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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NO. 1-9666
BATTLE MOUNTAIN GOLD COMPANY
(Exact Name of Registrant as Specified in its Charter)
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-6400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock New York Stock Exchange
$3.25 Convertible Preferred Stock New York Stock Exchange
Rights to Purchase Preferred Stock New York Stock Exchange
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 $719 million as of February 9, 1998, 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 $955 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
February 9, 1998 is 124,067,103, not including 105,720,691 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 1998 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, 12 and 13 of part III of this annual report).
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Items 1 and 2. Business and Properties..................................................................1
Item 3. Legal Proceedings............................................................................31
Item 4. Submission of Matters to a Vote of Security Holders..........................................34
Executive Officers of the Registrant.........................................................34
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters........................36
Item 6. Selected Financial Data......................................................................38
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........39
Item 8 Financial Statements and Supplementary Data..................................................50
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure..........78
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................78
Item 11. Executive Compensation.......................................................................78
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................78
Item 13. Certain Relationships and Related Transactions...............................................78
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................79
</TABLE>
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,
project 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 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.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
BUSINESS AND PROPERTIES OF THE COMPANY
INTRODUCTION
Battle Mountain Gold Company, a Nevada corporation ("BMG"), and its
subsidiaries (collectively the "Company") are engaged in the mining and
processing of gold and silver ore (together with related copper ore) in the
United States, Canada, Bolivia, Chile and Australia and in the exploration,
evaluation and development of precious metals properties primarily in Latin
America, the Austral Pacific, West Africa, Canada and the United States. The
Company also has an equity-accounted investment in Lihir Gold Limited ("LGL"),
a Papua New Guinea public gold mining company traded principally on the
Australian Stock Exchange. 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 combined with Hemlo Gold Mines Inc., an Ontario
corporation ("Hemlo Gold"). The combination was accounted for under the pooling
of interests method. 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. ("BMCL"), the new name for the former
Hemlo Gold, and BMG acquired all of the common shares of BMCL. The BMCL
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.
At December 31, 1997, the Company had six operating mines in five
countries and on three continents: the Battle Mountain Complex near Battle
Mountain, Nevada; the Golden Giant mine in Canada; the Holloway mine (in which
BMG has an 84.7% 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 Pajingo Complex in Queensland, Australia (50%
attributable interest). The Company also has an 8.7% attributable net interest
in the Lihir mine in Papua New Guinea through its investment in LGL.
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.
Commercial production began at the Vera/Nancy ore body at the Pajingo
Complex during the third quarter of 1997 and at the Lihir mine during the fourth
quarter of 1997. The Company ceased operations after the depletion of the ore
bodies at its Silidor mine in Canada in July 1997, at its San Cristobal mine in
Chile in January 1998, and at its Red Dome mine in Australia in October 1997.
The ore from the Silidor and Red Dome mines has been completely processed;
however, the ore from the San Cristobal mine will continue to be processed into
at least mid-1998.
On September 30, 1997, BMG sold its interest in Niugini Mining Limited
("NML"), a Papua New Guinea company publicly traded on the Australian Stock
Exchange, to BMCL. BMCL now owns approximately 50.5% of NML. NML in turn owns
and operates the San Cristobal mine interest and owns a 17.15% interest in LGL,
which owns the Lihir mine.
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The Company's attributable gold production was 876,000 ounces in 1997
and 916,000 in 1996, and the weighted average cash cost per gold ounce sold
declined to $197 in 1997, compared with $210 per ounce in 1996.
See Note 15 of Notes to Consolidated Financial Statements under Item 8
of Part II 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 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
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COMPANY COMPANY
AGGREGATE OPERATING DATA NET (1) 100% (2) NET (1) 100% (2)
------------------------ --------- ------- ------- --------
<S> <C> <C> <C> <C>
Gold production (000s oz) .................... 876 975 916 1,034
Gold sales (000s oz) ......................... 875 976 914 1,034
Average realized gold price per oz ........... $ 340 $ 342 $ 391 $ 391
Silver production (000s oz) .................. 1,204 1,562 1,451 1,924
Silver sales (000s oz) ....................... 1,214 1,581 1,495 1,998
Average realized silver price per oz ......... $ 4.88 $ 4.86 $ 5.13 $ 5.08
Copper production (000s lbs) ................. 4,124 8,175 4,618 9,149
Copper sales (000s lbs) ...................... 4,339 8,600 4,895 9,698
Average realized copper price per lb ......... $ 0.99 $ 0.99 $ 1.01 $ 1.01
Weighted average cost per gold ounce sold (3):
Cash production costs ..................... $ 197 $ 206 $ 210 $ 216
Depreciation, depletion and amortization .. 82 na 89 na
Reclamation and mine closure costs ........ 9 9 11 10
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Total operating costs .............. $ 288 na $ 310 na
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</TABLE>
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(1) Represents 100% data less minority interests in consolidated data.
(2) Includes BMG and consolidated subsidiaries, plus interests in
proportionately consolidated joint ventures, plus BMG's attributable
interest in the Lihir mine.
(3) Cash production costs are presented in accordance with guidelines
established by the Gold Institute. In addition to mining, milling and plant
level general and administrative 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. This North American standard also provides for reporting
on a cost per gold ounce basis, rather than cost per equivalent gold ounce.
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, 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. 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. Gold prices declined significantly during
1997, particularly in the fourth quarter. Commentators have noted that the
following factors may have contributed to this decline in the price of gold:
current expectations concerning declining inflation; net direct sales from
central banks (notably Argentina's, Belgium's and Australia's); increased
forward selling by producers; the perception of some that gold is becoming
nothing more than a
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commodity; and increased short sales by speculators. While these factors may
drive the price of gold down, other factors may lead to an upward move in the
price of gold, such as the recent decrease in gold production together with
steady or rising demand, and the recent collapse of the Southeast Asian
currencies. Also, the European Central Bank, which is scheduled to become the
central bank of the European Monetary Union in 1999, has stated that it will
announce in May 1998 how much of its reserves will be held in gold thereby
removing some uncertainty from the market. The demand for and supply of gold
also affect gold prices, but not necessarily in the same way 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 or price of gold. Each year, the Company assesses the carrying values
of its properties. If gold prices were to continue to decline or stay at their
present levels for an extended period of time, the Company would have to
re-evaluate the carrying values of its properties on a property by property
basis and could determine that a write-down of values would be needed. If gold
prices were to decline to a point below the Company's cash production costs and
remain below that 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 year-end high, low and average afternoon fixing prices of gold per ounce on
the London Bullion Market for each of the last five years.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
High.......................... $367 $415 $397 $396 $406
Low........................... 283 367 374 369 326
Average....................... 331 388 384 384 360
</TABLE>
The Company currently engages in limited hedging transactions with
respect to a portion of its production and reserves of gold, silver and copper.
See "-- Sales and Precious Metals Hedging Activities" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." Also see Note 17 of Notes to Consolidated
Financial Statements under Item 8 of Part II herein.
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<TABLE>
<CAPTION>
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MINE OR PROJECT OPERATION AND COST DATA
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Gold
Attributable ounces Percent of Cash Total
% of mine recovered total BMG production operating
production Year (000s) production costs($/oz) costs ($/oz)
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<S> <C> <C> <C> <C> <C> <C>
Golden Giant Mine 100% 1997 362 41 134 201
1996 371 41 145 210
Kori Kollo 88% 1997 280 32 193 322
1996 270 29 213 329
Holloway Mine 84.7% 1997 53 7 341 471
1996 11 1 393 569
Battle Mountain 100% 1997 78 9 272 354
Complex (1) 1996 73 8 295 388
Lihir 8.7% 1997 12 1 200 377
1996 -- -- -- --
Pajingo 50% 1997 19 2 183 214
100% 1996 28 3 222 305
San Cristobal 50.5% 1997 37 4 421 492
1996 40 4 362 448
Red Dome 50.5% 1997 25 3 245 276
1996 43 5 240 395
Silidor Mine 55% 1997 10 1 319 363
1996 26 3 333 412
San Luis Mine 100% 1997 -- -- -- --
1996 54 6 303 547
Crown Jewel Project (2) 54% 1997 -- -- -- --
1996 -- -- -- --
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Totals 1997 876 100 197 288
1996 916 100 210 310
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</TABLE>
<TABLE>
<CAPTION>
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MINE OR PROJECT RESERVE DATA
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Proven Percent of
probable Average Contained total
reserves grade ounces Recovery BMG
(000s tons) (oz/ton) (000s) factor reserves
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<S> <C> <C> <C> <C> <C>
Golden Giant Mine 8,915 0.286 2,550 96 25
10,091 0.291 2,935 96 28
Kori Kollo 36,135 0.052 1,900 68 19
43,901 0.054 2,350 70 22
Holloway Mine 4,961 0.195 965 95 10
5,273 0.195 1,030 95 10
Battle Mountain 63,300 0.040 2,505 81 25
Complex (1) 52,906 0.038 2,030 81 19
Lihir 9,710 0.128 1,245 92 12
9,925 0.128 1,265 92 12
Pajingo 370 0.390 140 96 1
na na na na na
San Cristobal 117 0.039 5 72 *
3,504 0.034 120 72 1
Red Dome na na na na na
506 0.049 25 89 *
Silidor Mine na na na na na
73 0.151 10 94 *
San Luis Mine na na na na na
na na na na na
Crown Jewel Project 4,485 0.185 830 88 8
4,595 0.182 835 88 8
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Totals 10,140 -- 100
10,600 -- 100
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</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>
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MINE OR PROJECT OPERATIONS AND COST DATA RESERVE DATA
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Attributable
% of mine Silver ounces Copper pounds Silver contained Copper contained
Productions Year recovered (000s) recovered (000s) ounces (000s) pounds (000s)
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<S> <C> <C> <C> <C> <C> <C>
Golden Giant Mine 100% 1997 15 na na na
1996 18 na na na
Kori Kollo 88% 1997 784 na 10,960 na
1996 801 na 13,727 na
Battle Mountain Complex 100% 1997 129 na 13,119 na
1996 201 na 11,058 na
Lihir 8.7% 1997 1 na na na
1996 -- na na na
Pajingo 50% 1997 20 na na na
100% 1996 28 na na na
San Cristobal 50.5% 1997 78 na na na
1996 93 na na na
Red Dome 50.5% 1997 177 4,124 na na
1996 278 4,618 na 6,896
San Luis Mine 100% 1997 -- na na na
1996 32 na na na
Crown Jewel Project 54% 1997 -- na 435 na
1996 -- na 464 na
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Totals 1997 1,204 4,124 24,514 na
1996 1,451 4,618 25,249 6,896
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</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."
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[WORLD MAP DESCRIPTION INSERTED PAGES 5 AND 6]
[MAP OF NORTH AND SOUTH AMERICA]
The graphics on pages 5 and 6 consist of maps depicting the Company's mines and
offices in North America, South America, Africa and the Austral Pacific. The
North America map references the following Company offices: the BMG corporate
office in Houston, Texas; the BMC corporate office in Toronto, Ontario; and
Exploration Offices in 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 New World Project in south central Montana and the Golden Giant
and Holloway Mines in Ontario. The South America map references the Inti Raymi
corporate office in La Paz, Bolivia; the Kori Kollo Mine in central Bolivia;
the San Cristobal Mine in northern Chile and Exploration Office in Lima, Peru
and San Juan, Argentina. The Africa map references an Exploration Office in
Accra, Ghana. The Austral Pacific map references the Niugini Mining corporate
office in Sydney, Australia; the Pajingo Complex in Queensland, Australia; and
the Lihir Project northeast of mainland Papua New Guinea.
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[MAP OF EURASIA, AFRICA AND AUSTRAL PACIFIC]
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OFFICES
BMG's corporate office is located in Houston, Texas. BMCL's corporate
office is located in Toronto, Ontario. BMG's exploration program is managed from
its office in Houston, Texas. Other exploration offices are located in Reno,
Nevada; Manitouwadge, Ontario; Timmins, Ontario; Hermosillo, Mexico; San Juan,
Argentina; Lima, Peru; and Accra, Ghana.
Inti Raymi's corporate office is located in La Paz, Bolivia. NML's
administrative offices are located in Sydney, Australia and Port Moresby, Papua
New Guinea. Crown Butte Resources Ltd. maintains corporate offices in Toronto,
Ontario and an office for its wholly-owned subsidiary Crown Butte Mines, Inc. in
Missoula, Montana.
OPERATING MINES
GOLDEN GIANT
The Golden Giant mine is owned by BMCL and is located in the Hemlo gold
district approximately 35 miles east of the town 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 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. The
Golden Giant mine reached the design rate of approximately 3,307 tons of ore per
day during the fourth quarter of 1988 and produced approximately 362,000 ounces
of gold in 1997 and 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 disposal facility. This decreases the operation's environmental
impact and reduces the need for future capital expenditures related to the
tailings facility.
Around the Golden Giant mine, BMCL holds a land position consisting of
an area of 6,155 acres under eight standard mining leases between BMCL and the
Crown (i.e. public) and four freehold patents. The mine property consists of
approximately 64 acres. The mine and most facilities are located on the freehold
patents. The leases end in 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 $238 million with a net book value of $121 million at December 31, 1997.
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 115(degree), a dip to the northeast of 60(degree) to 70(degree) 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
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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 the environmental laws of Canada
and the Province of Ontario. See "-- Environmental Matters -- Canada."
KORI KOLLO
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. 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 that same time, heap leaching of oxide ore was
discontinued. A portion of the cost of constructing the milling facility was
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
and the first half of 1997. Steps taken early in 1997 resulted in significant
cost savings in the second half of the year. 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 $327.9 million with a net book value of $161.3 million at December 31, 1997.
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."
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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 and Reona heap leach
operations as well as 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 ceased in the fourth quarter of 1997.
Mining operations at the Reona heap leach facility are expected to cease during
the first quarter of 1998, but production from residual leaching could continue
into 1999.
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 $81.6 million with a net book value of $37.1 million at December 31, 1997.
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 by heap leaching. The precious
metals refinery and desorption plant at Copper Canyon processes solution from
the Reona heap leach facility. 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 BMCL 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, with BMCL as
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, 1997,
BMCL also had a 7.0% equity interest in Teddy Bear Valley Mines, giving it an
85.7% 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,
producing approximately 11,000 attributable ounces of gold for 1996. A
mechanical failure at a third-party custom milling site, which processes a
portion of the Holloway ore, reduced production at Holloway during the third and
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fourth quarters of 1997. As a result, the Holloway mine produced approximately
53,000 attributable ounces of gold for 1997. These mechanical problems at the
custom milling site were resolved as of December 1997.
The Company's joint venture share of the property and its associated
plant and equipment is $89 million with a net book value of $83 million at
December 31, 1997.
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 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. BMCL 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."
LIHIR
The Company owns approximately 50.5% of NML. NML in turn owns a 17.15%
interest in LGL, which owns the Lihir mine. The Lihir mine 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 mine consists of an open pit mine, with a crushing and
grinding circuit, a pressure oxidation circuit, a carbon-in-leach circuit, gold
smelting facilities to produce gold ore, 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. The milling facility began processing oxide ore in
mid-1997, and sulfide ore processing was initiated in August 1997. Commercial
production commenced in October 1997. Production attributable to the Company in
1997 was approximately 12,000 ounces. 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 $235.4 million at December 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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 paved road, which connects to a state highway. Production from the
state-
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issued mining lease is subject to an annual royalty payable to the State of
Queensland. See "-- Property Interests -- Australia" and "-- Taxes --
Australia."
The Pajingo mine at the Complex 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 Pajingo Complex. Open pit mining of the near-surface oxide portion
of the Vera/Nancy ore body began in October 1996 and ended in April 1997. The
ore was stockpiled and treated during the first half of 1997 at the nearby
refurbished Pajingo mill. Full production from the underground Vera/Nancy ore
body commenced during the third quarter of 1997, and additional exploration and
final reserve definition is being carried out as underground mining progresses.
The Company's joint venture interest share of the property and its
associated plant and equipment is $14.2 million at December 31, 1997.
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. Mining of the Vera/Nancy ore body utilizes underground methods and ore
from the Vera/Nancy deposit is transported by truck over a 1.2 mile road and
processed at the Pajingo mill in a carbon-in-pulp cyanide leach circuit. The
Pajingo Complex is subject to environmental laws and regulations including
reclamation requirements under Queensland legislation. See "-- Environmental
Matters -- Australia."
SAN CRISTOBAL
Through NML, 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 NML'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 and ended in January 1998.
In the third quarter of 1996, the Company recorded a $17.5 million
reduction (approximately $8.9 million attributable to BMG) in the carrying value
of the San Cristobal mine assets to reflect the results of detailed mine studies
and a review of related projects. NML continued to evaluate mineralization near
the mine in 1997. As a result of lower than planned gold prices and poor
operating results, mining at San Cristobal ceased on January 31, 1998. Although
mining operations have ceased, residual heap leaching will continue into at
least mid-1998. Reclamation activities will continue into 1999.
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The total capitalized cost of the property and its associated plant and
equipment was $53 million. The net book value of the property and its remaining
associated plant and equipment is $2 million as of December 31, 1997.
Mining, Processing and Environmental Compliance. Mining was conducted
at San Cristobal utilizing conventional open pit mining methods. Ore is
processed by heap leaching and San Cristobal operations are subject to Chilean
environmental laws and regulations. See "-- Environmental Matters -- Chile."
SILIDOR
The Silidor mine was located near Rouyn-Noranda, Quebec, and was a joint
venture between BMCL and Cambior Inc. that commenced commercial production in
April 1990. Mining at Silidor ceased in July 1997. The Silidor mine produced
approximately 9,800 attributable ounces in 1997 before reserves were depleted.
Substantially all of the assets of the joint venture have been sold. The
remaining assets were fully amortized at December 31, 1997.
All chemicals and chemical waste products have been removed from the
Silidor mine site. Reclamation, consisting of dismantling the surface
infrastructure, sealing underground accesses and recontouring and revegetating
the site will be completed during 1998.
Mining, Processing and Environmental Compliance. Operations at the
Silidor mine were carried out using underground mining methods, and the ore was
custom-milled at two nearby operations. The operations at Silidor were subject
to Canadian and provincial environmental laws. See "-- Environmental Matters --
Canada."
RED DOME
The Red Dome mine, owned by NML, was located on a 5.6 square mile
state-issued block of four mining leases located 84 miles west of Cairns in
Queensland, Australia. Production from the state-issued mining lease was 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 have been depleted and operations ceased in the
third quarter of 1997. Reclamation activities, including the capping of the
tailings impoundment, the planting of native vegetation to rehabilitate waste
rock disposal areas, and related reclamation activities are expected to continue
into the year 2000.
Substantially all of the assets have been sold. The remaining assets were
fully amortized at December 31, 1997.
Mining, Processing and Environmental Compliance. NML's operations at
Red Dome were conducted utilizing conventional open pit mining methods. The open
pit mine commenced operations in 1986, first utilizing heap leach processing and
later adding a milling facility. Ore was processed by heap leach, flotation and
carbon-in-leach methods. Red Dome operations were subject to environmental laws
and regulations including reclamation requirements under Queensland legislation.
See "-- Environmental Matters -- Australia."
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SAN LUIS
The San Luis mine was located approximately three miles northeast of
San Luis in southern Colorado. The mine was closed in November 1996, and all
chemicals and chemical waste products have been removed from the site. A
significant portion of the reclamation work was completed in 1997. Regulatory
obligations for monitoring of site groundwaters will continue until the end of
1998.
The total cost of the property and its associated plant and equipment
was $56.5 million with a net book value of $2.7 million at December 31, 1997.
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 were subject to federal and state environmental laws and
regulations. See "-- Environmental Matters -- United States -- San Luis."
DEVELOPMENT PROJECTS
CROWN JEWEL
BMG has an option to earn from Crown Resources Corporation 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 its 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 $72.0 million had been spent ($63.7 million of which had been
capitalized) through December 31, 1997. These revised estimates anticipate that
cash production costs per gold ounce sold will average approximately $157 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 and millsites. A First
Half - Mineral Entry Final Certificate has been issued with respect to the
unpatented portion of the Crown Jewel ore body. Many of the proposed facilities
are located on unpatented millsites. See "-- Property Interests -- United
States." The Crown Jewel milling facility is proposed to have a throughput
capacity of 3,000 tons per day and 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 (the "EIS") was finalized and a Record of
Decision and certain permits issued in 1997. Additional state and federal
permits and approvals are required to commence construction and there can be no
assurance as to the timing or outcome of this regulatory process. See "--
Environmental Matters -- United States." A number of appeals with respect to the
project have been filed by certain individuals and public interest groups. See
Item 3 "Legal Proceedings." See "-- Environmental Matters -- United States."
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PHOENIX
The Company is continuing to evaluate the economics and timing of the
Phoenix project at the Battle Mountain Complex and is actively working to lower
projected development and operating costs. Additional reserve delineation work
at Phoenix during 1997 has resulted in an increase in estimated reserves of
475,000 ounces, after the reduction of Reona reserves and a reduction in the
reserve base using a gold price of $350 per ounce. As a result, total estimated
proven and probable Phoenix reserves now stand at 2,505,000 ounces. Additional
drilling is planned for the Fortitude, Midas and Phoenix pits in 1998, in an
effort to further expand the reserves. Preliminary metallurgical testing has
indicated that flotation could successfully produce a copper concentrate and
significantly reduce the amount of cyanide that would otherwise be required to
recover the gold. Further metallurgical testing will be conducted during the
first half of 1998. If these test results are positive, then additional
delineation drilling will be required on targets in the Midas and Phoenix pits
which had been excluded in the past because of their high copper content. This
work may lead to a further increase in the current reserves. In permitting work,
additional studies have led to revisions to the hydrology and geochemistry
reports, necessitating submission of a revised Plan of Operations for the EIS.
The revised plan is expected to be ready for submission in March 1998. Because
planned drill tests and pilot plant work have the potential to expand the scope
of the project, and significantly improve the originally envisioned economics,
further revisions to the proposed Plan of Operations will be necessary. Although
these uncertainties make it difficult to predict the timing of completion of
permitting and potential start-up dates for the mine, the earliest feasible
start-up date for Phoenix currently appears to be during the year 2000. See "--
Environmental Matters -- United States -- Battle Mountain Complex."
