance, if the Company becomes subject to environmental
liabilities, the payment of such liabilities would reduce the funds available
to the Company. Should the Company be unable to fully fund the remedial cost
of an environmental problem, the Company might be required to enter into
interim compliance measures pending completion of the required remedy.
EMPLOYEES
The number of full-time employees of the Company (including employees of
majority-owned subsidiaries) at December 31, 1996 was 2,246.
COMPETITION
The Company competes with other mining companies in connection with the
acquisition of precious metal mining interests and in the recruitment and
retention of qualified employees. There is significant and increasing
competition for the limited number of gold acquisition opportunities in the
United States, Canada, Australia and other countries. As a result of this
competition, the Company may be unable to acquire attractive gold mining
properties on terms it considers acceptable. In the pursuit of such
acquisition opportunities, the Company competes with many United States and
international companies that have substantially greater financial resources
than the Company. There is a world market for gold, silver and copper. The
Company believes that no single company has sufficient market power to affect
the price or supply of gold, silver and copper in the world market. See "--
Gold Price Volatility."
EXPLANATORY NOTE REGARDING EXCHANGE RATES
In this report, references to "dollar," "US$" and "$" are to United
States dollars; references to "A$" are to Australian dollars; and references to
"C$" are to Canadian dollars.
On March 24, 1997, the foreign exchange spot rates in U.S. dollars, as
quoted at 3:00 p.m. Eastern time by Bloomberg, were A$1.00 equals US$.7894 and
C$1.00 equals US$.7253.
32
<PAGE> 35
GLOSSARY OF MINING TERMS
CARBON-IN-LEACH--milling process for the recovery of gold from slurried
ore in a dilute sodium cyanide solution, whereby the gold is dissolved and
adsorbed onto coarse carbon particles and then stripped from the carbon by a
screening process.
CARBON-IN-PULP--milling process for the recovery of precious metals by
adsorption onto activated carbon. The precious metals are recovered from the
enriched carbon by elution and electrolysis.
CONTAINED OUNCES--ounces before allowance for mining dilution and
metallurgical recovery.
CUTOFF GRADE--the lowest grade of mineralized rock that qualifies as ore
grade in a given deposit, or the grade below which the mineralized rock
currently cannot be economically mined. Cutoff grades vary between deposits
depending upon the amenability of ore to gold extraction, costs of production
and assumed gold prices.
DORE--an unrefined alloy of gold, silver and other impurities normally
in the form of bars or buttons.
LEACH--to dissolve minerals or metals out of ore with chemicals. Heap
leaching gold involves the percolation of a cyanide solution either through
crushed ore or ore transported directly from the mine (run-of-mine).
MINING CLAIM--that portion of public mineral lands which a party has
staked or marked out in accordance with federal, provincial or state mining
laws to acquire the right to explore for and exploit the minerals under the
surface.
ORE--material that can be economically mined and processed.
ORE BODY--a deposit of economically recoverable minerals, the extent and
grade of which has been defined through exploration and development work.
ORE RESERVE--that part of a mineral deposit which at the time of the
reserve determination could be economically and legally extracted or produced.
OUNCE OR OZ--a troy ounce.
PATENTED MINING CLAIM--a mining claim with respect to which the U.S.
federal government has granted fee title after fulfillment of the government's
qualifying requirements.
PROBABLE ORE RESERVES--reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven reserves,
but the sites for inspection, sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance,
33
<PAGE> 36
although lower than that for proven reserves, is high enough to assume
continuity between points of observation.
PROVEN ORE RESERVES--reserves for which (a) the quantity is computed
from dimensions revealed in outcrops, trenches, workings or drill holes and
grade and/or quality are computed from the results of detailed sampling and (b)
the sites for inspection, sampling and measurements are spaced so closely and
the geologic character is so well defined that size, shape, depth and mineral
content of reserves are well established.
RECLAMATION--the process of restoring mined land to a condition which
allows future beneficial use. Reclamation standards vary widely from
jurisdiction to jurisdiction but usually address ground and surface water,
topsoil, final slope gradients, waste handling and revegetation issues.
SULFIDE--a mineral compound characterized by the presence of sulfur.
TAILING--material rejected from a mill after the recoverable valuable
minerals have been extracted.
TAILINGS FACILITY--natural or man-made area suitable for depositing
ground waste material resulting from the milling and/or processing of ore.
TON--a short ton of 2,000 pounds, dry weight basis.
UNPATENTED MINING CLAIM--those claims, either lode or placer, for which
no patent has been issued. The claim owner has the right to exclusive
possession of the locatable minerals in the area claimed. Such property rights
are subject to the paramount title of the U.S. federal government until a
patent is obtained.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to a number of other legal actions arising in the
ordinary course of business, including litigation described under "Development
Projects--New World Project" under Items 1 and 2 herein. While the final
outcome of these actions cannot be predicted with certainty, it is the opinion
34
<PAGE> 37
of Company management that none of these actions, when finally resolved, will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages as of March 21, 1997, of each of the
present executive officers of the Company together with principal occupations
held by each during the past five years. Executive officers are appointed
annually to serve for the ensuing year or until their successors have been
appointed. No officer is related to any other by blood, marriage or adoption.
No arrangement or understanding exists between any officer and any other person
under which any officer was elected.
Ian D. Bayer (57) - President and Chief Executive Officer
Ian Atkinson (47) - Senior Vice President - Exploration
Anne C. Baldrige (39) - Vice President - Environmental and
Governmental Affairs
Thomas P. Bausch (49) - Treasurer
Joseph J. Baylis (40) - Senior Vice President - Corporate Development
Greg V. Etter (38) - General Counsel and Secretary
Stanford M. Haley (53) - Vice President - Human Resources
John A. Keyes (53) - Senior Vice President - Operations
Jeffrey L. Powers (44) - Vice President and Controller
Mr. Bayer became President and Co-Chief Executive Officer of BMG in July
1996 following the combination with Hemlo Gold and was named President and
Chief Executive Officer in February 1997. He is also serving as Chairman of
the Board of NML, a position he has held since January 1977. Prior to joining
BMG, Mr. Bayer had served as President and Chief Executive Officer and as a
Director of Hemlo Gold since July 1991.
35
<PAGE> 38
Mr. Atkinson was appointed Senior Vice President-Exploration of BMG in
July 1996. Prior to assuming his new position, Mr. Atkinson had been Senior
Vice President of Hemlo Gold since February 1996. Prior to that, Mr. Atkinson
was Vice President, Exploration for Hemlo Gold.
Ms. Baldrige joined BMG in August 1992 as Manager of Environmental
Affairs. She was appointed to her current position in February 1997.
Mr. Bausch joined BMG in September 1996 as Treasurer. Mr. Bausch was
previously employed by Tenneco Inc. as its Assistant Treasurer from 1993 to
1996.
Mr. Baylis joined BMG in July 1996 following the combination with Hemlo
Gold, where he was previously Vice President-Investor Relations and General
Counsel. He also serves as President and Chief Executive Officer of NML, a
position he has held since November 1996.
Mr. Etter joined BMG as Corporate Attorney in 1993 and was appointed to
his current position in February 1997.
Mr. Haley joined BMG in January 1997. Prior to that, he was the
managing partner at Chairmans Counsel, Inc., an organization development
consulting firm.
Mr. Keyes assumed his current position in July 1996 following the
combination with Hemlo Gold. He joined Hemlo Gold in March 1992 as the mine
manager of the Golden Giant mine and in October 1995 became Vice President,
Operations of Hemlo Gold.
Mr. Powers joined BMG in August 1992 as the Manager of Corporate
Accounting, having provided consulting services to the Company since August
1991. He was appointed Controller in January 1994 and to his current position
in February 1997.
36
<PAGE> 39
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock, par value $0.10 per share (the "Common
Stock"), is traded on the New York Stock Exchange (the "NYSE"), the Australian
Stock Exchange Limited, the Swiss Stock Exchanges and the Frankfurt Stock
Exchange. The ticker symbol for the Common Stock on the exchanges is "BMG."
BMC exchangeable shares ("Exchangeable Shares") entitle holders to dividends
and other rights economically equivalent to BMG Common Stock and are
exchangeable at the option of holders into BMG Common Stock on a one-for-one
basis. The Exchangeable Shares are traded on The Toronto Stock Exchange under
the ticker symbol "BMC."
The following table sets forth for the periods indicated the high and
low sales prices for the Common Stock as reported on the NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
1996
First Quarter . . . . . . . . . . . . . . . . . . . $ 11 5/8 $ 8 1/2
Second Quarter . . . . . . . . . . . . . . . . . . $ 9 7/8 $ 7 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . $ 9 1/8 $ 7 1/8
Fourth Quarter . . . . . . . . . . . . . . . . . . $ 8 1/2 $ 6 7/8
1995
First Quarter . . . . . . . . . . . . . . . . . . . $ 12 $ 8 7/8
Second Quarter . . . . . . . . . . . . . . . . . . $ 12 3/8 $ 9 3/8
Third Quarter . . . . . . . . . . . . . . . . . . . $ 10 7/8 $ 9 3/8
Fourth Quarter . . . . . . . . . . . . . . . . . . $ 9 7/8 $ 7 5/8
</TABLE>
As of March 14, 1997, the Company had 17,987 record holders of Common
Stock and 1,197 record holders of Exchangeable Shares.
Cash dividends of $0.07 and $0.08 per share were paid in fiscal 1996 and
1995. A determination to pay future dividends and the amount thereof will be
made by the Company's Board of Directors and will depend on the Company's
future earnings, capital requirements, financial condition and other relevant
factors. For a discussion of restrictions on Inti Raymi's ability to pay
dividends to BMG, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" under
Item 7 herein and Note 6 of Notes to Consolidated Financial Statements under
Item 8 herein. The Company intends to retain most of its earnings to support
current operations, to fund exploration and development projects and to
provide funds for acquiring gold properties.
37
<PAGE> 40
DESCRIPTION OF EXCHANGEABLE SHARES OF BATTLE MOUNTAIN CANADA LTD.
The Exchangeable Shares are exchangeable, at any time at the option of
the holder, on a one-for-one basis for shares of BMG Common Stock. Holders of
Exchangeable Shares are entitled at any time, upon delivery of the Exchangeable
Shares certificate and duly executed retraction request, to require BMC to
redeem such Exchangeable Shares in exchange for an equivalent number of shares
of BMG Common Stock. BMG and a designated subsidiary have the right to
purchase the Exchangeable Shares that are the subject of the request for
redemption in exchange for an equivalent number of shares of BMG Common Stock.
On or after July 31, 2003 (subject to acceleration in certain circumstances),
BMC has the right, but not the obligation, to purchase such Exchangeable Shares
in exchange for an equivalent number of shares of BMG Common Stock. BMG and
such designated subsidiary have the right, but not the obligation, to purchase
such Exchangeable Shares in exchange for an equivalent number of shares of BMG
Common Stock at which time BMC's right to redeem such Exchangeable Share would
terminate.
The shares of outstanding Exchangeable Shares, other than shares held by
BMG and certain of its subsidiaries, are entitled to vote at BMG stockholder
meetings through the exercise by The R-M Trust Company, a Canadian trust company
(the "Trustee"), of certain voting rights under a Voting, Support and Exchange
Trust Agreement dated July 19, 1996 (the "Voting Agreement"). The Trustee, as
the holder of the one share of Special Voting Stock of BMG (the "Special Voting
Stock"), is entitled to a number of votes on all matters on which holders of
BMG Common Stock are entitled to vote equal to the number of Exchangeable
Shares outstanding from time to time. Pursuant to the Voting Agreement, each
holder of Exchangeable Shares is entitled to instruct the Trustee as to the
voting of the number of votes attached to the Special Voting Stock represented
by such holder's Exchangeable Shares. The Trustee will exercise each vote
attached to the Special Voting Stock only as directed by the relevant holder,
and in the absence of instructions from a holder as to voting will not exercise
such votes. A holder may instruct the Trustee to give a proxy to such holder
entitling the holder to vote personally such holder's relevant number of votes
or to grant to the Company's management a proxy to vote such votes. The BMG
Common Stock and the Special Voting Stock vote together as a single class. As
to each matter presented to a vote of stockholders of BMG, each share of BMG
Common Stock is entitled to one vote and the share of Special Voting Stock is
entitled to a number of votes equal to the number of Exchangeable Shares
outstanding from time to time.
Holders of Exchangeable Shares are also entitled to receive dividends
economically equivalent to any dividends paid on the BMG Common Stock. The
Voting Agreement restricts BMG from paying dividends on the BMG Common Stock
unless equivalent dividends are paid on the Exchangeable Shares. Holders of
Exchangeable Shares are also entitled to participate in any liquidation of BMG
on the same basis as holders of BMG Common Stock.
Each Exchangeable Share has an associated right (an "Exchangeable Share
Right") entitling the holder of such Exchangeable Share Right to acquire
additional Exchangeable Shares on terms substantially the same as the terms and
conditions upon which the Rights of BMG entitle a holder of a Right to acquire
either a one one-hundredth of a share of the Series A Junior Participating
Preferred Stock of BMG (essentially the economic equivalent of a share of Battle
Mountain Common Stock) or, in certain circumstances, shares of Battle Mountain
Common
38
<PAGE> 41
Stock (with the definitions of beneficial ownership, the calculation of
percentage ownership and the number of shares outstanding and related
provisions applying, as appropriate, to Battle Mountain Common Stock and
Exchangeable Shares as though they were the same security). The Exchangeable
Share Rights are intended to have characteristics essentially equivalent in
economic effect to the Rights of BMG. See Note 7, "Shareholders' Equity," of
Notes to Consolidated Financial Statements under Item 8 herein.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data for
the respective periods presented and should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto in Item 8 and
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------
(expressed in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales $ 424 $401 $430 $376 $ 368
===== ==== ==== ==== =====
Operating income (loss)(1) $ (43) $ 44 $111 $ 62 $ 21
===== ==== ==== ==== =====
Net income (loss)(1) (74) 30 57 31 (2)
Preferred dividends 8 8 8 4 -
----- ---- ---- ---- -----
Net income (loss) to common shares(1) $ (82) $ 22 $ 49 $ 27 $ (2)
===== ==== ==== ==== =====
Net income (loss) per share $(.36) $.10 $.21 $.12 $(.01)
===== ==== ==== ==== =====
Cash dividends per common share $ .07 $.08 $.13 $.12 $ .11
===== ==== ==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------
BALANCE SHEET DATA: (expressed in millions)
<S> <C> <C> <C> <C> <C>
Total assets $ 1,037 $ 1,142 $ 1,103 $ 1,047 $ 988
======= ======= ======= ======= =====
Long-term debt, less current maturities $ 139 $ 169 166 $ 197 $ 237
======= ======= ======= ======= =====
Shareholders' equity $ 538 $ 629 626 $ 583 $ 479
======= ======= ======= ======= =====
</TABLE>
(1) In 1996, the Company wrote down the carrying value of the Reona mine and
the San Cristobal mine by $17.5 and $17.6 million, respectively, both
gross and net of income taxes. Also, in 1996 the Company incurred $22.7
million in costs related to the combination of BMG and Hemlo Gold. In
1995, the Company wrote off $1.4 million, net of a $.8 million income tax
benefit related to the decommissioned and dismantled milling facility
formerly used at the depleted Fortitude mine in Nevada. In 1992, the
Company (i) wrote down $17.6 million, net of a $9.1 million income tax
benefit, of BMG's investment in the San Luis mine and (ii) wrote off $4
million, net of a $2 million income tax benefit, of BMG's investment in
the previously closed Canyon Placer facility, which was abandoned because
of gold prices being persistently less than needed for development. For
1992, includes a $1.5 million charge related to the Company's adoption of
SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions."
39
<PAGE> 42
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Gold sales (thousands of ounces) - 100% 1,034 978 1,058
Gold revenue realized per ounce $ 391 $ 384 $ 386
Average London PM fix per ounce $ 388 $ 384 $ 384
</TABLE>
Sales - Sales revenue increased in 1996 compared with 1995 primarily because of
increased sales volumes at the Golden Giant mine. An increase in the average
price realized for the sale of gold also contributed to the increase in sales
revenues. Sales volumes increased at the Company's Golden Giant mine in 1996
compared with 1995 because the mine returned to normal operations in 1996. The
mine's production was affected by a thirteen-week strike and a seven-week shut-
down for repairs in 1995. The increase in production at the Golden Giant mine
was partially offset by a decrease in production at most of the Company's other
mines. The Kori Kollo mine production decreased by approximately 28,000 ounces
during 1996 compared with 1995 because of the processing of lower grade ore.
Sales revenue decreased in 1995 compared with 1994 primarily because of
the decrease in sales volumes at the Golden Giant mine resulting from the shut-
downs previously mentioned. This decrease was partially offset by increased
sales volumes from the Kori Kollo mine, the Battle Mountain Complex mines and
the Red Dome mine. Production volumes increased at the Kori Kollo mine in 1995
because of increased mill throughput. Production volumes at the Red Dome mine
and the Battle Mountain Complex increased in 1995 because 1995 was the first
full year of production from new mining areas at those sites.
Production Costs - The Company began reporting its operating costs on the basis
adopted by The Gold Institute in 1996. As a result, in addition to mining,
milling and plant level G&A expenses, cash production costs include royalties,
freight, smelting costs and allowances and production taxes. Credits for by-
product silver and copper are offset against these cash production costs.
Also, under this new North American standard, the Company presents costs on the
basis of cost per ounce of gold sold as opposed to cost per equivalent ounce of
gold produced.
40
<PAGE> 43
CONSOLIDATED PRODUCTION COSTS PER OUNCE
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Direct mining costs $ 215 $ 202 $ 169
Deferred stripping adjustments 2 (1) 1
Third party smelting, refining and transportation
costs 7 8 7
By-product credits included in sales (19) (26) (22)
----- ----- -----
Cash operating costs 205 183 155
Royalties 13 11 11
Production taxes 1 1 2
----- ----- -----
Total cash costs 219 195 168
Depreciation, depletion and amortization 91 87 61
Reclamation and mine closure costs 10 3 3
----- ----- -----
Total production costs $ 320 $ 285 $ 232
===== ===== =====
</TABLE>
RECONCILIATION OF TOTAL CASH COSTS PER OUNCE TO FINANCIAL
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Production costs per financial statements $ 257.2 $ 228.4 $ 204.6
By-product credits included in sales (20.0) (25.3) (23.6)
Operating costs during shut-downs -- (9.1) --
Reclamation and mine closure costs (10.3) (2.8) (3.2)
Other (.2) (.4) --
-------- -------- ------
Production costs for per ounce calculation
purposes $ 226.7 $ 190.8 $ 177.8
======= ======= =======
Gold ounces sold (thousands) 1,034 978 1,058
======= ======= =======
Total cash costs per gold ounce sold $ 219 $ 195 $ 168
======= ======= =======
</TABLE>
Cash production costs increased in 1996 compared with 1995 primarily
because of increased production from the Golden Giant mine and because of
increased costs at the Kori Kollo mine. Production costs increased on a cost
per gold ounce sold basis primarily because of the increased costs and lower
mill ore grades at the Kori Kollo mine, increased costs at the San Luis and
Pajingo mines resulting from these mines reaching the end of their lives and
increased costs at the San Cristobal and Red Dome mines. Costs per ounce sold
increased at the Red Dome mine
41
<PAGE> 44
because of the milling of lower grade ore from stockpiles subsequent to the
completion of mining operations in 1996 at that location.
Cash production costs increased in total and on a per ounce basis in
1995 compared with 1994. Cash production costs increased in total because of
increased production from most of the Company's higher cost mines. Per ounce
costs increased because of increased mining and milling costs and reduced ore
grades at the Golden Giant and Silidor mines in 1995. Total cash production
costs include costs incurred by the Golden Giant mine during the periods that
it was shut down in 1995. These costs were excluded from the cost per ounce
sold calculations.
Depreciation, depletion and amortization (DD&A) increased in total and
on a cost per gold ounce sold basis in 1996 compared with 1995 primarily
because of the earlier than expected completion of mining at the San Luis mine
and a reduction in the estimate of remaining reserves at the Silidor mine. At
both mine sites reserve estimate declines coincided with the Company's nearing
completion of mining efforts, thereby requiring the remaining carrying values
to be amortized over fewer ounces of expected future production. A full year
of normal operation at the Golden Giant mine also contributed to the increase
in total DD&A.
DD&A increased in total and on a per ounce of gold sold basis for 1995
compared with 1994. DD&A increased on a per ounce sold basis primarily because
of the high capital costs incurred to develop new areas at the Red Dome mine
and the Pajingo Complex relative to the amount of production expected from
these new areas. The increase in total DD&A was largely a result of
substantial increases in production and sales from the Red Dome mine, where
production is burdened by a high rate of DD&A.
Reclamation and mine closure costs increased in total and on a cost per
ounce sold basis in 1996 compared with 1995 because of revised estimates of
reclamation and closure costs to be incurred upon completion of mining at the
Kori Kollo, Reona and San Luis mines.
Exploration Costs - Exploration and evaluation expenses increased in 1996
compared with 1995 and 1994. In 1996, the Company expanded its exploration
activities in Australia, Ghana, Indonesia and Bolivia, and also in the vicinity
of currently operating mines (see "-- Liquidity and Capital Resources --
Investing Activities"). Exploration costs in 1996 were reduced by approximately
$5.0 million in gains from the sale of various exploration prospects, including
the Awak Mas prospect in Indonesia and the Glimmer prospect in Ontario, Canada.
Exploration costs in 1995 were reduced by approximately $5.5 million in gains
from the sale of various exploration prospects, consisting of a $4.2 million
gain on the sale of the Plutonic Bore exploration project in Australia and $1.3
million in royalties received from the owner of the Triple P ore deposit (which
project was sold by the Company in 1993). Exploration costs in 1994 were
reduced by approximately $0.8 million in royalties from the owner of the Triple
P ore deposit and a gain of $0.7 million from the sale of a prospect in Chile.
Merger Expenses - The Company incurred approximately $22.7 million related to
the combination of Battle Mountain Gold Company and Hemlo Gold Mines Inc.
("Hemlo Gold") in July 1996.
42
<PAGE> 45
Since the merger was accounted for as a pooling of interests, all merger costs
were charged to expense in 1996.
Asset Write-downs - During the third quarter of 1996, the Company wrote down
the carrying value of the Reona and San Cristobal mines in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121. The write-down of
these properties was prompted by the continuing high operating costs
experienced at these properties, which in turn caused management to prepare
detailed mine studies and to revise mine plans as compared with previous
forecasts. The Reona write-down totaled $17.5 million and the San Cristobal
write-down totaled $17.6 million. In addition to these write-downs, Inti Raymi
wrote off the remaining carrying value of idled oxide assets and accounts
receivable related to take or pay lime purchase contracts and made a provision
for obsolete and slow moving material and supplies inventory items totaling
approximately $3.5 million.
In June 1995, management decided that the Company would dismantle
portions of the milling facility used for the milling of ore from the depleted
Fortitude mine at the Battle Mountain Complex rather than renovate it for use
in the Phoenix project or other possibilities. Consequently, the net carrying
value of this mill and related facilities was written off during June 1995 and
resulted in a charge to operations of approximately $2.2 million. Spare parts
related to this milling facility were rendered obsolete by this decision, and
therefore, $0.9 million was charged to milling and other plant costs.
General and Administrative Costs - The Company's general and administrative
costs are presented on a consolidated basis without reduction for minority
interests and include the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
BMG $ 11.4 $ 11.0 $ 11.4
Inti Raymi 2.3 2.5 1.6
NML 5.3 2.9 2.6
------- ------- -------
Total $ 19.0 $ 16.4 $ 15.6
======= ======= =======
</TABLE>
Restructuring costs totaling approximately $2.0 million were the cause of
the increase in NML's general and administrative expenses in 1996 compared with
1995.
Interest and Other Income - Interest and other income consists primarily of
interest income which decreased in 1996 compared with 1995, and in 1995
compared with 1994 because of lower interest rates and lower average balances
of invested cash.
Interest Expense And Interest Capitalized - Gross interest expense decreased
slightly in 1996 compared with 1995 primarily as the result of the combination
with Hemlo Gold. Cash balances from Hemlo Gold were used to repay outstanding
indebtedness, and cash flow generated from Canadian operations has reduced the
Company's borrowing requirements since the combination.
43
<PAGE> 46
Gross interest expense, including amounts capitalized, increased in 1995
compared with 1994 because of increased borrowings. In 1995, NML borrowed $30
million under a bridge financing in order to purchase an additional interest in
the Lihir project. This borrowing was repaid in December 1995, and all of the
interest expense was capitalized as part of the Lihir investment. Gross
interest expense also increased because of borrowings under the Company's
revolving credit facility during the fourth quarter of 1995, and all interest
related to these borrowings was capitalized as part of the Crown Jewel and
Phoenix projects.
Interest with respect to borrowings attributable to any given project in
the pre-commercial production stage is capitalized. Interest expense would be
expected to increase when any acquisitions or mine development investments
reach the operational stage. The interest cost associated with the 6 percent
convertible subordinated debentures has been and continues to be capitalized as
part of the Lihir investment. The Company expects interest expense to increase
in 1997 because the Lihir project is expected to begin commercial production
during 1997.
Income And Mining Taxes - The Company's provision for income tax expense in
1996 was approximately $37.4 million although the loss before income taxes was
$25.2 million. This indicated 148% effective tax rate was a function of
several factors, including the provision for Canadian income taxes on Canadian
earnings of $18.2 million, the recording of a valuation allowance in the amount
of approximately $10.2 million, the accrual of approximately $7.1 million in
Canadian withholding taxes on distributed and retained earnings of BMC and the
recording of $1.4 million in withholding taxes on earnings from Inti Raymi.
Subsequent to the merger, the Company made the decision to repatriate retained
and future earnings from BMC to the U.S. This decision required the Company to
evaluate the continued realizability of certain tax benefits recognized in 1995
and 1994 in relation to foreign tax credit carryforwards and net operating loss
carryforwards. As a result of this re-evaluation, management determined that a
full valuation allowance was required in relation to these deferred tax assets.
The decision to repatriate Canadian earnings was the result of the Company's
cash needs for funding U.S. development projects and U.S. exploration
activities and for other general purposes.
The Company's effective income tax rate was 18 percent in 1995 compared
with an income tax rate of 31 percent in 1994. The effective income tax rate
for 1995 was affected by the recognition of U.S. deferred tax assets related to
foreign tax credits. The Company previously treated foreign taxes paid as
deductions for U.S. income tax purposes; however, the Company considered it to
be more likely than not that the foreign taxes paid could be utilized as direct
credits, given Inti Raymi's projected net income and ability to remit earnings
in the form of dividends to BMG. The effective income tax rate for 1994 was
influenced by a reduction in the Company's deferred tax valuation allowance.
In 1994, the Company determined that it was more likely than not that
additional deferred tax benefits would be realized from the Company's expected
profitability in 1995.
Income tax expense in 1995 resulted primarily from Canadian income taxes
on Canadian earnings and the accrual of withholding taxes on income from Inti
Raymi.
44
<PAGE> 47
Mining taxes increased in 1996 compared with 1995 and decreased in 1995
compared with 1994. Such fluctuations were a direct result of the
aforementioned Golden Giant mine shut-downs in 1995.
Legislation was recently passed in Bolivia to amend the Bolivian Mining
Code to subject all gold mining operations to an income tax as well as a sliding
royalty on gold sales. Under the new legislation, the royalty will range from
3.5-7 percent, depending on the price of gold; however, income tax incurred at a
rate of 25% will be creditable against the royalty imposed. This legislation
eliminates the Company's exemption from income tax previously granted pursuant
to certain provisions of the Mining Code. The Company does not anticipate that
compliance will have a material adverse effect on the Company's financial
condition, cash flows or results of operations.
Minority Interest In Net (Income) Loss - In 1996, there was a net loss
attributable to minority interests compared with net income attributable to
minority interests in 1995. The net loss attributable to the minority
interests resulted primarily from the $35.4 million loss incurred by NML in
1996. A major factor contributing to NML's net loss was the San Cristobal
impairment charge, of which approximately $8.7 million was attributable to
minority interests. Net income attributable to minority interests increased in
1995 compared with 1994 because of increased profits generated by the Company's
majority-owned subsidiaries, Inti Raymi and NML.
Net Income - The Company incurred a substantial net loss for the year
ended December 31, 1996. The net loss was the result of several factors
including: $22.7 million in merger expenses, $39.9 million in asset
write-downs, a $10.2 million valuation allowance for U.S. income taxes, $7.1
million in Canadian withholding taxes, increased DD&A resulting from the
reduction in estimated reserves at the Silidor and San Luis mines, the
subsequent completion of mining at San Luis and $2.0 million of restructuring
costs incurred by NML.
Net income decreased in 1995 compared with 1994 primarily because of a
decrease in operating income resulting from the shutdown of mining operations
for a total of 20 weeks due to the strike and the shaft repairs at the Golden
Giant mine during 1995. Operating income also decreased in 1995 because of the
write-off of assets at the Battle Mountain Complex as described above and
increased exploration expenditures.
LIQUIDITY AND CAPITAL RESOURCES
Summary - At December 31, 1996, the Company had cash and cash equivalents of
$94.0 million and an additional $9.0 million of restricted cash held by Inti
Raymi for future debt service. Of the $94.0 million, $40.1 million was held by
BMG, $31 million by BMC, $22.1 million by NML, and $0.4 million by Inti Raymi.
Operating Activities - The Company generated cash flow of $56.6 million, $73.9
million and $175.6 million from operating activities for the years ended
December 31, 1996, 1995 and 1994, respectively. The decrease in cash flow from
operating activities in 1996 compared with 1995
45
<PAGE> 48
resulted primarily from the payment of merger expenses and decreased cash flows
at the Kori Kollo mine and at the Company's mines other than Golden Giant. The
decrease in cash flow from operations in 1995 compared with 1994 resulted
primarily from decreased cash flows from the Golden Giant mine.
Investing Activities - Cash used for investing activities decreased to $55.2
million in 1996 after increasing to $145.1 million in 1995 from $95.3 million
in 1994. The Company spent approximately $9.7 million on the Crown Jewel
project, $10.3 million on the Phoenix project and $9.3 million on the Holloway
mine during 1996. The Company spent approximately $67 million on the Lihir
project during 1995. Expenditures in 1995 included the acquisition by NML of
an additional interest in the Lihir Joint Venture (see "Investing Activities -
Lihir Project" below). No such investment in Lihir was required in 1996.
In 1995, in addition to the investment in Lihir, the Company spent a
total of approximately $25 million at the Kori Kollo mine for capital
expenditures and approximately $16.7 million for the development of the
Holloway mine. Capital expenditures at the Kori Kollo mine in 1995 included
approximately $6.3 million for the recovery enhancement system and $1.4 million
for the tailings treatment facility. The Company spent a total of
approximately $15.1 million on the recovery enhancement system and
approximately $5.9 million on the tailings treatment facility. The remaining
amount of approximately $17 million spent in 1995 at the Kori Kollo mine was
primarily on various dewatering system projects and on the purchase of haul
trucks and other mining equipment.
The Company has included $54.2 million for capital expenditures in its
1997 business plan. The plan includes $10.1 million for development of Block 5
and the #7 ore pass at the Golden Giant mine and $10.2 million, $13.4 million
and $6.1 million for development of the Phoenix, Pajingo (Vera/Nancy deposits)
and Crown Jewel projects, respectively. Of the total 1997 projected
expenditures, 57 percent is expected to be spent in North America, 14 percent
in Latin America and 29 percent in the South Pacific, primarily Australia.
Phoenix Project - The Phoenix project is located in the Copper Canyon
area of the Battle Mountain Complex. Environmental permitting is proceeding
and a Final Environmental Impact Statement is expected to be issued by the end
of 1997 with anticipated commencement of construction in the spring of 1998.
An analysis of all the data obtained through the end of 1996 indicates that the
ore body could sustain a milling rate of 14,000 tons per day. The estimated
capital cost to develop a mine and build a mill and supporting infrastructure
for an operation of this size would be in the range of approximately $150
million. A series of alternatives are being investigated in an attempt to
decrease the capital cost of the project. The Company has spent $17.5 million
on the development of this project through December 31, 1996.
Crown Jewel Project - The Company expects to construct a 3,000 ton per
day milling facility with possible start-up in the spring of 1999, depending on
the impact of potential legal appeals and the time it will take to complete the
permitting process. The Final Environmental Impact Statement (EIS) was issued
in February 1997. The process of obtaining the numerous permits required to
begin development and construction of the mine is underway. There may be
46
<PAGE> 49
appeals made related to the EIS and the permitting process and the impact and
exact timing for resolution of these appeals is difficult to predict.
To earn a 54 percent ownership interest in the Crown Jewel project, BMG
has agreed to fund all expenditures for exploration, evaluation and development
of the project through commencement of commercial production. The minority
partner will not reimburse BMG for any portion of funding provided through the
commencement of commercial production. The total estimated cost of acquisition
and development of the Crown Jewel project is approximately $142 million,
excluding capitalized interest. As of December 31, 1996, $63.8 million ($55
million of which has been capitalized) has been spent.
Lihir Project - The Company holds an indirect interest in the Lihir
project through its 50.5 percent ownership of NML, which in turn now owns 17.15
percent of Lihir Gold Limited ("LGL"). LGL is now developing and constructing
the Lihir project in Papua New Guinea. Work is progressing on the construction
of the mining facilities and the production of oxide ore is expected to commence
in mid-1997. LGL's manager estimates that the total initial capital cost of the
Lihir project will be approximately 10% higher than the $673 million estimate
prepared prior to the initial public offering in 1995, in each case excluding
$147 million in exploration and pre-development costs expended by the Joint
Venture participants. Notwithstanding this increase, LGL's manager is confident
that it will have sufficient funds from cash on hand, cash flow from operations
and existing committed borrowing facilities to complete construction of the
Lihir project.
Financing for the Lihir project involved bank debt facilities and an
initial public offering of common stock of LGL. The initial public offering
was completed on October 6, 1995. In connection with the LGL debt financing,
NML has guaranteed, until project completion, 30 percent of LGL's obligations
under the facility (which obligations include up to $300 million of senior
facility debt, up to $10 million of subordinated debt incurred to fund the
purchase of instruments required in connection with hedging activities and up
to $50 million of potential liabilities under hedging arrangements). Neither
BMG nor its non-NML subsidiaries have any obligation or liability under this
guarantee. As of December 31, 1996, LGL has drawn approximately $60 million
under this debt facility. In addition, NML has pledged its LGL shares as
security under the facility until project completion.
As of December 31, 1996, the carrying value of the Company's investment
in the Lihir project was approximately $231 million. NML's interest in LGL is
accounted for using the equity method of accounting.
New World Project - In 1993, several special interest groups filed a
complaint in U.S. District Court against Crown Butte Resources Ltd. ("Crown
Butte"), a Canadian corporation in which the Company owns a 60% interest, and
others, alleging that certain discharges from the Crown Butte controlled New
World site were in violation of the federal Clean Water Act. On October 13,
1995, the District Court found Crown Butte, and other defendants, liable for
violations of the Clean Water Act. As a result of that ruling, Crown Butte and
other defendants may be liable for costs of remediation, civil penalties and
attorneys fees. It is not possible to predict the amount of such liability at
this time. Additionally, the federal judge hearing the case has stayed all
matters in the case in light of the August 12, 1996, Agreement between Crown
Butte, the United States and certain special interest groups (the "August
Agreement"). The August Agreement provides a framework for Crown Butte to
exchange property interests within the New World Mining District near
Yellowstone National Park for government owned property interests or assets
having a value
47
<PAGE> 50
of $65 million. The August Agreement also provides that, subsequent to the
exchange, Crown Butte would set aside $22.5 million in an escrow account for
reclamation and restoration purposes in the New World District. The Company
has announced that it would vote its sixty percent interest in Crown Butte in
favor of the August Agreement. Pursuant to the August Agreement, Crown Butte
has suspended permitting efforts pending the completion of the exchange. The
completion of the exchange would result in the settlement of litigation under
the Clean Water Act and releases between the parties as to any further
environmental liabilities. The agreement contains a number of conditions
including acquisition of certain property interests by Crown Butte,
governmental identification and acceptance by Crown Butte of the exchange
properties and subsequent approval of the exchange by the requisite number of
Crown Butte shareholders. Crown Butte has the ability to withdraw from the
agreement at certain times in the event that the U.S. government has not
identified exchange properties acceptable to Crown Butte and if the U.S.
government does not transfer the exchange property within a set period of time.
Failure to complete the exchange would result in the Clean Water action
proceeding.
Exploration - The Company currently estimates that it will spend approximately
$35 million on its 1997 exploration programs in search of potential additional
mineral deposits. Of this amount, 31 percent is budgeted to be spent in North
America, 23 percent in Central and South America, 29 percent in the western
Pacific and Africa. The remaining 17 percent of the budgeted amount is
earmarked for evaluation of yet to be identified exploration opportunities
worldwide. During 1996, the Company spent approximately $38.5 million on
exploration and evaluation activities.
Financing Activities - The Company canceled its previously existing revolving
credit agreement in the third quarter of 1996 and is currently negotiating with
a syndicate of banks to put in place a new $150 million credit facility. BMC
currently has a line of credit in place with a Canadian bank in the amount of
C$40 million and US$5 million.
BMG's majority-owned Bolivian subsidiary, Inti Raymi, borrowed funds
from three international agencies under three separate but coordinated
financing facilities that provided most of the funding necessary for the
development of the Kori Kollo mine. Each of these facilities imposes
restrictions on dividend payments and loan repayments by Inti Raymi to its
shareholders and limits additional fixed asset purchases or dispositions, debt
and liens. As of February 28, 1997, Inti Raymi owed an aggregate of $52.2
million under these facilities. The International Finance Corporation (IFC)
facility includes a $5 million convertible loan payable on March 1, 2002, which
may be converted at any time, at the IFC's option, into a 3.98 percent
ownership interest in Inti Raymi. Other than the convertible portion, loans
under the facilities are to be repaid in semi-annual installments which
commenced in December 1994 and will continue through June 2000. Certain
prepayments would be required in the event of substantial Kori Kollo reserve
losses or significantly improved gold prices. Subject to other restrictions in
the financing agreements and general operating needs, Inti Raymi may generally
pay dividends. In 1996, Inti Raymi paid dividends of $17 million to its
shareholders ($15 million to BMG).
The Company does not expect NML to pay dividends currently because of
NML's other business commitments and plans for its working capital.
48
<PAGE> 51
Conclusion - The Company expects the cash currently held along with cash flows
from operations to be adequate to meet its future cash needs.
Government Regulation - All of the Company's mining and processing operations
are subject to reclamation and closure requirements. The Company monitors such
requirements and periodically revises its cost estimates to meet the legal and
regulatory requirements of the various jurisdictions in which it conducts its
business. Where possible, plans for ongoing operations and future mine
development are implemented in a manner that contributes to the fulfillment of
reclamation and closure obligations in a cost effective manner through the
conduct of ongoing operating activities. Costs estimated to be incurred in
future periods which cannot be addressed in this manner are charged to
operations through provisions based on the units of production method such that
the estimated cost of ultimate reclamation is fully provided for by the time
mineral reserves are depleted. The timing of actual cash expenditures for
reclamation may be accelerated or deferred depending on cost and other
determinations which may make such decisions prudent in the circumstances. The
Company believes that these policies and practices adequately address its
reclamation obligations and provide a systematic and rational method of
charging such costs to operations consistent with industry practice. Although
the ultimate amount of the obligations to be incurred is uncertain, the Company
estimated these future costs to be approximately $44.6 million at December 31,
1996, of which $14.2 million had been accrued and included in long-term
liabilities in the Company's consolidated balance sheet.
Legislative amendment of the General Mining Law, under which the Company
holds claims on public lands in the U.S., could take place in 1997. Among
other things, such legislation could impose a royalty on production from public
lands. Approximately 40 percent of the Reona reserves, 23 percent of Phoenix
project reserves and 80 percent of the Crown Jewel ore body are on public
lands. However, a First Half - Mineral Entry Final Certificate has been issued
with respect to the unpatented portion of the Crown Jewel ore body and mineral
surveys have been completed for the claims constituting the unpatented portion
of the Reona and Phoenix project reserves. The Company cannot predict whether
existing law will be amended, the extent of such amendment or the impact of any
such change on its U.S. activities. However, the passage of legislation that
can be reasonably anticipated is not expected to render uneconomic any of the
Company's existing operating mines or development projects, assuming current
gold prices.
The Company has investigated the discharge to groundwater of chloride
(salt) from the tailings facility at the Battle Mountain Complex. This
facility was unlined at the time it was constructed in keeping with then-
accepted practice. The Company is continuing to evaluate mitigation
alternatives to achieve applicable standards. The Company currently expects
to achieve the applicable standards by utilizing the high chloride water in
connection with its proposed Phoenix operation. Pursuant to the State-issued
Water Pollution Control Permit covering the site, the Company has prepared,
submitted and implemented a work plan for further investigation of groundwater
in a highly mineralized area where sampling has indicated that the groundwater
is acidic and high in metals. Due to the preliminary nature of this
investigation, it is not possible to estimate what, if any, remediation might
be required with respect to this area.
49
<PAGE> 52
In Bolivia, new environmental regulations to implement federal
legislation passed in 1992 became effective in December 1995. The new
regulations generally require obtaining environmental licenses for both
existing and new projects, including where needed, the preparation of
environmental impact studies, set air and water quality discharge standards,
provide protocols for dealing with and remediating the effects on the
environment of hazardous substances, set site environmental management
standards and provide procedures and schedules for existing operations to come
into compliance. Such regulations contain new environmental standards and
requirements applicable to the Company's Kori Kollo project which, depending on
how the regulations are implemented and interpreted, could require expenditures
and changes in operations, and it is possible that such expenditures and
changes could have a material adverse effect on the Company's financial
condition, cash flows or results of operations. As contemplated by the
requirements for existing operations, the Company has commenced preparation of
an Environmental Statement which will describe and evaluate the operation under
the new regulations. Based on the Company's evaluation of the data collected
to date and assuming reasonable interpretation and implementation of the
regulations, the Company does not anticipate that compliance will have a
material adverse effect on the Company's financial condition or results of
operations.
Forward Sales and Hedging - The Company has limited involvement with derivative
financial instruments and does not use them for trading purposes. They are
used to manage well-defined interest rate, foreign currency exchange rate and
commodity price risks.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. At December 31,
1996, Inti Raymi was party to three interest rate cap agreements which were
effective June 1, 1994, each with a term of three years. The agreements
entitle Inti Raymi to receive from counterparties, on a quarterly basis, the
amounts, if any, by which Inti Raymi's interest payments on a portion of its
LIBOR based floating-rate Kori Kollo project financing exceed various fixed
rates over the term of the caps. The net unamortized cost of the premiums paid
for these caps, amounting to $0.2 million at December 31, 1996, has been
included in other assets. Since the interest rate caps were put in place, the
Company has amortized approximately $0.5 million of such premiums and has
received approximately $0.2 million in settlement of expiring caps.
The Company uses fixed forward sales contracts, spot deferred sales
contracts and put options to hedge anticipated sales of gold, silver and
copper. The following table summarizes the Company's forward sales contracts
at December 31, 1996:
50
<PAGE> 53
<TABLE>
<CAPTION>
Average Price
Amount Per Unit Period
---------- ------------------ ---------------------
<S> <C> <C> <C>
BMG
Forward sales contracts
Gold 91,000 oz US$411 Jan 97 - Jul 97
NML
Forward sales contracts
Gold 42,000 oz A$570 Jan 97
34,000 oz US$402 Jan 97
Copper 2,000 tonnes US$1,851 Feb 97
</TABLE>
At December 31, 1996, the aggregate amount by which the net market value
of the Company's open forward sales contracts is greater than the spot price of
$369 per ounce of gold and $1,832 per tonne of copper was $8.4 million, of
which $2.3 million is attributable to minority interests. Australian dollar
contracts were converted to U.S. dollars at the December 1996 month end
exchange rate of US$0.79 to A$1.
At December 31, 1996, the Company had outstanding the following forward
currency contract:
<TABLE>
<CAPTION>
Amount Covered Average Exchange
Currency (U.S. Dollars) Rate to U.S Dollars Expiration Date
-------- -------------- ------------------- ---------------
<S> <C> <C> <C>
Canadian Dollars $98.6 million $1.36 Jan 1997
</TABLE>
The Company is exposed to credit-related losses in the event of
nonperformance by the counterparties to its interest rate caps, forward sales
contracts and forward currency contracts, but does not expect any
counterparties to fail to meet their obligations. The Company does not obtain
collateral or other security to support financial instruments subject to credit
risk but monitors the credit standing of counterparties.
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 continues to expand and geographically
diversify its resource base through the exploration, acquisition, development
and exploitation of foreign gold reserves. The identifiable assets
attributable to operations of the Company outside the U.S. and Canada as of
December 31, 1996, were approximately $592.6 million and mining operations
outside the U.S. and Canada represented approximately 51 percent of the total
gross revenues of the Company for the year ended December 31, 1996. As a
result, the Company is exposed to risks normally associated with operations
located outside the U.S. and Canada, including political, economic, social and
labor instabilities, as well as foreign exchange controls, currency
fluctuations and taxation changes.
51
<PAGE> 54
In Bolivia, presidential and congressional elections are scheduled for
mid-1997. Under the Bolivian constitution, a sitting president cannot serve
consecutive terms. Therefore, a change in administration will occur in 1997.
The current administration has initiated far reaching programs to decentralize
central government's authority, to decentralize the distributions of the tax
revenues, to reform the education and tax system and to promote private
ownership of previously state-owned companies. While the Company believes
these reforms are beneficial to the Bolivian people and the Bolivian economy,
it is difficult to predict the ultimate impacts of these and associated
reforms, and a change in administration, on the Company's Bolivian operations.
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.
Inflation and Changing Prices - Gold production costs and corporate expenses
are subject to normal inflationary pressures, which, to date, have not had a
significant impact on the Company. The Company's results of operations and
cash flows are affected by fluctuations in the market prices of gold, silver
and copper, and to a lesser extent by changes in foreign currency exchange
rates.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The U.S. securities laws provide a "safe harbor" for certain forward-looking
statements. This annual report contains forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected in such forward-looking statements. Statements
regarding the expected commencement dates of mining operations, projected
quantities of future production, capital costs, production rates, costs and
expenditures and other operating and financial data are based on expectations
that the Company believes are reasonable, but it can give no assurance that
such expectations will prove to have been correct. Factors that could cause
actual results to differ materially include, among others: risks and
uncertainties relating to general domestic and international economic and
political conditions, the cyclical and volatile prices of gold, silver and
copper, political and economic risks associated with foreign operations,
unanticipated ground and water conditions, unanticipated grade and geological
problems, metallurgical and other processing problems, availability of
materials and equipment, the delays in the receipt of or failure to receive
necessary governmental permits, changes in laws or regulations or the
interpretation and enforcement thereof, the occurrence of unusual weather or
operating conditions, force majeure events, lower than expected ore grades, the
failure of equipment or processes to operate in accordance with specifications
or expectations, labor relations, accidents, delays in anticipated start-up
dates, environmental risks, the results of financing efforts and financial
market conditions. These and other risk factors are discussed in more detail
herein. Many of such factors are beyond the Company's ability to control or
predict. Readers are cautioned not to put undue reliance on forward-looking
statements. The Company disclaims any intent or obligations to update these
forward-looking statements, whether as a result of new information, future
events or otherwise.
52
<PAGE> 55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
I. Battle Mountain Gold Company
Reports of Independent Accountants. . . . . . . . . . . . . . . 54-55
Consolidated Statement of Operations . . . . . . . . . . . . . 56
Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . . 57
Consolidated Statement of Shareholders' Equity. . . . . . . . . 58
Consolidated Statement of Cash Flows. . . . . . . . . . . . . . 59
Notes to Consolidated Financial Statements. . . . . . . . . . . 60
Supplemental Financial Information (Unaudited). . . . . . . . . 86
II. Lihir Gold Limited (A Development Stage Company)
The financial statements of Lihir Gold Limited, as required
by Rule 3-09(b) of the Securities Exchange Act of 1934,
will be filed through amendment to this Form 10-K within
180 days of December 31, 1996, pursuant to Financial
Reporting Release No. 44.
53
<PAGE> 56
Report of Independent Accountants
To the Board of Directors and Shareholders
of Battle Mountain Gold Company
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements of Battle Mountain Gold Company listed in the
index appearing under Item 14(a)(1) on page 88 present fairly, in all material
respects, the financial position of Battle Mountain Gold Company and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of Hemlo
Gold Mines Inc., which statements reflect total assets of $392 million at
December 31, 1995, and total revenues of $102 million and $187 million for the
years ended December 31, 1995 and 1994, respectively. Those statements were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for
Hemlo Gold Mines Inc., is based solely on the report of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Houston, Texas
February 28, 1997
54
<PAGE> 57
Report of Independent Chartered Accountants
To the Shareholders of
HEMLO GOLD MINES INC.