The capital costs of the Phoenix project were originally estimated at
$142 million, excluding capitalized interest. The company is unable at this
time to determine with accuracy what the total capital costs of the Phoenix
project will be upon its completion. 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
BMCL 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 New World project is located in south
central Montana, four miles north of Cooke City and two miles northeast of the
Yellowstone National Park boundary. In August 1996, BMCL announced that it would
vote its 60% interest in CBR in favor of the agreement entered into on August
12, 1996, between CBR, the United States government and certain special interest
groups (the "August 1996 Agreement"). The August 1996 Agreement provides a
framework whereunder CBR would exchange property interests within the New World
Mining District for U.S. interests or assets having a value of $65 million, and
then set aside $22.5 million for the completion of reclamation and restoration
programs in the District. The exchange would result in the settlement of
existing litigation under the Clean Water Act relating to historic mining
impacts and mutual releases between the parties as to any further environmental
liabilities. The August 1996 Agreement also provides for the suspension of
permitting pending the consummation of the exchange. BMCL's decision to support
the August 1996 Agreement was based, among other things, on reduced economic
expectations resulting from protracted permitting and potential environmental
liabilities related to historic mining at New World. The carrying value of the
New World project at December 31, 1997, was $42.5 million on a consolidated
basis, of which BMCL's 60% share was $25.5 million.
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The August 1996 Agreement contains a number of conditions beyond the
control of CBR, including obtaining shareholder approval and confirmation by
appraisal that the interests to be acquired by the U.S. have a fair market value
of at least $65 million. CBR also has the right to withdraw from the August 1996
Agreement under certain circumstances. Failure to complete the exchange
contemplated in the August 1996 Agreement would result in the legal action under
the Clean Water Act proceeding and, as was the case prior to the August 1996
Agreement, there can be no assurance that any renewed permitting efforts would
be successful.
The August 1996 Agreement is also conditioned upon CBR acquiring fee
title (or such other interests as are acceptable to the United States) in
certain lands currently leased to CBR. Although CBR has not acquired fee title
to the lands, in September 1997, CBR obtained from its lessor an option under
which it can cause the lessor to grant to the U.S. a restriction that would
preclude mining on the lessor's property unless the President and Congress
concur with development thereon.
The August 1996 Agreement provides that the United States shall
identify interests or assets available for transfer to CBR. The Interior
Appropriations Bill (F.Y. 1998), which became law in November 1997, makes $65
million in cash available for the purchase of New World property interests,
subject to certain conditions including the parties to the August 1996 Agreement
entering into and lodging in Federal District Court a consent decree related to
the Clean Water Act as required by the August 1996 Agreement, an appraisal of
the property interests to be acquired by the United States being undertaken, the
Secretary of Agriculture issuing an opinion of value to certain Congressional
committees with respect to the property interests to be acquired, and the
applicable requirements of the National Environmental Policy Act being met. The
Bill provides that the amount paid by the United States to acquire the New World
property interests shall not exceed $65 million, but may exceed the value stated
in the appraisal if the Secretary of Agriculture certifies to Congress that such
action is in the best interests of the United States. The monies will only
become available after the enactment of separate authorizing legislation or the
passage of 180 days from November 14, 1997, which period of time would be
extended if the appraisal called for in the Bill is not provided to certain
Congressional committees by March 15, 1998.
In 1993, several special interest groups filed a complaint in U.S.
District Court against CBR and others, alleging that certain discharges from the
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. The federal judge
hearing the case has stayed all matters in the case in light of the August 1996
Agreement, the consummation of which would result in the settlement of the case.
EXPLORATION
The Company, through branches, subsidiaries and joint ventures,
currently conducts exploration and evaluation activities in search of precious
metals internationally, including in the United States, Canada, Mexico,
Argentina, Bolivia, Peru, Brazil, Chile, Australia, 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, exploration 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."
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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 produced concentrates containing
gold, silver and copper at the Red Dome mine prior to its closing. Two buyers of
production from the Company each accounted for more than 10% of the Company's
total 1997 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 and silver 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 10, "Significant Customers and Export Revenues" and Note 15, "Geographic
and 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 price
of gold or to fix a price of gold that is acceptable to the Company. The Company
may also engage in limited hedging of its silver 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.
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 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 further
increases in gold prices.
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 levels of recovery of gold and silver
will be realized. With the exception of the Lihir mine, the ore reserve figures
presented herein were calculated using a gold price of $350 per ounce. The
Company has reviewed and estimated the effects of a $25 variance from the $350
per ounce gold price on its reserves excluding those at the Lihir mine. Based on
these estimates, the Company's total reserves would be reduced by approximately
2% using a gold price of $325 per ounce, and would be increased by approximately
3% using a gold price of $375 per ounce. Such approximations should not be
relied upon as being indicative of approximations of the Company's total
reserves at other gold prices. Reserves for the Lihir mine were calculated by
LGL's manager using a gold price of $365 per ounce. Projected cost and
production estimates for Lihir are also based on information calculated and
provided by LGL's manager. Such information has been reviewed, but not
independently confirmed, by the Company.
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Market price fluctuations of gold and silver, as well as increased
production costs or reduced recovery rates, may render ore reserves uneconomic
and may ultimately result in an adjustment 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.
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 1997 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. Such risks include
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 problems in foreign countries arising from such
risks, there can be no assurance that such problems will not arise in the
future.
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.
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The previous administration in Bolivia had initiated far-reaching
programs to decentralize central government's authority as well as the
distributions of the tax revenues, to reform the education and tax systems and
to promote private ownership of previously state-owned companies. The Company
believes these reforms are beneficial to the Bolivian people and Bolivian
economy. An election took place in June 1997. While the new administration
continues to implement these reforms, it is difficult to predict the ultimate
impacts these and associated reforms, and the change to a new administration
will have on the Company's Bolivian operations.
The Company also has a significant investment in the Lihir mine located
in PNG. Since 1974, when PNG achieved independence, the PNG government 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 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. The Company does not
expect acts of civil unrest from the inhabitants of Lihir Island; however,
should such acts occur, there can be no assurance that such acts would not have
a material adverse effect on the Company's operations. 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 mine 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 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 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
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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 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 and millsite 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. The uncertain and relatively undeveloped state of the law relating to
millsites contributes to the uncertainties. 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, and
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 1998. Among other
things, 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 23% of the
Phoenix project reserves and approximately 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 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 known. The Company cannot predict what
impact any possible amendment to the General Mining Laws will have 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 currently projected 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 land to the
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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.
Under the provisions of the predecessor legislation to the current
Mining Act (Ontario) (i.e. prior to June 1991), 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 exploration rights reserved to the Crown may in
general be obtained either by staking or map designation. 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 further
terms 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 on 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.
The Mining Act (Quebec) is however under revision and it is expected
that a new act will come into force within the year of 1998. The object of the
revision is to facilitate the management of claims, both for holders and for
governmental authorities. Among the principal changes contemplated, new claims
will no longer be obtained by staking of the territories but rather by way of a
system of designation by map. Transitional provisions will ensure that actual
holders of claims obtained by staking will not lose any rights in the process.
Despite several changes, the principle of "free mining" on which the actual
legislation is based on, will remain: access to the resources will be opened to
all; on public domain territories, exclusive rights to explore will be granted
to the first arrived; and in cases of discoveries, the latter will be assured to
obtain the right to exploit the resources founded.
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 (as revised by law in the first half of 1997). 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. The payment of patents (fees) is now the
essential requirement to keep concessions in good standing. A valid concession
gives the concessionaire the exclusive right to explore for and 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. NML,
through subsidiaries, owns the group of mining concessions within which the San
Cristobal mine and operating facilities are located.
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
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<PAGE> 23
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, confirms this co-existence, holding 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.
A bill is currently before Parliament which will alter some of the
processes which apply under the native title legislation. However, the major
focus of this bill is to confirm and facilitate the co-existence of interests
where appropriate.
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 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
not have a materially adverse effect on the Company's Pajingo Complex or 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.
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, 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 to develop properties and to maintain such
permits and approvals for ongoing operations, reclamation, closure, and
post-closure activities. There can be no assurance as to whether or when all
requisite permits and approvals may be obtained for any given project. Existing
and possible future legislation and regulations, or changes in interpretation or
enforcement thereof, could cause additional expense, capital expenditures,
restrictions and delays in the development, operation and closure of the
Company's properties, the extent and consequences of which cannot be predicted
by management of the Company. The Company expects
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environmental constraints to become increasingly strict and that the cost of
compliance will continue to grow. In the context of environmental permitting,
the Company must comply with standards and regulations that 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 either
obtaining required permits and approvals or compliance with applicable standards
and regulations could become such that the Company would not proceed with the
development or operation of a mine. Such outcomes could have material adverse
financial effects. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Each of the Company's mining properties has many environmental control
facilities. 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 past
milling operations consist of tailings treatment circuits that process plant
effluent and tailings facilities designed to hold the processed tailings. These
facilities are constructed as an integral part of processing facilities.
Environmental controls also exist for potential air pollutants, spill
containment and storage disposal of hazardous and solid wastes. 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" and Note 16, "Commitments and
Contingencies."
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 ("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 also 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 additional capital expenditures, increases in operating costs and delays
or interruptions of operations, could render certain mining operations
uneconomical and could 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 facilities at
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the Complex. These permits were amended in 1994 to include the Reona operations.
The Battle Mountain Complex also has been included in a stormwater discharge
general permit issued by the State of Nevada.
In March 1993, BMG filed an application for a reclamation permit
covering the Battle Mountain Complex area. This application is currently under
review. The Company has investigated the infiltration of liquids from the
tailings facility at the Battle Mountain Complex into the groundwater. This
facility was unlined at the time it was constructed in keeping with
then-accepted practice. Pursuant to the state-issued water pollution control
permit, the Company has prepared and submitted an evaluation of mitigation
alternatives for the groundwater. The Company currently expects to utilize the
affected groundwater in connection with its proposed Phoenix operations. Also,
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 surface water and groundwater in a highly mineralized area
where sampling has indicated that the water is acidic and high in metals. Due to
the ongoing 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. 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. The Company submitted a Plan of Operations for the Phoenix project
in August 1994, and this document initiated the EIS process. Additional studies
have necessitated changes to the Plan of Operations, and the Company is in the
process of making these changes. In addition, ongoing drilling and metallurgical
testwork have the potential to further change the project. These uncertainties,
and variables inherent in the permitting process and outside of the Company's
control, make it difficult to determine the timing for completion of permitting
and commencement of operations. 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. Numerous environmental
permits and approvals must be obtained from federal, state and local agencies
before a mine can be put into operation in Washington. The State Environmental
Policy Act ("SEPA") mandates an exhaustive review of the potential environmental
impacts of the project. In addition, NEPA compliance is necessary, including the
preparation of an EIS. In the case of the Crown Jewel Project, the EIS has been
jointly prepared to respond to both NEPA and 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 by 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. See "Legal Proceedings" under Item 3 herein. 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 and in the issuance of some state
permits, this schedule has been revised several times. Favorable decisions have
been made on certain permits. However, a number of appeals with respect to the
project have been filed by certain individuals and public interest groups, and
additional state and federal permits and approvals are required to commence
construction. See Item 3 "Legal Proceedings." Start-up of the Crown Jewel
project remains impossible to predict because it is contingent upon many
variables not within the Company's control, including the granting or denial of
necessary permits, results of administrative and judicial proceedings and
appeals, and inter-governmental coordination.
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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. The Company expects
the continued proliferation and tightening of environmental standards and
requirements over the long term. The Company may incur greater or lesser costs
and delays depending on the nature of the activity and the 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
transfer operations and spill containment facilities for storage vessels and
along tailings pipeline corridors. With respect to pollution prevention, the
Company has implemented one or more of the following programs at its Canadian
mining 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 compliance 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 was subject to
additional compliance limits for ammonia. The mine has made certain adjustments
to treat water prior to discharge in order to meet these limits, but continues
to have periods of non-compliance for both sediments and ammonia and additional
controls may be required. In August 1997, the Holloway mine became subject to
fish toxicity testing for the effluent. The results through the end of 1997
indicate that the mine may have difficulties meeting the fish toxicity limits
and additional controls may be required.
The Certificate of Approval for the Golden Giant mine does not
currently contain an ammonia limit. The Certificates of Approval for the Golden
Giant mine are being combined through the renewal process. In the event that
ammonia becomes a compliance limit in the Certificate of Approval renewal,
additional controls may be required.
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, estimates of
costs to implement the plans and financial assurance to cover the implementation
of the plans are required, with the financial assurance required in a form and
amount acceptable to the government. All three of the Company's operations in
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Canada have submitted their respective reclamation/closure plans to the
appropriate provincial agency and had these plans accepted and approved.
BOLIVIA
Bolivia first enacted federal environmental legislation in 1992,
followed in December 1995 by the promulgation of general environmental
regulations. The regulations require obtaining environmental licenses for both
existing and new operations, set air and water quality discharge standards, set
standards for the management of solid and hazardous wastes, provide procedures
and schedules for existing operations to come into compliance and require the
preparation of environmental impact studies in some instances. Pursuant to these
regulations, Inti Raymi has prepared an Environmental Statement as an
application for an environmental license for the Kori Kollo mine and submitted
such to the government in July 1997. The Environmental Statement is currently
under review by the Bolivian government. In August 1997, specific environmental
regulations for mining were promulgated. These regulations contain a set of
general technical and regulatory standards and norms for environmental
management within the mining industry. In addition, the government is continuing
to develop specific technical standards for the mining industry. Upon approval
of the environmental license for the Kori Kollo mine, the Company will have
eighteen months to update its environmental license, if necessary, to reflect
compliance with the mining specific regulations. The regulations promulgated in
1995 and 1997 contain environmental standards and requirements applicable to the
Kori Kollo mine which, depending on how the regulations are implemented and
interpreted, could require expenditures and changes in operations, resulting in
a material adverse effect on the Company's financial condition, cash flows or
results of operations. However, based on the Company's evaluation of the data
collected to date and assuming reasonable interpretation and implementation of
existing regulations and reasonableness in the adoption of additional specific
technical standards, 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. 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 was
approved by the Chilean legislature and enacted into law. Regulations under the
legislation pertinent to ambient environmental standards, prevention and
documentation plans, certain administrative authorities have been adopted.
Regulations regarding environmental impact statements and certain other matters
contained in the law 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 anticipates that the applicable regulations will not materially
impact operations in Chile.
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AUSTRALIA
The mining industry in Australia is primarily regulated by state
authorities and secondarily by federal authorities. 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 (Red Dome and Pajingo Complex) 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 EMOS.
These planning measures are complemented by a requirement for the
operator 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 to consolidate these two environmental legislative
schemes into one approval and regulatory system has been informally adopted and
is expected to be finalized in the near future.
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, the Pajingo Complex and Red Dome mine 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 Complex and Red Dome mine have been approved, including an approved
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.
In December 1997, the Contaminated Land Act 1991 (Qld) was integrated
into the Environmental Protection Act 1994 removing previous exemptions for
existing sites not required to be placed on the register. Also late in 1997, the
Environmental Protection Policy for noise and water was introduced. This
development has proved significant in developing operative conditions for new
projects and will potentially lead to a review of existing operating conditions
for current projects.
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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 credits for foreign income taxes paid, the
limitations on such credits may substantially reduce or eliminate the benefit of
credits. 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, 1997, the Company had approximately $98.9 million of regular net operating
losses and $3.3 million of alternative minimum tax net operating loss
carryforwards, expiring beginning in 2003, available to offset future U.S.
federal income tax, and approximately $0.9 million of alternative minimum tax
credits available on an indefinite carryforward basis. These amounts are subject
to possible adjustment upon 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 BMCL 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 was 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. The current QMD rate is 12%.
Dividends paid by BMCL to BMG were subject to a 6% Canadian withholding
tax in 1996. During the third quarter of 1997, the Company revised its strategy
relative to BMCL earnings, and as of December 31, 1997, BMCL's earnings are
considered to be permanently reinvested. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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. Legislation was passed in March 1997, however, which terminated this
exemption
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and subjected Inti Raymi, effective April 1, 1997, to a 25% income tax as well
as a sliding royalty on gold sales. The royalty will range from 4% to 7%,
depending on the price of gold; however, any income tax incurred is creditable
against the royalty imposed. See "-- Certain Factors Affecting Reserves, Foreign
Investments and Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Government Regulation."
Dividends, interest and other remittances paid by Inti Raymi to BMG and
third parties are subject to a 12.5% Bolivian withholding tax. Inti Raymi pays
import duties and Bolivian Value Added Tax on all purchases. Inti Raymi
subsequently claims refunds from the Bolivian government for the import duties
and the Value Added Tax by means of tax certificates used to pay taxes due on
its activities. Those certificates can be converted into cash in the local
finance market. 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 by NML'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., a Delaware corporation and a
wholly-owned subsidiary of BMG, is subject to tax on income derived from 1997
exploration and mining operations. However, no taxes are expected to be paid for
1997 due to existing loss carryforwards. 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 NML, 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
NML 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 NML is a PNG resident corporation. The dividend withholding tax rate
in PNG is currently 17%; however, NML paid no dividends in 1997.
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
28
<PAGE> 31
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. Furthermore, if
the Company were to become subject to significant environmental liabilities, the
results could have a material adverse effect on the financial condition of the
Company.
EMPLOYEES
The number of full-time employees of the Company (including employees
of majority-owned subsidiaries) at December 31, 1997 was 1,810.
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 February 11, 1997, the foreign exchange spot purchase rates for
U.S. dollars, as quoted at 3:00 p.m. Eastern time by Bloomberg, were A$1.00
equals US$.6792 and C$1.00 equals US$.6951.
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.
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.
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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.
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--those claims, either lode or placer, for which
patents have been issued.
PROBABLE ORE RESERVES--reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven ore
reserves, but the sites for inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced. The degree of assurance, although
lower than that for proven ore reserves, is high enough to assume continuity
between points of observation.
PROVEN ORE RESERVES--reserves for which (a) the quantity of ore 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--processed ore after the recoverable 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.
Suitability of the location and design of the facility are determined by
environmental impact studies.
TON--a short ton of 2,000 pounds, dry weight basis.
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<PAGE> 33
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
In addition to the legal actions detailed in this Item 3, the Company
is party to a number of 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 of Company management that none of
these actions will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
The following legal proceedings relate to the Crown Jewel project in
Washington State in which the Company is earning an interest of up to 54%.
During the first quarter of 1997, the final EIS for the Crown Jewel project was
issued. The EIS was prepared pursuant to the NEPA and SEPA. Certain positive
permit decisions and approvals have been received for the project, but
additional state and federal permit decisions and approvals are pending. Among
the positive permit decisions were: 1) approval in September 1997 by the
Washington Department of Ecology ("WDOE") of conditional coverage under the
Modified General Permit for Construction Activity for certain construction
activities; 2) approval by WDOE in September 1997 of a Dam Safety Permit for the
proposed tailings facility; and 3) approval by WDOE in November 1997 of certain
applications for new water rights and certain applications for changes to
existing water rights that are necessary for the Crown Jewel project. The
existing legal proceedings evidence opposition to the project by certain persons
and special interest groups, including the Okanogan Highlands Alliance ("OHA"),
the Washington Environmental Council ("WEC"), the Center for Environmental Law
and Policy ("CELP") and the Confederated Tribes of the Colville Reservation
("CCT"). The Company expects that additional appeals may be filed and that
injunctions will be sought. The impact and exact timing of final resolution of
the existing appeals, or any future appeals related to the project, cannot at
this time be determined with any accuracy.
OKANOGAN HIGHLANDS ALLIANCE V. WILLIAMS, ET AL., UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON, CIVIL NO. 97-806JE
During the first quarter of 1997, the United States Forest Service
("USFS") issued a Record of Decision ("ROD") which approved the Crown Jewel
project subject to the requirement that the Company obtain USFS approval of a
detailed Plan of Operations. The USFS received four administrative appeals to
its EIS and ROD, which were denied in May 1997. On May 29, 1997, OHA, WEC, the
Colville Indian Environmental Protection Alliance and the Kettle Range
Conservation Group instituted the above-referenced action against the USFS and
certain USFS decision makers in United States District Court for the District of
Oregon. The action appeals the EIS, the ROD and the denial of the administrative
appeals. The action seeks the following rulings: 1) that the EIS and ROD are
inadequate and violate NEPA and the Administrative Procedures Act ("APA"); 2)
that the USFS's decision not to prepare and issue a supplemental EIS was not in
accordance with law; and 3) that the ROD violates certain specified laws. The
action also seeks an award of fees and costs associated with the litigation and
indicates that the plaintiffs will seek injunctive relief restraining the USFS
from approving or authorizing the Plan of Operations or any other action related
to the Crown Jewel project. The Company has intervened in the action. On
November 5, 1997, CCT moved to intervene as a matter of right. Procedural
motions are pending.
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<PAGE> 34
BATTLE MOUNTAIN GOLD COMPANY V. STATE OF WASHINGTON DEPARTMENT OF ECOLOGY,
WASHINGTON POLLUTION CONTROL HEARINGS BOARD, PCHB NO. 97-130
On September 19, 1997, the Company initiated the above-referenced
action challenging certain performance security requirements imposed by WDOE as
conditions in the approval of conditional coverage under the Modified General
Permit for Construction Activity. At the same time, the Company requested that
the Pollution Control Hearings Board ("PCHB") schedule hearing dates sufficient
to hear the Company's appeal as well as appeals that were expected to be filed
by project opponents with respect to certain WDOE permit decisions. Consolidated
hearing dates concluding in the second quarter of 1998 have been scheduled with
respect to such appeals. Subsequent to the setting of such consolidated hearing
dates, the Company withdrew its challenge.
OKANOGAN HIGHLANDS ALLIANCE, ET AL. V. STATE OF WASHINGTON DEPARTMENT OF
ECOLOGY, ET AL., WASHINGTON POLLUTION CONTROL HEARINGS BOARD, PCHB NO. 97-146
(CONSOLIDATED WITH PCHB NOS. 97-182; 97-183; 97-185; AND 97-186)
Pursuant to the Company's above noted request in PCHB No.97-130,, PCHB
Nos. 97-182; 97-183; 97-185; and 97-186 have been consolidated for hearing with
PCHB No. 146. The consolidated hearing is presently scheduled to conclude in the
second quarter of 1998. Factors beyond the control of the Company could
adversely affect the hearing schedule. It is not anticipated that every
potential appeal before the PCHB would be consolidated into the consolidated
hearing. Procedural motions are pending.