We have audited the consolidated balance sheet of Hemlo Gold Mines Inc. as at
December 31, 1995 and the consolidated statements of earnings and retained
earnings and cash flows for the two year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1995 and the results of its operations and the changes in its financial
position for the two year period ended December 31, 1995 in accordance with
accounting principles generally accepted in Canada.
Toronto, Canada Ernst & Young
February 8, 1996 Chartered Accountants
55
<PAGE> 58
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
--------------------------------------
(Expressed in millions except
per share amounts)
<S> <C> <C> <C>
SALES $424.0 $401.2 $430.4
------ ------ ------
COSTS AND EXPENSES
Production costs 257.2 228.4 204.6
Depreciation, depletion and amortization 94.2 86.5 76.4
Exploration, evaluation and other lease costs, net 33.5 23.9 23.3
Merger expense (Note 2) 22.7 -- --
Asset write-downs (Note 5) 39.9 2.2 --
General and administrative expenses 19.0 16.4 15.6
------ ------ ------
Total costs and expenses 466.5 357.4 319.9
------ ------ ------
OPERATING INCOME (LOSS) (42.5) 43.8 110.5
------ ------ ------
Interest and other income (Note 10) 8.2 11.8 11.1
Interest expense (13.3) (16.2) (14.1)
Interest capitalized (Note 3) 6.4 8.6 6.4
------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (41.2) 48.0 113.9
Income tax expense (Note 8) (37.4) (7.5) (33.4)
Mining taxes (Note 8) (11.7) (4.7) (19.4)
Minority interest in net (income) loss 16.0 (6.1) (4.4)
------ ------ ------
NET INCOME (LOSS) (74.3) 29.7 56.7
Preferred dividends 7.5 7.5 7.5
------ ------ ------
NET INCOME (LOSS) TO COMMON SHARES $(81.8) $ 22.2 $ 49.2
====== ====== ======
NET INCOME (LOSS) PER SHARE: $ (.36) $ .10 $ .21
====== ====== ======
DIVIDENDS PER COMMON SHARE $ .07 $ .08 $ .13
====== ====== ======
AVERAGE COMMON SHARES OUTSTANDING FOR
INCOME PER SHARE PURPOSES $229.6 $233.4 $229.4
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE> 59
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
ASSETS (Expressed in millions)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 94.0 $ 132.5
Restricted cash (Note 1) 9.0 9.7
Accounts receivable 48.7 30.6
Product inventories 10.4 6.3
Materials and supplies inventories 28.9 31.7
Other current assets 12.7 13.0
-------- --------
Total Current assets 203.7 223.8
-------- --------
Investments (Note 3) 248.8 247.1
Property, plant and equipment, net (Note 4) 565.4 637.7
Other assets 19.0 33.3
-------- --------
Total assets $1,036.9 $1,141.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 21.8 $ 14.8
Current maturities of long-term debt (Note 6) 13.6 13.4
Accounts payable and accrued liabilities 24.5 21.8
Interest payable 6.9 7.2
Salaries, wages and benefits payable 13.3 5.9
Income and mining taxes payable (Note 8) 18.1 10.4
Other current liabilities 6.1 5.0
-------- --------
Total current liabilities 104.3 78.5
-------- --------
Long-term debt (Note 6) 139.2 169.2
Deferred income and mining taxes (Note 8) 106.9 106.7
Deferred mine reclamation and closure costs 20.2 13.2
Other liabilities 20.8 21.3
-------- --------
Total liabilities 391.4 388.9
-------- --------
Minority interest 107.2 123.6
-------- --------
Commitments and Contingencies (Note 14) -- --
SHAREHOLDERS' EQUITY: (NOTE 7)
Convertible preferred stock, $1.00 par value:
Authorized - 50,000,000 shares; issued and outstanding,
1996 and 1995 - 2,299,980 shares 110.6 110.6
Common stock, $.10 par value:
Authorized - 500,000,000 shares; issued and outstanding,
1996 - 229,588,170 shares and 1995 - 229,108,142 shares 11.3 8.1
Additional paid-in capital 344.2 344.0
Retained earnings 87.6 184.8
Cumulative foreign currency translation adjustment (15.4) (18.1)
-------- --------
Total shareholders' equity 538.3 629.4
-------- --------
Total liabilities and shareholders' equity $1,036.9 $1,141.9
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE> 60
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Expressed in millions)
<TABLE>
<CAPTION>
Additional Currency Total
Preferred Common Paid-in Retained Translation Shareholders'
Shares Shares Capital Earnings Adjustment Equity
--------- ------ --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993, as previously
reported $ 110.6 $ 8.0 $ 202.0 $ 52.3 $ (3.3) $ 369.6
Pooling of interests with Hemlo Gold
Mines Inc. - - 116.2 108.3 (11.1) 213.4
-------- ------ -------- ------- ------- --------
December 31, 1993 as restated 110.6 8.0 318.2 160.6 (14.4) 583.0
Shares issued - 0.1 6.2 - - 6.3
Exercise of NML options - - (1.2) - - (1.2)
Shares issued in exchange
for shares of Freewest
Resources Inc. - - 27.6 - - 27.6
Net income - - - 56.7 - 56.7
Common stock dividends - - - (28.7) - (28.7)
Preferred stock dividends - - - (7.5) - (7.5)
Currency translation adjustments - - - - (9.6) (9.6)
-------- ------ -------- ------- -------- ------
December 31, 1994 110.6 8.1 350.8 181.1 (24.0) 626.6
Shares issued - - 2.0 - - 2.0
Exercise of NML options - - (2.2) - - (2.2)
LGL equity offering - - (6.6) - - (6.6)
Net income - - - 29.7 - 29.7
Common stock dividends - - - (18.5) - (18.5)
Preferred stock dividends - - - (7.5) - (7.5)
Currency translation adjustments - - - - 5.9 5.9
-------- ------ --------- ------- -------- --------
December 31, 1995 110.6 8.1 344.0 184.8 (18.1) 629.4
Shares issued - - 3.4 - - 3.4
Shares exchanged - 3.2 (3.2) - - -
Net loss - - - (74.3) - (74.3)
Common stock dividends - - - (15.4) - (15.4)
Preferred stock dividends - - - (7.5) - (7.5)
Currency translation adjustments - - - - 2.7 2.7
======== ======= ========= ======= ======== ========
December 31, 1996 $ 110.6 $ 11.3 $ 344.2 $ 87.6 $ (15.4) $ 538.3
======== ======= ========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
58
<PAGE> 61
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------- ------
(Expressed in millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(74.3) $ 29.7 $ 56.7
------ ------ ------
Adjustments to reconcile net income (loss)
to cash flows from operating activities:
Depreciation, depletion and amortization 94.2 86.5 76.4
Gain from sales of assets (0.2) (5.2) (0.9)
Asset write-downs (Note 5) 39.9 2.2 --
Increase in accrued reclamation costs 7.0 .9 2.4
Loss on foreign currency transactions 2.2 .4 2.1
Net change in working capital accounts (Note 16) (5.4) (44.1) 37.7
Increase in non-current portion of deferred mining costs (0.7) (2.3) (6.6)
Deferred income tax (benefit) expense 10.8 (1.3) 1.8
Minority interest in net income (loss) (16.0) 6.1 4.4
Other changes, net (0.9) 1.0 1.6
------ ------ ------
TOTAL ADJUSTMENTS 130.9 44.2 118.9
------ ------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES 56.6 73.9 175.6
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets .9 5.6 .3
Acquisition of minority interest -- -- (5.2)
Capital expenditures (57.0) (144.6) (90.1)
Increase in cash held in escrow (.3) (5.0) --
Other, net 1.2 (1.1) (.3)
------ ------ ------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (55.2) (145.1) (95.3)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from stock issuances 2.5 19.9 6.6
Cash proceeds from borrowings 18.7 73.9 --
Increase (decrease) in short term borrowings 8.8 -- --
Cash dividend payments (22.6) (26.0) (36.2)
Debt repayments (50.4) (77.0) (31.4)
(Increase) decrease in restricted cash (Note 1) .7 (.9) (8.1)
Other, net .2 (.1) (.1)
------ ------ ------
NET CASH FLOWS USED IN FINANCING ACTIVITIES (42.1) (10.2) (69.2)
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2.2 4.4 (8.6)
------ ------ ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (38.5) (77.0) 2.5
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 132.5 209.5 207.0
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 94.0 $132.5 209.5
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
59
<PAGE> 62
BATTLE MOUNTAIN GOLD COMPANY
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Nature of Operations - Battle Mountain Gold Company ("BMG") and its
subsidiaries (collectively the "Company") are engaged in the mining and
processing of gold, silver and copper ore in the United States, Canada,
Bolivia, Chile and Australia and in the exploration and evaluation of precious
metals properties, primarily in Latin America, the western Pacific, Canada,
Australia and the United States. BMG was incorporated in Nevada in 1985.
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of BMG and its wholly-owned and majority-owned
subsidiaries. All significant intercompany investments, accounts and
transactions have been eliminated in consolidation. Consistent with accepted
mining industry practices, interests in unincorporated mining joint ventures
are reported using the proportionate consolidation method whereby the Company
reports its proportionate share of assets, liabilities, revenue and expenses.
Estimates, risks and uncertainties - The presentation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the related reported amounts of
revenues and expenses during the reporting period. The more significant areas
requiring use of estimates relate to mineral reserves, reclamation and
environmental obligations, postretirement and other employee benefit
liabilities, valuation allowances for deferred tax assets, fair value of
financial instruments and future cash flows associated with assets. Actual
results could differ from these estimates. Management believes that the
estimates are reasonable.
Realization of the Company's assets is subject to various risks
including permitting of the Company's new mines, reserves estimation, gold
prices and environmental factors.
Cash and Cash Equivalents - The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents. Bullion and bullion settlements receivable are included as
cash equivalents because they are readily convertible into known amounts of
cash through forward sales transactions.
Restricted Cash - At December 31, 1996 and 1995, the Company held $9.0 million
and $9.7 million, respectively, in a debt reserve account in The Bank of New
York for payment of interest and principal obligations related to the Companys'
Kori Kollo project financing (Note 6). For purposes of the Statement of Cash
Flows, the movement on this account has been considered a financing activity.
60
<PAGE> 63
Revenue Recognition - Revenue is recognized when dore (a combination of gold
and silver) reaches saleable form or when concentrates are delivered against
sales agreements or contracts and risk of loss passes to the buyer.
Accounts Receivable - Accounts receivable at December 31, 1996 and 1995 include
other receivables of approximately $6.9 million and $7.7 million, respectively,
relating to Value Added Tax (VAT) credit and import duty receivables due from
the Bolivian government.
Product Inventories - Generally, inventories, consisting of gold, silver and
copper, are reported at the lower of cost or net realizable value, using the
first-in, first-out method. Gold produced by the Company's Golden Giant mine
is valued at estimated net realizable value when it reaches a saleable form.
Materials and Supplies Inventories - Inventories of materials and supplies are
valued at the lower of average cost or estimated net realizable value.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Expenditures for development of new mines and major development
expenditures at existing mines, which are expected to benefit future periods,
are capitalized. Exploration and development costs expended to maintain
production at operating mines are charged to expense as incurred. In certain
cases, mining costs associated with waste rock removal are deferred as
development costs and charged to operations on the basis of the average
stripping ratio over the life of the mine.
Other property, plant and equipment includes capitalized lease costs and
mine development costs for projects in progress. Capitalized exploration costs
are evaluated on an annual basis and costs attributable to unproductive
projects are charged directly to abandonment expense.
Generally, depreciation, depletion and amortization of mining properties
and related assets is determined using the units of production method based
upon estimated recoverable ore reserves. However, assets having an estimated
life less than the estimated life of the associated mineral deposits are
depreciated on a straight-line basis over the expected life of the asset.
Impairment of Long-Lived Assets - In 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (Note 5).
SFAS No. 121 prescribes that an impairment loss is recognized in the event
facts and circumstances indicate that the carrying amount of an asset may not
be recoverable, and an estimate of future undiscounted cash flows is less than
the carrying amount of the asset. Impairment is recorded based on an estimate
of future discounted cash flows.
Investments - Investments in companies owned 20 percent to 50 percent, or where
the Company has the ability to exercise significant influence, are accounted
for using the equity method. Other investments, consisting of investments in
non-marketable securities of companies in which it owns less than a 20 percent
interest and does not have the ability to exercise significant
61
<PAGE> 64
influence, are recorded at the lower of cost or market. Where a decline in the
value of an investment is other than temporary, the investment is written down
by a charge against earnings.
Exploration and Evaluation Expenditures - With the exception of lease
acquisition costs incurred to acquire mineral rights, the Company charges all
exploration and pre-development evaluation expenditures to expense as incurred
prior to delineation of economic mineralization. Exploration costs incurred
subsequent to delineation of economic mineralization are capitalized.
Capitalization of Operating Results During Mine Development - The Company
considers a mine to be in commercial production after the mine has operated at
60% or more of expected capacity for three consecutive months. During pre-
commercial production periods, operating costs may exceed revenues earned from
the sale of precious metals produced, in which case all such costs incurred,
net of revenues earned, are capitalized as property costs.
Capitalization of Interest - Interest expense incurred attributable to pre-
commercial production stage projects is capitalized until those projects
commence commercial production.
Reclamation and Closure Costs - Reserves for estimated future reclamation and
closure costs of the Company's operating sites are accrued on a units of
production basis over the estimated lives of the respective mines. These costs
are charged to milling and other plant costs as accrued (see Note 14).
Income and Mining Taxes - The Company accounts for income taxes under SFAS No.
109, "Accounting for Income Taxes." The provision for income taxes includes
federal, state, and foreign income taxes currently payable and deferred based
on currently enacted tax laws. Deferred income taxes are provided for the tax
consequences of differences between the financial statement and tax bases of
assets and liabilities. Mining taxes primarily represent Canadian taxes levied
on mining operations.
Stock-Based Compensation - The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." In 1996, the Company adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation" (see Note 11).
Accordingly, no compensation cost was recorded for employee-based compensation
plans. However, the Company uses SFAS No. 123 in accounting for non-employee
stock-based compensation (see Note 11).
Currency Translation - Amounts in foreign currencies are translated into U.S.
dollars using the translation procedures specified in SFAS No. 52. When local
functional currency is translated to U.S. dollars, the effects are recorded as
a separate component of Shareholders' Equity. For foreign subsidiaries with
U.S. dollar functional currency, the effects of remeasurement are included in
income. Exchange gains and losses arising from transactions denominated in a
foreign currency are translated at average exchange rates and included in
income.
62
<PAGE> 65
Income (Loss) Per Share - Income (loss) per share is computed by dividing net
income (loss) attributable to common shareholders by the weighted average
number of common shares outstanding for the year, adjusted for common stock
equivalents, if dilutive. Fully diluted income (loss) per share is not
presented for any year because the effect of other dilutive securities would be
antidilutive.
Issuance of Stock by Subsidiaries - The issuance of stock by subsidiaries is
accounted for as a capital transaction in the consolidated financial
statements.
Hedging Transactions - In the normal course of business, the Company may use
derivative and financial instruments to reduce commodity price, foreign
currency exchange rate and interest rate risks. The Company does not hold or
issue derivative instruments for trading purposes.
The Company uses fixed forward sales contracts, spot deferred sales
contracts and put options to hedge anticipated sales of gold, silver and
copper.
Spot deferred sales contracts allow the Company to defer the delivery of
gold under the contract to a later date at the original contract price plus the
prevailing premium at the time of the deferral, as long as certain conditions
are satisfied. Although spot deferred sales contracts could limit amounts
realizable during a period of rising prices, the Company may, and generally
does, "roll forward" its spot deferred contracts to future periods in order to
realize current market price increases, while maintaining future downside
protection.
Gains, losses or expenses related to fixed forward and spot deferred
sales contracts for the sale of its produced metals are netted against revenue
when the hedged production is sold. The Company may also purchase put options
for the sale of its produced metals. The premiums paid for the acquisition of
put options are netted against revenue in the period of expiry.
Premiums paid for purchased interest rate caps are amortized as interest
expense over the terms of the interest rate cap agreement. Unamortized premiums
are included in other assets in the consolidated balance sheet. Gains (losses)
under cap agreements are accrued as a reduction of (increase to) interest
expense.
Gains and losses on transactions involving foreign exchange contracts
designated as hedges of existing assets and liabilities are deferred as
exchange rates change and recognized in income as foreign currency exchange
gains (losses) when the underlying transactions are realized. Gains and losses
on contracts designated as hedges of net investments in foreign subsidiaries
are deferred as exchange rates change and recognized in Shareholders' Equity as
foreign currency translation adjustments when the underlying transactions are
realized. Amortization of the discount or premium on such contracts is
recognized in Shareholders' Equity as foreign currency translation adjustments
over the life of the contract.
Reclassifications - Certain prior-period amounts have been reclassified in the
consolidated financial statements in order to conform with current year
classification.
63
<PAGE> 66
Note 2. Combination and Acquisitions
Merger with Hemlo Gold Mines Inc. - On July 19, 1996, BMG combined with Hemlo
Gold Mines Inc. (now known as Battle Mountain Canada, Ltd. ("BMC")), a precious
metals mining company engaged in the mining and processing of gold ore in
Canada and the exploration and development of precious metals properties in
Canada, the United States, Australia, Mexico, Chile and Ghana, through a merger
which resulted in BMC becoming a wholly-owned subsidiary of BMG. Pursuant to
the combination agreement, each holder of BMC Common Shares received 1.48
Exchangeable Shares for each BMC Common Share held (see Note 7). The
combination was accounted for as a pooling of interests, and accordingly, the
accompanying consolidated financial statements have been restated to include
the accounts and operations of BMC for all periods prior to the merger.
Merger costs of approximately $22.7 million were charged to expense in the
third and fourth quarters of 1996.
In connection with the BMC merger, the method used by BMC to account for
income taxes was conformed to that used by BMG. A conforming adjustment of
approximately $12.3 million was retroactively made to the December 31, 1995
consolidated balance sheet of BMG to gross up the purchase price of BMC's 1994
Freewest Resources Inc. acquisition for related deferred taxes as required by
SFAS No. 109. All other adjustments are reclassifications solely to conform
financial statement presentation. BMG and BMC had no significant intercompany
transactions prior to the merger.
There were no conforming adjustments required to reconcile the
previously separate results of operations of BMG and BMC to the restated
combined results, as evidenced below (expressed in millions):
<TABLE>
<CAPTION>
For the year ended Six months ended
December 31 June 30,
------------------ ----------------
1995 1994 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
BMG $299.3 $243.0 $140.4
BMC 101.9 187.4 85.0
------ ------ ------
Combined $401.2 $430.4 $225.4
====== ====== ======
Net income (loss):
BMG $ 15.2 $ 9.6 $ (8.1)
BMC 14.5 47.1 18.5
------ ------ ------
Combined $ 29.7 $ 56.7 $ 10.4
====== ====== ======
</TABLE>
Niugini Mining Limited ("NML") - In the aggregate, since 1989, the Company has
paid approximately $204 million for 59.3 million shares of the common stock of
NML, representing a 50.5 percent ownership interest as of December 31, 1996.
In May 1995, BMG's ownership interest was diluted due to employee stock options
exercised during the year, and the Company recorded an adjustment of
approximately $2 million to reduce the carrying value of its investment in NML
to reflect the resulting reduction in ownership interest. In December 1995,
the Company paid
64
<PAGE> 67
approximately $17 million to purchase an additional 11.9 million shares of NML
common stock through exercise of its share of options issued to NML's
shareholders in May 1995.
Empresa Minera Inti Raymi, S.A. ("Inti Raymi") - As of December 31, 1996, the
Company has invested an aggregate of $41.1 million in cash and 9.0 million of
its common shares (valued at approximately $76.3 million) to acquire its 88
percent equity in Inti Raymi, a Bolivian gold mining company. At December 31,
1996, the carrying value, net of accumulated amortization, attributed to the
Company's share of the Kori Kollo and Llallagua gold deposits exceeded its
proportionate share of Inti Raymi's historical cost basis in the deposits by
$72 million. This excess has been capitalized to property and is being
amortized by the units of production method based on the deposits' estimated
recoverable reserves. Amortization of the excess cost amounted to $10.6
million, $10.8 million and $11.1 million in 1996, 1995 and 1994, respectively.
Acquisition of Freewest Resources Inc. - Effective December 16, 1994, the
Company acquired all of the outstanding shares of Freewest Resources Inc.
(Freewest) through an acquisition accounted for as a purchase. The Company
issued common shares valued at $27.6 million and paid $0.4 million in cash in
exchange for an additional 81 percent interest in Freewest. The acquisition
increased the Company's direct interest in the Holloway Joint Venture from 50.8
percent to 84.7 percent.
Note 3. Investments
The Company's long-term investments as of December 31 include the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(expressed in millions)
<S> <C> <C>
Lihir Gold Limited $231.1 $225.2
Cash surrender value of life
insurance, net 5.3 4.5
Mico Investments Limited 11.0 11.0
Other 1.4 6.4
------ ------
$248.8 $247.1
====== ======
</TABLE>
Lihir Gold Limited ("LGL"), which is a company created specifically for
the development, financing, operating and ownership of the Lihir project in
Papua New Guinea, completed an initial public offering of common stock on
October 6, 1995. LGL was formed and initially owned by the prior participants
in the Lihir Joint Venture, which included a 30 percent ownership by NML, a 40
percent ownership by a subsidiary of RTZ Corporation and a 30 percent ownership
by an entity of the Papua New Guinea government. As a result of the initial
public offering, NML now owns a 17.15 percent interest in LGL, to which BMG's
attributable interest is 8.7 percent. Effective October 1995, NML's interest
in LGL is accounted for using the equity method of accounting, due to its
ability to exercise significant influence; the Company's investment in the
Lihir Joint Venture was previously recorded in property, plant and equipment.
The quoted market value per share of LGL common stock at December 31, 1996 and
1995, was $1.90 and $1.09, respectively.
65
<PAGE> 68
The initial public offering by LGL was the final transaction in a series
of planned transactions which restructured and reduced BMG's participation in
the Lihir project. The Company recorded the effects of this series of
transactions in the fourth quarter of 1995. An increase in NML's shareholders'
equity of approximately $57 million related to the issuance of the LGL common
stock at a value in excess of NML's carrying value per share in LGL was
recorded. This increase was recorded as a credit to additional paid-in capital
consistent with the Company's accounting policy regarding transactions of this
nature. An offsetting increase in the carrying value of NML's investment in
LGL was recorded. The Company attributed $28 million of this increase to
minority interest in its consolidated financial statements; the remainder was
credited to additional paid-in capital. As a result of these transactions, the
Company also amortized approximately $35 million of its investment in NML
attributable to the LGL investment. This amortization was recorded as a charge
to additional paid-in capital. The net result of these transactions in the
Company's consolidated financial statements was an increase in the carrying
value of the LGL investment of approximately $22 million, an increase in
minority interest of approximately $28 million and a net decrease in additional
paid-in capital of approximately $6 million.
At December 31, 1996, the carrying value attributed to the Company's
proportionate share of NML's investment in LGL exceeded its proportionate share
of NML's historical cost basis in LGL by approximately $124 million. Such
excess will be amortized against the Company's share of the earnings of LGL
based on the estimated recoverable reserves attributable to the Lihir project
upon commencement of production.
Interest costs amounting to $6.0 million in 1996, $7.8 million in 1995
and $6.0 million in 1994 were capitalized in connection with the Company's
investment in the Lihir project.
Note 4. Property, plant and equipment
Property, plant and equipment as of December 31 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(expressed in millions)
<S> <C> <C>
Leasehold and mine development $ 315.2 $ 247.0
Mining, milling and other equipment 545.5 526.3
Other 238.3 296.0
-------- --------
1,099.0 1,069.3
Accumulated depreciation, depletion and amortization (533.6) (431.6)
-------- --------
$ 565.4 $ 637.7
======== ========
</TABLE>
Note 5. Asset Write-downs
In the third quarter of 1996, the Company recorded $35.1 million of
asset write-downs related to its Reona and San Cristobal mines. In accordance
with the provisions of SFAS No. 121 and the Company's impairment policy, the
carrying value of the Reona mine was written down by $17.5 million and the
carrying value of the San Cristobal mine, owned by NML, was written down by
$17.6 million ($8.9 million after consideration of minority interests). The
fair
66
<PAGE> 69
value of the assets was determined by using the present value of the estimated
future net cash flows from the projects. The write-down was necessitated by
lower performance expectations resulting from an analysis of actual heap leach
performance during the six months of operations prior to the write-down,
updated projections of heap leach performance as contrasted with previously
anticipated performance and higher estimates of reclamation and closure costs.
The write-down of San Cristobal was necessitated by recent detailed mine
studies and a review of related projects.
Also, in 1996, the Company's Inti Raymi and BMC subsidiaries recorded
asset writedowns totaling $4.8 million in relation to certain idled plant
assets, uncollectable receivables and obsolete materials and supplies
inventories, based on recent evaluations as to the recoverability of these
assets.
In June 1995, the Company decommissioned and dismantled the milling
facility formerly used at the depleted Fortitude mine in Nevada. Accordingly,
the remaining net carrying value of this mill and related facilities of
approximately $2.2 million was charged to operations. In addition, $0.9
million was charged to milling and other plant costs, representing the carrying
value of spare parts rendered obsolete by the decommissioning of the milling
facility.
Note 6. Debt
The Company had the following long-term debt outstanding as of December
31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(expressed in millions)
<S> <C> <C>
Convertible subordinated debentures, due 2005, 6% $100.0 $100.0
Revolving credit facility, due 2000, variable rate -- 17.0
Inti Raymi Kori Kollo project financing:
IFC loan, variable rate 17.5 22.5
IFC convertible loan, variable rate with 11% minimum 5.0 5.0
OPIC loan, variable rate 20.1 25.8
Restructured OPIC loans, variable rate 2.1 2.7
CAF loan, variable rate 7.5 9.6
Other 0.6 --
------ ------
Total 152.8 182.6
Less current portion of long-term debt 13.6 13.4
------ ------
Total long-term debt $139.2 $169.2
====== ======
</TABLE>
The convertible subordinated debentures are convertible into shares of
the Company's common stock at a conversion price of $20.625 per share, subject
to anti-dilution adjustment in certain circumstances. There are 4.8 million
shares of the Company's common stock reserved for issuance upon conversion of
the debentures. The debentures are redeemable at the Company's option at any
time at par value plus accrued interest. There are no sinking fund
requirements, and interest is payable annually.
67
<PAGE> 70
In November 1995, the Company entered into a committed non-reducing
revolving credit agreement with a syndicate of six banks, led by Citibank N.A.
as agent. This facility, which had an original termination date of November 6,
2000, provided for unsecured borrowings of up to $75 million. In August 1996,
the Company repaid all borrowings outstanding under this facility and
terminated the credit facility. The weighted average interest rate for
borrowings under this facility for the years ended December 31, 1996 and 1995,
was 6.6 percent and 6.7 percent, respectively.
In 1992, Inti Raymi, established separate but coordinated term credit
facilities with the Overseas Private Investment Corporation ("OPIC"),
International Finance Corporation ("IFC") and Corporacion Andina de Fomento
("CAF") for the development of its Kori Kollo expansion project in Bolivia.
Each loan is secured by a lien on the project and is to be repaid in semi-
annual installments which commenced in December 1994 and will continue through
June 2000, with certain provisions for accelerated repayment in the event of
substantial Kori Kollo reserve losses or significantly improved gold market
conditions. Through certain ratio tests, each loan may restrict payments of
intercompany debt and dividends by Inti Raymi to the owners of shares of its
capital stock. Additional covenants exist which limit fixed asset purchases,
additional debt and liens, and require compliance with applicable environmental
laws.
Interest information relating to the various loans under the Kori Kollo
project financing is as follows:
<TABLE>
<CAPTION>
Weighted-Average
----------------
Interest Rates
----------------
Loan Interest Rate 1996 1995
---- ------------- ---- ----
<S> <C> <C> <C>
IFC, non-convertible LIBOR plus 2.375% with option for rate cap or 8.1% 8.6%
conversion to fixed rate
IFC, convertible 11% plus variable portion based on gold prices 12.0% 12.8%
OPIC LIBOR plus 2% 8.0% 8.5%
Restructured OPIC LIBOR plus 2% 8.0% 8.5%
CAF LIBOR 6.8% 7.3%
</TABLE>
On November 13, 1996, the Company entered into a uncommitted revolving
credit agreement with the Canadian Imperial Bank of Commerce ("CIBC"). The
CIBC agreement provides for unsecured borrowings of up to Cdn$40 million for
general operating purposes and up to US$5 million for general hedging purposes.
Interest rates under this facility are based on prime commercial lending rate
as quoted by CIBC for loans advanced in Canada which are denominated in Cdn
dollars. At December 31, 1996, $21.8 million was outstanding under this
facility, and the weighted average interest rate for borrowings thereunder was
4.75 percent.
The Company has a $15 million uncommitted revolving credit facility with
the Union Bank of Switzerland. Interest rates under the facility are variable,
based on either the bank's base rate or a negotiated rate. There are no
additional costs or financial restrictions under this facility. No loans were
outstanding under this revolving credit facility as of December 31, 1996 and
1995; however, letters of credit amounting to $0.2 million and $2.2 million
were issued
68
<PAGE> 71
against this facility as of December 31, 1996 and 1995, respectively. There
were no interest charges for the years ended December 31, 1996 and 1995, since
the Company did not borrow against this facility in either year.
Scheduled maturities of the Company's long-term debt for each of the
next five years are $13.4 million, $14.1 million, $13.4 million, $6.9 million,
$5.0 million for 1997, 1998, 1999, 2000 and 2002, respectively. The
subordinated debentures are due in one lump-sum payment in 2005.
Note 7. Shareholders' Equity
Reference is made to Note 6 for information regarding the number of
shares of common stock reserved for issuance for the conversion of the
Company's outstanding convertible subordinated debentures.
The Company's Board of Directors is authorized to divide the Company's
preferred stock into series. With respect to each series the Board may
determine the dividend rights, dividend rates, conversion rights and voting
rights (which may be greater or less than the voting rights of the common
stock). The Board may also determine the redemption rights and terms,
liquidation preferences, sinking fund rights and terms, the number of shares
constituting the series and the designation of each series.
Pursuant to their authority to divide the preferred stock into series,
the Board of Directors in 1988 designated 2,000,000 shares of preferred stock
as "Series A Junior Participating Preferred Stock" for possible issuance upon
the exercise of stock rights as described below.
Convertible Preferred Stock - In May 1993, the Company received $111 million in
net proceeds from the issuance of 2.3 million shares of its convertible
preferred stock with a liquidation preference of $50 per share plus any accrued
and unpaid dividends. Each share of preferred stock will pay annual cumulative
dividends of $3.25 and is convertible at any time at the option of the holder
into 4.762 shares of the Company's common stock. The preferred stock is
redeemable at the option of the Company solely for shares of the Company's
common stock beginning May 15, 1996. There are approximately 11 million shares
of the Company's common stock reserved for issuance upon conversion of the
preferred stock.
Exchangeable Shares - In connection with BMG's combination with BMC (see Note
2), BMC underwent a reorganization of capital whereby BMC amended its Articles
of Incorporation to, among other things, (1) create a new class of shares with
rights and privileges, restrictions and conditions identical to those attaching
to BMG Common Shares, (2) authorize the issuance of Exchangeable Shares, and
(3) change its name to Battle Mountain Canada Ltd. After the reorganization of
the capital structure of BMC, each holder of BMC Common Shares received 1.48
Exchangeable Shares in exchange for each BMC Common Share held. The
Exchangeable Shares will remain securities of BMC and entitle their holders to
dividend and other rights economically equivalent to that of the BMG Common
Shares and, through a voting trust, to vote at
69
<PAGE> 72
meetings of stockholders of BMG. The Exchangeable Shares are exchangeable, at
the option of the holder, for BMG Common Stock on a share-for-share basis.
Stock Rights - Since November 21, 1988, when the Company's Board of Directors
declared a dividend of one right for each outstanding share of the Company's
common stock, each share of the Company's outstanding common stock carries with
it such right. Each right entitles the holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, for an exercise price of $60, subject to adjustment.
The stock rights expire on November 10, 1998, and they will not be exercisable
nor transferable apart from the common stock until such time as a person or
group acquires 20 percent of the Company's common stock or initiates a tender
offer that will result in ownership of 30 percent of the Company's common
stock. In the event that the Company is merged, and its common stock is
exchanged or converted, the rights will entitle the holders to buy shares of
the acquirer's common stock at a 50 percent discount. Under certain other
circumstances, the rights can become rights to purchase the Company's common
stock at a 50 percent discount. The rights may be redeemed by the Company for
one cent per right at any time until 10 days following the first public
announcement of a 20 percent acquisition of beneficial ownership of the
Company's common stock.
Note 8. Federal and Foreign Income and Mining Taxes
Federal and foreign income and mining tax expense (benefit) consisted of
the following for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(expressed in millions)
<S> <C> <C> <C>
Current
United States - Federal $ 0.5 $ -- $(2.2)
Canada 35.9 8.5 56.8
Other foreign 1.9 2.2 1.2
----- ----- -----
Total current 38.3 10.7 55.8
Deferred
United States - Federal 10.2 (10.2) --
Canada 1.1 6.5 (6.6)
Other foreign (0.5) 5.2 3.6
----- ----- -----
Total deferred 10.8 1.5 (3.0)
----- ----- -----
$49.1 $12.2 $52.8
===== ===== =====
</TABLE>
Consolidated income before income taxes includes income from foreign
operations of $18.3 million, $77.2 million and $130.2 million in 1996, 1995 and
1994, respectively.
70
<PAGE> 73
The Company's net deferred tax position at December 31, is comprised of
the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(expressed in millions)
<S> <C> <C>
Deferred tax assets $ 120.7 $ 74.4
Deferred tax liabilities (165.4) (169.8)
Valuation allowance (62.2) (1.0)
------- -------
Net deferred tax asset (liability) $(106.9) $ (96.4)
======= =======
</TABLE>
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(expressed in millions)
<S> <C> <C>
Net operating loss carryforwards $ 25.2 $ 25.1
Alternative minimum tax credit carryforward 4.7 4.6
Employee compensation and benefits accrued 5.3 5.5
Foreign tax credit carryforwards 46.7 11.9
Property, plant and equipment (106.6) (120.7)
Undistributed earnings of foreign subsidiaries (33.0) (23.5)
Other, net 13.0 1.7
Valuation allowance (62.2) (1.0)
------- -------
Net deferred tax asset (liability) $(106.9) $ (96.4)
======= =======
</TABLE>
A reconciliation of income tax at the U.S. statutory rate to income tax
expense as of December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(expressed in millions)
<S> <C> <C> <C>
Income tax based on statutory rate of 35% $(8.8) $14.6 $39.9
Increases (decreases) resulting from:
Foreign withholding tax, net 8.6 7.3 4.4
Canadian mining taxes 11.6 4.7 19.4
Change in filing position regarding foreign tax
credits -- (11.9) --
Undistributed (income) losses of foreign
subsidiaries not subject to income tax 6.2 (0.6) 0.3
U.S. losses not providing tax benefits 21.8 -- --
Change in valuation allowance 10.2 -- (7.3)
Other, net (0.5) (1.9) (3.9)
----- ----- -----
Income tax expense $49.1 $12.2 $52.8
===== ===== =====
</TABLE>
The increase in the valuation allowance of $10.2 million relates to the
post-merger decision to repatriate all earnings of BMC to the U.S. As a result
of this decision, the Company
71
<PAGE> 74
established a 100 percent valuation allowance related to certain deferred tax
assets recognized in 1995 that are no longer expected to be realized due to
current and expected future levels of foreign tax credits.
Deferred tax assets of $10.2 million were included in Other assets at
December 31, 1995.
U.S. taxes have been provided on the undistributed earnings of
subsidiaries and joint ventures with the exception of NML which is in a
cumulative loss position. During 1996, the Company provided $7.1 million of
withholding taxes on current year and retained BMC earnings and $1.5 million on
current year Inti Raymi earnings.
The Company and its domestic subsidiaries file a consolidated U.S.
federal income tax return. Such returns have been closed through the year
1992.
At December 31, 1996, the Company had approximately $72.0 million of
regular net operating losses and $13.3 million of alternative minimum tax net
operating loss carryforwards, expiring beginning in 2007, available to offset
future U.S. federal income tax, and approximately $4.7 million of alternative
minimum tax credits available on an indefinite carryforward basis. Changes in
the ownership of a company can result in an annual limitation under Internal
Revenue Code Section 382 on the amount of the tax net operating loss
carryforwards which can be utilized in any one year. The annual limitation is
based on the value of the company as of the ownership change date multiplied by
the federal long-term tax exempt rate. It is not anticipated that the Section
382 limitation will significantly restrict the future utilization of BMG's net
operating loss carryforwards.
Note 9. Major Customers and Export Gross Revenues
All sales of the Company's products are made to precious metals
smelters, refiners or traders. Accordingly, the precious metals industry has
substantial influence over the market for the Company's products. However,
because of the active worldwide market for gold, BMG believes that the loss of
any of these customers would not have a material adverse impact on the Company.
Sales to individual customers exceeding 10 percent of the Company's
consolidated revenues were as follows: in 1996, two separate buyers accounted
for $145 million and $89 million of consolidated revenues; in 1995, two
separate buyers accounted for $83 million and $74 million of consolidated
revenues; in 1994, three separate buyers accounted for $69 million, $65 million
and $47 million of consolidated revenues.
Export sales in 1996, 1995 and 1994 amounted to $51 million, $58 million
and $47 million, respectively.
72
<PAGE> 75
Note 10. Interest and Other Income
Included in Interest and Other Income are certain non-operating
revenues, net of related expenses, consisting of:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(expressed in millions)
<S> <C> <C> <C>
Interest income $ 8.8 $ 10.2 $ 10.5
Dividends from investments in associated companies 0.7 1.0 1.3
Gain on sale of investments 0.2 -- 1.1
Foreign currency exchange losses (2.2) (0.4) (2.1)
Other 0.7 1.0 0.3
------- ------- -------
$ 8.2 $ 11.8 $ 11.1
======= ======= =======
</TABLE>
Note 11. Common Stock and Stock Options
Stock Options - Under the Company's 1994 Long-term Incentive Plan, 10.0
million shares and 4.0 million shares of the Company's Common Stock were
reserved for issuance as of December 31, 1996 and 1995 respectively. Of these
shares, 6.7 million shares and 3.2 million shares, were available for future
grants of stock options, restricted stock, performance shares or other stock
awards at December 31, 1996 and 1995, respectively.
Non-employee directors of the Company are granted non-qualified stock
options under a separate stock option plan for outside directors. Under this
plan, a total of 0.3 million shares of the Company's common stock are reserved
for issuance, of which 0.1 million shares are available for future grants at
December 31, 1996 and 1995.
Options granted under the above plans are exercisable under the terms of
the respective option agreements at the market price of the common stock at the
date of grant, subject to anti-dilution adjustments in certain circumstances.
Payment of the exercise price may be made in cash or in shares of common stock
previously owned by the optionee, valued at current market value.
Under a deferred income stock option plan for officers and directors,
each participant may elect to receive a non-qualified stock option in lieu of a
portion of his compensation. A maximum of 2.0 million shares of common stock
is issuable under the plan, of which 1.7 million shares were available for
future grants at December 31, 1996 and 1995. Options granted pursuant to the
plan become exercisable at the beginning of the calendar year immediately
following the year in which the option was granted, and expire no later than 10
years after the date of grant. The amount of deferred compensation is accrued
as compensation expense during the period earned.
73
<PAGE> 76
Changes in options outstanding for the combined plans are summarized as
follows:
<TABLE>
<CAPTION>
Number of Shares Option Price
(in millions) Range Per Share
----------- ---------------
<S> <C> <C>
Outstanding, December 31, 1993 2.1 $3.83 to $20.75
Granted 0.6 $6.72 to $10.50
Exercised (0.2) $3.70 to $ 8.33
Canceled or expired (0.1) $6.88 to $17.75
--------
Outstanding, December 31, 1994 2.4 $3.61 to $20.75
Granted 0.9 $5.80 to $11.38
Exercised (0.2) $3.70 to $11.19
Canceled or expired (0.1) $6.88 to $11.38
--------
Outstanding, December 31, 1995 3.0 $3.70 to $20.75
Granted 2.7 $7.63 to $10.42
Exercised (0.4) $3.72 to $ 9.27
Canceled or expired (0.1) $6.88 to $16.63
--------
Outstanding, December 31, 1996 5.2 $3.70 to $20.75
Exercisable, December 31, 1996 2.6 $3.70 to $20.75
</TABLE>
At December 31, 1996, expiration dates for the outstanding options
ranged from December 1, 1997, to September 19, 2006. The weighted average
exercise price per share was $9.28.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, which established financial accounting and reporting standards for
stock- based employee compensation plans. SFAS No. 123 encourages companies to
adopt a fair value based method of accounting for such plans but continues to
allow the use of the intrinsic value method prescribed by APB 25. The Company
has elected to continue to account for stock-based compensation in accordance
with APB 25. If the Company had elected to recognize compensation cost based
on the fair value of the options granted at grant date as prescribed by SFAS
No. 123, net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated in the table below (in millions,
except per share data):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
------- ------
<S> <C> <C>
Net income (loss) - as reported $(74.3) $ 29.7
Net income (loss) - pro forma $(85.6) $ 25.0
Earnings (loss) per share - as reported $ (.36) $ .10
Earnings (loss) per share - pro forma $ (.41) $ .08
</TABLE>
74
<PAGE> 77
The fair value of each option grant is estimated on the date of the
grant using the Noreen-Wolfson option-pricing model, which is the Black-Scholes
model adjusted for the dilutive impact which the conversion of the options will
have on the Company's stock price, with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected dividend yield 0.487% 0.628%
Expected stock price volatility 35.409% 34.403%
Risk-free interest rate 7.4% 6.8%
Expected life of options 8.12 years 9.74 years
</TABLE>
The weighted average fair value of options granted during 1996 and 1995 is
$4.10 per share and $5.87 per share, respectively.
Note 12. Benefit Plans
Pension Plans - Substantially all U.S. and certain salaried and hourly Canadian
employees of the Company are covered by non-contributory pension plans. The
plans provide benefits based on participants' years of service and compensation
or defined amounts for each year of service. The Company makes annual
contributions to the U.S. plans that comply with the minimum funding provisions
of the Employee Retirement Income Security Act ("ERISA"). The Canadian
employees participate in plans administered by Noranda.
During 1994, the plans for BMG's Australian employees were changed from
non-contributory defined benefit plans to defined contribution plans.
Pension costs are accrued and charged to expense currently. Net
periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(expressed in millions)
<S> <C> <C> <C>
Service cost - benefits earned during the year $1.4 $1.1 $1.1
Interest cost on projected benefit obligations 2.9 2.5 2.2
Expected return on plan assets (3.4) (2.7) (2.8)
Net amortization and deferral 0.3 0.5 1.1
---- ---- ----
Net periodic pension cost $1.2 $1.4 $1.6
==== ==== ====
</TABLE>
At December 31, 1996, 1995 and 1994, the projected long-term rate of
return on plan assets was 9 percent.
Actual return on the plans' assets was $6.9 million for the year ended
December 31, 1996, $8.4 million for the year ended December 31, 1995, and $1.1
million for the year ended December 31, 1994.
75
<PAGE> 78
The following sets forth the plans' funded status and related amounts as
of December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
(expressed in millions)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 33.8 $ 32.8
======= =======
Accumulated benefit obligation $ 35.4 $ 34.2
======= =======
Projected benefit obligation $ 41.3 $ 36.8
Plan assets at fair value 46.6 39.8
------- -------
Plan assets in excess of projected benefit
obligation 5.3 3.0
Unrecognized net gain and effects of
changes in actuarial assumptions (4.3) (3.9)
Unrecognized net asset at transition (0.7) (0.8)
Prior service cost not yet recognized in net
periodic pension cost 2.5 2.9
------- -------
Prepaid pension cost $ 2.8 $ 1.2
======= =======
</TABLE>
Plan assets include equity securities, common trust funds and various
debt securities. Weighted average rate assumptions used in determining
estimated benefit obligations were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate 7.5% 7.5%
Rate of increase in compensation levels - U.S.
plans 5.8% 5.8%
Rate of increase in compensation levels - Canadian
plans
5.0% 5.0%
</TABLE>
Contribution Plans - The Company has defined contribution plans available for
all full-time U.S. salaried and hourly employees and for hourly employees at
BMC's Golden Giant and Holloway mines. The U.S. plans provide for savings
contributions by employees ranging from one to 16 percent of annual
compensation, subject to ERISA limitations. The Company matches 50 to 100
percent of employee contributions with BMG's common stock, subject to a limit
of 6 percent of an employee's compensation during each plan year.
The Company has defined contribution plans available for all BMG
Australian salaried and hourly employees. The Company's contributions to the
salaried plan are determined in accordance with the trust deed. The Company's
contributions to the hourly plan are determined in accordance with the union
award.
All Company contributions to the plans are expensed and funded
currently. The cost of such Company contributions to the U.S. plans was $0.4
million, $0.4 million and $0.3 million in 1996, 1995 and 1994, respectively.
The cost attributable to the Australian plans was $0.9
76
<PAGE> 79
million, $0.8 million and $0.7 million in 1996, 1995 and 1994, respectively.
The cost attributable to the Canadian plans was $0.7 million, $0.4 million and
$0.5 million in 1996, 1995 and 1994, respectively.
Postretirement Health Care and Life Insurance Benefits - Substantially all of
the Company's U.S. employees may become eligible for certain unfunded health
care and life insurance benefits when they reach retirement age while working
for the Company.
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(expressed in millions)
<S> <C> <C> <C>
Service cost $ 0.3 $ 0.3 $ 0.5
Interest cost on accumulated benefit obligation 0.6 0.5 0.6
Amortization of gain - (0.1) -
------ ------ ------
Net periodic postretirement benefit cost $ 0.9 $ 0.7 $ 1.1
====== ====== ======
</TABLE>
The following table presents the plans' status at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(expressed in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $5.3 $4.9
Fully eligible active plan participants 1.0 0.6
Other active plan participants 2.3 2.1
---- ----
8.6 7.6
Unrecognized net gain 0.7 1.2
---- ----
Accrued postretirement benefit cost $9.3 $8.8
==== ====
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5 percent for 1996 and 1995. For 1996 and 1995, the
assumed annual rates of increase in the per capita cost of covered health care
benefits was 9 percent. For 1996 calculations, a gradual decrease in the rate
is assumed through the year 2000 when the rate is estimated to reach 6 percent
and remain at that level thereafter. For 1995 calculations, a gradual decrease
in the rate is assumed through the year 1999 when the rate is estimated to
reach 6 percent and remain at that level thereafter. A one percent increase in
the assumed health care cost trend rates would increase the accumulated
postretirement benefit obligation as of December 31, 1996, by approximately
$1.4 million, and would increase the total of the service and interest cost
components of net periodic postretirement health care cost for 1996 by
approximately $.2 million.
Postemployment Benefits - The Company accounts for postemployment benefits in
accordance with SFAS No. 112, "Employers' Accounting for Postemployment
Benefits". This standard requires that the expected cost of these benefits
must be charged to expense during the periods that employees vest in these
benefits.
77
<PAGE> 80
Note 13. Geographic and Segment Information
The Company's operations are primarily related to gold mining and
related activities. Accordingly, such operations are classified as one
business segment. Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
--------- ------- --------
(expressed in millions)
<S> <C> <C> <C>
Gross revenues:
United States $ 51.2 $ 58.1 $ 46.6
Canada 156.3 101.9 187.4
Austral Pacific 58.8 73.3 40.3
South America 157.7 167.9 156.1
-------- -------- --------
$ 424.0 $ 401.2 $ 430.4
======== ======== ========
Operating income (loss):
United States $ (59.3) $ (16.5) $ (13.7)
Canada 54.0 27.0 94.4
Austral Pacific (14.2) 7.3 (2.4)
South America (20.0) 27.9 33.5
Other International (3.0) (1.9) (1.3)
-------- -------- --------
(42.5) 43.8 110.5
Interest and other income
(expense), net 1.3 4.2 3.4
-------- -------- --------
Income (loss) before income taxes and
minority interest $ (41.2) $ 48.0 $ 113.9
======== ======== ========
Identifiable assets:
United States $ 149.0 $ 231.2
Canada 295.3 283.2
Austral Pacific 286.2 295.4
South America 306.0 331.0
Other International .4 1.1
-------- --------
$1,036.9 $1,141.9
======== ========
</TABLE>
Note 14. Commitments and Contingencies
Total operating lease rental expenses (exclusive of mineral leases) were
$3.8 million, $3.6 million and $2.4 million for 1996, 1995 and 1994,
respectively.