PCHB No. 97-146. On October 16, 1997, OHA and WEC instituted the
above-referenced action against WDOE and the Company. The action appeals WDOE's
issuance of the Dam Safety Permit, WDOE's approval of conditional coverage under
the Modified General Permit for Construction Activity and WDOE's acceptance of
performance securities related thereto. The action also requests that the EIS be
remanded to the WDOE for further review and compliance with SEPA.
PCHB No. 97-182. On December 1, 1997, Roger Lorenz instituted the
action designated PCHB No. 97-182 against WDOE, which action appeals WDOE's
approval of one new water right application and one water right change
application.
PCHB No. 97-183. On December 1, 1997, OHA, WEC and CELP instituted the
action designated PCHB No. 97-183 against WDOE and the Company. The action
challenges WDOE's water rights decisions, claiming that such decisions violated
the State Water Code, Water Resources Act, APA and SEPA. The action seeks an
order reversing WDOE decisions or, in the alternative, vacating the Reports of
Examination and remanding the applications to WDOE for further study. The action
has been joined by Triple Creek, a nonprofit corporation.
PCHB No. 97-185. On December 3, 1997, Lori Bialic instituted the action
designated PCHB No. 97-185 against the WDOE, which action appeals the WDOE's
approval of two applications for changes of water rights.
PCHB No. 97-186. On December 2, 1997, CCT instituted the action
designated PCHB No. 97-186 against the WDOE and the Company. The action makes
the same challenge and seeks the same relief as PCHB No. 97-183.
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<PAGE> 35
OKANOGAN HIGHLANDS ALLIANCE V. STATE OF WASHINGTON, DEPARTMENT OF ECOLOGY, ET
AL., SUPERIOR COURT OF THE STATE OF WASHINGTON FOR THURSTON COUNTY, CIVIL NO.
97-2-02869-5
On December 4, 1997, OHA instituted the above-referenced action against
WDOE, the Company and Crown Resources Corporation in the Superior Court of the
State of Washington in and for Thurston County. The action challenges WDOE's
determinations that the proposed tailings facility and the proposed waste rock
disposal sites at the Crown Jewel project do not need a Solid Waste Permit. The
action seeks to have the court issue an order declaring an historic WDOE
rulemaking to be in excess of statutory authority and/or arbitrary and
capricious. In the event that the Court determines the rulemaking to be valid,
Plaintiffs seek a hearing on whether the Crown Jewel tailings constitute a
"liquid waste" subject to a federal or state water pollution permit and on
whether the Crown Jewel waste rock constitutes an "inert waste," such that the
tailings facility and waste rock sites are not respectively required to have a
Solid Waste Permit and meet certain location standards. The action also seeks
orders declaring that the Crown Jewel tailings and waste rock must be disposed
of at a licensed solid waste disposal facility, any other relief deemed
necessary and an award of fees and costs.
CONFEDERATED TRIBES OF THE COLVILLE RESERVATION V. STATE OF WASHINGTON
DEPARTMENT OF ECOLOGY, ET AL., SUPERIOR COURT OF THE STATE OF WASHINGTON FOR
THURSTON COUNTY, CIVIL NO. 97-2-02840-7
WDOE granted the Company's applications for new water rights and
changes to existing water rights in part based upon a streamflow mitigation
plan. On December 2, 1997, CCT instituted the above-referenced action against
the WDOE and the Company. The action seeks an order holding that WDOE's approval
of the streamflow mitigation plan constituted a rulemaking in violation of the
APA and an order that such approval exceeds WDOE's statutory authority,
conflicts with existing law and is irrational. The action also seeks an order
mandating a rulemaking to develop guidelines and criteria for approving water
resource mitigation measures and an injunction on the approval of water rights
applications until the conclusion of such rulemaking. Reversal of WDOE's
decisions with respect to the Company's water rights applications is also
sought, along with an injunction precluding the Company from taking action in
reliance on such decisions. The Plaintiff also seeks costs and attorney fees.
OKANOGAN HIGHLANDS ALLIANCE, ET AL., V. WASHINGTON STATE DEPARTMENT OF ECOLOGY,
ET AL., SUPERIOR COURT OF THE STATE OF WASHINGTON FOR THURSTON COUNTY, CIVIL NO.
97-2-02831-8
On December 2, 1997, OHA, WEC and CELP instituted the above referenced
action against WDOE and the Company. The action makes the same challenges and
seeks the same relief as Confederated Tribes of the Colville Reservation v.
State of Washington Department of Ecology, et al., Superior Court of the State
of Washington for Thurston County, Civil No. 97-2-02849-7.
OKANOGAN HIGHLANDS ALLIANCE V. STATE OF WASHINGTON DEPARTMENT OF NATURAL
RESOURCES, ET AL., SUPERIOR COURT OF THE STATE OF WASHINGTON FOR THURSTON
COUNTY, CIVIL NO. 97-2-01450-3
The Washington State Department of Natural Resources ("WDNR") approved
a Forest Practices Permit related to the Crown Jewel project in April 1997. On
June 24, 1997, OHA filed the above-referenced Petition for Judicial Review of
Agency Action with the Superior Court of the State of Washington in and for
Thurston County, naming WDNR, WDOE, the Company and Crown Resources Corporation
as respondents. The Petition sought an order vacating and reversing the actions
of the WDNR in granting the Forest Practices Permit and remanding the EIS to the
WDOE for further review and compliance with SEPA. The Company and WDOE moved to
dismiss the Petition with prejudice on procedural grounds, whereupon the
Petitioner moved for dismissal without prejudice. On August 18, 1997, the
Petitioner's motion was granted and the action was dismissed without prejudice.
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<PAGE> 36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1997 to a vote
of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages as of February 10, 1998, 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.
<TABLE>
<S> <C> <C>
Ian D. Bayer (58) - President and Chief Executive Officer
Ian Atkinson (48) - Senior Vice President - Exploration
Anne C. Baldrige (40) - Vice President - Environmental and Governmental Affairs
Thomas P. Bausch (50) - Treasurer
Joseph J. Baylis (41) - Senior Vice President - Corporate Development
Greg V. Etter (39) - General Counsel and Secretary
Stanford M. Haley (54) - Vice President - Human Resources
John A. Keyes (54) - Senior Vice President - Operations
Jeffrey L. Powers (45) - Vice President and Controller
</TABLE>
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 1997. Prior to joining BMG,
Mr. Bayer had served as President and Chief Executive Officer and as a Director
of Hemlo Gold since July 1991.
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.
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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 Manager of Corporate
Accounting. He was appointed Controller in January 1994 and to his current
position in February 1997.
Messrs. Bayer, Atkinson, Baylis and Keyes also serve as executive
officers of BMCL. Mr. Bayer serves as Director, President and Chief Executive
Officer and each of Messrs. Atkinson, Baylis and Keyes serve as Vice President.
In addition, Mr. Michael Proctor assumed his current position as Vice President
- - Finance and Corporate Secretary of BMCL on July 19,1996 following the
combination of BMG with Hemlo Gold. Mr. Proctor had previously served as Hemlo
Gold's Vice President - Finance since September 1991.
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<PAGE> 38
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
BMG's common stock, par value $0.10 per share (the "BMG 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 BMG Common Stock on the exchanges is "BMG." BMCL
exchangeable shares, which have no denominated par value ("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 BMG Common Stock as reported on the NYSE Composite
Tape.
<TABLE>
<CAPTION>
1997 HIGH LOW
--------- -------
<S> <C> <C>
First Quarter....................................... $ 7 5/8 $ 6 1/4
Second Quarter...................................... $ 6 3/4 $ 5 5/8
Third Quarter....................................... $ 7 3/8 $ 5 1/4
Fourth Quarter...................................... $ 7 5/16 $ 4 3/8
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
</TABLE>
As of February 9, 1998, the Company had 16,653 record holders of BMG
Common Stock and 734 record holders of Exchangeable Shares.
Cash dividends of $0.05 and $0.07 per share were paid in fiscal 1997
and 1996, respectively. 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 7, "Debt," 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.
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 BMCL 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
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<PAGE> 39
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), BMCL 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
BMCL'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 CIBC Mellon 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 as of the Record Date for each meeting of
holders of BMG Common Stock, excluding the number of Exchangeable Shares held by
the Company and certain of its subsidiaries (those subsidiaries precluded from
voting any Common Stock under applicable Nevada law). 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 as of the Record Date for each meeting of
holders of BMG Common Stock, excluding the number of Exchangeable Shares held by
the Company and certain of its subsidiaries (those subsidiaries precluded from
voting any Common Stock under applicable Nevada law).
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 stock rights attached to each share of BMG common
stock entitle a holder of such 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 BMG Common Stock) or, in certain
circumstances, shares of BMG Common 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 BMG 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 stock rights attached to each share of BMG Common Stock.
See Note 8, "Shareholders' Equity," of Notes to Consolidated Financial
Statements under Item 8 herein.
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<PAGE> 40
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and the Consolidated Financial Statements and related
notes thereto in Item 8.
<TABLE>
<CAPTION>
Years Ended December 31
Millions, except per share amounts 1997 (1) 1996 (2) 1995 1994 1993
- ---------------------------------- -------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Sales $ 345 $ 424 $ 401 $ 430 $ 376
===== ===== ===== ===== =====
Operating income (loss) $ (3) $ (43) $ 44 $ 111 $ 62
===== ===== ===== ===== =====
Income (loss) before cumulative effect of
accounting change $ (5) $ (74) $ 30 $ 57 $ 31
Cumulative effect of accounting change, net (3) (4) -- -- -- --
----- ----- ----- ----- -----
Net income (loss) (9) (74) 30 57 31
Preferred dividends 8 8 8 8 4
----- ----- ----- ----- -----
Net income (loss) to common shares $ (17) $ (82) $ 22 $ 49 $ 27
===== ===== ===== ===== =====
Per common share (4)
Basic earnings (loss) $(.07) $(.36) $ .10 $ .22 $ .12
===== ===== ===== ===== =====
Diluted earnings (loss) $(.07) $(.36) $ .10 $ .21 $ .12
===== ===== ===== ===== =====
Cash dividends $ .05 $ .07 $ .08 $ .13 $ .12
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
December 31
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total assets $1,093 $1,037 $1,142 $1,103 $1,047
====== ====== ====== ====== ======
Long-term debt, less current maturities $ 241 $ 139 $ 169 $ 166 $ 197
====== ====== ====== ====== ======
Shareholders' equity $ 506 $ 538 $ 629 $ 626 $ 583
====== ====== ====== ====== ======
</TABLE>
(1) Includes a $16.4 million income tax benefit representing a release of
certain deferred tax asset valuation allowances and certain withholding
tax liabilities, and an additional tax benefit of $7.2 million due to
revised projections of future taxable income at certain of the Company's
subsidiaries, which resulted in the recognition of the tax benefit of net
operating loss carryforwards at these subsidiaries.
(2) In 1996, the Company wrote down the carrying values of the Reona and San
Cristobal mines by $17.5 million and $17.6 million, respectively, both
gross and net of income taxes. Also in 1996, the Company incurred $22.7
million in merger expenses related to the combination of BMG and Hemlo
Gold.
(3) Reflects the cumulative effects of Inti Raymi changing its method of
calculating depreciation, depletion and amortization and the Company
changing its method of amortizing the premium associated with its
investment in Inti Raymi to the same new basis (see Note 2 of Notes to
Consolidated Financial Statements in Item 8).
(4) Basic and diluted earnings (loss) per share amounts for years prior to
1997 have been retroactively restated to comply with Statement of
Financial Accounting Standard No. 128, "Earnings per Share" (see Note 1
of Notes to Consolidated Financial Statements in Item 8).
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<PAGE> 41
Pro forma amounts assuming accounting method change had been applied
retroactively:
<TABLE>
<CAPTION>
Years Ended December 31
Millions, except per share amounts 1997 1996 1995 1994 1993
- --------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Operating income (loss) $ (3) $ (42) $ 41 $ 107 $ 63
======= ======= ===== ====== ======
Net income (loss) $ (5) $ (74) $ 28 $ 54 $ 31
======= ======= ===== ====== ======
Basic earnings (loss) per share $ (.05) $ (.36) $ .09 $ .21 $ .12
======= ======= ===== ====== ======
Diluted earnings (loss) per share $ (.05) $ (.36) $ .09 $ .20 $ .12
======= ======= ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total assets $ 1,093 $ 1,032 $ 1,137 $ 1,100 $ 1,048
======= ======= ======= ======= =======
Shareholders' equity $ 506 $ 534 $ 625 $ 624 $ 584
======= ======= ======= ======= =======
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gold sales (000 oz.) - 100% 976 1,034 978
Gold revenue realized per ounce $ 342 $ 391 $ 384
Average London PM fix per ounce $ 331 $ 388 $ 384
</TABLE>
Sales - Sales revenue decreased in 1997 as compared with 1996 primarily as a
result of lower average realized gold prices in 1997 and lower gold production.
Average realized prices for gold decreased as a result of lower spot gold
prices. Average realized gold prices in 1997 were slightly higher than the
average London PM fix price due to gains recognized from the Company's forward
sales. The decrease in gold production was primarily attributable to the
completion of production of the San Luis and Pajingo Complex Cindy mines near
the end of 1996 and the ceasing of mining operations at the Red Dome mine at the
end of 1997, following depletion of the remaining stockpiles. Partially
offsetting these decreases were increased production from the Holloway mine,
which commenced commercial operations at the end of 1996, and production at the
Pajingo Complex Vera/Nancy mine, which commenced operations in the third quarter
of 1997. The Holloway mine experienced reduced production in the fourth quarter
of 1997 due to mechanical failure at a third-party custom milling site which
processes some of the Holloway ore. The milling site is now fully operational.
Sales revenue increased in 1996 compared with 1995 primarily as a
result of increased sales volumes at the Golden Giant mine and an increase in
the average price realized for the sale of gold. 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 1995 production was affected by a
13-week strike and a seven-week shutdown for repairs. 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. Kori Kollo mine production decreased by
approximately 28,000 ounces during 1996 because of the processing of lower grade
ore.
Production Costs - Cash production costs are presented in accordance with
guidelines established by The Gold Institute. In addition to mining, milling and
plant level general and administrative 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.
These guidelines also provide for reporting on a cost per gold ounce basis,
rather than cost per equivalent gold ounce.
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<PAGE> 42
CONSOLIDATED PRODUCTION COSTS PER OUNCE OF GOLD SOLD (1)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Direct mining costs $ 207 $ 217 $ 205
Deferred stripping adjustments 3 2 (1)
Third party smelting, refining and transportation costs 8 7 8
By-product credits included in sales (17) (19) (26)
----- ----- -----
Cash operating costs 201 207 186
Royalties 5 8 6
Production taxes -- 1 1
----- ----- -----
Total cash costs 206 216 193
Depreciation, depletion and amortization 80 91 87
Reclamation and mine closure costs 9 10 3
----- ----- -----
Total production costs $ 295 $ 317 $ 283
===== ===== =====
</TABLE>
(1) Represents 100% interests of consolidated subsidiaries
RECONCILIATION OF TOTAL CASH COSTS PER OUNCE TO CONSOLIDATED FINANCIAL
STATEMENTS
<TABLE>
<CAPTION>
Millions, except ounce and per ounce amounts 1997 1996 1995
- --------------------------------------------------- ------- ---------- ---------
<S> <C> <C> <C>
Production costs per financial statements $ 234.3 $ 259.2 $ 230.5
By-product credits included in sales (16.2) (20.0) (25.3)
Reclamation and mine closure costs (8.5) (10.3) (2.8)
Other* (8.4) (5.1) (13.5)
-------- ---------- --------
Production costs for per ounce calculation purposes $ 201.2 $ 223.8 $ 188.9
======== ========== ========
Gold ounces sold (000) 976 1,034 978
======== ========== ========
Total cash costs per gold ounce sold $ 206 $ 216 $ 193
======== ========== ========
</TABLE>
*Certain royalties paid to the Bolivian government are excluded in cost per
ounce calculations as a result of changes in the Bolivian Mining Code, effective
in 1997, which allow the offsetting of Bolivian income taxes against royalties,
which now apply to Inti Raymi. These royalties are considered to be,
effectively, an income tax. All prior year amounts have been restated for
comparative purposes.
Total cash production costs decreased in 1997 as compared with 1996 as
a result of decreased production, mostly at the San Luis and Pajingo Complex
Cindy mines, and lower consolidated per ounce cash costs partially offset by a
$5.2 million charge in the fourth quarter of 1997 for estimated environmental
liabilities, primarily at the Battle Mountain Complex. Consolidated per ounce
cash costs decreased in 1997 primarily as the result of decreased costs per
ounce at all of the Company's mines except San Cristobal and Red Dome. Kori
Kollo benefitted from cost cutting measures implemented in the first half of
1997, while per ounce cash costs decreased at the Golden Giant mine as a result
of the mining of higher-grade ore. The shutdown of operations at the San Luis
mine in late 1996, which had higher than Company-average per ounce cash costs,
and higher costs at the Holloway mine in 1996 during the start up of operations
also contributed to the decreased consolidated per ounce cash costs in 1997. Per
ounce cash costs increased at San Cristobal due to a change in the mine plan and
Red Dome cash costs increased as a result of the milling of ore from lower grade
stockpiles prior to its closure in October 1997.
40
<PAGE> 43
Cash production costs increased in 1996 compared with 1995 primarily as
a result of increased production from the Golden Giant mine and increased costs
at the Kori Kollo mine. Production costs increased on a cost per gold ounce sold
basis primarily as a result 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 because of the milling of lower grade ore from stockpiles subsequent to the
completion of mining operations in 1996.
Depreciation, depletion and amortization ("DD&A")-DD&A decreased in
1997 in total and on the basis of cost per gold ounce sold as compared with
1996. DD&A decreased in total mainly as a result of the Reona and San Cristobal
mine asset write-downs in 1996 and the cessation of operations at the San Luis
and Pajingo Complex Cindy mines. DD&A also decreased because property, plant and
equipment at the Red Dome mine is fully amortized. These decreases in DD&A were
partially offset by increases resulting from the commencement of production at
the Holloway mine and the change in method of calculating depreciation by Inti
Raymi. DD&A decreased on a per ounce basis due to write-downs at San Cristobal
and Reona in 1996, and property, plant and equipment at the Silidor mine was
fully amortized in the second quarter of 1997.
DD&A increased in total and on a cost per gold ounce sold basis in 1996
compared with 1995 primarily as a result 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. Reserve estimate declines at both mine sites
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.
Reclamation and mine closure costs decreased in total and on a cost per
ounce basis in 1997 compared with 1996, primarily due to revised estimates in
1996 of costs to be incurred upon completion of mining at the Kori Kollo, Reona
and San Luis mines. Reclamation and mine closure costs increased in total and on
a cost per ounce basis in 1996 compared with 1995 due to revised estimates in
1996 of costs to be incurred upon completion of mining at those mines.
Exploration Costs - Exploration and evaluation expenses decreased in 1997
compared with the prior year as the Company reduced its exploration expenditures
to focus on high priority projects. Exploration costs in 1997 were offset by
approximately $4.0 million in gains from the sales of various exploration
projects, including a $2.0 million gain from the sale of the Tungkum project and
a $1.5 million gain from the sale of the Masmindo Gold project.
Exploration and evaluation expenses increased in 1996 compared with
1995. 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 sales of various exploration prospects, including the Awak Mas prospect
in Indonesia and the Glimmer prospect in Ontario, Canada. Exploration costs in
1995 were also reduced by approximately $5.5 million in gains from the sales 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.
Merger Expenses - The Company incurred approximately $2.7 million of additional
merger expenses in 1997 related to the 1996 combination of BMG and Hemlo Gold.
The Company incurred approximately $22.7 million of such merger expenses in
1996.
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<PAGE> 44
Asset Write-downs - In 1996, the Company wrote down the carrying values of the
Reona and San Cristobal mines, prompted by the continuing high operating costs
experienced at these properties, which 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 of $3.5 million for
obsolete and slow moving materials and supplies inventory.
In 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 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 - General and administrative expenses decreased
in 1997 as compared with 1996 primarily as a result of $2.0 million of
restructuring costs incurred by NML in 1996. These restructuring costs resulted
in increased 1996 expenses as compared with 1995.
Interest Expense - 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 costs associated with the
Company's 6% convertible subordinated debentures were capitalized as part of the
Lihir investment until October 1, 1997, when Lihir reached the commercial
production stage.
Gross interest expense increased slightly in 1997 as compared with 1996
as a result of the $145 million bank borrowing by BMCL in September 1997 and the
expensing of interest, previously capitalized, related to Lihir commencing
commercial production. It is expected that interest expense will increase in the
future as a result of these items.
Interest expense decreased in 1996 compared with 1995 primarily as a
result of the combination with Hemlo Gold. Cash balances from Hemlo Gold were
used to repay outstanding indebtedness, and cash flows generated from Canadian
operations reduced the Company's borrowing requirements during 1996.
Interest Income - Interest income decreased in 1997 compared with 1996, due to
lower levels of cash to invest in the first three quarters of 1997. It is
expected that interest income will increase in 1998 as the Company should have
significantly higher cash balances than it had in 1997. Interest income
decreased in 1996 as compared with 1995 due to lower interest rates and lower
average balances of invested cash.
Other Income, net - Other income, net decreased in 1997 compared with 1996. This
decrease was attributed to higher foreign currency transaction losses
experienced in 1997, primarily on the $145 million BMCL bank loan, and lower
levels of capitalized interest. Other income, net decreased in 1996 as compared
with 1995 as a result of higher foreign currency transaction losses incurred
by NML in 1996.