Aggregate minimum rentals (exclusive of mineral leases) subsequent to
December 31, 1996, under non-cancelable leases for the years ending December
31, 1997 to 2001 are estimated to be $3.0 million, $2.4 million, $1.8 million,
$1.2 million, and $1.1 million, respectively. Lease commitments beyond the
year 2001 total $2.0 million.
78
<PAGE> 81
Pursuant to pricing provisions as set forth in certain customer forward
sales contracts, as of December 31, 1996, the Company had committed to sell
82,000 ounces of gold (either in the form of bullion or contained in dore)
valued at approximately $30.6 million at prices determined during various
pricing periods in 1996, none of which exceeds 45 days. The average price of
gold sold under these commitments is approximately $374 per ounce.
All of the Company's mining and processing operations are subject to
reclamation and closure requirements. The Company monitors such requirements
and periodically revises its cost estimates to meet the legal and regulatory
requirements of the various jurisdictions in which it conducts its business.
Where possible, plans for ongoing operations and future mine development are
implemented in a manner that contributes to the fulfillment of reclamation and
closure obligations in a cost effective manner through the conduct of ongoing
operating activities. Costs estimated to be incurred in future periods which
cannot be addressed in this manner are charged to operations through provisions
based on the units of production method, such that the estimated cost of
ultimate reclamation is fully provided for by the time mineral reserves are
depleted. The timing of actual cash expenditures for reclamation may be
accelerated or deferred, depending on cost and other determinations which may
make such decisions prudent in the circumstances. The Company believes that
these policies and practices adequately address its reclamation obligations and
provide a systematic and rational method of charging such costs to operations
consistent with industry practice. Although the ultimate amount of the
obligations to be incurred is uncertain, at December 31, 1996, the Company has
estimated these future costs to be approximately $44.6 million, of which $14.2
million has been accrued and is included in long-term liabilities in the
Company's consolidated balance sheet.
Based on current environmental regulations and known reclamation
requirements, the Company believes it has included the best estimate of these
obligations in its reclamation accruals. However, it is reasonably possible
that the Company's estimate of its ultimate reclamation liability could
increase in the near term as a result of prospective changes in laws and
regulations and changes in cost estimates.
In 1993, several special interest groups filed a complaint in U.S.
District Court against Crown Butte Resources Ltd. ("Crown Butte"), a Canadian
corporation in which the Company owns a 60% interest, and others, alleging that
certain discharges from the Crown Butte controlled New World site were in
violation of the federal Clean Water Act. On October 13, 1995, the District
Court found Crown Butte, and other defendants, liable for violations of the
Clean Water Act. As a result of that ruling, Crown Butte and other defendants
may be liable for costs of remediation, civil penalties and attorneys fees. It
is not possible to predict the amount of such liability at this time.
Additionally, the federal judge hearing the case has stayed all matters in the
case in light of the August 12, 1996, Agreement between Crown Butte, the United
States and certain special interest groups (the "August Agreement"). The
August Agreement provides a framework for Crown Butte to exchange property
interests within the New World Mining District near Yellowstone National Park
for government owned property interests or assets having a value of $65
million. The August Agreement also provides that, subsequent to the exchange,
Crown Butte would set aside $22.5 million in an escrow account for reclamation
and restoration purposes in the New World District. The Company has announced
that it would vote its sixty percent interest in Crown Butte in favor of
79
<PAGE> 82
the August Agreement. Pursuant to the August Agreement, Crown Butte has
suspended permitting efforts pending the completion of the exchange. The
completion of the exchange would result in the settlement of litigation under
the Clean Water Act and releases between the parties as to any further
environmental liabilities. The August Agreement contains a number of
conditions including acquisition of certain property interests by Crown Butte,
governmental identification and acceptance by Crown Butte of the exchange
properties and subsequent approval of the exchange by the requisite number of
Crown Butte shareholders. Crown Butte has the ability to withdraw from the
August Agreement at certain times in the event that the U.S. Government has not
identified exchange properties acceptable to Crown Butte or if the U.S.
Government does not transfer the exchange property within a set period of time.
Failure to complete the exchange would result in the Clean Water action
proceeding.
The Golden Giant mine property includes the Quarter Claim acquired from
Teck Corporation ("Teck") and Homestake Canada Inc. ("Homestake"). Until
December 31, 1994, the Company was obligated to mine the Quarter Claim at a
rate of 500 tons per day, to pay a profit royalty of 50 percent of the defined
net profits therefrom to Teck and Homestake, and to pay a 3 percent net smelter
return royalty to the original Quarter Claim prospectors. Effective January 1,
1995, the Quarter Claim agreement was amended so that the net profits royalty
became payable on a deemed production rate of 500 tons per day without regard
to the Company's actual production from the Quarter Claim. The calculations of
the 50 percent net profits royalty and the 3 percent net smelter return royalty
were not affected in any other respect.The reported royalty expense for 1994
included a provision for payments of $2.8 million payable to Teck and Homestake
in early 1995 to adjust for quantities of ore mined by the Company in 1994
pursuant to boundary mining agreements.
Financing for the Lihir project involved bank debt facilities and an
initial public offering of common stock of LGL (see Note 3). In connection
with the LGL debt financing, NML has guaranteed, until project completion, 30
percent of LGL's obligations under the facility (which obligations include up
to $300 million of senior facility debt, up to $10 million of subordinated debt
incurred to fund the purchase of instruments required in connection with
hedging activities and up to $50 million of potential liabilities under hedging
arrangements). Neither BMG nor its non-NML subsidiaries have any obligation or
liability under this guarantee. As of December 31, 1996, LGL has drawn
approximately $60 million under this debt facility. In addition, NML has
pledged its LGL shares as security under the facility until project completion.
The Company is party to a number of legal actions arising in the
ordinary course of business. While the final outcome of these actions cannot
be predicted with certainty, it is the opinion of Company management that none
of these actions, when finally resolved, will have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
Note 15. Forward Sales and Hedging
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative instruments
are used to manage well-defined interest rate, foreign currency exchange rate
and commodity price risks.
80
<PAGE> 83
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate long-term debt. At December 31,
1996, Inti Raymi was party to three interest rate cap agreements which were
effective June 1, 1994, each with a term of three years. The agreements
entitle Inti Raymi to receive from counterparties on a quarterly basis the
amounts, if any, by which Inti Raymi's interest payments on a portion of its
LIBOR based floating-rate Kori Kollo project financing exceed various fixed
rates over the term of the caps. The fixed rates in the cap agreements
gradually escalate from 6.4 percent in 1996 to 7.2 percent in 1997. Inti Raymi
has hedged 100 percent of its net interest rate exposure currently related to
the Kori Kollo LIBOR based project financing. Inti Raymi has not hedged any of
its exposure subsequent to December 1997. The net unamortized cost of the
premiums paid for these caps amounting to $0.2 million at December 31, 1996,
has been included in other assets. Since the interest rate caps were put in
place, the Company has amortized approximately $0.5 million of such premiums
and has received approximately $0.2 million in settlement of expiring caps.
The Company uses fixed forward sales contracts, spot deferred sales
contracts and put options to hedge anticipated sales of gold, silver and
copper. The following table summarizes the Company's forward sales contracts
at December 31, 1996:
<TABLE>
<CAPTION>
Average Price
Amount Per Unit Period
------ ------------------ ---------------------
<S> <C> <C> <C>
BMG
Forward sales contracts
Gold 91,000 oz US$411 Jan. 97 - Jul. 97
NML
Forward sales contracts
Gold 42,000 oz A$570 Jan. 97
34,000 oz US$402 Jan. 97
Copper 2,000 tonnes US$1,851 Feb. 97
</TABLE>
At December 31, 1996, the aggregate amount by which the net market value
of the Company's open forward sales contracts was greater than the spot price
of $369 per ounce of gold and $1,832 per tonne of copper, was $8.4 million, of
which $2.3 million was attributable to minority interests. Australian dollar
contracts were converted to U.S. dollars at the December 1996 month end
exchange rate of US$.79 to A$1.
At December 31, 1996, the Company had outstanding the following forward
currency contract:
<TABLE>
<CAPTION>
Amount Covered Average Exchange
Currency (U.S. Dollars) Rate to U.S Dollars Expiration Date
-------- -------------- ------------------- ---------------
<S> <C> <C> <C>
Canadian Dollars $98.6 million $1.36 Jan. 1997
</TABLE>
81
<PAGE> 84
The Company is exposed to certain credit-related losses, generally the
amount by which the contract price exceeds the spot price of a commodity, in
the event of nonperformance by the counterparties to these agreements. The
Company attempts to minimize its credit exposure by limiting its counterparties
to major financial institutions which meet the Company's credit rating
standards, limiting the maximum exposure to any one counterparty, and spreading
exposure among a minimum number of counterparties. The Company does not
require collateral from its counterparties. Management believes that the risk
of incurring losses is remote.
Note 16. Supplemental Cash Flow Schedules and Information
Supplemental disclosure of cash flow information for the years ended
December 31, 1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Income, mining and withholding taxes
(net of tax refunds) 28.1 52.2 18.9
Interest (net of amounts capitalized) 6.7 10.3 6.7
Changes in working capital accounts:
(Increase) decrease in accounts and
notes receivable $ (19.9) $ (3.6) $13.1
Decrease (increase) in inventories (5.5) 1.1 (3.5)
Decrease (increase) in materials and
supplies inventories 0.6 1.2 (4.6)
Increase in other current assets (0.7) (5.8) (3.1)
Increase (decrease) in salaries, wages
and benefits payable 7.4 1.4 1.5
Increase (decrease) in interest payable (0.3) 0.5 0.2
Increase (decrease) in accounts payable
and other current liabilities 13.0 (38.9) 34.1
------ ------ ------
Net change in working capital accounts $ (5.4) $(44.1) $37.7
====== ====== ======
</TABLE>
Excluded from the statement of consolidated cash flows are the effects
of certain non-cash transactions. In 1995, the Company's investing activities
included the exchange of NML's interest in the Lihir Joint Venture for the
common stock of LGL (see Note 3). In 1994, the Company's investing activities
included the issuance of 435,897 shares of BMG's common stock (market value of
$4.3 million) and payment of $4.3 million cash for the purchase of an
additional three percent interest in the Crown Jewel Project. Also in 1994,
the Company's investing activities included the issuance of 4.6 million shares
of BMG common stock (market value of approximately $28 million) in exchange for
all of the outstanding common shares of Freewest Resources Inc. (see Note 2).
82
<PAGE> 85
Note 17. Related Party Transactions
At December 31, 1996, Noranda Inc. ("Noranda"), a diversified Canadian
natural resource company, owned approximately 28 percent of the Company's
outstanding common shares. Prior to the combination of BMG and BMC, Noranda
owned approximately 44 percent of BMC's outstanding common shares.
Until December 31, 1994, Noranda Exploration Company Limited ("Norex"),
a wholly-owned subsidiary of Noranda, acted as agent in carrying out most of
the Company's exploration programs in Canada. In performing exploration
services as agent, Norex charged its direct out-of-pocket costs plus a
percentage to cover overhead. These overhead charges amounted to $1.5 million
in 1994. Effective January 1, 1995, the Company commenced carrying out all
exploration programs in Canada with its own employees.
Until December 1996, the Company participated in a short-term investment
pool with Noranda and other associated companies of Noranda. The pool was
operated to provide participating companies with the opportunity to invest or
borrow funds on a short-term demand basis. Interest revenues and charges were
at market rates, based on the rates for Bankers' Acceptances and Commercial
Paper published by the Bank of Canada. At December 31, 1996, the Company had
no amounts on deposit with, or borrowings from, this investment pool. At
December 31, 1995, the Company had borrowings of $12.4 million from this
investment pool. Net interest received from the investment pool amounted to
$0.7 million, $2.5 million and $5.8 million in 1996, 1995 and 1994.
At December 31, 1996 and 1995, investments in associated companies, were
carried at their cost of $11.8 million and $16.2 million, respectively.
Dividends on these shares amounted to $0.7 million in 1996 and $1.2 million in
both 1995 and 1994.
Noranda processes certain of the ore from the Silidor mine. Charges
paid by the Company for this service amounted to approximately $0.7 million for
each of the years ended December 31, 1996, 1995 and 1994.
Noranda administers the pension plan of certain BMC employees.
Noranda provides the Company with certain technical, data processing and
research services. Charges paid by the Company for these services amounted to
approximately $0.6 million, $0.7 million and $0.9 million for each of the years
ended December 31, 1996, 1995 and 1994, respectively.
Related party transactions as described above give rise to accounts
payable at December 31, 1996, of $0.9 million (1995 - $1.6 million).
83
<PAGE> 86
Note 18. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(expressed in millions)
<S> <C> <C> <C> <C>
Long-term Debt $152.8 $140.5 $182.6 $157.1
</TABLE>
The fair value of the Company's convertible subordinated debentures is
based on the quoted market price of the debentures at the reporting date. Due
to the generally variable interest rate features of the OPIC, IFC and CAF
loans, the Company believes the carrying amounts approximate the fair value of
this debt at the reporting date.
The carrying values of the Company's cash and cash equivalents, trade
receivables and trade payables and forward currency contracts approximate their
estimated fair values. The Company considers it impracticable to estimate
market value for its non-marketable equity investments held in Mico Investments
Limited.
The Company has issued corporate guarantees totaling $4.5 million to
ensure that the reclamation of the Battle Mountain Complex mines will be
performed as specified in the operating permits issued by the State of Nevada.
In addition, the Company has a letter of credit outstanding for $2.2 million as
collateral for surety bonds provided as security for various reclamation
obligations. The Company believes the carrying value of these financial
instruments approximates their fair market value.
84
<PAGE> 87
Note 19. Battle Mountain Canada Summarized Financial Information
The following is summarized financial information pertaining to Battle Mountain
Canada:
<TABLE>
<CAPTION>
As of December 31,
1996 1995
---- ----
(expressed in millions)
<S> <C> <C>
Current assets $123.0 $107.8
Non-current assets 282.5 296.9
------ ------
Total Assets $405.5 $404.7
====== ======
Current liabilities $ 49.5 $ 31.6
Non-current liabilities 99.8 102.9
------ ------
Total liabilities 149.3 134.5
Minority interests 11.8 11.8
Shareholders' equity 244.4 258.4
------ ------
Total liabilities and shareholders' equity $405.5 $404.7
====== ======
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995 1994
---- ---- ----
(expressed in millions)
<S> <C> <C> <C>
Sales $156.3 $101.9 $187.4
Costs and expenses 110.1 80.5 98.4
------ ------ ------
Operating income $ 46.2 $ 21.4 $ 89.0
====== ====== ======
Net income $ 25.1 $ 14.5 $ 47.2
====== ====== ======
</TABLE>
85
<PAGE> 88
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
Earnings Dividends Dividends
Operating Net (Loss) Per per per
Sales Income Income Common Share Common Share Preferred Share
----- --------- ------ ------------ ------------ ---------------
(expressed in millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
1996
- ----
First Quarter $ 104.9 $ 12.3 $ 5.2 $ 0.02 0.010 $ 0.8125
Second Quarter 120.4 14.8 5.2 0.01 0.032 0.8125
Third Quarter 91.0 (53.7) (47.1) (0.21) 0.024 0.8125
Fourth Quarter 107.7 (15.9) (37.6) (0.17) -- 0.8125
-------- -------- ------ -------- -------- --------
$ 424.0 $ (42.5) $(74.3) $ (0.36) $ 0.066 $ 3.2500
======== ======== ====== ======== ======== ========
1995
- ----
First Quarter $ 97.3 $ 21.5 $ 12.4 $ 0.05 0.009 $ 0.8125
Second Quarter 122.3 24.6 14.7 0.05 0.032 0.8125
Third Quarter 75.2 (2.3) 1.0 -- 0.009 0.8125
Fourth Quarter 106.4 -- 1.6 -- 0.082 0.8125
-------- -------- ------ -------- -------- --------
$ 401.2 $ 43.8 $ 29.7 $ 0.10 $ 0.082 $ 3.2500
======== ======== ====== ======== ======== ========
</TABLE>
Third quarter 1996 results included a before and after-tax charge of
approximately $38.5 million ($29.6 million after consideration of minority
interests) for asset write-downs (see Note 5) and approximately $20 million in
merger related costs (see Note 2). Fourth quarter 1996 results included income
tax charges of approximately $17.3 million related primarily to the Company's
revised dividend repatriation strategy, $6.4 million of costs related to the
accelerated completion of mining at San Luis, $2.7 million in additional merger
related costs, $2 million of restructuring costs related to NML and
approximately $1.4 million of additional asset write-downs.
86
<PAGE> 89
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Nominees" and "Directors
with Terms Expiring in 1998 and 1999" set forth under "Election of Four
Directors and Director Compensation" in the Company's definitive Proxy
Statement for its 1997 annual meeting of shareholders, as filed within 120 days
of December 31, 1996, pursuant to Regulation 14A under the Securities and
Exchange Act of 1934, as amended (the "Company's 1997 Proxy Statement"), is
incorporated herein by reference. See also "Executive Officers of the
Registrant" appearing in Part I of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions "Board Organization and
Committees" set forth under "Election of Four Directors and Director
Compensation" and "Executive Compensation" (other than the Compensation and
Stock Option Committee Report on Executive Compensation) in the Company's 1997
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Security Ownership" set
forth under "Election of Four Directors and Director Compensation" in the
Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain Relationships and
Related Transactions" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
87
<PAGE> 90
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) As to financial statements and supplementary information,
reference is made to "Index to Consolidated Financial Statements
on page 53 of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules.
All schedules are omitted because of the absence of the
conditions under which they are required or because the required
information is included in the financial statements or notes
thereto.
(a)(3) Exhibits: See attached exhibit index, page E-1, which also
includes the management contracts or compensatory plans or
arrangements required to be filed as exhibits to this Annual
Report by Item 601(10)(iii) of Regulation S-K.
(b) Reports on Form 8-K: None
88
<PAGE> 91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BATTLE MOUNTAIN GOLD COMPANY
By /s/ Ian D. Bayer
--------------------------------------
Ian D. Bayer
President and Chief Executive Officer
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. (The Registrant
does not currently have an officer designated as Chief Financial Officer.)
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Ian D. Bayer President March 28, 1997
- --------------------- Chief Executive Officer
Ian D. Bayer and Director (Principal
Executive Officer)
/s/ Jeffrey L. Powers Vice President March 28, 1997
- ----------------------- and Controller
Jeffrey L. Powers (Principal Accounting
Officer)
DOUGLAS J. BOURNE A majority of the March 28, 1997
DAVID L. BUMSTEAD* Directors of the
DELO H. CASPARY* Registrant
CHARLES E. CHILDERS
KARL E. ELERS*
DAVID W. KERR*
JAMES W. McCUTCHEON, Q.C.*
MARY MOGFORD*
TED H. PATE*
E. COURTNEY PRATT
WILLIAM A. WISE*
*By/s/ Ian D. Bayer
----------------------
Ian D. Bayer
Attorney-in-fact
89
<PAGE> 92
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C> <C>
*2(a) -- Plan of Arrangement of Hemlo Gold Mines Inc. under Section
182 of the Business Corporations Act (Ontario) (Annex D to
Exhibit 20(a), Joint Management Information Circular and
Proxy Statement, to the Company's Current Report on Form 8-K
dated June 11, 1996, File No. 1-9666).
*2(b) -- Combination Agreement effective as of March 11, 1996 by
and between the Company and Hemlo Gold Mines Inc. (Annex C to
Exhibit 20(a), Joint Management Information Circular and
Proxy Statement, to the Company's Current Report on Form 8-K
dated June 11, 1996, File No. 1-9666).
3(a) -- Restated Articles of Incorporation of the Company, as amended
and restated through July 19, 1996.
*3(b) -- Certificate of Resolution Establishing Designation,
Preferences and Rights of $3.25 Convertible Preferred Stock
(Exhibit 4(b) to the Company's Current Report on Form 8-K
dated July 19, 1996, File No. 1-9666).
*3(c) -- Certificate of Amendment of Certificate of Resolution
Establishing Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (Exhibit 4(c) to the
Company's Current Report on Form 8-K dated July 19, 1996,
File No. 1-9666).
3(d) -- Bylaws of the Company, as amended through March 21, 1997.
*4(a) -- Rights Agreement, dated November 10, 1988, as amended and
restated as of July 19, 1996, between the Company and The
Bank of New York, as Rights Agent (Exhibit 4(e) to the
Company's Current Report on Form 8-K dated July 19, 1996,
File No. 1-9666).
*4(b) -- Voting, Support and Exchange Trust Agreement dated as of
July 19, 1996 between the Company, Hemlo Gold Mines Inc. and
The R-M Trust Company (Annex E to Exhibit 20(a), Joint
Management Information Circular and Proxy Statement, to the
Company's Current Report on Form 8-K dated June 11, 1996,
File No. 1-9666).
</TABLE>
E-1
<PAGE> 93
<TABLE>
<S> <C> <C>
*4(c) -- Specimen Stock Certificate for the Common Stock of the Company
(Exhibit 4(b) to the Company's Annual Report on Form 10-K for
the year ended December 1, 1988; File No. 1-9666).
*4(d) -- Fiscal and Paying Agency Agreement, dated as of January 4,
1990, between the Company and Citibank, N.A., Fiscal Agent
(Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989; File No. 1-9666).
*4(e)(1) -- Investment Agreement, dated May 22, 1992, between Empresa
Minera Inti Raymi S.A. and International Finance Corporation
(Exhibit 4(e) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992; File No. 1-9666).
*4(e)(2) -- Amendment to Investment Agreement and Waiver, effective as of
December 31, 1994, between Empresa Minera Inti Raymi S.A. and
International Finance Corporation (Exhibit 4(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995; File No. 1-9666).
*4(f)(1) -- Finance Agreement, dated as of September 14, 1992, between
Empresa Minera Inti Raymi S.A. and Overseas Private
Investment Corporation (Exhibit 4(f) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992;
File No. 1-9666).
*4(f)(2) -- First Amendment to Finance Agreement and Limited Waiver,
effective as of December 31, 1994, between Empresa Minera
Inti Raymi S.A. and Overseas Private Investment Corporation
(Exhibit 4(f)(2) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994; File No. 1-9666).
*4(f)(3) -- Letter Agreement dated December 31, 1994, among Overseas
Private Investment Corporation, Battle Mountain Gold Company,
Kori Kollo Corporation and Zeland Mines, S.A. (Exhibit 4(c)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, File No. 1-9666).
*4(g)(1) -- Loan Agreement, dated June 29, 1992, between Empresa Minera
Inti Raymi S.A. and Corporacion Andina de Fomento (English
translation) (Exhibit 4(g) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992; File No.
1-9666).
*4(g)(2) -- Amendment to Loan Agreement, effective as of December
31, 1994, between Empresa Minera Inti Raymi S.A. and
Corporacion Andina de Fomento (English translation) (Exhibit
4(b) to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995; File No. 1-9666).
+*10(a)(1) -- Battle Mountain Gold Company 1988 Deferred Income
Stock Option Plan, as amended through May 18, 1995 (Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995; File No. 1-9666).
</TABLE>
E-2
<PAGE> 94
<TABLE>
<S> <C> <C>
+*10(a)(2) -- Specimen of Deferred Income Stock Option Agreement for
officers of the Company, as amended and restated (Exhibit
10(a)(4) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992; File No. 1-9666).
+*10(b)(1) -- 1985 Stock Option Plan of the Company, as amended and
restated effective April 7, 1993 (Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993; File No. 1-9666).
+*10(b)(2) -- First Amendment to 1985 Stock Option Plan of the Company,
effective May 12, 1995 (Exhibit 10(b)(1) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995; File No. 1-9666).
+*10(b)(3) -- Specimen of the Company's 1985 Stock Option Plan Non-Qualified
Stock Option Agreement for executive officers of the Company
(Exhibit 10(a)(1) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993; File No. 1-9666).
+*10(b)(4) -- Specimen Amendment to the Company's 1985 Stock Option Plan
Non-Qualified Stock Option Agreement for executive officers
of the Company (Exhibit 10(b)(2) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995; File
No. 1-9666).
+*10(b)(5) -- Specimen of the Company's 1985 Stock Option Plan Incentive
Stock Option Agreement for executive officers of the Company
(Exhibit 10(a)(2) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993; File No. 1-9666).
+*10(b)(6) -- Specimen Amendment to the Company's 1985 Stock Option Plan
Incentive Stock Option Agreement for executive officers of
the Company (Exhibit 10(b)(3) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995; File
No. 1-9666).
+*10(c)(1) -- Battle Mountain Gold Company 1986 Restricted Stock Plan, as
amended and restated (Exhibit 4(d) to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1988;
File No. 1-9666).