Income and Mining Taxes - Income tax expense decreased in 1997 as compared with
1996 due to a change in certain assumptions related to the Company's accounting
for U.S. income taxes. As BMG expects to continue investing the proceeds from
the sale of NML, as described in Note 7 of the Notes to Consolidated Financial
Statements in Item 8, in the U.S. in future years, and according to current
business plans, the Company no longer expects to remit to the U.S. any
accumulated or future Canadian earnings generated by BMCL. The proceeds from the
sale are expected to be sufficient to meet the Company's operating needs in the
U.S. in the near future. Additionally, the interest income expected to be
derived from such funds has led management to project U.S. taxable income in
future years sufficient to recognize currently a portion of the
42
<PAGE> 45
Company's net operating loss carryforwards in the United States. As a result,
the Company recorded a $16.4 million income tax benefit in the third quarter of
1997, representing a release of certain deferred tax asset valuation allowances
and certain withholding tax liabilities previously recorded on expected
remittances of Canadian earnings. Additionally, BMG recognized tax benefits of
$7.2 million during the third quarter of 1997 as a result of revised projections
of future taxable income at certain of the Company's subsidiaries, which
resulted in third quarter 1997 recognition of the tax benefit of net operating
loss carryforwards at these subsidiaries.
Income tax expense increased in 1996 as compared with 1995 as a result
of several factors, including a provision for Canadian income taxes on Canadian
earnings of $18.2 million, the accrual of $7.1 million in Canadian withholding
taxes on distributed and retained earnings of BMCL and the recording of a 100%
valuation allowance of approximately $10.2 million related to certain deferred
tax assets recognized in 1995 that were no longer expected to be realized due to
then current and expected future levels of foreign tax credits. As described
above, this strategy was revised in 1997.
The Company's effective income tax rate in 1995 was affected by the
recognition of U.S. deferred tax assets related to foreign tax credits. 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.
The Bolivian Mining Code was amended in the first half of 1997 to
subject all gold mining operations to an income tax as well as a sliding royalty
on gold sales. Under the new law, the royalty will range from 3.5%-7.0%,
depending on the price of gold; however, income tax incurred at a rate of 25%
will be creditable against the royalty imposed. This new law eliminated the
Company's exemption from income tax previously granted pursuant to certain
provisions of the Mining Code. The Company anticipates that compliance with this
legislation will not have a material adverse effect on the Company's financial
condition, cash flows or results of operations.
Mining taxes decreased in 1997 compared with 1996 as a result of lower
levels of Canadian mining income. Mining taxes increased in 1996 compared with
1995 as a result of the Golden Giant mine shut-downs in 1995.
In order to realize its U.S. deferred tax assets, the Company would
have to generate additional taxable income of approximately $31 million. The
Company's current level of earnings would not be sufficient to generate the
required net income; however, the Company has several new projects that when in
operation will generate substantially higher U.S. taxable income. The Company
has also completed a restructuring of its assets in the U.S. as previously
described. The Company's projections also anticipate higher gold prices in the
future based on historically higher gold prices. BMG's net operating loss
carryforwards will expire beginning 2003 as follows: $1.3 million, $0.9 million,
$2.2 million and $2.0 million in the years 2003 through 2006, respectively; and
$16.5 million, $23.4 million, $19.5 million, $7.3 million and $25.6 million in
the years 2007 through 2011, respectively.
Minority Interest in Net Loss (Income) - Minority interest in net income
increased in 1997 compared with 1996, and decreased in 1996 compared with 1995.
In 1996, there was a net loss attributable to minority interests primarily from
a $35.4 million loss incurred by NML. 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.
LIQUIDITY AND CAPITAL RESOURCES
Summary - At December 31, 1997, the Company had cash and cash equivalents of
$185.0 million. Of this, $106.3 million was held by BMG, $37.4 million by BMCL,
$40.9 million by NML and $0.4 million by Inti Raymi. An additional $8.5 million
of restricted cash was held by Inti Raymi for future debt service and $9.2
million of restricted cash was held by NML related to an NML guarantee of Lihir
debt.
Operating Activities - The Company generated cash flows of $61.2 million, $56.6
million and $73.9 million from operating activities in 1997, 1996 and 1995,
respectively. The decrease in cash flows in 1996 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 the Golden Giant.
43
<PAGE> 46
Investing Activities - Cash used in investing activities increased to $63.0
million in 1997 as compared with $55.2 million in 1996. Approximately $16.6
million was spent on the Pajingo Joint Venture, $7.4 million at Inti Raymi,
$10.3 million at Golden Giant and $8.2 million at Crown Jewel.
Cash used for investing activities decreased to $55.2 million in 1996
as compared with $145.1 million in 1995. 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. In 1995, the Company spent
approximately $67 million on the Lihir project. Expenditures in 1995 also
included the acquisition of an additional interest in the Lihir Joint Venture by
NML. See "Investing Activities - Lihir" below.
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 on the recovery enhancement system and $1.4 million on the tailings
treatment facility. The remaining $17 million spent in 1995 at the Kori Kollo
mine was primarily on various dewatering system projects and the purchases of
haul trucks and other mining equipment.
The Company has included $80 million for total projected capital
expenditures in its 1998 business plan. Of these expenditures, 73% is expected
to be spent in North America, 11% in Latin America and 16% in the South Pacific,
primarily Australia. The Company continues to evaluate strategic opportunities
that may exist in the marketplace as a result of depressed gold prices.
Phoenix Project - The Phoenix project is located in the Copper Canyon
area of the Battle Mountain Complex. In permitting work, additional studies have
led to revisions to the hydrology and geochemistry reports, necessitating
submission of a revised Plan of Operations for the Environmental Impact Study.
The revised plan is expected to be ready for submission in March 1998. Because
planned drill tests and pilot plant work have the potential to expand the scope
of the project and significantly improve the originally envisioned economics,
further revisions to the proposed Plan of Operations will be necessary. These
uncertainties make it difficult to determine with accuracy the timing of
completion of permitting and potential start-up dates for the mine, although the
earliest feasible start-up date for Phoenix currently appears to be during the
year 2000.
Total capital costs of the Phoenix project were originally estimated at
$142 million, excluding capitalized interest. The Company is continuing to
investigate alternatives in an attempt to decrease the capital cost of the
project and is unable at this time to determine with accuracy what the total
capital costs of the Phoenix project will be upon its completion. The
Company has spent $24.1 million on the development of this project through
December 31, 1997.
Crown Jewel Project - The Company plans to construct a 3,000
ton-per-day milling facility. Construction is planned to begin upon receipt of
all requisite permits. BMG is proceeding with permitting of the project. The
Environmental Impact Statement was finalized and a Record of Decision and
certain permits were issued in 1997. Additional state and federal permits and
approvals are required to commence construction. The Company cannot predict with
certainty the timing and outcome of governmental determinations with respect to
these permits and approvals. A number of appeals with respect to the project
have been filed by individuals and public interest groups. The impact and exact
timing for final resolution of these appeals, or any other appeals related to
the permitting process, cannot be determined with any accuracy at this time.
44
<PAGE> 47
To earn a 54% 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, 1997, $72.0 million has been
spent, of which $63.7 million has been capitalized.
Lihir - The Company holds an indirect interest in the Lihir mine in
Papau New Guinea through its 50.5% ownership of NML, which in turn owns 17.15%
of Lihir Gold Limited ("LGL"). Commercial production of sulphide ore at Lihir
commenced on October 1, 1997.
Financing for the Lihir project involved bank debt facilities and an
initial public offering of common stock of LGL. In connection with the LGL debt
financing, NML has guaranteed, until project completion (as defined), 30% of
LGL's obligations under the facilities. These 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, 1997, LGL has drawn
approximately $295 million under this debt facility. In addition, NML has
pledged its LGL shares, having a fair value of approximately $160 million at
December 31, 1997, as security under the facility until project completion.
New World Project - The New World project is owned by a subsidiary of
Crown Butte Resources Ltd. ("CBR"), a Canadian corporation in which the Company
owns a 60% interest. In August 1996, BMCL announced that it would vote its 60%
interest in CBR in favor of the agreement entered into on August 12, 1996,
between CBR, the U.S. government and certain special interest groups (the
"August 1996 Agreement"). The August 1996 Agreement provides a framework
whereunder CBR would exchange property interests within the New World Mining
District for U.S. interests or assets having a value of $65 million, and then
set aside $22.5 million for the completion of reclamation and restoration
programs in the District. The exchange would result in the settlement of
existing litigation under the federal Clean Water Act relating to historic
mining impacts and mutual releases between the parties as to any further
environmental liabilities. The August 1996 Agreement also provides for the
suspension of permitting pending the consummation of the exchange. BMCL's
decision to support the August 1996 Agreement was based, among other things, on
reduced economic expectations resulting from protracted permitting and potential
environmental liabilities related to historic mining at New World. The carrying
value of the New World project at December 31, 1997, was $42.5 million on a
consolidated basis, of which BMCL's 60% share was $25.5 million.
The August 1996 Agreement contains a number of conditions beyond the
control of CBR, including obtaining shareholder approval and confirmation by
appraisal that the interests to be acquired by the U.S. have a fair market value
of at least $65 million. CBR also has the right to withdraw from the August 1996
Agreement under certain circumstances. Failure to complete the exchange
contemplated in the August 1996 Agreement would result in the legal action under
the Clean Water Act proceeding and, as was the case prior to the August 1996
Agreement, there can be no assurance that any renewed permitting efforts would
be successful.
The August 1996 Agreement is also conditioned upon CBR acquiring fee
title (or such other interests as are acceptable to the United States) in
certain lands currently leased to CBR. In September 1997, CBR obtained from its
lessor an option under which it can cause the lessor to grant to the U.S. a
restriction that would preclude mining on the lessor's property unless the
President and Congress concur with development thereon.
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<PAGE> 48
The August 1996 Agreement provides that the United States shall
identify interests or assets available for transfer to CBR. The Interior
Appropriations Bill (F.Y. 1998) (the "Bill"), which became law in November 1997,
makes $65 million in cash available for the purchase of New World property
interests, subject to certain conditions including the parties to the August
1996 Agreement entering into and lodging in Federal District Court a consent
decree related to the Clean Water Act as required by the 1996 August Agreement,
an appraisal of the property interests to be acquired by the United States being
undertaken, the Secretary of Agriculture issuing an opinion of value to certain
Congressional committees with respect to the property interests to be acquired,
and the applicable requirements of the National Environmental Policy Act being
met. The Bill provides that the amount paid by the United States to acquire the
New World property interests shall not exceed $65 million, but may exceed the
value stated in the appraisal if the Secretary of Agriculture certifies to
Congress that such action is in the best interests of the United States. The
monies will only become available after the enactment of separate authorizing
legislation or the passage of 180 days from November 14, 1997, which period of
time would be extended if the appraisal called for in the Bill is not provided
to certain Congressional committees by March 15, 1998.
In 1993, several special interest groups filed a complaint in U.S.
District Court against CBR 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. The federal judge hearing the case has stayed all matters in the case
in light of the August 1996 Agreement, the consummation of which would result in
the settlement of the case.
Exploration - During 1997, the Company spent approximately $28.8 million on
exploration and evaluation activities. The Company expects to spend
approximately $25 million on 1998 exploration programs in search of potential
additional mineral deposits. Of this amount, 37% is budgeted to be spent in the
U.S. and Canada, 28% in Mexico and Central and South America, and 16% in the
western Pacific and Africa. The remaining 19% is budgeted for evaluation of
yet-to-be identified exploration opportunities worldwide.
Financing Activities - On September 30, 1997, BMG sold its interest in NML to
BMCL, facilitated primarily by a $145 million bank borrowing by BMCL. The
Company currently has a Cdn $10 million line of credit in place with a Canadian
bank and a $15.0 million uncommitted revolving facility with the Union Bank of
Switzerland, of which letters of credit totaling $4.9 million were outstanding
at December 31, 1997.
In 1992, 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, dispositions, debt and
liens. As of December 31, 1997, Inti Raymi owed an aggregate of $38.7 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 IFC's option, into a 3.98% 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 1994 and will continue
through 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 1997, Inti Raymi paid dividends of $9.0
million to its shareholders ($7.9 million to BMG).
Certain of the Inti Raymi financing agreements contain provisions that
require the current Kori Kollo mining plan to indicate production that extends
at least three years beyond the final scheduled principal payment. Failure to
meet the provisions would result in certain Inti Raymi intercompany debt and
dividend payment restrictions until such time as compliance is achieved by
either pre-payment of a sufficient portion of the debt or an increase in the
Kori Kollo mine ore reserves. The current Kori Kollo mine plan indicates a two
month shortfall in the required three year production period. Accordingly,
unless a waiver is obtained from the lenders, Inti Raymi will be required to
make a pre-payment in the aggregate amount of $6.9 million by June 30, 1998.
Inti Raymi has applied for but has not yet received a waiver of the required
pre-payment to its lenders, accordingly, at December 31, 1997, the Company has
classified the required $6.9 million pre-payment to current portion of long
term debt. The Company expects that it will obtain the required waiver.
The Company does not expect NML to pay dividends currently due to NML's
other business commitments and plans for its working capital.
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<PAGE> 49
In the determination of the amount of any dividends to be paid to
common shareholders, management and the Board of Directors regularly review,
among other factors, the Company's projected operating results, cash flows and
financial position. The Company paid dividends of $11.5 million, or $0.05 per
share, to common shareholders in 1997.
Conclusion - The Company expects that cash currently held, along with future
cash flows from operations, will be sufficient to meet future cash needs at
least through the end of 1998.
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
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,
1997, the Company estimated these future costs, including severance costs, to
total approximately $57.9 million, of which $27.9 million was accrued.
The Company has investigated the infiltration of liquids from the
tailings facility to the ground-water at the Battle Mountain Complex. This
facility was unlined at the time it was constructed in keeping with
then-accepted practice. Pursuant to the state-issued water pollution control
permit, the Company has prepared and submitted an evaluation of mitigation
alternatives for the groundwater. The Company currently expects to achieve these
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 surface water and groundwater in a highly
mineralized area where sampling has indicated that the water is acidic and high
in metals. Due to the preliminary nature of this investigation, it is not
possible for the Company to estimate what, if any, remediation might be required
with respect to this area.
Bolivia enacted federal environmental legislation in 1992. This was
followed in December 1995 by the promulgation of general environmental
regulations. These new regulations require obtaining environmental licenses for
both existing and new operations, set air and water quality discharge standards,
set standards for the management of solid and hazardous wastes, provide
procedures and schedules for existing operations to come into compliance and
require the preparation of environmental impact studies in some instances.
Pursuant to these regulations, Inti Raymi has prepared an Environmental
Statement as an application for an environmental license for the Kori Kollo mine
and submitted such to the government in July 1997. The Environmental Statement
is currently under review by the Bolivian government. In August 1997, specific
environmental regulations for mining were promulgated. These regulations contain
a set of general technical and regulatory standards and norms for environmental
management within the mining industry. In addition, the government is continuing
to develop specific technical standards for the mining industry. Upon approval
of the environmental license for the Kori Kollo mine, the Company will have 18
months to update its environmental licenses, if necessary, to reflect compliance
with said regulations. The regulations, promulgated in 1995 and 1997, contain
environmental standards and requirements applicable to the Kori Kollo mine
which, depending on how the regulations are implemented and interpreted, could
require additional expenditures and changes in operations. It is possible that
such expenditures and changes could have a material adverse effect on the
Company's financial condition and/or results of operations.
47
<PAGE> 50
Based on the Company's evaluation of the data collected to date and assuming
reasonable interpretation and implementation of existing regulations and
reasonableness in the adoption of additional specific technical standards, the
Company anticipates that compliance will not have a material adverse effect on
the Company's financial condition or results of operations.
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 generally used to manage well-defined interest rate,
foreign currency exchange rate and commodity price risks.
The Company utilizes fixed forward and spot deferred sales contracts
and may use options to hedge anticipated sales of gold and silver. The following
summarizes the Company's open hedged sales contracts outstanding at December 31,
1997:
<TABLE>
<CAPTION>
Average Price
Amount Per Unit Period
------ -------- ------
<S> <C> <C> <C> <C>
BMG
Gold 26,540 oz US$422 Jan 98 - Apr 98
NML
Gold 5,000 oz A$676 Jan 98
Gold 6,000 oz US$420 Jan 98
Copper 4,409,240 lb US$0.94 Jan 98 - Apr 98
</TABLE>
Pursuant to pricing provisions as set forth in certain customer forward
sales contracts, as of December 31, 1997, the Company had committed to deliver
128,000 ounces of gold valued at approximately $39.4 million at prices
determined during various pricing periods in 1997. All such contracts matured by
January 30, 1998. The average price of gold sold under these commitments was
approximately $309 per ounce.
At December 31, 1997, the aggregate amount by which the net market
value of the Company's open forward sales contracts was greater than the spot
price of $289 per ounce of gold and $0.79 per pound of copper was $8.2 million,
of which $1.0 million was attributable to minority interests. The foregoing
amounts were calculated assuming the conversion of Australian dollar contracts
to U.S. dollars at the December 1997 month-end exchange rate of US$0.65 to A$1.
The Company is exposed to certain credit-related losses in the event of
nonperformance by counterparties to these agreements, generally by the amount
which the contract price exceeds the spot price of a commodity. 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 significant losses is remote.
In future periods, the Company may continue to employ selective hedging
strategies, where appropriate, to protect cash flows 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. Identifiable assets attributable to
the Company's operations outside the U.S. and Canada as of December 31, 1997,
were approximately $596.1 million. Mining operations outside the U.S. and Canada
represented approximately 51% of total gross revenues for the year ended
December 31, 1997. 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.
48
<PAGE> 51
The previous administration of Bolivia had initiated far reaching
programs to decentralize the central government's authority, as well as the
distributions of the tax revenues, reform the education and tax system, and
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 these and associated
reforms, and the change in administration in June 1997, will have 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.
Accounting Standards - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," both required to be adopted in fiscal
years beginning after December 15, 1997. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income, such as the Company's foreign currency translation
adjustments and minimum pension liability; be reported in a financial statement
that is displayed with the same prominence as other financial statements. This
standard will require a change in the presentation of the Company's financial
statements from that currently presented. SFAS No. 131 requires disclosure of
certain information regarding segments, some of which disclosures are not
currently presented by the Company. Management does not anticipate any
significant impact upon implementation of these standards, which will be
implemented by the Company beginning with its 1998 financial statements.
Year 2000 Issue - The Company is currently conducting an inventory of all its
computer systems. Software vendors will be contacted to verify year 2000
compliance, and where possible and deemed necessary, the systems will be tested.
Systems that have known year 2000 problems are being replaced. An outside
contractor is assisting the Company with this and it is expected that all
testing and replacing necessary will be completed by the first quarter of 1999.
The Company does not anticipate any material adverse effect on operations
regarding year 2000 compliance.
49
<PAGE> 52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. Battle Mountain Gold Company
Reports of Independent Accountants........................51 - 52
Consolidated Statement of Operations...................... 53
Consolidated Balance Sheet................................ 54
Consolidated Statement of Shareholders' Equity............ 55
Consolidated Statement of Cash Flows...................... 56
Notes to Consolidated Financial Statements................ 57
Supplemental Financial Information (Unaudited)............ 77
</TABLE>
II. Lihir Gold Limited
The financial statements of Lihir Gold Limited, an equity investee of
the Company, will be filed through amendment to this Form 10-K within
180 days of December 31, 1997.
50
<PAGE> 53
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 79 present fairly, in all material
respects, the financial position of Battle Mountain Gold Company and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, 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 revenues of $102 million for the year
ended December 31, 1995. 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
the Company's 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.
As discussed in Note 2, effective January 1, 1997, the Company changed
its method of accounting for computing depreciation, depletion and amortization
related to its Bolivian subsidiary.
Price Waterhouse LLP
Houston, Texas
February 20, 1998
51
<PAGE> 54
Report of Independent Chartered Accountants
To the Shareholders of
HEMLO GOLD MINES INC.
We have audited the consolidated statements of earnings and retained earnings
and cash flows of Hemlo Gold Mines Inc. for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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 results of the Company's operations and the changes in
its financial position for the year ended December 31, 1995, in accordance with
accounting principles generally accepted in Canada.
Toronto, Canada Ernst & Young
February 8, 1996 Chartered Accountants
52
<PAGE> 55
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
Millions, except per share amounts 1997 1996 1995
---------------------------------- ---- ---- ----
<S> <C> <C> <C>
SALES (Note 10) $ 344.9 $ 424.0 $ 401.2
------- ------- -------
COSTS AND EXPENSES
Production costs 234.3 259.2 230.5
Depreciation, depletion and amortization 72.8 94.2 86.5
Exploration, evaluation and other lease costs, net 24.8 32.8 22.9
Asset write-downs (Note 6) - 39.9 2.2
Merger expense (Note 3) 2.7 22.7 -
General and administrative expenses 13.6 17.7 15.3
------- ------- -------
Total costs and expenses 348.2 466.5 357.4
------- ------- -------
OPERATING INCOME (LOSS) (3.3) (42.5) 43.8
Interest expense (13.9) (13.3) (16.2)
Interest income 6.0 8.8 10.2
Other income (expense), net (Note 11) (2.3) 5.8 10.2
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST (13.5) (41.2) 48.0
Income tax expense (benefit) (Note 9) (17.4) 37.4 7.5
Mining taxes (Note 9) 6.7 11.7 4.7
Minority interest in net loss (income) (2.3) 16.0 (6.1)
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (5.1) (74.3) 29.7
Cumulative effect of accounting change, net (Note 2) ( 3.7) - -
------- ------- -------
NET INCOME (LOSS) ( 8.8) (74.3) 29.7
Preferred dividends (Note 8) 7.5 7.5 7.5
------- ------- -------
NET INCOME (LOSS) TO COMMON SHARES $ (16.3) $ (81.8) $ 22.2
======= ======= =======
Earnings (loss) per common share
Before cumulative effect of accounting change $ (.05) $ (.36) $ .10
Accounting change (.02) - -
------- ------- -------
Basic and diluted $ (.07) $ (.36) $ .10
======= ======= =======
Dividends per common share $ .05 $ .07 $ .08
======= ======= =======
Average common shares outstanding for earnings (loss)
per share purposes
Basic 229.7 229.6 227.9
Diluted 229.7 229.6 233.4
Pro forma amounts assuming accounting change had
been applied retroactively
Net income (loss) $ (5.1) $ (73.9) $ 27.8
Earnings (loss) per common share-basic and diluted (.05) (.36) .09
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE> 56
<TABLE>
<CAPTION>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31
Millions except per share amounts 1997 1996
--------------------------------- ---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 185.0 $ 94.0
Restricted cash 17.7 9.0
Accounts receivable 33.0 48.7
Product inventories 8.3 10.4
Materials and supplies inventories 25.4 28.9
Assets held for sale (Note 5) 42.5 -
Other current assets 12.1 12.7
------- -------
Total current assets 324.0 203.7
Investments (Note 4) 255.2 248.8
Property, plant and equipment, net (Note 5) 489.3 565.4
Other assets (Note 9) 24.7 19.0
------- -------
TOTAL ASSETS $1,093.2 $1,036.9
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings (Note 7) $ 4.9 $ 21.8
Current maturities of long-term debt (Note 7) 44.0 13.6
Accounts payable and accrued liabilities 24.0 24.5
Interest payable 5.8 6.9
Salaries, wages and benefits payable 4.6 13.3
Income and mining taxes payable (Note 9) 10.1 18.1
Other current liabilities 12.7 6.1
------- -------
Total current liabilities 106.1 104.3
Long-term debt (Note 7) 241.0 139.2
Deferred income and mining taxes (Note 9) 84.1 106.9
Deferred mine reclamation and closure costs (Note 16) 30.6 25.4
Other liabilities 17.7 15.6
------- -------
Total liabilities 479.5 391.4
------- -------
Minority interest 107.7 107.2
------- -------
Commitments and contingencies (Note 16) - -
Shareholders' equity (Note 8)
Convertible preferred stock, $1.00 par value:
Authorized - 50.0 million shares; issued and outstanding,
1997 and 1996 - 2.3 million shares 110.6 110.6
Common stock, $.10 par value:
Authorized - 500.0 million shares; issued and outstanding,
1997 - 229.8 million shares and 1996 - 229.6 million shares 12.3 11.3
Additional paid-in capital 344.3 344.2
Retained earnings 59.8 87.6
Cumulative foreign currency translation adjustment (21.0) (15.4)
------- -------
Total shareholders' equity 506.0 538.3
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,093.2 $1,036.9
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE> 57
<TABLE>
<CAPTION>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Additional Currency Total
Preferred Common Paid-in Retained Translation Shareholders'
Stock Stock Capital Earnings Adjustment Equity
Millions ----- ----- ------- -------- ---------- ------
- --------
<S> <C> <C> <C> <C> <C> <C>
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 - - - - 5.9 5.9
adjustments
------------ ------------- --------------- ------------ --------------- ----------------
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 - - - - 2.7 2.7
adjustments
------------ ------------- --------------- ------------ --------------- ----------------
DECEMBER 31, 1996 110.6 11.3 344.2 87.6 (15.4) 538.3
Shares issued - - 1.1 - - 1.1
Shares exchanged - 1.0 (1.0) - - -
Net loss - - - ( 8.8) - ( 8.8)
Common stock dividends - - - (11.5) - (11.5)
Preferred stock dividends - - - (7.5) - (7.5)
Currency translation - - - - (5.6) (5.6)
adjustment
------------ ------------- --------------- ------------ --------------- ----------------
DECEMBER 31, 1997 $ 110.6 $ 12.3 $ 344.3 $ 59.8 $ (21.0) $ 506.0
============ ============= =============== ============ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE> 58
<TABLE>
<CAPTION>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31
Millions 1997 1996 1995
-------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $( 8.8) $(74.3) $29.7
Adjustments to reconcile net income (loss) to cash flows
from operating activities:
Depreciation, depletion and amortization 72.8 94.2 86.5
Deferred income tax expense (benefit) (Note 9) (33.8) 10.8 (1.3)
Asset write-downs (Note 6) - 39.9 2.2
Gain from sales of assets (0.4) (0.2) (5.2)
Cumulative effect of accounting change, net (Note 2) 3.7 - -
Increase in accrued reclamation costs 4.6 7.0 0.9
Loss on foreign currency transactions 7.6 2.2 0.4
Net change in working capital accounts (Note 18) 7.6 (5.4) (44.1)
Minority interest in net income (loss) 2.3 (16.0) 6.1
Other, net 5.6 (1.6) (1.3)
---- ----- -----
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 61.2 56.6 73.9
---- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (62.4) (57.0) (144.6)
Increase in cash held in escrow - (0.3) (5.0)
Proceeds from sales of assets 4.7 0.9 5.6
Other, net (5.3) 1.2 (1.1)
---- ----- -----
NET CASH FLOWS USED IN INVESTING ACTIVITIES (63.0) (55.2) (145.1)
---- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from borrowings 156.7 18.7 73.9
Debt repayments (24.5) (50.4) (77.0)
Cash proceeds from stock issuances 0.7 2.5 19.9
Increase (decrease) in short-term borrowings (16.9) 8.8 -
Cash dividend payments (18.9) (22.6) (26.0)
Decrease (increase) in restricted cash (3.3) 0.7 (0.9)
Other, net - 0.2 (0.1)
---- ----- -----
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 93.8 (42.1) (10.2)
---- ----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1.0) 2.2 4.4
---- ----- -----
Net increase (decrease) in cash and cash equivalents 91.0 (38.5) (77.0)
Cash and cash equivalents at beginning of year 94.0 132.5 209.5
---- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $185.0 $ 94.0 $132.5
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE> 59
BATTLE MOUNTAIN GOLD COMPANY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
Index
1. Accounting Policies Summary................................................... 57
2. Change in Accounting Method................................................... 61
3. Combinations and Acquisitions................................................. 61
4. Investments................................................................... 62
5. Property, Plant and Equipment................................................. 62
6. Asset Write-downs............................................................. 63
7. Debt.......................................................................... 63
8. Shareholders' Equity.......................................................... 64
9. Taxes......................................................................... 65
10. Significant Customers and Export Revenues..................................... 67
11. Other Income, net............................................................. 67
12. Common Stock and Stock Options................................................ 68
13. Earnings per Share............................................................ 69
14. Benefit Plans................................................................. 70
15. Geographic and Segment Information............................................ 71
16. Commitments and Contingencies................................................. 72
17. Hedging Activities............................................................ 73
18. Supplemental Cash Flow Information............................................ 74
19. Related Party Transactions.................................................... 75
20. Fair Value of Financial Instruments........................................... 75
21. Battle Mountain Canada Ltd. Summarized Financial Information.................. 76
</TABLE>
Note 1. Accounting Policies Summary
Nature of Operations - Battle Mountain Gold Company ("BMG") and its
subsidiaries (collectively "the Company") are engaged in the mining and
processing of gold and silver ore in the United States, Canada, Bolivia, Chile
and Australia, and in the exploration and evaluation of precious metals
properties, primarily in Latin America, West Africa, the Austral Pacific,
Canada 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.
Certain amounts for prior years have been reclassified in the consolidated
financial statements in order to conform with the current year classification.
In July 1996, BMG combined with Hemlo Gold Mines Ltd. ("Hemlo")
through a merger accounted for as a pooling of interests. Accordingly, the
applicable information contained in the accompanying consolidated financial
statements was restated in 1996 to reflect the accounts of Hemlo.
57
<PAGE> 60
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 certain reported amounts in the
financial statements. The more significant areas requiring the use of estimates
relate to mineral reserves, reclamation and environmental obligations,
postretirement and other employee benefit liabilities, valuation allowances for
deferred tax assets, fair values of financial instruments and recoverability of
long-lived assets. Actual results could differ from these estimates. Management
believes that the estimates used 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 - All highly liquid instruments purchased with an
original maturity of three months or less are considered to be cash
equivalents. Bullion and bullion settlements receivable are included as cash
equivalents as they are readily convertible into known amounts of cash through
forward sales transactions.
Restricted Cash - Activity in this account is considered financing activity for
purposes of cash flows. At December 31, 1997 and 1996, this account included a
debt reserve account of $8.5 million and $9.0 million, respectively, for the
payment of interest and principal obligations related to the Company's Kori
Kollo project financing. At December 31, 1997, this account also included $9.2
million held by NML related to an NML guarantee of Lihir debt. The NML balance
at December 31, 1996, which amounted to $6.1 million, was included in other
assets.
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 the risk of loss passes to the buyer.
Accounts Receivable - Accounts receivable at December 31, 1997 and 1996,
include other receivables of approximately $11.4 million and $10.6 million,
respectively, relating to Value Added Tax (VAT) credit and import duty
receivables.
Inventories - Generally, product 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. The
Company's 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 is stated at
cost. Expenditures for the 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 expensed 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 annually and costs attributable to unproductive projects are
charged directly to abandonment expense.
Generally, depreciation, depletion and amortization ("DD&A") of
mining properties and related assets is calculated using the units-of-production
method based upon estimated recoverable mineral reserves.
58
<PAGE> 61
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 - An impairment loss is recognized in the event
facts and circumstances indicate the carrying amount of an asset may not be
recoverable and future undiscounted cash flows estimated to be generated from
the asset are less than its carrying amount. Impairment is recorded based on
estimated future discounted cash flows.
Investments - Investments in companies owned 20% to 50%, 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 the Company owns less than a 20% interest and
does not have the ability to exercise significant 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 accordingly.
Exploration and Evaluation Expenditures - All exploration and pre-development
evaluation expenditures are expensed 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 costs incurred attributable to
pre-commercial production stage projects are capitalized until those projects
commence commercial production.
Reclamation and Closure Costs - Estimated expenditures for 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 and
are included in production costs.
Income and Mining Taxes - The Company follows the asset and liability method of
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.
Deferred income taxes have not been provided on the Company's share of
undistributed earnings of certain foreign subsidiaries and unconsolidated
affiliates because the Company considers such earnings to be reinvested
indefinitely. It is not practical to estimate the amount of taxes that might be
payable on the eventual remittance of such earnings. On remittance, certain
countries impose withholding taxes that, subject to certain limitations, could
generate tax credits that would reduce any U.S. tax.
Stock-Based Compensation - The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
follows Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," in accounting for non-employee
stock-based compensation.
59
<PAGE> 62
Currency Translation - Amounts in foreign currencies are translated into U.S.
dollars using the translation procedures specified in SFAS No. 52, "Foreign
Currency Translation." 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.
Earnings per Share - The Company implemented SFAS No.128, "Earnings per Share,"
effective with its December 31, 1997 financial statements. Accordingly,
earnings per share data has been restated for all periods presented. This
standard requires the presentation of both basic and diluted earnings per share
amounts. Basic earnings per share is calculated by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding, including the Battle Mountain Canada Ltd. Exchangeable
Shares. Diluted earnings per share is computed similarly, but also gives effect
to the impact convertible securities, such as preferred stock and common stock
options, if dilutive, would have on net income and average common shares
outstanding if converted at the beginning of the year.
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.
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 "roll
forward" its spot deferred contracts to future periods in order to realize
current market price increases, while maintaining future downside protection.
Gains, losses and 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 are 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.
60
<PAGE> 63
Pending Accounting Standards - In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," both
required to be adopted in fiscal years beginning after December 15, 1997. SFAS
No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income, such as the
Company's foreign currency translation and minimum pension liability
adjustments, be reported in a financial statement that is displayed with the
same prominence as other financial statements. This standard will require a
change in the presentation of the Company's financial statements from that
currently presented. SFAS No. 131 requires disclosure of certain information
regarding segments, some of which disclosures are not currently presented by
the Company. Management does not anticipate any significant impact upon
implementation of these standards, which will be implemented by the Company
beginning with its 1998 financial statements.
Note 2. Change in Accounting Method
Effective January 1, 1997, Empresa Minera Inti Raymi S.A. ("Inti
Raymi"), the Company's 88%-owned Bolivian gold mining subsidiary, changed its
method of calculating DD&A of mining properties and certain related assets at
the Kori Kollo mine. Under the newly adopted method, Inti Raymi calculates
units-of-production DD&A on an ounces-produced basis and applies such DD&A rate
to the total estimated development costs to be incurred throughout the mine life
of Kori Kollo. The Company has correspondingly changed its method of amortizing
the premium associated with its investment in Inti Raymi to an ounces-produced
basis. Previously, both such DD&A calculations were based on a tonnes-milled
rate applied to the capital costs incurred to date.
Both DD&A methods are acceptable accounting practice. However,
management considers the newly adopted method preferable because, in their
opinion, it more accurately matches mining revenues with associated expenses
and it conforms to more prevalent industry practice.
The cumulative effect of this accounting change, net of minority
interests of $0.5 million and income tax of $0.5 million, for periods ending
prior to January 1, 1997, was a decrease in net income of $3.7 million, or $.02
per common share, which was retroactively recognized in the first quarter of
1997. The pro forma amounts shown on the Consolidated Statement of Operations
have been adjusted for the effect of retroactive application of the newly
adopted method as if it had been in effect for each of the three years in the
period ended December 31, 1997. The 1997 quarterly results have been restated
for retroactive application of the new method to January 1, 1997 (see
Supplemental Financial Information - Unaudited).
Note 3. Combination and Acquisitions
Merger with Hemlo Gold Mines Inc. - On July 19, 1996, BMG combined with Hemlo,
now known as Battle Mountain Canada Ltd. ("BMCL"), through a merger which
resulted in BMCL becoming a wholly-owned subsidiary of BMG. Pursuant to the
combination agreement, each holder of BMCL Common Shares received 1.48
Exchangeable Shares for each BMCL Common Share held (see Note 8). The
combination was accounted for under the pooling of interests method. Merger
costs of approximately $22.7 million were expensed in the second half of 1996,
and an additional $2.7 million of merger-related costs were expensed in 1997.
Niugini Mining Limited ("NML") - In the aggregate, since 1989, the Company has
paid approximately $208.5 million for 59.3 million shares of common stock of
NML, representing a 50.5% ownership interest as of December 31, 1997. In 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
reduction in ownership interest. The Company paid approximately $17 million in
December 1995 to purchase an additional 11.9 million shares of NML common
stock. See Note 7 for discussion of BMG's sale of NML to BMCL in September
1997.
Inti Raymi - As of December 31, 1997, 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% equity in Inti Raymi, a
Bolivian gold mining company. At December 31, 1997, 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 $59.2 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 $13.0 million, $10.6 million and $10.8 million in
1997, 1996 and 1995, respectively.
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<PAGE> 64
Note 4. Investments
The Company's long-term investments as of December 31 included the
following:
<TABLE>
<CAPTION>
Millions 1997 1996
-------- ---- ----
<S> <C> <C>
Lihir Gold Limited $235.4 $231.1
Mico Investments Limited 10.5 11.0
Cash surrender value of life insurance, net 6.6 5.3
Other 2.7 1.4
----- -----
Total $255.2 $248.8
===== =====
</TABLE>
Lihir Gold Limited ("LGL"), a company created specifically for the
development, financing, operating and ownership of the Lihir mine in Papua New
Guinea, completed an initial public offering of common stock in October 1995. As
a result of the initial public offering, NML now owns 154.3 million shares of
LGL, representing a 17.15% interest, of which BMG's attributable interest is
8.7%. NML's interest in LGL is accounted for using the equity method of
accounting due to NML's ability to exercise significant influence. The quoted
market value per share of LGL common stock at December 31, 1997 and 1996, was
$1.04 and $1.90, respectively.
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. The net result of these
non-cash 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, 1997, the carrying value, net of accumulated
amortization, 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 $139.1 million. Such excess is being amortized
against the Company's share of earnings of LGL by the units-of-production method
based on the estimated recoverable ounces attributable to the Lihir mine.
Commercial production at Lihir commenced in October 1997 and $1.9 million of
such excess cost was amortized in 1997. Interest costs amounting to $4.5
million, $6.0 million and $7.8 million in 1997, 1996 and 1995, respectively,
were capitalized in connection with the Company's investment in Lihir.
Note 5. Property, Plant and Equipment
Property, plant and equipment as of December 31 consisted of the
following:
<TABLE>
<CAPTION>
Millions 1997 1996
-------- ---- ----
<S> <C> <C>
Mining, milling and other equipment $ 455.4 $ 453.1
Leasehold and mine development 479.1 526.6
Other 120.1 119.3
------- -------
Gross property, plant and equipment 1,054.6 1,099.0
Accumulated depreciation, depletion and amortization (565.3) (533.6)
------- -------
Net property, plant and equipment $ 489.3 $ 565.4
======= =======
</TABLE>
In 1997, the Company reclassified $42.5 million of other property,
plant and equipment to assets held for sale in the consolidated balance sheet,
representing the carrying value of the New World project. See Note 16 for
further discussion of the New World project.
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<PAGE> 65
Note 6. Asset Write-downs
In accordance with the Company's impairment policy, in the third
quarter of 1996, the carrying value of the Company's 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). Also in 1996, the Company's Inti Raymi and BMCL subsidiaries
recorded asset write-downs totaling $4.8 million in relation to certain idled
plant assets, uncollectable receivables and obsolete materials and supplies
inventories.
In 1995, the Company decommissioned and dismantled the milling facility
formerly used at the depleted Fortitude mine in Nevada. Accordingly, the
remaining $2.2 million net carrying value of this mill and related facilities
was charged to operations.
Note 7. Debt
The Company had the following long-term debt outstanding as of
December 31:
<TABLE>
<CAPTION>
Millions 1997 1996
-------- ---- ----
<S> <C> <C>
CIBC loan, due 2003, variable rate $ 145.0 $ -
Convertible subordinated debentures, due 2005, 6% 100.0 100.0
Inti Raymi Kori Kollo project financing loans, variable rates 38.7 52.2
Other 1.3 0.6
----- -----
Total 285.0 152.8
Less current portion of long-term debt 44.0 13.6
----- -----
Total long-term debt $ 241.0 $ 139.2
===== =====
</TABLE>
On September 30, 1997, BMG sold its interest in NML to BMCL,
facilitated primarily by a $145 million bank borrowing from the Canadian
Imperial Bank of Commerce ("CIBC") by BMCL. The term loan is secured by the
stock of NML held by BMCL, is payable in 25 equal quarterly principal payments
commencing January 30, 1998, and matures on December 31, 2003. The loan
agreement requires BMCL to meet certain financial covenants which include
maintenance covenants relating to leverage, net worth and gold reserves, as well
as certain restrictions on, among other things, expenditures, additional debt,
liens and the disposition of assets. The weighted average interest rate for this
borrowing was 6.6% in 1997.
The convertible subordinated debentures are convertible into shares of
BMG common stock at a conversion price of $20.625 per share, subject to an
anti-dilution adjustment in certain circumstances. There are 4.8 million shares
of the Company's common stock reserved for issuance upon conversion of these
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.
In 1992, Inti Raymi established separate but coordinated term credit
facilities with various international lending institutions 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. Additional covenants exist which limit fixed asset purchases, additional
debt and liens, and require compliance with applicable environmental laws. The
weighted average interest rate for the Inti Raymi debt outstanding at December
31, 1997 was 8.5%.
Certain of the Inti Raymi financing agreements contain provisions that
require the current Kori Kollo mining plan to indicate production that extends
at least three years beyond the final scheduled principal payment. Failure to
meet the provisions would result in certain Inti Raymi intercompany debt and
dividend payment restrictions until such time as compliance is achieved by
either pre-payment of a sufficient portion of the debt or an increase in the
Kori Kollo mine ore reserves. The current Kori Kollo mine plan indicates a two
month shortfall in the required three year production period. Accordingly,
unless a waiver is obtained from the lenders, Inti Raymi will be required to
make a pre-payment in the aggregate amount of $6.9 million by June 30, 1998.
Inti Raymi has applied for but has not yet received a waiver of the required
pre-payment to its lenders, accordingly, at December 31, 1997, the Company has
classified the required $6.9 million pre-payment to current portion of long
term debt in the accompanying consolidated balance sheet.
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<PAGE> 66
In November 1996, the Company entered into an uncommitted revolving
credit agreement with CIBC for unsecured borrowings of up to Cdn$40 million for
general operating purposes and up to US$5 million for general hedging purposes.
The Company reduced this borrowing facility to Cdn$10 million in September 1997.
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 Canadian
dollars. At December 31, 1997 and 1996, US$4.9 million and US$21.8 million,
respectively, was outstanding under this facility, and the weighted average
interest rate for borrowings thereunder was 5.5% and 4.75%, respectively.
The Company also 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, 1997 or
1996. The weighted average interest rate for borrowings under this facility in
1997 was 6.3%. There were no interest charges in 1996 or 1995 as the Company did
not borrow against this facility in those years.
In March 1997, the Company and BMCL entered into a committed
non-reducing revolving credit agreement with a syndicate of seven banks. This
facility, which had an original termination date of March 31, 2002, provided for
unsecured borrowings of up to $150 million. In October 1997, the Company and
BMCL repaid all borrowings outstanding under this facility and terminated the
credit agreement. The weighted average interest rate for borrowings under this
facility was 8.5% in 1997.
Scheduled maturities of the Company's long-term debt for 1998 through
2002 are $44.0 million, $36.6 million, $23.2 million, $23.2 million and $28.2
million, respectively. The subordinated debentures are due in a lump-sum payment
in 2005.
Note 8. Shareholders' Equity
Reference is made to Note 7 for information regarding the number of
shares of common stock reserved for issuance upon the conversion of the
Company's outstanding convertible subordinated debentures.
The Company's Board of Directors ("the Board") 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. Two million shares
of preferred stock are designated as Series A Junior Participating Preferred
Stock for possible issuance upon the exercise of stock rights as described
below.
Convertible Preferred Stock - At December 31, 1997, the Company had outstanding
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 pays annual cumulative dividends of $3.25, is convertible at
any time at the option of the holder into 4.762 shares of BMG common stock, and
effective May 15, 1996, is redeemable at the option of the Company solely for
shares of BMG common stock. There are approximately 11 million shares of BMG
common stock reserved for issuance upon conversion of the preferred stock.
64
<PAGE> 67
Exchangeable Shares - In connection with BMG's combination with BMCL, each
holder of BMCL Common Shares received 1.48 Exchangeable Shares in exchange for
each BMCL Common Share held. The Exchangeable Shares will remain securities of
BMCL 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 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 - Each outstanding share of BMG common stock carries a right that
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, at
an exercise price of $60, subject to adjustment. The stock rights expire on
November 10, 1998, and will not be exercisable nor transferable apart from the
common stock until such time as a person or group acquires 20% of BMG's common
stock or initiates a tender offer that will result in ownership of 30% of BMG'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% discount. Under certain other
circumstances, the rights can become rights to purchase BMG's common stock at a
50% 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%
acquisition of beneficial ownership of BMG common stock.
Note 9. Taxes
This discussion of income taxes does not reflect the cumulative effect
of the accounting method change described in Note 2.