+*10(c)(2) -- Specimen of Agreement under the Company's 1986 Restricted
Stock Plan (Exhibit 10(c)(2) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992; File No.
1-9666).
+o*10(d)(1) -- Specimen of the Company's Severance Agreements with officers
of the Company regarding certain benefits payable in the
event of change of control of the Company (Exhibit 10(f) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1986; File No. 0-13728).
</TABLE>
E-3
<PAGE> 95
<TABLE>
<S> <C> <C>
+*10(d)(2) -- Severance Agreement, dated June 5, 1992, between the Company
and R. Dennis O'Connell (Exhibit 10(g)(2) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992; File No. 1-9666).
+*10(e) -- Battle Mountain Gold Company Contribution Equalization Plan,
as amended and restated effective as of November 10, 1988
(Exhibit 10(h) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992; File No. 1-9666).
+*10(f) -- Battle Mountain Gold Company Executive Productivity Bonus
Plan, as amended and restated effective January 1, 1994
(Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993; File No. 1-9666).
*10(g)(1) -- Battle Mountain Gold Company Non-Qualified Stock Option Plan
for Outside Directors. (Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991;
File No. 1-9666).
*10(g)(2) -- Amendment to Battle Mountain Gold Company Non-Qualified Stock
Option Plan for Outside Directors effective January 1, 1995
(Exhibit 10(j)(2) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994; File No. 1-9666).
*10(g)(3) -- Specimen of Director's Stock Option Agreement under the
Company's Non-Qualified Stock Option Plan for Outside
Directors (Exhibit 10(j)(2) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992; File No.
1-9666).
*10(h) -- Heads of Agreement, dated March 23, 1989, among the Company,
Niugini Mining Limited and the individuals listed on the
signature page thereto (Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988;
File No. 1-9666).
+*10(i)(1) -- 1994 Long-Term Incentive Plan of Battle Mountain Gold Company,
as effective April 21, 1994 (Exhibit 10(a)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994; File No. 1-9666).
+*10(i)(2) -- Amended and Restated 1994 Long-Term Incentive Plan of Battle
Mountain Gold Company (Annex I to Exhibit 20(a), Joint
Management Information Circular and Proxy Statement, to the
Company's Current Report on Form 8-K dated June 11, 1996,
File No. 1-9666).
+*10(i)(3) -- Specimen of the Company's 1994 Long-Term Incentive Plan
Non-Qualified Stock Option Agreement (Exhibit 10(c)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; File No. 1-9666).
</TABLE>
E-4
<PAGE> 96
<TABLE>
<S> <C> <C>
+*10(i)(4) -- Specimen of the Company's 1994 Long-Term Incentive Plan
Incentive Stock Option Agreement (Exhibit 10(c)(2) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; File No. 1-9666).
+*10(i)(5) -- Specimen of the Company's 1994 Long-Term Incentive Plan
Restricted Stock Agreement (Exhibit 10(a)(4) to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1994; File No. 1-9666).
+*10(i)(6) -- Specimen of the Company's 1994 Long-Term Incentive Plan
Performance Unit Agreement (Exhibit 10(n)(5) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994; File No. 1-9666).
+*10(j)(1) -- Specimen Split-Dollar Agreement (Individual) (Exhibit 10(o)(1)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994; File No. 1-9666).
+*10(j)(2) -- Specimen Amendment to Split-Dollar Agreement (Individual)
(Exhibit 10(o)(2) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994; File No. 1-9666).
+*10(j)(3) -- Specimen Split-Dollar Agreement (Trustee) (Exhibit 10(o)(3) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994; File No. 1-9666).
+*10(j)(4) -- Specimen Amendment to Split-Dollar Agreement (Trustee)
(Exhibit 10(o)(4) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994; File No. 1-9666).
+*10(k)(1) -- Battle Mountain Gold Company Supplemental Executive
Retirement Plan (Exhibit 10(d)(1) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995; File
No. 1-9666).
+*10(k)(2) -- Battle Mountain Gold Company Supplemental Executive Retirement
Plan Trust Agreement (Exhibit 10(d)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995; File No. 1-9666).
+o*10(k)(3) -- Specimen of the Company's Supplemental Executive Retirement
Plan Agreement (Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995,
File No. 1-9666).
*10(l) -- Registration Rights Agreement, dated as of July 19, 1996,
between Noranda Inc., Kerr Addison Mines Limited and the
Company (Exhibit 10(a) to the Company's Current Report on
Form 8-K dated July 19, 1996, File No. 1-9666).
+o10(m) -- Specimen of Employment Agreements dated March 11, 1996 between
the Company and certain executive officers
</TABLE>
E-5
<PAGE> 97
<TABLE>
<S> <C> <C>
+10(n) -- Consulting Agreement effective as of March 1, 1997 between
the Company and Karl E. Elers.
11 -- Computation of Earnings Per Common Share.
12 -- Computation of Ratio of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Dividends.
*20(a) -- Joint Management Information Circular and Proxy Statement
(Exhibit 20(a) to the Company's Current Report on Form 8-K
dated June 11, 1996, File No. 1-9666).
21 -- Subsidiaries of the Company.
23(a) -- Consent of Price Waterhouse LLP.
23(b) -- Consent of Ernst & Young
24 -- Powers of Attorney
27 -- Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference as indicated.
+ Represent management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Annual Report by Item
601(10)(iii) of Regulation S-K.
o Pursuant to Instruction 2 accompanying paragraph (a) and the
Instruction accompanying paragraph (b)(10)(iii)(B)(6) of Item 601 of
Regulation S-K, the registrant has not filed each executive officer's
individual agreement with the Company as an exhibit hereto. The
registrant has agreements substantially identical to Exhibit 10(d)(1)
above with each of Messrs. Elers, Werneburg, Mazur, Quinn and Reisbick.
The registrant has agreements substantially identical to Exhibit
10(k)(3) above with each of Karl E. Elers, Kenneth R. Werneburg, Joseph
L. Mazur, R. Dennis O'Connell, Robert J. Quinn and Fred B. Reisbick.
The registrant has agreements substantially identical to Exhibit 10(m)
above with each of Messrs. Bayer, Atkinson, Baylis and Keyes.
E-6
<PAGE> 1
EXHIBIT 3(a)
RESTATED
ARTICLES OF INCORPORATION
OF
BATTLE MOUNTAIN GOLD COMPANY
FIRST: The name of the corporation is BATTLE MOUNTAIN GOLD
COMPANY (the "Corporation").
SECOND: The principal office or place of business of the
Corporation in the State of Nevada is to be located at One East First
Street, in the City of Reno, County of Washoe.
THIRD: The Corporation may engage in any lawful activity.
FOURTH: The amount of the total authorized capital stock of the
Corporation, and the number and par value of the shares of which it is
to consist, is 550,000,001 shares, amounting in the aggregate to One
Hundred Million Dollars and ten cents ($100,000,000.10), divided into
classes as follows:
50,000,000 shares shall be Preferred Stock, $1.00 par value
("Preferred Stock");
500,000,000 shares shall be Common Stock, $0.10 par value
("Common Stock"); and
One share shall be Special Voting Stock, $0.10 par value
("Special Voting Stock").
Shares of any class of stock of the Corporation may be issued for such
consideration and for such corporate purposes as the Board of Directors
may from time to time determine. The capital stock, after the amount of
the subscription price (which shall not be less than the par value) has
been paid in, shall not be subject to assessment.
The following is a description of the different classes and a
statement of the relative rights of the holders of the Preferred Stock, the
Common Stock and the Special Voting Stock.
SECTION I. PREFERRED STOCK
The Board of Directors of the Corporation is authorized at any time and
from time to time to provide for the issuance of shares of Preferred Stock of
the Corporation in one or more series with such voting powers, full or limited,
or without voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof as are stated and expressed in these
Articles of
<PAGE> 2
Incorporation, and, to the extent not so stated or expressed, as may be stated
and expressed in a resolution or resolutions establishing such series and
providing for the issuance thereof adopted by the Board of Directors pursuant
to the authority so to do which is hereby expressly vested in it including,
without limitation the generality of the foregoing, the following:
(1) the designation and number of shares of each such series;
(2) the dividend rate of each such series, the conditions and dates
upon which such dividends shall be payable, the preference or
relation of such dividends to dividends payable on any other
class or classes of capital stock of the Corporation, and whether
such dividends shall be cumulative or noncumulative;
(3) whether the shares of each such series shall be subject to
redemption by the Corporation, and, if made subject to such
redemption, the times, prices, rates, adjustments and other terms
and conditions of such redemption;
(4) the terms and amount of any sinking or similar fund provided for
the purchase or redemption of the shares of each such series;
(5) whether the shares of each such series shall be convertible into
or exchangeable for shares of capital stock or other securities
of the Corporation or of any other corporation, and, if provision
be made for conversion or exchange, the times, prices, rates,
adjustments and other terms and conditions of such conversion or
exchange;
(6) the extent, if any, to which the holders of the shares of any
series shall be entitled to vote as a class or otherwise with
respect to the election of directors or otherwise;
(7) the restrictions and conditions, if any, upon the issue or
reissue of any additional Preferred Stock ranking on a parity
with or prior to such shares as to dividends or upon dissolution;
(8) the rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the
Corporation, which rights may be different in the case of
voluntary dissolution than the case of involuntary dissolution;
and
(9) any other relative rights, preferences or limitations of shares
of such series consistent with this Article FOURTH and applicable
law.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock of the Corporation, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. All shares of any
one series of Preferred Stock of the Corporation shall be identical
2
<PAGE> 3
in all respects with all other shares of such series, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative. Except as may otherwise be required by
law or these Articles of Incorporation, the terms of any series of Preferred
Stock may be amended without consent of the holders of any other series of
Preferred Stock or of any class of Common Stock of the Corporation.
SECTION II. COMMON STOCK AND SPECIAL VOTING STOCK
1. Voting Rights.
(a) Each share of Common Stock shall entitle the holder thereof to
one vote for each share held and the holder of the share of Special Voting
Stock shall have a number of votes equal to the number of Exchangeable Shares
("Exchangeable Shares") of Hemlo Gold Mines Inc. (to be renamed Battle Mountain
Canada Ltd.), an Ontario corporation, from time to time which are not owned by
the Corporation or any of its direct or indirect subsidiaries that, under
Section 78.283 of the Nevada Revised Statutes or any successor provision
thereto, cannot vote shares of Common Stock held by it (an "Article 4
Subsidiary"). Except as otherwise required by law or these Articles of
Incorporation, the Common Stock and the Special Voting Stock shall vote
together as a single class in the election of directors and on all matters
submitted to a vote of stockholders of the Corporation.
(b) No holder of Common Stock or Special Voting Stock shall have the
right to cumulate votes in the election of Directors of the Corporation or for
any other purpose.
2. Dividends. Subject to the rights of holders of Preferred Stock of the
Corporation, the holders of Common Stock shall be entitled to share ratably, on
a share for share basis, in any and all dividends, payable in cash or
otherwise, as may be declared in respect of their holdings by the Board of
Directors from time to time out of assets or funds of the Corporation legally
available therefor, and the holders of Special Voting Stock shall not be
entitled to receive any such dividends.
3. Provisions Regarding Special Voting Stock.
(a) Pursuant to the terms of that certain Combination Agreement,
dated as of March 11, 1996, by and among the Corporation and Hemlo Gold Mines
Inc. one share of Special Voting Stock is being issued to the trustee (the
"Trustee") under the Voting, Support and Exchange Trust Agreement, dated as of
July 19, 1996 by and between the Corporation, Hemlo Gold Mines Inc. and the
Trustee.
(b) The holder of the share of Special Voting Stock is entitled to
exercise the voting rights attendant thereto in such manner as such holder
desires.
(c) At such time as the Special Voting Stock has no votes attached to
it because there are no Exchangeable Shares of Hemlo Gold Mines Inc.
outstanding which are not owned by the
3
<PAGE> 4
Corporation or an Article 4 Subsidiary and there are no shares of stock, debt,
options or other agreements of Hemlo Gold Mines Inc. which could give rise to
the issuance of any Exchangeable Shares of Hemlo Gold Mines Inc. to any person
(other than the Corporation or an Article 4 Subsidiary), the Special Voting
Stock shall be cancelled.
SECTION III. PROVISIONS APPLICABLE TO ALL CLASSES
1. Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of
the Corporation, the holders of each series of Preferred Stock shall be
entitled to receive, out of the net assets of the Corporation, an amount for
each share equal to the amount fixed and determined in accordance with the
respective rights and priorities established by the Board of Directors in any
resolution or resolutions providing for the issuance of any particular series
of Preferred Stock before any of the assets of the Corporation shall be
distributed or paid over to holders of Common Stock. After payment in full of
said amounts to the holders of Preferred Stock of all series, holders of Common
Stock shall be entitled to share ratably in remaining net assets of the
Corporation, such that an equal amount of net assets shall be allocated to each
share of Common Stock, and the holders of Special Voting Stock shall not be
entitled to receive any such assets. A merger or consolidation of the
Corporation with or into any other corporation or a sale or conveyance of all
or any part of the assets of the Corporation (which shall not in fact result in
the liquidation of the Corporation and the distribution of assets to
stockholders) shall not be deemed to be a voluntary or involuntary liquidation
or dissolution or winding up of the Corporation within the meaning of this
paragraph 1.
2. Preemptive Rights. No stockholder of the Corporation shall, by reason
of his holding any shares of any class of the Corporation, have any preemptive
or preferential right to acquire or subscribe for any treasury or unissued
shares of any class of the Corporation now or hereafter to be authorized, or
any notes, debentures, bonds, or other securities convertible into or carrying
any right, option or warrant to subscribe for or acquire shares of any class of
the Corporation now or hereafter to be authorized, whether or not the issuance
of any such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividends or voting rights of such stockholder, and the
Board of Directors of the Corporation may issue shares of any class of this
Corporation, or any notes, debentures, bonds or other securities convertible
into or carrying rights, options or warrants to subscribe for or acquire shares
of any class of the Corporation, without offering any such shares of any class
of the Corporation, either in whole or in part, to the existing stockholders of
any class of the Corporation.
FIFTH: All corporate powers shall be exercised by the Board of
Directors, except as otherwise provided by law or by these Articles of
Incorporation.
1. Powers of the Board of Directors. In furtherance and not
in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized:
4
<PAGE> 5
(a) to fix in, or pursuant to, the Bylaws from time to
time the number of Directors of the Corporation consistent with
paragraph 2 of this Article FIFTH, none of whom need be
stockholders of the Corporation;
(b) to authorize and cause to be executed mortgages and
liens upon the real and personal property of the Corporation and
conveyances of its real estate;
(c) to set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any
proper purposes and or abolish any such reserve in the manner in
which it was created;
(d) to borrow money and to make and issue notes, bonds,
debentures, obligations and evidence of indebtedness of all
kinds, with or without the privilege of conversion into stock of
the Corporation;
(e) to determine from time to time whether and to what
extent, and at what times and places, and under what conditions
and regulations, the accounts, books and records of the
Corporation (other than the stock ledger), or any of them, shall
be open to inspection of stockholders; and no stockholder shall
have any right of inspecting any account, book record or document
of the Corporation except as conferred by law, unless authorized
by a resolution of the Board of Directors of the Corporation; and
(f) to designate by resolution or resolutions passed by
a majority of the whole Board of Directors one or more
committees, each committee to consist of one ore more of the
Directors of the Corporation, which, to the extent provided in
said resolution or resolutions or in the Bylaws of the
Corporation, shall have and may exercise the power of the Board
of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be
affixed to all papers on which the Corporation desires to place a
seal. Such committee or committees shall have such name or names
as may be stated in the Bylaws of the Corporation or as may be
determined from time to time by resolutions adopted by the Board
of Directors.
The Corporation may confer powers upon the Board of Directors of
the Corporation in its Bylaws in addition to the powers conferred upon
the Board of Directors in these Articles of Incorporation and in
addition to the powers and authorities expressly conferred upon the
Board of Directors by law.
Both stockholders and the Board of Directors may hold their
meetings within or without the State of Nevada, and the Corporation may
keep the books and records of the Corporation (subject to the provisions
of applicable law) outside of the State of Nevada at such places as may
be designated from time to time by the Board of Directors.
5
<PAGE> 6
2. Organization of the Board of Directors. The number of
Directors that shall constitute the whole Board of Directors of the
Corporation shall be not less than three nor more than twelve as
specified from time to time in, or pursuant to, the Bylaws of the
Corporation, except in the case of any increase in the number of
Directors by reason of any provision entitling the holders of any one or
more series of Preferred Stock, voting as a class, to elect additional
Directors in specified circumstances. The Board of Directors is divided
into three classes, Class I, Class II and Class III. Such classes shall
be as nearly equal in number of Directors as possible. Each Director
shall serve for a term ending on the third annual meeting of
stockholders following the annual meeting of stockholders at which such
Director was elected; provided, however, that the Directors first
elected to Class I shall serve for a term ending on the annual meeting
next following the end of the calendar year 1985, the Directors first
elected to Class II shall serve for a term ending on the second annual
meeting next following the end of the calendar year 1985, and the
Directors first elected to Class III shall serve for a term ending on
the third annual meeting next following the end of the calendar year
1985. The foregoing notwithstanding, each Director shall serve until
his successor shall have been duly elected and qualified unless he shall
resign, become disqualified, disabled or shall otherwise be removed.
At each annual election, the Directors chosen to succeed those
whose terms then expire shall be of the same class as the Directors they
succeed, unless, by reason of any intervening changes in the authorized
number of Directors, the Board of Directors shall designate one or more
directorships whose term then expire as directorships of another class
in order more nearly to achieve equality of the number of Directors
among the classes of Directors.
Notwithstanding the rule that the three classes of Directors
shall be as nearly equal in number of Directors as possible, in the
event of any change in the authorized number of Directors, each Director
then continuing to serve as such shall continue nevertheless as a
Director of the class of Directors of which he is a member until the
expiration of his current term or his prior death, resignation,
disqualification or removal. If any newly created directorship may be
allocated to one of two or more classes of Directors consistent with the
rule that the three classes of Directors shall be as nearly equal in
number of Directors as possible, the Board of Directors shall allocate
it to that of the available classes whose term of office is due to
expire at the earliest date following such allocation.
3. Removal. A Director may be removed from office without
cause only by the affirmative vote of the holders of not less than 80%
of the number of shares of Common Stock then outstanding. A director
may be removed from office for cause only by the affirmative vote of the
holders of not less than a majority of the number of shares of Common
Stock then outstanding. Except as otherwise provided by law or fixed
by, or pursuant to, the provisions of Article FOURTH hereof relating to
the rights of holders of any class or series of stock having a
preference over the Common Stock as to
6
<PAGE> 7
dividends or upon liquidation, this paragraph 3 shall not apply with
respect to any director elected by the holders of any such class or
series having a preference.
4. Vacancies. Except as otherwise provided for or fixed by,
or pursuant to, the provisions of Article FOURTH hereof relating to the
rights of holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect
Directors under specified circumstances, newly created directorships
resulting from any increase in the number of Directors and any vacancies
on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining Directors then in
office, even though less than a quorum of the board of Directors. Any
Director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until
such Director's successor shall have been elected and qualified. No
decrease in the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent Director.
5. Nominations. Advance notice of any nomination by a
stockholder for the election of Directors of the Corporation shall be
given in the manner provided in the Bylaws of the Corporation.
SIXTH: No action required to be taken or that may be taken at
any annual or special meeting of stockholders of the Corporation may be
taken without a meeting except by the unanimous written consent of all
stockholders entitled to vote on such action, and the power of
stockholders to consent in writing to the taking of any action by less
than unanimous consent of all such stockholders is specifically denied.
Except as otherwise required by law and subject to the rights of holders
of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Board of
Directors of the Corporation pursuant to a resolution approved by a
majority of the entire Board of Directors or by the Chairman of the
Board or the President of the Corporation.
SEVENTH: The existence of the Corporation shall be perpetual.
EIGHTH: 1. Except as set forth in paragraph 4 of this Article
EIGHTH, the affirmative vote of the holders of 80% of the voting power
of all stock of this Corporation entitled to vote in elections of
directors (excluding stock entitled so to be voted only upon the
happening of some contingency unless such contingency shall have
occurred and is continuing), considered for the purposes of this Article
EIGHTH and Article NINTH as one class and hereinafter in this Article
EIGHTH and in Article NINTH embraced in the term "voting stock," shall
be required:
(a) for a merger or consolidation of the Corporation
with or into any other corporation;
7
<PAGE> 8
(b) for any sale or lease of all or any substantial
part of the assets of the Corporation to any other corporation,
person or other entity; or
(c) for any sale or lease to the Corporation or any
subsidiary thereof of any assets (except assets having an
aggregate fair market value of less than $5,000,000) in exchange
for voting stock (or securities convertible into or exchangeable
for voting stock or options, warrants or rights to purchase
voting stock or securities convertible into voting stock) of the
Corporation or any subsidiary of the Corporation by any other
corporation, person or entity, if as of the record date for the
determination of stockholders entitled to notice thereof and to
vote thereon or consent thereto, or as of the time the Board of
Directors shall have approved a memorandum of understanding, or
the Corporation shall have entered into any agreement, with
respect to any such transaction for which the vote of the holders
of no class or series of stock of the Corporation is otherwise
required by law, the Articles of Incorporation or any other
contract or agreement, such other corporation, person or entity
which is party to such a transaction is the beneficial owner,
directly or indirectly, of 5% or more of the outstanding shares
of any class or series of voting stock of the Corporation. There
shall also be required for any such transaction for which such
affirmative vote shall be required by this paragraph 1 the
affirmative vote of the holders of a majority of the voting power
of the voting stock of this Corporation, exclusive of all voting
stock of this Corporation of which such other corporation, person
or entity which is party to such transaction is, directly or
indirectly, the beneficial owner. Each such affirmative vote
shall be in addition to the vote of the holders of any class or
series of stock of the Corporation otherwise required by law or
the Articles of Incorporation or the resolution or resolutions
providing for the issuance of such class or series which have
been adopted by the Board of Directors or any agreement between
the Corporation and any national securities exchange.
2. For purposes of this Article EIGHTH and Article NINTH any
corporation, person or other entity shall be deemed to be the beneficial
owner of any shares of stock of the Corporation:
(a) which it owns directly, whether or not of record;
or
(b) which it has the right to acquire pursuant to any
agreement or understanding or upon exercise of conversion rights,
exchange rights, warrants or options or otherwise;
(c) which are beneficially owned, directly or
indirectly (including shares deemed to be owned through
application of subparagraph (b) above), by any "affiliate" or
"associate" as those terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934 as in effect on June 1, 1985; or
8
<PAGE> 9
(d) which are beneficially owned, directly or
indirectly (including shares deemed owned through application of
subparagraph (b) above), by any other corporation, person or
entity with which it or its "affiliate" or "associate" has any
agreement or arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of stock of the
Corporation.
For the purposes of this Article EIGHTH, the outstanding shares of any
class or series of stock of the Corporation shall include shares deemed
owned through the application of subparagraphs (b), (c) and (d) of
paragraph 2, but shall not include any other shares which may be
issuable pursuant to any agreement or upon exercise of conversion
rights, warrants, options or otherwise. As used in this Article EIGHTH,
the term "subsidiary" shall mean a corporation a majority of the voting
power of the capital stock (that is, voting power entitled to be
exercised in the election of directors, but excluding voting power
entitled so to be exercised only upon the happening of some contingency
unless such contingency shall have occurred and is continuing) of which
shall be owned by the Corporation or by one or more subsidiaries or by
the Corporation and one or more subsidiaries.
3. The Board of Directors shall have the power and duty to
determine for the purposes of this Article EIGHT and Article NINTH on
the basis of information known to this corporation whether
(a) such other corporation, person or other entity
beneficially owns 5% or more of the outstanding shares of any
class or series of voting stock of the Corporation;
(b) a corporation, person or entity is an "affiliate"
or "associate" (as defined in paragraph 2 above) of another;
(c) the assets being acquired by the Corporation, or
any subsidiary thereof, have an aggregate fair market value of
less than $5,000,000; and
(d) the memorandum of understanding referred to in
paragraph 4 below is substantially consistent with the
transaction covered thereby.
Any such determination shall be conclusive and binding for all purposes
of this Article EIGHTH and Article NINTH.