Federal and foreign income and mining tax expense (benefit) consisted
of the following:
<TABLE>
<CAPTION>
Millions 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Current
United States - Federal $ - $ 0.5 $ -
Canada 21.8 35.9 8.5
Other foreign 0.9 1.9 2.2
----- ---- ----
Total current 22.7 38.3 10.7
----- ---- ----
Deferred
United States - Federal (14.6) 10.2 (10.2)
Canada (17.9) 1.1 6.5
Other foreign (0.9) (0.5) 5.2
----- ---- ----
Total deferred (33.4) 10.8 1.5
----- ---- ----
Total income and mining tax
expense (benefit) $(10.7) $ 49.1 $ 12.2
===== ==== ====
</TABLE>
Consolidated income before income taxes included income from foreign
operations of $13.4 million, $18.3 million and $77.2 million in 1997, 1996 and
1995, respectively.
65
<PAGE> 68
Deferred income tax assets and liabilities as of December 31, 1997 and
1996 related to the following:
<TABLE>
<CAPTION>
Millions 1997 1996
-------- ---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 34.6 $ 25.2
Alternative minimum tax credit carryforward 0.9 4.7
Employee compensation and benefits accrued 6.3 5.3
Foreign tax credit carryforward - 46.7
Property, plant & equipment 26.3 30.3
Accrued reclamation 4.3 4.9
Other 15.0 5.7
----- ------
Gross deferred income tax assets 87.4 122.8
Valuation allowance (16.8) (62.3)
----- ------
Net deferred income tax assets 70.6 60.5
----- ------
Deferred tax liabilities
Property, plant & equipment (117.6) (132.7)
Undistributed earnings of subsidiaries (20.8) (33.0)
Other (2.0) (1.7)
----- ------
Net deferred income tax liabilities (140.4) (167.4)
----- ------
Net deferred tax liability $(69.8) $(106.9)
===== ======
</TABLE>
A reconciliation of income tax at the U.S. statutory rate to income tax expense
follows:
<TABLE>
<CAPTION>
Millions 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Income tax expense (benefit) based
on statutory rate of 35% $ (5.5) $ (8.8) $ 14.6
Increases (decreases) resulting from
Foreign withholding tax, net (5.4) 8.6 7.3
Canadian mining taxes 6.7 11.7 4.7
Change in filing position regarding foreign
tax credits 46.7 - (11.9)
Undistributed losses (income) of foreign
subsidiaries not subject to income tax 0.6 6.2 (0.6)
U.S. losses not providing tax benefits 10.7 21.8 -
Change in valuation allowance (63.4) 10.2 -
Foreign tax rate differential 2.0 - -
Change in alternative minimum tax credits 3.8 - -
Adjustment to prior year accruals (8.1) - -
Other, net 1.2 (0.6) (1.9)
----- ----- ----
Income tax expense (benefit) $(10.7) $ 49.1 $ 12.2
===== ===== ====
</TABLE>
The proceeds from the sale of NML by BMG, as described in Note 7, have
been invested by BMG in the United States. As management expects to continue
investing these proceeds in the U.S. in future years, the Company has
necessarily revised certain assumptions related to its accounting for U.S.
income taxes. According to current business plans, management no longer expects
to remit to the U.S. any accumulated or future Canadian earnings generated by
BMCL, as the proceeds from the sale are expected to be sufficient to meet the
Company's operating needs in the U.S. in the near future. Additionally, the
income expected to be derived from such funds has led management to project U.S.
taxable income in future years sufficient to recognize currently a portion of
the Company's net operating loss carryforwards in the United States. As a
result, the Company recorded a $16.4 million income tax benefit in the third
quarter of 1997, representing a release of 11.0 million deferred tax asset
valuation allowances and 5.4 million of withholding tax liabilities previously
recorded. Additionally, BMG recognized tax benefits of $7.2 million during the
third quarter of 1997 as a result of revised projections
66
<PAGE> 69
of future taxable income at certain of the Company's subsidiaries, which
resulted in third quarter 1997 recognition of the tax benefit of net operating
loss carryforwards at these subsidiaries.
Deferred tax assets of $15.1 million were included in other assets at
December 31, 1997.
The $10.2 million increase in valuation allowance recorded in 1996
reflected BMG's post-merger decision to remit all earnings of BMCL to the
U.S. As a result of this decision, the Company established a 100% valuation
allowance related to certain deferred tax assets recognized in 1995 that were no
longer expected to be realized due to then current and expected future levels of
foreign tax credits. As described above, this strategy was revised in 1997.
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, and BMCL, for which earnings are deemed to be
permanently invested, effective in the third quarter of 1997. Consequently, a
withholding tax liability in the amount of $5.8 million related to undistributed
earnings of BMCL has not been recognized as of December 31, 1997.
The Company and its domestic subsidiaries file a consolidated U.S.
federal income tax return. Such returns have been closed through 1993.
At December 31, 1997, the Company had approximately $98.9 million of
regular net operating losses and $3.3 million of alternative minimum tax net
operating loss carryforwards, expiring beginning in 2003, available to offset
future U.S. federal income tax, and approximately $0.9 million of alternative
minimum tax credits available on an indefinite carryforward basis. It is
anticipated that change-in-ownership limitations under the Internal Revenue Code
will not significantly restrict the future utilization of BMG's net operating
loss carryforwards.
The $16.8 million valuation allowance recorded at December 31, 1997
adjusts the Company's gross deferred tax assets down to management's best
estimate of the assets which will ultimately be recognized. However, it is
possible that the valuation allowance could be adjusted in the next year as a
result of changes in projected future taxable income in the United States, based
on revised management assumptions and Company business plans.
Note 10. Significant Customers and Export Revenues
Since all sales of the Company's products are made to precious metals
smelters, refiners or traders, the precious metals industry has substantial
influence over the market for the Company's products. However, because of the
active worldwide market for gold, management believes that the loss of any of
these customers would not have a material adverse impact on the Company.
Export sales in 1997, 1996 and 1995 amounted to $31.5 million, $50.9
million and $58.0 million, respectively. Sales to two separate buyers accounted
for 10% or more of the Company's consolidated revenues as follows (in millions):
1997 1996 1995
---- ---- ----
$ 153 $ 145 $ 83
81 89 74
Note 11. Other Income, net
Other income (expense), net consisted of the following:
<TABLE>
<CAPTION>
Millions 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Foreign currency exchange losses, net $( 7.8) $ (2.2) $ (0.4)
Capitalized interest 4.5 6.4 10.2
Dividends from investments in
associated companies 0.4 0.7 1.0
Other, net 0.6 0.9 (0.6)
--- --- ----
Total $ (2.3) $ 5.8 $ 10.2
=== === ====
</TABLE>
67
<PAGE> 70
Note 12. Common Stock and Stock Options
Stock Options - Under the Company's 1994 Long-Term Incentive Plan, 10.0 million
shares of the Company's common stock were reserved for issuance as of December
31, 1997. This share reserve includes the reserve for the BMCL Long-Term
Incentive Plan (see below). Of these shares, 6.8 million shares were available
for future grants of stock options, restricted stock, performance shares or
other stock awards at December 31, 1997.
Options to employees residing in Canada are issued under the BMCL 1997
Long-Term Incentive Plan. Under this plan, 2.5 million shares were reserved for
issuance as of December 31, 1997. Of these shares, 2.2 million shares were
available for future grants of stock options, restricted stock, performance
shares or other stock awards. Share issuances under the BMCL Long-Term Incentive
Plan will also affect the number of shares available for issuance under the
Company's 1994 Long-Term Incentive Plan.
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.
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 compensation. A maximum of 2.0 million shares of common stock is
issuable under the plan, of which 1.8 million shares were available for future
grants at December 31, 1997. 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.
Changes in options outstanding for the combined plans follows:
<TABLE>
<CAPTION>
Options in millions Options Share Price
------------------- ------- -----------
<S> <C> <C>
Outstanding at 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
Forfeited (0.1) $6.88 to $11.38
----
Outstanding at 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
Forfeited (0.1) $6.88 to $16.63
----
Outstanding at December 31, 1996 5.2 $3.70 to $20.75
Granted 0.9 $5.13 to $ 6.88
Exercised (0.1) $3.70 to $ 6.88
Forfeited (1.0) $6.38 to $20.75
----
Outstanding at December 31, 1997 5.0 $4.83 to $16.88
====
Exercisable at December 31, 1997 2.8 $4.83 to $16.88
====
</TABLE>
At December 31, 1997, expiration dates for the outstanding options
ranged from July 1998 to December 2007. The weighted average exercise price per
share was $8.55.
68
<PAGE> 71
Details of stock options exercisable at December 31, 1997
follows (options in millions):
<TABLE>
<CAPTION>
Options Option Price
------- ------------
<S> <C>
1.0 $ 4.83 to $ 6.88
1.0 $ 7.38 to $ 8.13
0.6 $ 9.13 to $11.38
0.2 $13.08 to $16.88
---
2.8 $ 4.83 to $16.88
===
</TABLE>
Had compensation expense for stock-based compensation been determined
based on the fair value at the grant dates, the Company's 1997 net loss would
have been $11.1 million, or $0.07 per common share, 1996 net loss would have
been $85.6 million, or $0.41 per common share, and 1995 net income would have
been $25.0 million, or $0.08 per common share.
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. Significant assumptions used were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0.7% 0.5% 0.6%
Expected stock price volatility 32.3% 35.4% 34.4%
Risk-free interest rate 5.9% 7.4% 6.8%
Expected life of options 10.0 years 8.1 years 9.7 years
</TABLE>
The weighted average fair values of options granted during 1997, 1996
and 1995 was $2.66 per share, $4.10 per share and $5.87 per share, respectively.
Note 13. Earnings per Share
The following table reconciles basic earnings (loss) available to
common shares to diluted earnings (loss) available to common shares:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Millions Income Shares Income Shares Income Shares
- -------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $( 8.8) $(74.3) $ 29.7
Preferred dividends (7.5) (7.5) (7.5)
------ ------ ------
Basic earnings (loss)
available to common shares (16.3) 229.7 (81.8) 229.6 22.2 227.9
Stock options - - - - - 0.7
Convertible Debentures - - - - - 4.8
------ ----- ----- ----- ----- -----
Diluted earnings (loss)
available to common shares $(16.3) 229.7 $(81.8) 229.6 $ 22.2 233.4
====== ===== ====== ===== ====== =====
</TABLE>
Other securities that could potentially dilute basic income per share
that were not included in the 1997 and 1996 calculations because they were
anti-dilutive were the Company's convertible debentures (see Note 7),
convertible preferred stock (see Note 8) and stock options (see Note 12).
Securities that were not included in the 1995 calculation were the preferred
stock.
69
<PAGE> 72
Note 14. 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. These
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. Some Canadian employees
participate in a plan administered by Noranda.
Pension costs are accrued and charged to expense currently. Net
periodic pension cost included the following components:
<TABLE>
<CAPTION>
Millions 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the year $ 1.5 $ 1.4 $ 1.1
Interest cost on projected benefit obligations 3.1 2.9 2.5
Expected return on plan assets (3.7) (3.4) (2.7)
Net amortization and deferral 0.3 0.3 0.5
--- --- ---
Net periodic pension cost $ 1.2 $ 1.2 $ 1.4
=== === ===
</TABLE>
At December 31, 1997, 1996 and 1995, the projected long-term rate of
return on plan assets was 9%. Actual returns on the plans' assets were $8.0
million, $6.9 million and $8.4 million in 1997, 1996 and 1995, respectively.
The following sets forth the plans' funded status and related amounts
as of December 31:
<TABLE>
<CAPTION>
Millions 1997 1996
-------- ---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $35.9 $ 33.8
==== =====
Accumulated benefit obligation $38.1 $ 35.4
==== =====
Projected benefit obligation $43.1 $ 41.3
Plan assets at fair value 47.0 46.6
---- -----
Plan assets in excess of projected benefit
Obligation 3.9 5.3
Unrecognized net gain and effects of
Changes in actuarial assumptions (5.8) (4.3)
Unrecognized net asset at transition (0.6) (0.7)
Prior service cost not yet recognized in net
Periodic pension cost 3.7 2.5
---- -----
Prepaid pension cost $ 1.2 $ 2.8
==== =====
</TABLE>
Plan assets include equity securities, common trust funds and various
debt securities. Weighted average rate assumptions used in 1997 and 1996 in
determining estimated benefit obligations were as follows:
<TABLE>
<CAPTION>
Rate of increase in compensation levels 1997 1996
---- ----
<S> <C> <C>
U.S. plans 5.8% 5.8%
Canadian plans 5.0% 5.0%
Discount rate 7.0% 7.5%
</TABLE>
70
<PAGE> 73
In addition to the plans described above, the Company has a supplemental
retirement plan covering certain executives. The net liability associated with
this plan amounted to $5.0 million and $4.4 million at December 31, 1997, and
1996, respectively.
Contribution Plans - The Company has defined contribution plans available for
most of its employees. All Company contributions to the plans are expensed and
funded currently. The cost of such contributions to the plans were $1.4 million,
$2.0 million and $1.6 million in 1997, 1996 and 1995, 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 costs were $1.0 million,
$0.9 million and $0.7 million in 1997, 1996 and 1995, respectively. Accrued
postretirement benefit costs totaled $9.8 million and $9.3 million at December
31, 1997 and 1996, respectively.
Note 15. 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>
Millions 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Gross revenues:
United States $ 31.8 $ 51.2 $ 58.1
Canada 138.8 156.3 101.9
Austral Pacific 64.7 58.8 73.3
South America 109.6 157.7 167.9
-------- --------- ---------
Total $ 344.9 $ 424.0 $ 401.2
======== ========= =========
Operating income (loss):
United States $ (13.7) $ (59.3) $ (16.5)
Canada 27.0 54.0 27.0
Austral Pacific 3.2 (14.2) 7.3
South America (20.2) (20.0) 27.9
Other international 0.4 (3.0) (1.9)
-------- --------- ---------
Total operating income (loss) (3.3) (42.5) 43.8
Interest and other income (expense), ne (10.2) 1.3 4.2
-------- --------- ---------
Income (loss) before income taxes and
minority interest $ (13.5) $ (41.2) $ 48.0
======== ========= =========
Identifiable assets:
United States $ 94.0 $ 149.0 $ 231.2
Canada 403.1 295.3 283.2
Austral Pacific 324.1 286.2 295.4
South America 271.9 306.0 331.0
Other international 0.1 0.4 1.1
-------- --------- ---------
Total $1,093.2 $ 1,036.9 $ 1,141.9
======== ========= =========
</TABLE>
The $3.7 million cumulative effect of the accounting method change
discussed in Note 2 is attributable to the Company's South American geographic
area. The pro forma effects of the accounting method change, had it been in
effect for the three year period ended December 31, 1997, would have been an
increase in operating income attributable to South American operations of $0.4
million in 1996 and a decrease of $2.4 million in 1995.
71
<PAGE> 74
Note 16. Commitments and Contingencies
Pursuant to pricing provisions as set forth in certain customer forward
sales contracts, as of December 31, 1997, the Company had committed to deliver
128,000 ounces of gold, valued at approximately $39.4 million at prices
determined during various pricing periods in 1997. All such contracts mature by
January 30, 1998. The average price of gold sold under these commitments was
approximately $309 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 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 above mentioned
obligations to be incurred is uncertain, at December 31, 1997, the Company
estimated these future costs, including severance costs, to be approximately
$57.9 million, of which $27.9 million has been accrued.
In the fourth quarter of 1997, the Company accrued $5.2 million for
estimated environmental liabilities, primarily at the Battle Mountain Complex.
Based on current environmental regulations and known reclamation
requirements, the Company believes it has included the best estimate of these
obligations in its reclamation and environmental accruals. However, it is
reasonably possible that the Company's estimate of its ultimate reclamation and
environmental liability could increase in the near term as a result of
prospective changes in laws and regulations, changes in site characteristics
and changes in cost estimates.
In 1993, several special interest groups filed a complaint in U.S.
District Court against Crown Butte Resources Ltd. ("CBR"), a Canadian
corporation in which the Company 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. The federal judge hearing the case has stayed all
matters in the case in light of the Agreement, dated August 12, 1996, between
CBR, the United States and certain special interest groups (the "August 1996
Agreement"), the consummation of which would result in the settlement of the
case.
The August 1996 Agreement provides a framework whereunder CBR would
exchange property interests within the New World Mining District for U.S.
interests or assets having a value of $65 million, and then set aside $22.5
million for the completion of reclamation and restoration programs in the
District. The exchange would result in the settlement of existing litigation
under the federal Clean Water Act relating to historic mining impacts and mutual
releases between the parties as to any further environmental liabilities. The
August 1996 Agreement also provides for the suspension of permitting pending the
consummation of the exchange. BMG has announced that it will vote its 60%
interest in CBR in favor of the August 1996 Agreement. The 1996 August Agreement
contains a number of conditions beyond the control of CBR, including obtaining
shareholder approval and confirmation by appraisal that the interests
72
<PAGE> 75
to be acquired by the U.S. have a fair market value of at least $65 million. CBR
has the right to withdraw from the August 1996 Agreement under certain
circumstances. The August 1996 Agreement is conditioned upon CBR acquiring fee
title (or such other interests as are acceptable to the United States) in
certain lands currently leased to CBR. In September 1997, CBR obtained from its
lessor an option under which it can cause the lessor to grant to the United
States. a restriction that would preclude mining on the lessor's property unless
the President and Congress concur with development thereon.
The August 1996 Agreement provides that the U.S. shall identify
interests or assets available to transfer to CBR. The Interior Appropriations
Bill (F.Y. 1998), which became law in November 1997, makes $65 million in cash
available for the purchase of New World property interests, subject to certain
conditions. The monies will only become available after the enactment of
separate authorizing legislation or the passage of 180 days from November 14,
1997, which period of time would be extended if the appraisal called for in the
Bill is not provided to certain Congressional committees by March 15, 1998.
Failure to complete the exchange contemplated in the August 1996 Agreement would
result in the legal action under the Clean Water Act proceeding.
As of December 31, 1997, management of the Company considers it
probable that the proposed New world property exchange will occur within the
near term in a form similar to that comtemplated in the August 1996 Agreement.
Accordingly, the Company has reclassified the $42.5 million carrying value of
the New World project from property, plant and equipment to assets held for sale
in the consolidated balance sheet. In addition, the Company has recorded an $0.8
million loss on the sale, representing management's best estimate at December
31,1997.
The Golden Giant mine property includes the Quarter Claim acquired from
Teck Corporation ("Teck") and Homestake Canada Inc. ("Homestake"). The Company
is obligated to pay a profit royalty of 50% to Teck and Homestake on a deemed
production rate of 500 tons per day, and to pay a 3% net smelter return royalty
to the original Quarter Claim prospectors.
Financing for the Lihir project involved bank debt facilities and an
initial public offering of common stock of LGL (see Note 4). In connection with
the LGL debt financing, NML has guaranteed, until project completion (as
defined), 30% of LGL's obligations under the facility. These 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, 1997, LGL has drawn
approximately $295 million under this debt facility. In addition, NML has
pledged its LGL shares, having a fair value of approximately $160 million at
December 31, 1997, as security under the facility until project completion.
In addition to the legal actions specifically discussed elsewhere
throughout the Notes to Consolidated Financial Statements, the Company is party
to a number of other legal actions arising in the ordinary course of business.
While the final outcome of these other actions cannot be predicted with
certainty, it is the opinion of management that none of these actions, when
finally resolved, will have a material adverse effect on the Company's financial
condition or results of operations.
Note 17. Hedging Activities
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative instruments
are generally used to manage well-defined interest rate, foreign currency
exchange rate and commodity price risks.
73
<PAGE> 76
The Company utilizes fixed forward and spot deferred sales contracts
and may use options to hedge anticipated sales of gold and silver. The following
summarizes the Company's open hedged sales contracts outstanding at December 31,
1997:
<TABLE>
<CAPTION>
Average Price
Amount Per Unit Period
------ ------------- ------
<S> <C> <C> <C>
BMG
Gold 26,540 oz US$422 Jan 98 - Apr 98
NML
Gold 5,000 oz A$676 Jan 98
Gold 6,000 oz US$420 Jan 98
Copper 4,409,240 lb US$0.94 Jan 98 - Mar 98
</TABLE>
At December 31, 1997, the aggregate amount by which the net market
value of the Company's open forward sales contracts was greater than the spot
price of $289 per ounce of gold and $0.79 per pound of copper was $8.2 million,
of which $1.0 million was attributable to minority interests. The foregoing
amounts were calculated assuming the conversion of Australian dollar contracts
to U.S. dollars at the December 1997 month-end exchange rate of US$0.65 to A$1.
The Company is exposed to certain credit-related losses in the event of
nonperformance by the counterparties to these agreements, generally by the
amount which the contract price exceeds the spot price of a commodity. 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 significant losses is remote.
Note 18. Supplemental Cash Flow Information
Supplemental cash flow information follows:
<TABLE>
<CAPTION>
Millions 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Changes in working capital accounts
Decrease (increase) in accounts receivable $ 16.9 $(19.9) $ (3.6)
Decrease (increase) in product inventories 1.9 (5.5) 1.1
Decrease in materials and supplies inventories 3.5 0.6 1.2
Decrease (increase) in other current assets 3.0 (0.7) (5.8)
Increase (decrease) in salaries, wages and
benefits payable (4.4) 7.4 1.4
Increase (decrease) in interest payable (1.1) (0.3) 0.5
Increase (decrease) in accounts payable and
other current liabilities (12.2) 13.0 (38.9)
----- ---- -----
Net change in working capital accounts $ 7.6 $ (5.4) $(44.1)
===== ==== =====
Cash paid during the year for
Income, mining and withholding taxes
(net of tax refunds) $31.9 $ 28.1 $ 52.2
Interest (net of amounts capitalized) 8.2 6.7 10.3
</TABLE>
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
4).
74
<PAGE> 77
Note 19. Related Party Transactions
At December 31, 1997, Noranda Inc. ("Noranda"), a diversified Canadian
natural resource company, owned approximately 28% of the Company's outstanding
common shares. Prior to the combination of BMG and BMCL, Noranda owned
approximately 44% of the outstanding common shares of Hemlo.
Until December 1996, the Company participated in a short-term
investment pool with Noranda and other associated companies of Noranda which was
operated to provide an 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. Net interest received from the investment
pool amounted to $0.7 million and $2.5 million in 1996 and 1995, respectively.