4. The provisions of paragraph 1 of this Article EIGHTH shall
not apply to:
(i) any merger or consolidation of this Corporation
with any corporation, or any sale or lease to this Corporation or
any subsidiary thereof of any assets of, or any sale or lease by
this Corporation or any subsidiary thereof of any of its assets
to, any corporation, person or entity, if the Board of Directors
9
<PAGE> 10
of this Corporation has approved a memorandum of understanding
with such other corporation, person or entity with respect to
such transaction prior to the time that such other corporation,
person or entity shall have become a beneficial owner of 5% or
more of the outstanding shares of any class or series of voting
stock of the Corporation; or
(ii) any merger or consolidation of this Corporation
with, or any sale or lease to this Corporation or any subsidiary
thereof any assets of, or any sale or lease by this Corporation
or any subsidiary thereof of any of its assets to, any
corporation 50% or more of the outstanding voting stock of which
is beneficially owned, directly or indirectly, by this
Corporation.
NINTH: 1. Amendments to Articles of Incorporation.
Notwithstanding any other provision of these Articles of Incorporation
or the Bylaws (and in addition to any other vote that may be required by
law, these Articles of Incorporation or the Bylaws), there shall be
required to alter, amend, repeal or adopt any provision inconsistent
with, or in limitation of, Articles FIFTH, SIXTH, EIGHTH and this
Article NINTH the affirmative vote or consent of (a) the holders of at
least 80% of the voting power of the voting stock of the Corporation and
(b) the holders of at least a majority of the voting power of the voting
stock of the Corporation exclusive of all voting stock of the
Corporation beneficially owned, directly or indirectly, by any
corporation, person or entity which is, as of the record date for the
determination of stockholders entitled to notice of such alteration,
amendment, repeal or adoption and to vote thereon, the beneficial owner
of 5% or more of the outstanding shares of any class or series of voting
stock of the Corporation.
2. Amendments to Bylaws. The Board of Directors of the
Corporation shall have the power to make, alter, amend and repeal the
Bylaws of the Corporation (except so far as the Bylaws adopted by
stockholders shall otherwise provide). Any Bylaws made by the Directors
under the powers conferred hereby may be altered, amended or repealed by
the Directors or by the stockholders, provided that the Bylaws shall not
be altered, amended or repealed, and no provision inconsistent therewith
or in limitation thereof shall be adopted, by the stockholders without
the affirmative vote of the holders of at least 80% of the voting power
of all shares of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class.
TENTH: No director or officer of the Corporation shall be
personally liable to the Corporation or any of its stockholders for
damages for breach of fiduciary duty as a director or officer involving
any act or omission of any such director or officer occurring on or
after April 28, 1987; provided, however, that the foregoing provision
shall not eliminate or limit the liability of a director or officer (i)
for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) the payment of dividends in violation
of Section 78.300 of the Nevada Revised Statutes. Any repeal or
modification of this Article by the stockholders of the Corporation
shall
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be prospective only, and shall not adversely affect any limitation on
the personal liability of a director or officer of the Corporation for
acts or omissions prior to such repeal or modification.
ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of
Incorporation in the manner now or hereafter prescribed by these
Articles of Incorporation or by law, and all rights conferred upon
stockholders herein are granted subject to this reservation.
11
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EXHIBIT 3(d)
BATTLE MOUNTAIN GOLD COMPANY
AMENDED BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of this
Corporation shall be held on such date and at such time and place, within or
without the State of Nevada, as the Board of Directors of the Corporation may
designate, and on any subsequent day or days and at the time and place to which
such meeting may be adjourned, for the purposes of electing directors and of
transacting such other business as may properly come before the meeting. The
Board of Directors shall give at least ten (10) days' notice of the date, time
and place of the meeting to the stockholders.
SECTION 2. Any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders and may not be effected by any consent in
writing by stockholders. Except as otherwise required by law and subject to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors or by the Chairman of the Board or by the President of the
Corporation. Upon written request of the Board of Directors, the Chairman of
the Board or the President, after the Chairman of the Board or the President
after having duly called a special meeting of stockholders, it shall be the
duty of the Secretary or any Assistant Secretary of the Corporation to fix the
date of the meeting to be held not less than ten (10) nor more than sixty (60)
days after receipt of the request and to give due notice thereof.
SECTION 3. Every special meeting of stockholders shall be
held at such place within or without the State of Nevada as the Board of
Directors may designate.
SECTION 4. Written notice of every meeting of stockholders
shall be given by the Secretary of the Corporation to each stockholder of
record entitled to vote at the meeting, by placing such notice in the mail at
least ten (10) days, but not more than sixty (60) days, prior to the day named
for the meeting addressed to each stockholder at his address appearing on the
books of the Corporation.
SECTION 5. The Board of Directors may fix a date, not less
than ten (10) nor more than sixty (60) days preceding the date of any meeting
of stockholders, as a record date for the determination of stockholders
entitled to notice of, and to vote at, any such meeting. The Board of
Directors shall not close the books of the Corporation against transfers of
shares during the whole or any part of such period.
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SECTION 6. The notice of every meeting of stockholders may be
accompanied by a form of proxy approved by the Board of Directors in favor of
such person or persons as the Board of Directors may select.
SECTION 7. Except as otherwise provided by law, the Articles
of Incorporation of the Corporation or these Bylaws, the presence in person or
by proxy of the holders of a majority of the votes entitled to be cast thereat
shall constitute a quorum at each meeting of stockholders. The stockholders
present at any duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum. Directors shall be elected by a plurality of the votes
cast in the election. For all matters as to which no other voting requirement
is specified by law, the Articles of Incorporation of the Corporation or these
Bylaws, the affirmative vote required for stockholder action shall be that of a
majority of the votes entitled to be cast thereon present in person or
represented by proxy at the meeting (as counted for purposes of determining the
existence of a quorum at the meeting). In the case of a matter submitted for a
vote of the stockholders as to which a stockholder approval requirement is
applicable under the stockholder approval policy of the New York Stock
Exchange, the requirements of Rule 16b-3 under the Securities Exchange Act of
1934 or any provision of the Internal Revenue Code, in each case for which no
higher voting requirement is specified by law, the Articles of Incorporation of
the Corporation or these Bylaws, the vote required for approval shall be the
requisite vote specified in such stockholder approval policy, Rule 16b-3 or
Internal Revenue Code provision, as the case may be (or the highest such
requirement if more than one is applicable). For the approval of the
appointment of independent public accountants (if submitted for a vote of the
stockholders), the vote required for approval shall be a majority of the votes
cast on the matter.
SECTION 8. Any meeting of stockholders may be adjourned from
time to time, without notice other than by announcement at the meeting at which
such adjournment is taken, and at any such adjourned meeting at which a quorum
shall be present any action may be taken that could have been taken at the
meeting originally called; provided that if the adjournment is for more than
thirty (30) days, or if, after the adjournment, a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. The business, affairs and property of the
Corporation shall be managed by a board of directors. As provided for in the
Articles of Incorporation of the Corporation, the Board of Directors shall be
divided into classes until the annual meeting of stockholders to be held in
1999. The number of directors constituting the entire Board of Directors shall
be fixed from time to time by resolutions of the Board of Directors but shall
be not less than three nor more than twelve. Each director shall hold office
for the full term to which such person shall have been elected and until such
person's successor is duly elected and shall qualify, or until such person's
earlier death, resignation or removal. A director need not be a resident of
the State of Nevada or a stockholder of the Corporation.
SECTION 2. Except as provided in the Articles of
Incorporation of the Corporation and subject to the rights of holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified circumstances,
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualifies. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 3. No director of the Corporation shall be removed
from office as a director without cause except by the affirmative vote of the
holders of 80% of the number of shares of Common Stock then outstanding. A
Director may be removed from office for cause only by the affirmative vote of
the holders of not less than a majority of the Common Stock then outstanding.
Except as otherwise provided by law or fixed pursuant to the provisions of
Article FOURTH of the Corporation's Restated Articles of Incorporation relating
to the rights of holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, this Section 3 shall
not apply with respect to any director elected by the holders of any such class
or series having preference.
SECTION 4. Subject to the rights of holders of any class or
series having a preference over the Common Stock as to dividends or upon
liquidation, nominations for the election of directors may be made by the Board
of Directors or a proxy committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors. Any stockholder
entitled to vote in the election of directors may nominate one or more persons
for election as directors only at a meeting of stockholders and only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not later than (i) with respect to
an election to be held at an annual meeting of stockholders, ninety (90) days
in advance of such meeting, and (ii) with respect to an
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election to be held at a special meeting of stockholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to stockholders.
Each such notice shall set forth: (a) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be
nominated; (b) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, as then in effect, had the nominee been
nominated, or intended to be nominated, by the Board of Directors; and (e) the
consent of each nominee to serve as a director of the Corporation if so
elected.
SECTION 5. Regular meetings of the Board of Directors shall
be held at such place or places within or without the State of Nevada and at
such time and on such day as may be fixed by resolution of the Board of
Directors, without further notice of such meetings. The time or place of
holding regular meetings of the Board of Directors may be changed by the
Chairman of the Board of Directors or the President of the Corporation by
giving written notice thereof as provided in Section 7 of this Article II.
SECTION 6. Special meetings of the Board of Directors shall
be held, whenever called by the Chairman of the Board of Directors, the
Chairman of the Executive Committee of the Board of Directors, the President of
the Corporation, or by resolution adopted by the entire Board of Directors, at
such place or places within or without the State of Nevada as may be stated in
the notice of the meeting.
SECTION 7. Written notice of the time and place of, and
general nature of the business to be transacted at, all special meetings of the
Board of Directors, and written notice of any change in the time or place of
holding the regular meetings of the Board of Directors, shall be given to each
director personally or by mail or by telegraph, telecopier or similar
communication; provided, however, that notice of any meeting need not be given
to any director if waived by him in writing, or if he shall be present at such
meeting.
SECTION 8. A majority of directors in office shall constitute
a quorum of the Board of Directors for the transaction of business, but a
lesser number may adjourn from day to day until a quorum is present. Except as
otherwise provided by law or in these Bylaws, all questions shall be decided by
a vote of a majority of the directors present.
SECTION 9. Any action that may be taken at a meeting of the
Board of Directors or members of the Executive Committee may be taken without a
meeting if consent in writing setting forth the action so taken shall be signed
by all of the directors or members of the Executive committee, as the case may
be, and shall be filed with the Secretary of the Corporation.
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<PAGE> 5
SECTION 10. The Board of Directors may designate one or more
of its number to be Vice Chairman of the Board, Chairman of the Executive
Committee and Chairman of any other committees of the Board of Directors and to
hold such other positions on the Board as the Board of Directors may designate.
ARTICLE III
EXECUTIVE COMMITTEE
The Board of Directors may, by resolution adopted by a
majority of the entire Board, designate two or more of its number to constitute
an Executive Committee that shall have and exercise the authority of the Board
of Directors in the management of the business of the Corporation to the extent
permitted by law during intervals between meetings of the Board. The Board of
Directors may, by resolution adopted by a majority of the entire Board,
designate two or more of its number to constitute any other Committee or
Committees with such powers, duties, responsibilities and duration of existence
as the Board of Directors shall deem necessary or desirable.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation shall consist of a
Chairman of the Board of Directors, President, Secretary, Treasurer and such
Executive, Group, Senior or other Vice Presidents, and other officers as may be
elected or appointed by the Board of Directors. Any number of offices may be
held by the same person. All officers shall hold office until their successors
are elected or appointed, except that the Board of Directors may remove any
officer at any time at its discretion.
SECTION 2. The officers of the Corporation shall have such
powers and duties as generally pertain to their offices, except as modified
herein or by the Board of Directors, as well as such powers and duties as from
time to time may be conferred by the Board of Directors. The Chairman of the
Board and the President shall establish an office of the Chief Executive with
officers from the Corporation and Battle Mountain Canada Ltd. to manage the
Corporation, Battle Mountain Canada Ltd. and their respective subsidiaries.
The Chairman of the Board shall preside at meetings of the Board of Directors
and at meetings of stockholders.
ARTICLE V
SEAL
The seal of the Corporation shall be in such form as the Board
of Directors shall prescribe.
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ARTICLE VI
CERTIFICATES OF STOCK
The shares of stock of the Corporation shall be represented by
certificates of stock, signed by the President or such Vice President or other
officer designated by the Board of Directors, countersigned by the Treasurer or
the Secretary and bearing the seal of the Corporation; and such signature of
the President, Vice President, or other officer, such countersignature of the
Treasurer or Secretary, and such seal, or any of them, may be executed in
facsimile, engraved or printed. In case any officer who has signed or whose
facsimile signature has been placed upon any share certificate shall have
ceased to be such officer because of death, resignation or otherwise before the
certificate is issued, the certificate may be issued by the Corporation with
the same effect as if the officer had not ceased to be such at the date of its
issue. Said certificates of stock shall be in such form as the Board of
Directors may from time to time prescribe.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Right to Indemnification - General. The
Corporation shall indemnify and hold harmless each person who was or is, or is
threatened to be made, a party to or otherwise involved in any threatened,
pending or completed action, suit, arbitration, alternate dispute resolution
mechanism, investigation, administrative hearing or other proceeding, whether
civil, criminal, administrative or investigative in nature (any such
threatened, pending or completed proceeding being hereinafter called a
"Proceeding") by reason of the fact that he is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
(whether the basis of his involvement in such Proceeding is alleged action in
an official capacity or in any other capacity while serving as such), to the
fullest extent permitted by applicable law in effect on April 28, 1987, and to
such greater extent as applicable law may thereafter from time to time permit,
from and against all expense, liability and loss (including Expenses, as
hereinafter defined, judgments, penalties, ERISA excise taxes, fines and
amounts paid or to be paid in settlement) actually and reasonably incurred by
him or on his behalf or suffered in connection with such Proceeding or any
claim, issue or matter therein; provided, however, that, except as provided in
Section 5 of this Article VII, the Corporation shall indemnify any such person
claiming indemnity in connection with a Proceeding initiated by such person
only if such Proceeding was authorized by the Board of Directors. Such
indemnification rights shall include, but not be limited to, the right to be
indemnified to the fullest extent permitted by N.R.S.Sections 78.751(1) and (3)
in the case of all other Proceedings.
SECTION 2. Certain Provisions Respecting Indemnification for
and Advancement of Expenses. (a) Without limiting any other right of
indemnification provided for in this Article VII, to the extent that a person
referred to in Section 1 of this Article VII claiming indemnity thereunder is
successful on the merits or otherwise in defense of any Proceeding, he must be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection with such Proceeding. If such person is not wholly
successful in defense of such Proceeding but is successful on
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the merits or otherwise therein, the Corporation must indemnify such person
against all Expenses actually and reasonably incurred by him or on his behalf
in connection with each successfully resolved claim, issue or matter. The
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
(b) To the extent that a person referred to in Section 1
of this Article VII is required to serve as a witness in any Proceeding
referred to therein, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection with serving as a
witness.
(c) The Corporation must from time to time pay, in
advance of final disposition, all reasonable Expenses incurred, as such
Expenses are incurred, by or on behalf of any person referred to in Section 1
of this Article VII claiming indemnity thereunder in respect of any Proceeding
referred to therein. Each such advance shall be made within ten (10) days
after the receipt by the Corporation of a statement from the claimant
requesting the advance, which statement shall reasonably evidence the relevant
Expenses and be accompanied or preceded by any such undertaking as may be
required by applicable law respecting the contingent repayment of such
Expenses.
SECTION 3. Procedure for Determination of Entitlement to
Indemnification. (a) To obtain indemnification under this Article VII, a
claimant shall submit to the Secretary of the Corporation a written
application. The Secretary of the Corporation shall, promptly upon receipt of
such an application for indemnification, advise the Board of Directors in
writing of the application. In connection with any such application, the
claimant shall provide such documentation and information as is requested by
the Corporation and reasonably available to him and relevant to a determination
of entitlement to indemnification.
(b) Any indemnification under this Article VII, unless
otherwise ordered by a court or advanced pursuant to Paragraph (c) of Section 2
of this Article VII, must be made by the Corporation upon a determination that
indemnification is proper in the circumstances. The determination must be
made: (i) by the Board of Directors by a majority vote of such quorum
consisting of Disinterested Directors, (ii) by Independent Counsel in a written
opinion, if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, a majority vote of such
quorum of Disinterested Directors so directs, or (iii) by the stockholders of
the Corporation; provided, however, that if a Change of Control, as hereinafter
defined, shall have occurred, no determination of entitlement to
indemnification adverse to the claimant shall be made other than one made or
concurred in by Independent Counsel, selected as provided in Paragraph (d) of
this Section 3, in a written opinion.
(c) If the determination of entitlement to
indemnification is to be made by Independent Counsel in the absence of a Change
of Control, the Corporation shall furnish notice to the claimant within ten
(10) days after receipt of the application for indemnification, specifying the
identity and address of Independent Counsel. The claimant may, within fourteen
(14) days after receipt of such written notice of selection, deliver to the
Corporation a written objection to such selection, subject to Paragraph (e) of
this Section 3. If such an objection is made, either the
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Corporation or the claimant may petition any court of competent jurisdiction
for a determination that the objection is without a reasonable basis and/or for
the appointment as Independent Counsel of counsel selected by the Court.
(d) If there has been a Change of Control, Independent
Counsel to act as and to the extent required by Paragraph (b) of this Section 3
shall be selected by the claimant, who shall give the Corporation written
notice advising of the identity and address of the Independent Counsel so
selected. The Corporation may, within seven (7) days after receipt of such
written notice of selection, deliver to the claimant a written objection to
such selection, subject to Paragraph (e) of this Section 3. The claimant may,
within five (5) days after the receipt of such objection, select other counsel
to act as Independent Counsel, and the Corporation may, within seven (7) days
after receipt of such written notice of selection, deliver to the claimant a
written objection, as aforesaid, to such second selection. In the case of any
such objection, the claimant may petition any Court of competent jurisdiction
for a determination that the objection is without a reasonable basis and/or for
the appointment as Independent Counsel of counsel selected by the Court.
(e) Any objection to the selection of Independent Counsel
may be asserted only on the ground that the counsel so selected does not
qualify as Independent Counsel under the definition contained in Section 8 of
this Article VII, and the objection shall set forth with particularity the
basis of such assertion. No counsel selected by the Corporation or by the
claimant may serve as Independent Counsel if a timely objection has been made
to his selection unless a Court has determined that such objection is without a
reasonable basis.
(f) The Corporation shall pay any and all reasonable fees
and expenses of Independent Counsel acting pursuant to this Article VII and in
any proceeding to which such counsel is a party or a witness in respect of its
investigation and report. The Corporation shall pay all reasonable fees and
expenses incident to the procedures of this Section 3 regardless of the manner
in which Independent Counsel is selected or appointed.
SECTION 4. Presumptions and Effect of Certain Proceedings.
(a) A person referred to in Section 1 of this Article VII claiming a right to
indemnification under this Article VII shall be presumed (except as may be
otherwise expressly provided in this Article VII or required by applicable law)
to be entitled to such indemnification upon submission of an application for
indemnification in accordance with Section 3, and the Corporation shall have
the burden of proof to overcome the presumption by clear and convincing
evidence in any determination contrary to the presumption.
(b) Unless the determination is to be made by Independent
Counsel, if the person or persons empowered under Section 3 of this Article VII
to determine entitlement to indemnification shall not have made and furnished
the determination in writing to the claimant within sixty (60) days after
receipt by the Corporation of the application for indemnification, the
determination of entitlement to indemnification, shall be deemed to have been
made in favor of the claimant unless the claimant knowingly misrepresented a
material fact in connection with the application or such indemnification is
prohibited by law. The termination of any Proceeding described in Section 1 of
this Article VII, or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not (except as may be otherwise expressly
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provided in this Article VII or required by applicable law) of itself adversely
affect the right of a claimant to indemnification or create a presumption that
a claimant did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, or
with respect to any criminal Proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
SECTION 5. Right of Claimant to Bring Suit. (a) If (i) a
determination is made pursuant to the procedures contemplated by Section 3 of
this Article VII that a claimant is not entitled to indemnification under this
Article VII, (ii) advancement of Expenses is not timely made pursuant to
Paragraph (c) of Section 2 of this Article VII, (iii) Independent Counsel has
not made and delivered a written opinion as to entitlement to indemnification
within ninety (90) days after the selection or appointment of counsel has
become final by virtue of the lapse of time for objection or the overruling of
objections or appointment of counsel by a Court, or (iv) payment of a claim for
indemnification is not made within ten (10) days after a favorable
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to Section 3 or 4 of this Article VII, the claimant shall be
entitled to bring suit against the Corporation to establish his entitlement to
such indemnification or advancement of Expenses and to recover the unpaid
amount of his claim. Neither the failure of the Corporation (including its
Board of Directors, Independent Counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances, nor an actual determination by
the Corporation (including its Board of Directors, Independent Counsel or its
stockholders) that indemnification is not proper in the circumstances, shall be
a defense to the action or create a presumption that indemnification is not
proper in the circumstances, and the claimant shall be entitled to a de novo
trial on the merits as to any such matter as to which no determination or an
adverse determination has been made.
(b) If a claimant is successful in whole or in part in
prosecuting any claim referred to in Paragraph (a) of this Section 5, the
claimant shall also be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all Expenses actually and
reasonably incurred by him in prosecuting such claim if such Expenses have not
already been paid by the Corporation.
SECTION VI. Non-Exclusivity, Insurance and Survival of
Rights. The rights of indemnification and to receive advancement of Expenses
contemplated by this Article VII shall not be exclusive of any other right to
which any person may at any time be entitled under any applicable law,
provision of the Articles of Incorporation, bylaw, agreements, vote of
stockholders or resolution of directors, or otherwise. Without limiting the
generality of the foregoing, the Corporation may, by action of its Board of
Directors, provide indemnification to other employees and agents of the
Corporation with the same or lesser scope and effect as the indemnification of
directors and officers authorized by this Article VII.
The Corporation may purchase and maintain insurance or make
other financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability
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asserted against him and liability and expenses incurred by him in his capacity
as a director, officer, employee or agent, or arising out of his status as
such, whether or not the Corporation has the authority to indemnify him against
such liability and expenses under the Corporation Law of Nevada.
The other financial arrangements made by the Corporation may
include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting
a security interest or other lien on any assets of the
Corporation.
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection may
provide protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud or a knowing violation of law, except with respect to the
advancement of expenses or indemnification ordered by a court.
The right to indemnification conferred in this Article VII
shall be a contract right, and no amendment, alteration or repeal of this
Article VII or any provision thereof shall restrict the indemnification rights
granted by this Article VII as to any person claiming indemnification with
respect to acts, events and circumstances that occurred, in whole or in part,
before such amendment, alteration or repeal. The provisions of this Article
VII shall continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of his heirs, executors and administrators.
SECTION 7. Severability. If any provision of this Article
VII shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Article VII shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
SECTION 8. Definitions. For purposes of this Article VII:
(a) "Change of Control" shall be deemed to have
occurred if: (i) any "person," including a "group" as determined in accordance
with Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is or becomes the beneficial owner, directly or indirectly of
securities of the Corporation representing thirty percent (30%) or more of the
combined voting power of the Corporation's then outstanding securities; (ii) as
a result of, or in connection with, any tender offer or exchange offer, merger
or other business combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "Transaction"), the persons who
were directors of the Corporation before the Transaction shall cease to
constitute a majority of the Board of Directors of the Corporation or any
successor to the Corporation; (iii) the Corporation is merged or consolidated
with another corporation, and as a result of such merger of consolidation less
than seventy percent (70%) of the outstanding voting securities of the
surviving or resulting corporation shall then be owned in the aggregate by the
former stockholders of the Corporation, other than (x) any party to such merger
or consolidation, or (y) any affiliates to any such party; (iv) a tender offer
or exchange offer is made and consummated for the ownership of securities
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of the Corporation representing thirty percent (30%) or more of the combined
voting power of the Corporation's then outstanding voting securities; or (v)
the Corporation transfers substantially all of its assets to another
corporation that is not a wholly-owned corporation of the Corporation.
(b) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the Proceeding in respect of
which indemnification is sought as provided in this Article VII.
(c) "Expenses" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, or being or
preparing to be a witness in a Proceeding.
(d) "Independent Counsel" means a law firm, or a member
of a law firm, with substantial experience in matters of corporation law and
that neither presently is, nor in the five (5) years previous to his selection
or appointment has been, retained to represent: (i) the Corporation or person
claiming indemnification in any matter material to either, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder,
and is not otherwise precluded under applicable professional standards from
acting in the capacity herein contemplated.
(e) "N.R.S." means the Nevada Revised Statutes.