Noranda processed certain of the ore from the Silidor mine until the
mine closed in 1997. Charges paid by the Company for this service amounted to
approximately $0.3 million in 1997 and $0.7 million in both 1996 and 1995. In
addition, Noranda provides the Company with certain technical, data processing
and research services. Charges paid by the Company for these services amounted
to approximately $0.4 million, $0.6 million and $0.7 million in 1997, 1996, and
1995, respectively. Noranda also administers the pension plan of certain BMCL
employees.
Related party transactions as described above gave rise to accounts
payable of $0.9 million at December 31, 1996. No material amounts were
outstanding at December 31, 1997.
At December 31, 1997 and 1996, investments in associated companies were
carried at costs of $12.4 million and $11.8 million, respectively. Dividends on
these shares amounted to $0.4 million and $0.7 million in 1997 and 1996,
respectively.
Note 20. Fair Value of Financial Instruments
The following presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Millions
--------
Long-term debt $285.0 $254.5 $ 152.8 $140.5
</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 variable interest rate features of the Inti Raymi Kori Kollo project
financing and CIBC loans, the Company believes the carrying amounts approximate
the fair values of this debt at the reporting date.
The carrying values of the Company's cash and cash equivalents,
restricted cash, trade receivables and 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.
75
<PAGE> 78
The Company has issued corporate guarantees totaling $6.4 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 issued corporate guarantees for $36.5 million as
collateral for surety bonds provided as security for various reclamation
obligations. The Company believes the carrying values of these financial
instruments approximate their fair values.
Note 21. Battle Mountain Canada Ltd. Summarized Financial Information
The following summarized financial information of Battle Mountain Canada
Ltd. is presented in accordance with the Securities and Exchange Commission's
reporting requirements as they pertain to the BMCL Exchangeable Shares.
<TABLE>
<CAPTION>
December 31
Millions 1997 1996
- -------- ---- ----
<S> <C> C>
Current assets $ 133.7 $ 123.0
Non-current assets 390.6 282.5
----- -----
Total assets $ 524.3 $ 405.5
===== =====
Current liabilities $ 51.8 $ 49.5
Non-current liabilities 208.1 99.8
----- -----
Total liabilities 259.9 149.3
Minority interests 18.7 11.8
Shareholder's equity 245.7 244.4
----- -----
Total liabilities and shareholder's equity $ 524.3 $ 405.5
===== =====
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
Millions 1997 1996 1995
- -------- ---- ---- ----
<S> <C> <C> <C>
Sales $ 197.1 $ 156.3 $ 101.9
Costs and expenses 174.6 110.1 80.5
----- ----- -----
Operating income $ 22.5 $ 46.2 $ 21.4
===== ===== =====
Net income $ 14.7 $ 25.1 $ 14.5
===== ===== =====
</TABLE>
76
<PAGE> 79
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
Per Common Share
----------------
Operating Net Basic Diluted Dividends per Share
Millions except Income Income Earnings Earnings -------------------
per share amounts Sales (Loss) (Loss) (Loss) (Loss) Common Preferred
- ----------------- ----- ------ ------ ------ ------ ------ ---------
1997 (1)
- ----
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter (2) $ 76.5 $ (4.1) $ (11.8) $ (.06) $ (.06) $ 0.025 $ 0.8125
Second Quarter 91.2 6.4 (2.2) (.02) (.02) -- 0.8125
Third Quarter (3) 90.2 0.5 24.1 .10 .09 0.025 0.8125
Fourth Quarter 87.0 (6.1) (18.9) (.09) (.09) -- 0.8125
------- ----- ----- ---- ---- ----- ------
Total $ 344.9 $ (3.3) $ (8.8) $ (.07) $ (.07) $ 0.050 $ $ 3.2500
======= ===== ===== ==== ==== ===== ======
1996
- ----
First Quarter $ 104.9 $ 12.3 $ 5.2 $ .01 $ .01 $ 0.010 $ $ 0.8125
Second Quarter 120.4 14.8 5.2 .01 .01 0.032 0.8125
Third Quarter (4) 91.0 (56.0) (47.1) (.21) (.21) 0.024 0.8125
Fourth Quarter (5) 107.7 (13.6) (37.6) (.17) (.17) -- $ 0.8125
------- ----- ----- ---- ---- ----- ------
Total $ 424.0 $ (42.5) $ (74.3) $ (.36) $ (.36) $ 0.066 $ 3.2500
======= ===== ===== ==== ==== ===== ======
</TABLE>
(1) The first, second and third quarters of 1997 have been restated to give
effect to the retroactive application of the Company's accounting method
change (see Note 2). The cumulative effect on periods prior to 1997 is
included in the first quarter of 1997.
(2) Includes $2.2 million of merger expenses related to the 1996 business
combination with BMCL (see Note 3) and a $3.7 million charge related to
the cumulative effect of an accounting change (see Note 2).
(3) Includes a $16.4 million income tax benefit representing a release of
certain deferred tax asset valuation allowances and certain withholding
tax liabilities, and an additional tax benefit of $7.2 million due to
revised projections of future taxable income at certain of the Company's
subsidiaries, which resulted in the recognition of the tax benefit of net
operating loss carryforwards at these subsidiaries (see Note 9).
(4) Includes a before and after-tax charge of approximately $38.5 million
($29.6 million after consideration of minority interests) for asset
write-downs and approximately $20 million in merger related costs (see
Notes 3 and 6).
(5) Includes 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, $2.0 million of
restructuring costs related to NML and $1.4 million of additional asset
write-downs.
<TABLE>
<CAPTION> Per Common Share
--------------------------
Operating Net Basic Diluted
Millions except Income Income Earnings Earnings
per share amount(s) (Loss) (Loss) (Loss) (Loss)
- -------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
First Quarter $ (4.1) $ (8.1) $ (.04) $ (.04)
Second Quarter 6.4 (2.2) (.01) (.01)
Third Quarter 0.5 24.1 .09 .09
Fourth Quarter (6.1) (18.9) (.09) (.09)
-------------------------------------------------------------
Total $ (3.3) $ (5.1) $ (.05) $ (.05)
- -------------------------------------------------------------------------------------------
1996
First Quarter $ 12.4 $ 5.3 $ .01 $ .01
Second Quarter 14.9 5.3 .01 .01
Third Quarter (55.9) (47.0) (.21) (.21)
Fourth Quarter (13.5) (37.5) (.17) (.17)
------------------------------------------------------------
Total $ (42.1) $ (73.9) $ (.36) $ (.36)
- ------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE> 80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Nominees" and "Directors
with Terms Expiring in 1999 and 2000" set forth under "Election of Four
Directors and Director Compensation" in the Company's definitive Proxy Statement
for its 1998 annual meeting of shareholders, as filed within 120 days of
December 31, 1997, pursuant to Regulation 14A under the Securities and Exchange
Act of 1934, as amended (the "Company's 1998 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 1998
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 1998 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 1998 Proxy Statement is incorporated
herein by reference.
78
<PAGE> 81
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 50 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
79
<PAGE> 82
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: February 24, 1998
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ian D. Bayer his attorney-in-fact for him in any
and all capacities, to any and all amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
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.)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
(a) Principal Executive Officer
/s/ Ian D. Bayer President and Chief February 24, 1998
- ----------------------------------------------------- Executive Officer and
Ian D. Bayer Director
(b) Principal Accounting Officer
/s/ Jeffrey L. Powers Vice President February 24, 1998
- ----------------------------------------------------- and Controller
Jeffrey L. Powers
(c) Other Directors
/s/ Douglas J. Bourne Director February 24, 1998
- -----------------------------------------------------
Douglas J. Bourne
/s/ Delo H. Caspary Director February 24, 1998
- -----------------------------------------------------
Delo H. Caspary
/s/ Charles E. Childers Director February 24, 1998
- -----------------------------------------------------
Charles E. Childers
/s/ Karl E. Elers Director February 24, 1998
- -----------------------------------------------------
Karl E. Elers
/s/ David W. Kerr Director February 24, 1998
- -----------------------------------------------------
David W. Kerr
/s/ James W. McCutcheon Director February 24, 1998
- -----------------------------------------------------
James W. McCutcheon, Q.C.
/s/ Mary Mogford Director February 24, 1998
- -----------------------------------------------------
Mary Mogford
/s/ Ted H. Pate Director February 24, 1998
- -----------------------------------------------------
Ted H. Pate
/s/ E. Courtney Pratt Director February 24, 1998
- -----------------------------------------------------
E. Courtney Pratt
</TABLE>
<PAGE> 83
INDEX OF EXHIBITS
Exhibit No. Document
- ---------- --------
*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 ).
*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 ).
*3(a) -- Restated Articles of Incorporation of the Company, as amended
and restated through July 19, 1996 (Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 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 ).
*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 ).
*3(d) -- Bylaws of the Company, as amended through March 21, 1997
(Exhibit 3(d) to the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1996 ).
*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 ).
*4(b) -- Voting, Support and Exchange Trust Agreement dated as of July
19, 1996 between the Company, Hemlo Gold Mines Inc. and CIBC Mellon
Trust Company (as successor to 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 ).
*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 31, 1988 ).
E-1
<PAGE> 84
*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 ).
+*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 ).
+10(a)(2) -- First Amendment to the Battle Mountain Gold Company 1988
Deferred Income Stock Option Plan (As Amended Through May 18,
1995), effective February 5, 1998.
+*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 ).
+*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 ).
+o*10(c)(1) -- Form of the Company's Severance Agreement with Jeffrey L.
Powers, Controller 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).
+10(c)(2) -- Battle Mountain Gold Company Change In Control Severance
Plan, effective December 2, 1997.
+*10(d) -- 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 ).
+*10(e)(1) -- 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 ).
+10(e)(2) -- Battle Mountain Gold Company 1997 Incentive Bonus Plan.
*10(f)(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 ).
*10(f)(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 ).
E-2
<PAGE> 85
*10(g) -- 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).
+*10(h)(1) -- Amended and Restated 1994 Long-Term Incentive Plan of Battle
Mountain Gold Company, as of January 1, 1997 (Appendix B to the
Company's definitive Proxy Statement dated March 28, 1997 and
filed with the Commission on March 28, 1997).
+*10(h)(2) -- 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 ).
+*10(h)(3) -- 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 ).
+*10(h)(4) -- 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 ).
+*10(h)(5) -- 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).
+*10(i)(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 ).
+*10(i)(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 ).
+*10(i)(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 ).
+*10(i)(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 ).
+10(j)(1) -- Battle Mountain Gold Company Supplemental Executive Retirement
Plan As Amended and Restated December 2, 1997 .
+o*10(j)(2) -- 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 ).
E-3
<PAGE> 86
*10(k) -- 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 ).
+o*10(l) -- Specimen of Employment Agreements dated March 11, 1996 between
the Company and certain executive officers (Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 ).
+*10(m) -- Consulting Agreement effective as of March 1, 1997 between the
Company and Karl E. Elers (Exhibit 10(n) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 ).
*10(n) -- Credit Agreement, dated as of March 31, 1997, among Battle
Mountain Gold Company and Battle Mountain Canada Ltd., the Banks
named therein and Citibank, N.A. as U.S. Administrative Agent and
Citibank Canada as Canadian Administrative Agent (Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 ).
*10(o)(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).
*10(o)(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).
*10(p)(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).
*10(p)(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).
*10(p)(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).
E-4
<PAGE> 87
*10(q)(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).
*10(q)(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).
*10(r) -- Credit Agreement, dated September 30, 1997, between Canadian
Imperial Bank of Commerce and Battle Mountain Canada Ltd.
(Exhibit 10 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 ).
11 -- Computation of Earnings Per Common Share.
18 -- Letter regarding change in accounting method.
21 -- Subsidiaries of the Company.
23(a) -- Consent of Price Waterhouse LLP.
23(b) -- Consent of Ernst & Young.
27 -- Financial Data Schedule.
- ------------------------
* 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(m) above with each of Messrs. Bayer, Atkinson, Baylis
and Keyes.
E-5
<PAGE> 1
Exhibit 10(a)(2)
FIRST AMENDMENT TO THE
BATTLE MOUNTAIN GOLD COMPANY
1988 DEFERRED INCOME STOCK OPTION PLAN
(AS AMENDED THROUGH MAY 18, 1995)
This First Amendment to the Battle Mountain Gold Company 1988 Deferred
Income Stock Option Plan (as amended through May 18, 1995) ("DISOP") is adopted
by resolution of the Executive Committee of the Board of Directors of the
Company dated February 5, 1998.
WHEREAS, Battle Mountain Gold Company (the "Company") has established
and maintains the DISOP; and
WHEREAS, the Company wishes to amend the DISOP to allow elections to
receive a stock option in lieu of compensation on or before the election date
specified in the DISOP; and
WHEREAS, pursuant to Section XIII of the DISOP, the Board of Directors
of the Company is authorized to amend the DISOP at any time for any reason;
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES, the DISOP is amended,
effective February 1, 1998, in the following respects:
1. Section VI(B) of the DISOP (Election Date) is amended to read as
follows preceding "in lieu of (i)" in the first sentence therein:
"B. Optionee, Election Date, Valuation Date and Eligible
Compensation. Any eligible director or officer ("Optionee") may file
with the Secretary of the Company, not more than once each Plan Year,
on or before the Valuation Date ("Election Date"), an irrevocable
election to receive a stock option in lieu of Eligible Compensation,
where "Valuation Date" means either (a) the twelfth business day
following the release of the Company's financial data for the preceding
year, (b) the twelfth business day following the release of the
Company's financial data for the first quarter of the year, or (c) the
twelfth business day following the release of the Company's financial
data for the second quarter of the year; and "Eligible Compensation"
means (i)...."
<PAGE> 2
2. Section VI(D) of the DISOP (Option Formula) is amended by
substituting "Valuation Date" for "Election Date" in the third sentence (which
begins "'Fair Market Value'") and in the fourth sentence (which begins "'Elected
Exercise Price'").
<PAGE> 1
Exhibit 10(c)(2)
BATTLE MOUNTAIN GOLD COMPANY
CHANGE IN CONTROL SEVERANCE PLAN
ARTICLE 1
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Battle Mountain Gold Company Change in Control
Severance Plan as set forth in this document.
ARTICLE 2
DEFINITIONS
As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise.
2.1 ANNUAL COMPENSATION means for a Participant the sum of the
following, determined on the day during the Change in Control Window Period
preceding the Participant's Termination Date on which the Participant's Annual
Compensation is highest (when the same date is used in Sections 2.1(a), (b) and
(c) below) ("Relevant Date"):
a. the Participant's base salary determined by
annualizing the rate of his or her base salary in effect on the
Relevant Date;
b. short term cash bonus amount, if any, paid to the
Participant during the 12-month period ending on the Relevant Date;
and
c. long term performance unit awards, if any, paid to
the Participant during the 12-month period ending on the Relevant
Date;
provided, however, that in no event shall "Annual Compensation" include any
payments made to a Participant pursuant to any agreement with or plan of the
Company that are made in connection with any "change in control" or similar
definition in such agreement or plan.
2.2 BOARD means the Board of Directors of the Company.
2.3 CHANGE IN CONTROL shall be deemed to occur on the first of any
one of the following events which takes place after the Effective Date:
a. any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934) except Noranda
Inc. is or becomes the "beneficial owner" (as defined in Rule 13d-3 of
the Securities Exchange Act of 1934), directly or indirectly, of
Company Securities representing 30 percent or more of the combined
voting power of the then outstanding Company Securities;
<PAGE> 2
b. the first purchase of Company Securities pursuant to
a tender or exchange offer (other than a tender or exchange offer made
by the Company);
c. the approval by the holders of Company Securities of
a reorganization, merger, combination or consolidation, a sale or
disposition of all or substantially all of the Company's assets or a
plan of liquidation or dissolution of the Company, unless in each case
following the consummation of such transaction more than 70 percent of
the combined voting power of Company Securities outstanding prior to
such consummation will continue (as Company Securities or as
securities of a successor entity) to be beneficially owned, directly
or indirectly, by all or substantially all of the persons who were
beneficial owners immediately prior thereto in substantially the same
proportion; or
d. during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of the Company cease for any reason to constitute at
least a majority thereof, provided that any new director whose
election or nomination for election by the holders of Company
Securities was approved in advance by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning
of the period shall be considered as though such person were a
director at the beginning of the period.
"Company Securities" shall mean the common stock of the Company and the
exchangeable shares of Battle Mountain Canada Ltd. taken together.
2.4 CHANGE IN CONTROL WINDOW PERIOD means the period which begins
120 days prior to the Change in Control and ends three years after the Change
in Control, provided that a termination of employment will not be considered to
have occurred in the Change in Control Window Period if it takes place in the
120 days prior to the Change in Control but before the Company contemplates the
Change in Control.
2.5 CODE means the Internal Revenue Code of 1986, as amended from
time to time; 26 U.S.C. Section 1 et. seq.
2.6 COMMITTEE means the Compensation and Stock Option Committee
of the Board of Directors of the Company.
2.7 COMPANY means Battle Mountain Gold Company, a Nevada
corporation.
2.8 DISABILITY means a disability which qualifies as a total and
permanent disability under the Company's long-term disability insurance policy
which is generally applicable to Company employees.
2.9 ERISA means the Employee Retirement Income Security Act of
1974, as amended from time to time; 29 U.S.C. Section 1001 et. seq.
2
<PAGE> 3
2.10 EFFECTIVE DATE means December 2, 1997, being the date of
approval of the Plan by the Committee, or such other date as the Committee
shall designate in its resolution approving the Plan.
2.11 EXECUTIVE EMPLOYEE means a key employee of the Company.
2.12 GOOD REASON means any of the following Company acts or
failures to act which occur during the Change in Control Window Period, except
where made in connection with a Termination for Cause or the Executive
Employee's Disability or death:
a. change in the Executive Employee's status, title,
position, duties or responsibilities which, in the Executive
Employee's reasonable judgment, represents a substantial reduction of
his or her immediately prior status, title, position, duties or
responsibilities;
b. failure to either (i) continue in effect any material
salary, compensation or benefit plan, program or practice in which the
Executive Employee was participating immediately prior to such
failure, or (ii) provide the Executive Employee with salary,
compensation and benefits at least equal (in terms of benefit levels
and/or reward opportunities) to those provided under each such plan,
program and practice as in effect immediately prior to such failure;
c. requirement that the Executive Employee (without his
or her consent) be based at any place outside a 35 mile radius of his
or her prior place of employment, except for reasonably required
travel on the Company's business or, in the event the Executive
Employee consents to any such relocation, the Company's failure to pay
(or reimburse the Executive Employee for) all reasonable moving
expenses incurred by him or her relating to a change of principal
residence in connection with such relocation and to indemnify
Executive Employee against any loss realized in the sale of Executive
Employee's principal residence in connection with any such change of
residence;
d. material breach of any provision of this Plan; or
e. purported termination of the Executive Employee's
employment for cause by the Company which does not meet the definition
of "Termination for Cause" in this Plan.
2.13 NOTICE OF TERMINATION means a written notice which specifies
the Termination Date and indicates the specific provisions in this Plan relied
upon as the basis for any termination of employment and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive Employee's employment under the provision so
indicated. No purported termination of employment shall be effective without
such Notice of Termination.
3
<PAGE> 4
2.14 PARTICIPANT means an Executive Employee who is selected by
the Committee to participate in the Plan and who continues to participate in
the Plan pursuant to Article 3.
2.15 PLAN means this Battle Mountain Gold Company Change in Control
Severance Plan. The Plan is a welfare benefit plan under ERISA.
2.16 SEVERANCE BENEFIT means the benefit payable in accordance with
Article 4 of the Plan.
2.17 TERMINATION DATE means the Termination Date described in
Section 5.2 of the Plan.
2.18 TERMINATION FOR CAUSE means a termination of the Executive
Employee's employment which is based on the fact that the Executive Employee
(a) willfully and continually failed to substantially perform his or her duties
with the Company (other than a failure resulting from the Executive Employee's
incapacity due to Disability), or (b) willfully engaged in conduct which is
demonstrably and substantially injurious to the Company, monetarily or
otherwise.
2.19 WAIVER AND RELEASE means an agreement between the Participant
and the Company releasing the Company, its shareholders, subsidiaries, and
affiliates, their directors, officers, employees, agents, assigns, insurers,
and employee benefit plans, fiduciaries and agents of such plans from all
claims and liabilities arising out of the Participant's employment and
termination and including confidentiality provisions, which agreement is
satisfactory to the Company with respect to form, substance and timeliness.
ARTICLE 3
PARTICIPATION
The Committee may, in its discretion, designate one or more Executive
Employees as Participants. Participation shall be conclusively evidenced by
minutes of Committee meetings.
ARTICLE 4
SEVERANCE BENEFITS
4.1 RIGHT TO SEVERANCE BENEFIT. A Participant shall be entitled
to receive from the Company a Severance Benefit in the amount provided in
Section 4.2 if (a) during a Change in Control Window Period, the Company
terminates the Participant's employment and it is not a Termination for Cause
or due to Disability, or the Participant terminates his or her employment for
Good Reason by Notice of Termination given to the Company within 60 days of the
event constituting Good Reason, and (b) the Participant executes a Waiver and
Release. If the Participant's employment is terminated outside of a Change in
Control Window Period, or on account of Disability, death, Termination for
Cause or voluntary termination other than
4
<PAGE> 5
for Good Reason, or if he or she is not a Participant on his or her Termination
Date, no Severance Benefit shall be paid.
4.2 AMOUNT OF SEVERANCE BENEFIT. If a Participant's employment is
terminated in circumstances entitling him or her to a Severance Benefit as
provided in Section 4.1, such Participant shall be entitled to the following
benefits:
a. Subject to Subsection 4.2(c) and Section 9.2
(Withholding of Taxes), the Company shall pay to the Participant, as
severance pay and in lieu of any further compensation for periods
subsequent to the Termination Date, two times the Participant's Annual
Compensation in a single cash payment (without any discount for
accelerated payment). Such single sum payment shall be made as soon as
practicable, but in all events no later than 75 days after the
Participant's Termination Date. A Participant is only entitled to one
Severance Benefit under this Plan.
b. To the extent that the Participant or any of
Participant's dependents are covered under the terms of any group
life, medical and dental coverage for active employees immediately
prior to such termination, the Company will provide the Participant
and those dependents with life, medical and dental coverage for a
period of 24 months from the Termination Date. Notwithstanding the
preceding, a Participant's coverage will stop earlier than the period
indicated above when the Participant has other coverage of the same
type, either as an employee or as a dependent. No coverage will be
provided unless the Participant contributes the amount required from
time to time from active employees for such coverages. In lieu of
coverage under the Employees Health and Welfare Plan, the Company (or
any of its subsidiaries or affiliates, if appropriate) may, in its
discretion, provide such coverage through individual or group
insurance policies, out of the Company's general assets, or by any
other means, provided that such coverage shall be as equivalent to the
group coverage as the Company determines, in its discretion, is
obtainable. Such coverage is intended to satisfy the requirements for
continuation of coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1986 ("COBRA"), and shall be in lieu of any
other continued or extended coverage provided by the Company.