ARTICLE VIII
ACTION UNDER NEVADA STATUTE
The provisions of Sections 78.378 to 78.3793, inclusive, of
the Nevada General Corporation Law do not apply to the acquisition by Noranda
Inc., an Ontario corporation ("Noranda"), or any person controlled by Noranda
or, to the extent any such person is deemed to be an acquiring person or a
person acting in concert with an acquiring person within the meaning of such
provisions, any person controlling Noranda at the time of such acquisition, of
up to 65,242,526 exchangeable shares ("Exchangeable Shares") of Battle Mountain
Canada Ltd., an Ontario corporation, or shares of common stock, par value $0.10
per share ("Common Stock"), of the Corporation in the arrangement referred to
in the Combination Agreement dated as of March 11, 1996 by and between the
Corporation and Hemlo Gold Mines Inc., an Ontario corporation (to be renamed
Battle Mountain Canada Ltd.), as amended and restated (including shares of
Common Stock issuable upon exchange for such Exchangeable Shares).
-11-
<PAGE> 12
ARTICLE IX
AMENDMENTS
Subject to the provisions of the Articles of Incorporation,
these Bylaws may be altered, amended or repealed at any regular meeting of
stockholders (or at any special meeting thereof duly called for that purpose)
only by the affirmative vote of the holders of at least eighty percent (80%) of
the voting power of all shares of the Corporation represented at such meeting
and entitled to vote generally in the election of directors, voting together as
a class, provided that in the notice of any such special meeting notice of such
purpose shall be given. Subject to the laws of the State of Nevada, the
Articles of Incorporation and these Bylaws, the Board of Directors may alter,
amend or repeal these Bylaws, or enact such other Bylaws as in their judgment
may be advisable for the regulation of the conduct of the affairs of the
Corporation, by majority vote of those present at any meeting of the Board of
Directors at which a quorum is present (except so far as Bylaws adopted by
stockholders shall otherwise provide).
March 21, 1997
<PAGE> 1
EXHIBIT 10(m)
BATTLE MOUNTAIN GOLD COMPANY
333 CLAY STREET
42ND FLOOR
HOUSTON, TEXAS
77002
March 11, 1996
PERSONAL AND CONFIDENTIAL
- -------------------------
HAND DELIVERED
- --------------
RE: TERMS OF EMPLOYMENT
We are delighted to confirm that upon the successful completion of the
combination involving Battle Mountain Gold Company (the "Company") and Hemlo
Gold Mines Inc. (the "Existing Employer") which we expect to close on or about
June 30, 1996, the following terms and conditions will apply to your employment
with the Company:
1. Position
You will be employed as an executive officer in a position to be
mutually agreed and will perform such duties and functions as are appropriate
for such position.
2. Place of Employment
You will be employed in Toronto, Ontario or such other place as the
Company and you may mutually agree, conditional upon you being able to legally
work in that location. The Company will pay for your moving and other
relocation expenses in accordance with the terms of its policy.
3. Base Salary
Your annual base salary will be to the maximum extent possible the same
as that paid from time to time to other comparable executives of the Company.
<PAGE> 2
-2-
4. Bonus/Incentive Compensation
You will be entitled to participate in the Company's bonus/incentive
program on the same basis as other comparable executives of the Company.
5. Benefits
You will be entitled to participate in the Company's benefit plans
generally on the same basis as other comparable executives of the Company.
6. Credit for Past Service
The Employee shall receive credit for all past service with the
Existing Employer and its affiliates for all purposes of employment with the
Company and its affiliates.
7. Severance Agreement
The Company and you will immediately following consummation of the
Combination enter into a severance agreement (the "Severance Agreement") in a
form substantially similar to those entered into with other senior executives
of the Company (the "Existing Severance Agreements"). The Employee (unless he
receives benefits under the Severance Agreement) shall be paid an amount of
severance equal to the amount of severance he would have been entitled to under
Ontario law (assuming he had been employed in Ontario and been receiving
compensation and benefits pursuant to this Agreement) if within three years of
consummation of the combination the Employee (a) is terminated (other than for
"cause" as defined in the Existing Severance Agreements) or (b) resigns for
"good reason" (as hereinafter defined). Good reason shall mean a breach by the
Company of its obligations under this Agreement.
8. Legal Costs
The Company will pay all reasonable legal fees and expenses incurred by
you in seeking to obtain, enforce or retain any right, benefit or payment
provided for in this agreement.
9. Governing Law
Notwithstanding your transfer to the U.S., the terms and conditions of
your employment will continue to be covered by Ontario law.
<PAGE> 3
-3-
10. Counterparts
This agreement may be executed in one or more counterparts each of
which so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
Please confirm your agreement with the above-noted terms by signing and
returning the enclosed copy of this letter to me at your earliest convenience.
Yours sincerely,
Battle Mountain Gold Company
By:
-----------------------------------
Name:
Title:
I have read, understand and agree to the above-noted terms after having
been given a reasonable opportunity to seek independent legal advice regarding
them.
Date: March 11, 1996.
- ------------------------------------ ------------------------------------
Witness [Employee]
<PAGE> 1
EXHIBIT 10(n)
AGREEMENT FOR CONSULTING SERVICES
THIS AGREEMENT, made and entered into effective as of March 1, 1997,
by and between BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation with its
principal office at 333 Clay Street, 42nd Floor, Houston, Texas 77002,
(hereinafter referred to as the "Company"), and Mr. Karl E. Elers, an
individual residing at 8911 Limerick, Houston, Texas 77024.
W I T N E S S E T H:
WHEREAS, Mr. Elers has been employed by the Company from May 11, 1987
through February 28, 1997; and
WHEREAS, during Mr. Elers' service with the Company, he has developed
experience, knowledge and unique relationships and skills that are valuable to
the Company; and
WHEREAS, Mr. Elers and the Company have agreed that Mr. Elers will
separate from active employment with the Company effective on February 28,
1997; and
WHEREAS, the Company desires to engage Mr. Elers as a consultant on
the terms and conditions set forth below in order to retain access to his
experience, knowledge and unique relationships and skills; and
WHEREAS, Mr. Elers desires to be engaged as a consultant to the
Company on the terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the mutual promises and
agreement set forth herein, the parties hereto agree as follows:
1. Engagement as Consultant: The Company agrees to retain the
services of Mr. Elers as an independent consultant and Mr. Elers agrees to
render consulting services for the period described in Paragraph 3 hereof and
upon the other terms and conditions herein provided.
2. Responsibilities of Consultant: During the period of this
Agreement, Mr. Elers shall act as an independent contractor and agrees to
render to the Company and its affiliates consulting services. During the term
of this Agreement, Mr. Elers shall, at reasonable times and places, hold
himself available to consult with and advise the officers, directors and other
representatives of the Company. Mr. Elers shall use his best professional
skills in rendering the desired services to the Company and shall be free to
use his judgment and discretion as to the methods to be used in performance of
such services. The Company agrees that it shall have no right to control or
direct the details, manner or means by which Mr. Elers accomplishes the results
of the services performed hereunder. Subject to the reasonable requests and
deadlines of the Company, Mr. Elers shall retain discretion to set his own
schedule for the performance of such services and shall have no obligation to
work any particular hours or days. Mr. Elers shall
<PAGE> 2
retain the right to contract for similar services with other businesses or with
individuals. Mr. Elers shall also retain the right to accept employment with
any entity.
3. Term of Agreement. The term of this Agreement shall be for a
period of ten (10) months beginning as of March 1, 1997 and ending December 31,
1997; provided, however, that the term of this Agreement shall be subject to
the provisions of Paragraph 5 (termination for cause). The term of this
Agreement may be shortened or extended by mutual consent of the parties.
4. Compensation. The Company shall pay or cause to be paid
$20,000.00 per month to or on behalf of Mr. Elers for the performance of his
consulting services subject to the provisions of Paragraph 5 hereunder. The
Company shall also reimburse Mr. Elers, promptly after receipt of appropriate
receipts and documentation, for all of his expenses, including meals, lodging,
transportation, phone and other out-of-pocket expenses, reasonably incurred in
connection with his performance of services under this Agreement. Mr. Elers
shall be reimbursed at the standard mileage rate established by the Internal
Revenue Service for use of his personal automobile. Such amounts shall be paid
by the Company to Mr. Elers in a manner mutually agreeable to both parties.
Mr. Elers hereby waives all director's fees and per diem fees to which he would
otherwise be entitled for fiscal year 1997 in his capacity as a director of
Battle Mountain Gold Company.
5. Termination of Agreement for Cause. If, during the term of
this Agreement, this Agreement is terminated by the Company for cause as
defined in this Paragraph 5, then all payments of compensation under this
Agreement shall be forfeited, except Mr. Elers shall thereafter be entitled to
compensation as described in Paragraph 4 hereof for service rendered under this
Agreement prior to the date of termination.
Termination by the Company for "cause" shall mean termination by
action of the President of the Company because of the failure of Mr. Elers to
fulfill his obligations under this Agreement or because of serious willful
misconduct by Mr. Elers in respect of his obligations under this Agreement,
such as, for example, the commission by Mr. Elers of a felony or the
perpetration by Mr. Elers of a common-law fraud against the Company.
6. Death or Disability. If, before December 31, 1997, Mr. Elers
dies, or becomes totally and permanently disabled, the Company shall be
obligated to pay (in the case of death) to his beneficiary or beneficiaries
designated in writing, or to his estate in the absence or lapse of such
designation, or (in the case of such disability) to Mr. Elers or his
representative, the compensation to which he is entitled under Paragraph 4
hereof for service rendered under this Agreement through the date of his death
or his total and permanent disability. For purposes hereof, "total and
permanent disability" means inability to perform the services required
hereunder due to physical or mental disability. Evidence of such disability
shall be certified by a physician acceptable to both the Company and Mr. Elers.
7. Status of Benefit Plans. This Agreement shall not entitle Mr.
Elers to participate in any executive compensation, pension, profit-sharing or
similar plan, policy or program or any
Agreement for Consulting Services
Page 2 of 5
<PAGE> 3
welfare plan, policy or program of the Company now existing or hereafter
adopted for the benefit of its employees.
8. Income Tax Withholding. The Company shall not withhold any
federal, state, city or other taxes from any compensation payable under this
Agreement. Mr. Elers shall be solely and wholly responsible for payment of all
taxes related to payments made by the Company to or for the benefit of Mr.
Elers under this Agreement.
9. Consolidation, Merger or Sale of Assets. Nothing in this
Agreement shall preclude the Company from consolidating or merging into or
with, or transferring all or substantially all of its assets to, another
corporation which assumes this Agreement and all obligations and undertakings
of the Company hereunder. Upon such a consolidation, merger or transfer of
assets and assumption, the term "Company" as used herein, shall mean such other
corporation and this Agreement shall continue in full force and effect.
10. Source of Payments. All payments provided in this Agreement
shall be paid in cash from the general funds of the Company, and no special or
separate funds shall be established and no other segregation of assets shall be
made to assure payment. Mr. Elers shall have no right, title or interest
whatever in or to any investments which the Company may make to aid the Company
in meeting its obligations hereunder. Nothing contained in this Agreement, and
no action taken pursuant to this provision, shall create or be construed to
create a trust of any kind, or a fiduciary relationship, between the Company
and Mr. Elers or any other person. To the extent that any person acquires a
right to receive payments from the Company hereunder, such rights shall be no
greater than the right of an unsecured creditor of the Company.
11. General Provisions.
(a) Nonassignability. Neither this Agreement nor any
right or interest hereunder shall be assignable by Mr. Elers, his
beneficiaries or legal representatives without the Company's prior
written consent; provided, however, nothing in this Paragraph 11(a)
shall preclude (i) Mr. Elers from designating a beneficiary to receive
any payment hereunder upon his death, or (ii) the executors,
administrators or other legal representatives of Mr. Elers or his
estate from assigning any rights hereunder to the person or persons
entitled thereunto.
(b) No Attachment. Except as required by law, no right
to receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation, execution, attachment, levy or similar
process or assignment by operation of law, and any attempt, voluntary
or involuntary, to effect such action shall be null, void and of no
effect.
(c) Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Company, its successors and assigns
(including, without limitations, any company into or with which the
Company may merge or consolidate). The Company agrees that it will
not effect the sale or other disposition of substantially all of its
assets unless either (i) the person or entity acquiring such assets or
a substantial portion thereof
Agreement for Consulting Services
Page 3 of 5
<PAGE> 4
shall expressly assume by an instrument in writing all duties and
obligations of the Company hereunder or (ii) the Company shall
provide, through the establishment of a separate reserve therefor, for
the payment in full of all amounts which are or which may reasonably
be expected to become payable to Mr. Elers hereunder.
12. Modification and Waiver.
(a) Amendment of Agreement. This Agreement may not be
modified or amended except by an instrument in writing signed by the
parties hereto.
(b) Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be an estoppel against
the enforcement of any provision of this Agreement, except by written
instrument of the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
13. Headings. The headings of Paragraphs herein are included
solely for convenience and reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement
14. Governing Law. This Agreement has been executed in Houston,
Texas, and its validity, interpretation, performance and enforcement shall be
governed by the laws of the State of Texas. For the purposes of this
Agreement, a signed facsimile shall constitute an original.
15. Effect of Prior Agreements. This Agreement shall revoke and
supersede any and all prior agreements between Mr. Elers and the Company or any
predecessor of the Company except for that certain letter agreement between the
Company and Mr. Elers dated February 28, 1997 and the agreements referenced in
the attachment thereto.
16. Confidentiality. In providing consulting services to the
Company, Mr. Elers will become acquainted with information proprietary to the
Company. Mr. Elers agrees to maintain such information and any materials
provided to him in confidence and, upon termination of this Agreement, to
return to the Company all Company materials in his possession and thereafter
not to divulge or to disclose any information acquired from the Company to
other parties without the express written consent of the Company. Mr. Elers
will be excused from this obligation with respect to any information which
shall become part of the public domain other than through a breach of this
confidentiality obligation following the termination of this Agreement. This
provision shall survive for a period of two (2) years after the termination of
this Agreement.
Agreement for Consulting Services
Page 4 of 5
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and Mr. Elers has signed this Agreement, all as of the day first
above written.
BATTLE MOUNTAIN GOLD COMPANY
By______________________________________
ATTEST:
__________________________
________________________________________
Karl E. Elers
Agreement for Consulting Services
Page 5 of 5
<PAGE> 1
Exhibit 11
BATTLE MOUNTAIN GOLD COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
(expressed in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1996 1995 1994
------------- ------------- -------------
PRIMARY INCOME (LOSS) PER SHARE
<S> <C> <C> <C>
Net income(loss)
Net income(loss) $ (74,340) $ 29,695 $ 56,783
Deduct dividends on preferred shares 7,475 7,476 7,475
------------- ------------- -------------
Net income(loss) applicable to common stock $ (81,815) $ 22,219 $ 49,308
============= ============= =============
Shares
Weighted average number of common
shares outstanding 229,561,101 227,891,716 223,941,322
Assuming conversion of 6% convertible debentures -- 4,848,261 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 -- 645,005 620,513
------------- ------------- -------------
Weighted average number of common shares
outstanding as adjusted 229,561,101 233,384,982 229,410,320
============= ============= =============
Primary income(loss) per common share $ (0.36) 0.10 0.21
============= ============= =============
FULLY DILUTED INCOME(LOSS) PER SHARE (1)
Net income(loss) $ (74,340) $ 29,695 $ 56,783
============= ============= =============
Shares
Weighted average number of common
shares outstanding 229,561,101 227,891,716 223,941,322
Assuming conversion of 6% convertible debentures 4,847,515 4,848,261 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 494,608 668,376 635,529
Assuming conversion of preferred stock 10,952,534 10,952,600 10,952,600
------------- ------------- -------------
Weighted average number of common shares outstanding as adjusted $ 245,855,758 244,360,953 240,377,936
============= ============= =============
Net income(loss) per common share assuming full dilution $ 0.30 $ 0.12 $ 0.24
============= ============= =============
ADDITIONAL PRIMARY COMPUTATION (1)
Net income(loss) applicable to common stock as adjusted per
primary computation above $ (81,815)
==============
Additional adjustment to weighted average number of shares outstanding:
Weighted average number of shares outstanding,
as adjusted per primary computation above 229,561,101
Anti-dilutive effect of outstanding options (as determined
by the application of the treasury stock method) 471,140
Anti-dilutive effect of conversion of 6%
convertible debentures 4,847,515
-------------
Weighted average number of shares, as adjusted 234,879,756
=============
Primary earnings per share, as adjusted $ (0.35)
=============
</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
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(in thousands of dollars except ratios)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(expressed in thousands, except per share amounts)
EARNINGS COMPUTATION USING
CONSOLIDATED INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
minority interest $(41,176) $47,996 $113,945 $69,183 $27,074
Minority interest in income of
majority-owned subsidiaries 15,959 (6,156) (4,387) (4,709) (1,182)
-------- ------- -------- ------- -------
Income (loss) before income taxes and
cumulative effects of accounting changes (25,217) 41,840 109,558 64,474 25,892
-------- ------ ------- ------ ------
Add fixed charges included in income (loss):
Interest expense (net of interest capitalized) 6,885 7,644 7,693 9,340 2,318
Amortization of deferred financing costs 234 216 204 1,073 269
Interest portion of rental expenses (33%) 1,278 1,548 1,784 505 528
-------- ------- -------- ------- -------
Sub-total fixed charges included in income (loss) 8,397 9,408 9,681 10,918 3,115
-------- ------- -------- ------- -------
Earnings (loss) $(16,820) $51,248 $119,239 $75,392 $29,007
======== ======= ======== ======= =======
Fixed Charges Included in income (loss) $ 8,397 $ 9,408 $ 9,681 $10,918 $ 3,115
Capitalized interest 6,407 8,630 6,353 6,655 8,885
-------- ------- -------- ------- -------
Total fixed charges 14,804 18,038 16,034 17,573 12,000
-------- ------- -------- ------- -------
Preferred dividends 2,536 10,532 14,423 7,779 -
-------- ------- -------- ------- -------
Combined fixed charges and
preferred dividends $ 17,340 $28,570 $ 30,457 $25,352 $12,000
======== ======= ======== ======= =======
Ratio of earnings to fixed charges - 2.84 7.44 4.29 2.42
Amount by which fixed charges exceed earnings $ 31,624 $ - $ - $ - $ -
Ratio of earnings to combined fixed charges
and preferred dividends - 1.79 3.92 2.97 2.42
Amount by which combined fixed charges and
preferred dividends exceed earnings $ 34,160 $ - $ - $ - $ -
</TABLE>
(1) Earnings were inadequate to cover fixed charges in these periods as a
result of asset writedowns and other non-cash charges.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF BATTLE MOUNTAIN GOLD COMPANY
Jurisdiction of
Subsidiary Organization
---------- ---------------
Battle Mountain (Australia) Inc. Delaware
Battle Mountain (Canada) Inc. Nevada
Battle Mountain Canada Ltd. Ontario
Battle Mountain (Dominican Republic) Inc. Nevada
Battle Mountain Exploration Company Texas
Battle Mountain Finance Company Nevada
Battle Mountain (Irian Jaya) Ltd. Nevada
Battle Mountain (Ketungau) Inc. Nevada
Battle Mountain (Mamberamo) Ltd. Nevada
Battle Mountain North America Inc. Nevada
Battle Mountain (Pacific) Ltd. Nevada
Battle Mountain Resources Inc. Nevada
Battle Mountain Services Company Nevada
Compania Hemlo Gold Chile Limitada Chile
Compania Minera El Aguila Delaware
Compania Minera El Condor Nevada
Compania Minera El Halcon Delaware
Compania Minera El Oso Nevada
Compania Minera El Tigre Nevada
Compania Minera La Barca S.A. (88%) Bolivia
Compania Minera Vicuna Nevada
Crown Butte Mines, Inc. (60%) Montana
Crown Butte Resources Ltd. (60%) Canada
Empresa Minera Inti Raymi S.A. (88%) Bolivia
Empresa Minera La Joya S.R.L. (75.5%) Bolivia
Hemlo Explorations Ltd. British Columbia
Hemlo Gold Mines (Ghana) Limited Ghana
Hemlo Gold Mines (U.S.A.) Inc. Delaware
Hemlo Gold Mines Australia Pty. Limited Australia
Inversiones Mineras del Inca, S.A. (50.5%) Chile
Kori Kollo Corporation Delaware
Mansi River Gold Company, Limited (72.25%) Ghana
Minas de Oro Hemlo S.A. de C.V. Mexico
Minera BMG Nevada
Minera BMG de Chile Inc. Nevada
Minera BMG de Mexico, S. de R.L. de C.V. Mexico
Minera Hispaniola, S.A. (60%) Dominican Republic
Minera Illimani S.A.(88%) Argentina
Mineracao Flamingo Ltda. Brazil
Mt. Blanca Land and Cattle Company Nevada
Niugini Mining Limited (50.5%) Papua New Guinea
Niugini Mining (Australia) Pty. Ltd. (50.5%) Australia
Pajingo Gold Mine Pty. Ltd. Australia
Red Dome Pty. Ltd. (50.5%) Australia
SERMAT S.A. (88%) Bolivia
Silidor Mines Inc. Quebec
Washington Real Estate Group Inc. Washington
<PAGE> 1
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-14605, 33-22146, 33-47570, 33-53195, 333-14521
and 333-14523) of Battle Mountain Gold Company of our report dated February 28,
1997 appearing on page 54 in this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
March 27, 1997
<PAGE> 1
EXHIBIT 23 (b)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-14605, 33-22146, 33-47570, 33-53195, 333-14521
and 333-14523) of Battle Mountain Gold Company of our report dated February 8,
1996 appearing on page 55 in this Form 10-K.
ERNST & YOUNG
Chartered Accountants
Toronto, Canada
March 27, 1997
<PAGE> 1
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 21st day of March, 1997.
/s/ DELO H. CASPARY
-------------------------------------
Delo H. Caspary
<PAGE> 2
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 28th day of March, 1997.
/s/ KARL E. ELERS
----------------------------
Karl E. Elers
<PAGE> 3
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 27th day of March, 1997.
/s/ DAVID L. BUMSTEAD
---------------------------
David L. Bumstead
<PAGE> 4
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 21st day of March, 1997.
/s/ TED H. PATE
-----------------------------
Ted H. Pate
<PAGE> 5
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Karl
E. Elers his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 28th day of March, 1997.
/s/ DAVID W. KERR
----------------------------------
David W. Kerr
<PAGE> 6
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 28th day of March, 1997.
/s/ WILLIAM A. WISE
-------------------------------------
William A. Wise
<PAGE> 7
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 28th day of March, 1997.
/s/ JAMES W. McCUTCHEON
-------------------------------------
James W. McCutcheon
<PAGE> 8
BATTLE MOUNTAIN GOLD COMPANY
Power of Attorney
WHEREAS, BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1934, as amended (the "Act"), an
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, with
any amendment or amendments thereto, as prescribed by the Commission pursuant
to the Act and the rules and regulations of the Commission promulgated
thereunder, together with any and all exhibits and other documents relating to
such Annual Report;
NOW, THEREFORE, the undersigned, in his capacity as a director or
officer or both, as the case may be, of the Company, does hereby appoint Ian D.
Bayer his true and lawful attorneys-in-fact and agents with power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign such Annual Report and any and all amendments
thereto and all instruments necessary or incidental in connection therewith and
to file the same with the Commission. Such attorney-in-fact and agent shall
have full power and authority to do and perform in the name and on behalf of
the undersigned, in any and all capacities, every act whatsoever necessary or
desirable to be done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned hereby
ratifying and approving the acts of such attorney-in-fact and agent.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the 28th day of March, 1997.
/s/ MARY MOGFORD
-------------------------------------
Mary Mogford
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BATTLE
MOUNTAIN GOLD COMPANY'S CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995<F1>
<CASH> 103 142
<SECURITIES> 0 0
<RECEIVABLES> 49 31
<ALLOWANCES> 0 0
<INVENTORY> 39 38
<CURRENT-ASSETS> 204 224
<PP&E> 1,099 1,069
<DEPRECIATION> 534 (432)
<TOTAL-ASSETS> 1,037 1,142
<CURRENT-LIABILITIES> 104 79
<BONDS> 0 0
0 0
111 111
<COMMON> 11 8
<OTHER-SE> 416 511
<TOTAL-LIABILITY-AND-EQUITY> 1,037 1,142
<SALES> 424 401
<TOTAL-REVENUES> 424 401
<CGS> 257 228
<TOTAL-COSTS> 467 357
<OTHER-EXPENSES> 8 12
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7 8
<INCOME-PRETAX> (41) 48
<INCOME-TAX> 49 12
<INCOME-CONTINUING> (74) 22
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (74) 22
<EPS-PRIMARY> (.36) .10
<EPS-DILUTED> 0 0
<FN>
<F1>RESTATED TO REFLECT POOLING OF INTERESTS
</FN>
</TABLE>