However, if the Participant would have been entitled to retiree
medical coverage for life under the Company's Health and Welfare Plan,
or its successor, had he or she retired on his or her Termination
Date, such coverage shall be continued in lieu of the coverage
provided under this Subsection 4.2(b).
c. The Severance Benefit shall be reduced such that the
aggregate present value of all parachute payments to or for the
benefit of the Participant under this Plan or any other plan of the
Company or an affiliate of the Company shall not exceed three times
the disqualified individual's base amount less one dollar in order to
avoid excise taxes on disqualified individuals under Section 4999 of
the Code and the disallowance of a deduction to the Company pursuant
to Section 280G of the Code. For purposes of this Section 4.2, the
terms "parachute payment," "base amount," "present value," and
5
<PAGE> 6
"disqualified individual" shall have the meanings assigned to them
under Sections 280G and 4999 of the Code and regulations thereunder.
Where other plans of the Company contain similar restrictions on
benefits to avoid tax consequences under Sections 280G and 4999 of the
Code, any Severance Benefit payable hereunder on a change in control
shall be reduced as necessary to implement such restrictions for all
such plans.
d. All determinations required to be made under
Subsection 4.2(c), including whether a reduction of Severance Benefit
is required and the amount of such reduction, shall be made by an
independent certified public accounting firm retained by the Company
("Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Participant within 60 days of
the Termination Date. Any determination by the Accounting Firm shall
be binding upon the Company and the Participant. If as a result of
the uncertainty in the application of Sections 280G and 4999 of the
Code, the Accounting Firm or the Internal Revenue Service later
determine that the reduction is insufficient, the parachute payment
will be a payment due to a mistake of fact, and the Participant is
obligated to return the parachute payment to the Company.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 WRITTEN NOTICE REQUIRED. Any purported termination of
employment within a Change in Control Window Period, either by the Company or
by the Participant, shall be communicated by Notice of Termination to the
other.
5.2 TERMINATION DATE. The Participant's Termination Date shall be
the earliest date specified by either the Company or the Participant in a
Notice of Termination.
ARTICLE 6
CLAIMS PROCEDURE
6.1 CLAIM. If a Participant or his or her beneficiary (a
"Claimant") is denied all or any portion of an expected Plan benefit for any
reason, he or she may file a claim with the Company. The Company shall notify
the Claimant within 90 days of allowance or denial of the claim. The notice
shall be in writing, sent by mail to Claimant's last known address, and must
contain the following information:
a. The specific reasons for the denial;
b. Specific reference to the pertinent sections of the
Plan on which the denial is based; and
c. If applicable, a description of any additional
information or material necessary to perfect the claim, an explanation
of why such information or material is necessary, and an explanation
of the claims review procedure.
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<PAGE> 7
6.2 REVIEW PROCEDURE.
a. A Claimant is entitled to request a review of any
denial of his or her claim. The request for review must be submitted
in writing within 60 days of the mailing of a notice of the denial.
Absent a request for review within the 60-day period, the claim will
be deemed to be conclusively denied. The Claimant or his or her
representative shall be entitled to review all pertinent documents,
and submit issues and comments in writing.
b. The Company shall review the claim and render the
final decision.
6.3 FINAL DECISION. Within 60 days of the mailing of a request
for review, the Company shall issue its final decision allowing or denying the
claim. The decision shall be communicated in writing to the Claimant. The
decision shall recite the facts and reasons for denial, with specific reference
to the pertinent provisions of the Plan.
6.4. SPECIAL CIRCUMSTANCES. If the Company requires a longer time
for processing the claim or the review of the claim due to special
circumstances, it shall notify the Claimant in writing before the date it would
otherwise be required to issue its decision under Sections 6.1 and 6.3 above
that an extension may be required. This extension notice will explain why
additional time is required to process the claim and will indicate the date the
decision is expected to be given. The Company may defer its decision an
additional 90 days for an initial decision under Section 6.1 and an additional
60 days for a final decision under Section 6.3.
6.5 ARBITRATION AND ENFORCEMENT. The Claimant must exhaust his or
her administrative remedies as described above before appealing to a third
party. All disputes, controversies and claims arising out of, in relation to,
or in connection with this Plan, including whether the claim is arbitrable,
shall be exclusively and finally settled by binding arbitration before a single
arbitrator. Such arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Either
party may initiate arbitration by filing notice to the other party. If the
parties cannot agree upon the selection of an arbitrator within 30 days after
arbitration is initiated, the selection shall be made by the American
Arbitration Association. The decision rendered by the arbitrator may be
entered into any court. The Company shall pay the fees and expenses of the
arbitration, except that the Company and the Claimant shall each pay its own
travel costs and attorney's fees. Arbitration shall be conducted in Houston,
Texas.
ARTICLE 7
ADMINISTRATION
7.1 ADMINISTRATOR. The Plan shall be administered by the Company.
7.2 NAMED FIDUCIARY. The Company shall be the named fiduciary of
the Plan.
7
<PAGE> 8
7.3 POWERS AND DUTIES OF COMPANY. The Company shall have such
powers as may be necessary to discharge its duties hereunder, which it shall
execute in its sole discretion, including, but not by way of limitation, the
following powers and duties:
a. To construe and interpret the Plan, decide all
questions of eligibility and determine the amount, manner and time of
payment of any benefits hereunder;
b. To determine all questions arising in the
administration of the Plan; and
c. To set down uniform and nondiscriminatory rules of
interpretation and administration which may be modified from time to
time in light of the Company's experience.
7.4 DISINTERESTED REVIEW. No Executive Employee shall vote in a
determination of his or her Severance Benefit.
7.5 RECORDS AND REPORTS. The Company shall keep a record of all
of its proceedings and acts, and shall keep all such books of account, records
and other data as may be necessary for the proper administration of the Plan.
7.6 AGENT FOR SERVICE OF PROCESS. The Company shall be the agent
for service of legal process for the Plan. The Company's address is 333 Clay
Street, 42nd Floor, Houston, Texas 77002.
ARTICLE 8
AMENDMENT AND TERMINATION
8.1 TERMINATION OF PARTICIPATION; AMENDMENT AND TERMINATION OF
PLAN. By resolution adopted by it, the Committee may terminate a Participant's
participation in the Plan, amend the Plan in any respect, and terminate the
Plan. However, no such termination of participation, amendment or termination
may affect an employee's participation in the Plan without his or her consent
unless the Committee gives the Participant two years advance written notice,
and the written notice is given before a Change in Control Window Period
begins.
8.2 FORM OF AMENDMENT. The form of any amendment of the Plan
shall be a written instrument signed by a duly authorized officer of the
Company.
ARTICLE 9
GENERAL PROVISIONS
9.1 NO RIGHT TO EMPLOYMENT. This Plan is not an employment
agreement. Nothing contained in this Plan shall be construed to limit in any
way the rights of the Company or any of its affiliates to terminate a
Participant's employment with the Company or an affiliate
8
<PAGE> 9
at any time. Nothing contained in this Plan shall be evidence of any agreement
or understanding, express or implied, that the Company or any affiliate will
employ a Participant in any particular position or at any particular rate of
remuneration. The Participant's employment, in the absence of any other
written agreement to the contrary, shall be on an at will basis, terminable by
either the Company or the Participant on notice to the other.
9.2 WITHHOLDING OF TAXES. The Company may withhold from any
Severance Benefits payable under this Plan all federal, state, city or other
taxes as may be required pursuant to any law or governmental regulation or
ruling.
9.3 NO FUNDING. Participants have the status of general unsecured
creditors of the Company. The Plan constitutes a mere promise by the Company
to make benefit payments in the future. The Plan is intended to be unfunded for
tax purposes and for purposes of Title I of ERISA.
9.4 NO ASSIGNMENT. A Participant's rights to benefit payments
under this Plan are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by
creditors of the Participant or the Participant's beneficiary, other than by
transfer by will or by the laws of descent and distribution. In the event of
any attempt at such prohibited assignment or transfer, the Company shall have
no liability to pay any amount so assigned or transferred.
9.5 SUCCESSORS. This Plan shall bind any successor (whether
direct or indirect, by purchase, merger, combination, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, in the same manner and to the same extent that the Company would be
obligated under this Plan if no succession had taken place. In the case of any
transaction in which such successor would not by the foregoing provision or by
operation of law be bound by this Plan, the Company shall require such
successor expressly and unconditionally to assume and agree to perform the
Company's obligations under this Plan, in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. The Company, its subsidiaries or affiliates, and any purchasers
shall not be liable under this Agreement to an employee of a company after such
company ceases to be affiliated with the Company except as specified above.
9.6 REPLACEMENT OF PRIOR PLANS. This Plan replaces and is a
substitute for any plans, employment agreements, severance agreements, offer
letters, and other communications, whether oral or written, effective prior to
the Effective Date. Participation in this Plan is contingent upon the Executive
Employee's signing a waiver and release satisfactory to the Company with
respect to form, substance and timeliness of all rights under such plans,
agreements, letters and other communications.
9.7 PROTECTIVE PROVISIONS. Payment of benefits under this Plan is
conditioned upon the Participant's cooperation with the Company by furnishing
any and all information requested by it in order to facilitate the payment of
benefits hereunder.
9
<PAGE> 10
9.8 TERMS. Whenever any words are used in this Plan in the
singular or in the plural, they shall be construed as though they were used in
the plural or in the singular, as the case may be, in all cases where that
would apply.
9.9 CAPTIONS. The captions of the articles and sections of the
Plan are for convenience only and shall not control or affect the meanings or
construction of any of its provisions.
9.10 NOTICE. Any notice or filing required or permitted to be
given to the Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the Company at its
principal office. Any notice required or permitted to be given to the
Participant under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the last known address
of the Participant. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification. Participants or beneficiaries
receiving payments are required to provide notice to the Company of a change of
address within 30 days of such change.
9.11 VALIDITY. In case any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal and invalid provision had never been inserted in
the Plan.
9.12 CONSTRUCTION. This Plan shall be subject to and construed
under the laws of the United States and, to the extent not superseded by the
laws of the Untied States, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused the Battle Mountain Gold
Company Change in Control Severance Plan to be executed by its duly authorized
officer on this _________ day of ___________________, 1997, to be effective on
December 2, 1997.
BATTLE MOUNTAIN GOLD COMPANY:
ATTEST:
By:
------------------------------------------
Its:
-----------------------------------------
- ---------------------------
10
<PAGE> 1
Exhibit 10(e)(2)
BATTLE MOUNTAIN GOLD COMPANY
1997 INCENTIVE BONUS PLAN
1. Purpose. The Battle Mountain Gold Company 1997 Incentive Bonus Plan
is intended to increase incentives for employees to attain and maintain the
highest standards of performance, to attract and retain employees of
outstanding competence and ability, to stimulate the active interest of
employees in the development and financial success of the Company, to further
the identity of interests of employees with those of the Company's shareholders
generally and to reward employees for outstanding performance when certain
objectives are achieved.
2. Definitions. As used herein, the terms set forth below shall have
the following respective meanings:
"Board" means the Board of Directors of Battle Mountain Gold Company.
"Bonus" means the award payable under this Plan.
"Bonus Period" means the calendar year beginning on or after the
Effective Date with respect to which the Bonus is paid.
"Business Criteria" means the business criteria listed in paragraph 7
of this Plan.
"Committee" means the Compensation and Stock Option Committee of the
Board, which shall be constituted at all times so as to meet the outside
director requirements of Section 162(m) of the Code.
"Company" means Battle Mountain Gold Company and its subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Effective Date" means January 1, 1997.
"Participant" means, with respect to a Bonus Period, the employees of
the Company selected by the Plan Administrator to be eligible to receive a
Bonus for such Bonus Period as provided in paragraph 5 of this Plan, who
may include Restricted Officers, other officers of the Company, and other
employees of the Company.
"Performance Objective" means the performance objective or objectives
established pursuant to paragraph 6 of the Plan.
"Plan" means the Battle Mountain Gold Company 1997 Incentive Bonus
Plan.
"Plan Administrator" means (1) the Committee with respect to
determining participation and Performance Objectives for Restricted
Officers; and (2) subject to the Committee and the requirements of Section
162(m) of the Code, the Chief Executive Officer of the Company with respect
to all other administration under the Plan.
<PAGE> 2
"Restricted Officers" means the Chief Executive Officer of Battle
Mountain Gold Company and its four highest compensated officers (other than
the Chief Executive Officer) as defined in Treasury Regulation
1.162-27(c)(2).
3. Administration. The Plan Administrator shall interpret the Plan,
prescribe, amend, and rescind rules relating to it, select eligible
Participants, and take all other actions necessary for its administration,
which actions shall be final and binding upon all Participants.
4. Compliance with Section 162(m). For Bonus Periods beginning on or
after January 1, 1998, the Plan shall be administered to comply with Section
162(m) of the Code and regulations promulgated thereunder, and if any Plan
provision is later found not to be in compliance with Section 162(m) of the
Code, the provision shall be deemed modified as necessary to meet the
requirements of Section 162(m) of the Code. Notwithstanding anything in the
Plan to the contrary, the Plan Administrator, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit, or condition the applicability of
any provision of the Plan to Restricted Officers without so restricting,
limiting, or conditioning the Plan with respect to other Participants.
5. Selection of Participants. For each Bonus Period, the Plan
Administrator shall determine in writing the Participants who shall be eligible
to receive a Bonus for such Period. For Bonus Periods beginning on or after
January 1, 1998, the Plan Administrator shall make such determination of
Participants prior to the commencement of the Bonus Period, or at such other
time as permitted by Section 162(m) of the Code and regulations thereunder.
6. Performance Objective. For each Bonus Period:
(a) With respect to all Participants for the Bonus Period beginning
January 1, 1997, and with respect to all Participants other than Restricted
Officers of Bonus Periods beginning January 1, 1998: (i) the Plan
Administrator shall establish the Performance Objective before the Bonus is
paid; and (ii) the Performance Objective selected may be a relative or
absolute measure of any one or more of the Business Criteria, or may be any
one or more measures of individual employee performance, or may be a
combination of these.
(b) With respect to Participants who are Restricted Officers for Bonus
Periods beginning on or after January 1, 1998: (i) the Plan Administrator
shall establish the Performance Objective in writing prior to the
commencement of the Bonus Period, or at such other time as permitted by
Section 162(m) of the Code and regulations thereunder; and (ii) the
Performance Objective selected shall be a relative or absolute measure of
any one or more of the Business Criteria.
(c) The Performance Objective shall, subject to paragraph 8 below,
state in terms of a formula the method for computing the amount of Bonus
payable to the Participant. The formula shall set the target level of
performance required for the Performance Objective to determine whether the
Performance Objective has been attained. Under the formula, the Bonus may
vary in direct proportion to the level of
2
<PAGE> 3
performance of the Performance Goal as compared with the target. The
formula may consist of alternative formulas, where the Plan Administrator
may select one alternative before the Bonus is paid.
7. Business Criteria. The following Business Criteria may apply to a
business unit, one or more separately incorporated entities, or the Company as
a whole. The Business Criteria are:
Operating Income Net Income
Pre-Tax Income Debt Reduction
Earnings Per Share Safety
Cash Flow Return on Investment
Return on Capital Revenue
Return on Equity Total Shareholder Return
Return on Assets Gold Production
Reserve Growth Environmental Performance
Progress on Projects
The above terms shall have the same meaning as in the Company's financial
statements, or if the terms are not used in the Company's financial statements,
as applied pursuant to generally accepted accounting principles, or as used in
the industry, as applicable.
8. Bonus Certification. For Bonus Periods beginning on or after
January 1, 1998, the Plan Administrator shall certify in writing prior to
payment of the Bonus that the Performance Objective has been attained and the
Bonus is payable. With respect to Committee certification, approved minutes of
the meeting in which the certification is made shall be treated as written
certification.
9. Maximum Bonus Payable. The maximum Bonus payable under this Plan to
any Participant for any Bonus Period shall be one million dollars ($1,000,000).
10. Discretion to Reduce Awards. The Plan Administrator, in its sole
and absolute discretion, may reduce the amount of any award otherwise payable
to a Participant.
11. Active Employment Requirement. Except as provided below, Bonus
shall be paid for a Bonus Period only to a Participant who is actively employed
by the Company (or on approved vacation) throughout the Bonus Period and who is
employed by the Company on the date the Bonus is paid. To the extent consistent
with the deductibility of awards under Section 162(m) of the Code and
regulations thereunder, the Plan Administrator may in its sole discretion grant
a Bonus for the Bonus Period to a Participant who is first employed or who is
promoted to a position eligible to become a Participant under this Plan during
the Bonus Period, who is transferred to or from a location where this Plan is
in effect, who is on sick leave, Family or Medical Leave (U.S.) or Parental
Leave (Canada), or whose employment is terminated during the Bonus Period
because of the Participant's retirement with entitlement to immediate pension
benefits under the Company's retirement plan, death, or because of total and
permanent disability as that or a similar term is defined in the Company's
generally applicable long term
3
<PAGE> 4
disability insurance policy. In such cases of partial active employment, Bonus
will be based on salary paid during the Bonus Period.
12. Payment of Bonus. A Bonus shall be paid to the Participant for the
Bonus Period as provided in this Plan. The Company shall pay the Bonus to the
Participant in a single cash payment as soon as administratively practicable
after the Bonus Period and after the Plan Administrator certifies that the
Bonus is payable as provided in paragraph 8. In the event of the Participant's
incompetency, the Company in its sole discretion may pay any Bonus to the
Participant's guardian or directly to the Participant. In the event of the
Participant's death, any Bonus shall be paid to the Participant's spouse or, if
there is no surviving spouse, the Participant's estate. Payments under this
paragraph shall operate as a complete discharge of the Plan Administrator and
the Company. The Company shall deduct from any Bonus paid under the Plan the
amount of any taxes required to be withheld by the federal or any state or
local government.
13. Stockholder Approval. No Bonus shall be payable under this Plan to
Restricted Officers for Bonus Periods on or after January 1, 1998, unless the
Plan is disclosed to and approved by the shareholders of Battle Mountain Gold
Company in accordance with Section 162(m) of the Code and regulations
thereunder.
14. Limitation of Rights. Nothing in this Plan shall be construed to
(a) give any employee of the Company any right to be awarded any Bonus other
than that set forth herein, as determined by the Plan Administrator; (b) give a
Participant any rights whatsoever with respect to shares of common stock of the
Company; (c) limit in any way the right of the Company to terminate an
employee's employment with the Company at any time; (d) give a Participant or
any other person any interest in any fund or in any specific asset or assets of
the Company; or (e) be evidence of any agreement or understanding, express or
implied, that the Company will employ an employee in any particular position or
at any particular rate of remuneration.
15. Nonassignment. The right of a Participant to the payment of any
Bonus under the Plan may not be assigned, transferred, pledged, or encumbered,
nor shall such right or other interests be subject to attachment, garnishment,
execution, or other legal process.
16. Amendment or Termination of the Plan. The Committee may amend or
terminate the Plan at any time, except that no amendment or termination shall
be made which would impair the rights of any Participant to a Bonus which would
be payable were the Participant to terminate employment on the effective date
of such amendment or termination, unless the Participant consents to such
amendment or termination.
17. Governing Law. The Plan shall be governed by the laws of the State
of Texas.
4
<PAGE> 5
IN WITNESS WHEREOF, Battle Mountain Gold Company has caused this document,
titled "Battle Mountain Gold Company 1997 Incentive Bonus Plan," to be executed
by its duly authorized officer on this ___ day of ________________, 199__.
BATTLE MOUNTAIN GOLD COMPANY:
By:
------------------------------------
Stanford M. Haley
Vice President, Human Resources
5
<PAGE> 1
Exhibit 10(j)(1)
BATTLE MOUNTAIN GOLD COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS AMENDED AND RESTATED DECEMBER 2, 1997
ARTICLE 1
PREAMBLE AND PURPOSE
1.1 PREAMBLE. This Plan is adopted effective December 2, 1997, as an
amendment and restatement of the Battle Mountain Gold Company Supplemental
Executive Retirement Plan, which was originally effective March 1, 1995. This
Plan as amended and restated herein applies only to individuals who are active
Executive Employees (defined below) on or after December 2, 1997. Participants
in the Plan who terminated employment prior to December 2, 1997 shall have their
rights and benefits determined under the terms of the Plan as in effect while
they were active Executive Employees of the Company.
1.2 PURPOSE. The purpose of the Battle Mountain Gold Company
Supplemental Executive Retirement Plan ("SERP") is to provide supplemental
retirement and death benefits for Executive Employees. The SERP is intended to
qualify for the exemption provided under Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") for plans that are not
qualified and are maintained primarily to provide deferred compensation for a
select group of management or highly compensated employees.
ARTICLE 2
DEFINITIONS
The following words and phrases in the SERP have the meanings stated
below. Capitalized words which are not defined below have the meaning given them
in the Base Plan.
2.1 ACTUARIAL EQUIVALENT has the meaning given it in the Base Plan on
the date the equivalence is being determined.
2.2 BASE PLAN means the Battle Mountain Gold Company Retirement Plan,
as amended as of the date any determination is made of rights or benefits under
this SERP.
2.3 BENEFIT COMMENCEMENT DATE means the date benefits are scheduled to
begin to be paid with respect to a Participant under the SERP. All benefits
shall actually be paid within 30 days of the Benefit Commencement Date.
2.4 CHANGE IN CONTROL shall be deemed to occur on any one of the
following events which takes place after the Effective Date:
a. any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) except Noranda Inc. is
or becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Securities Exchange Act of 1934), directly or
<PAGE> 2
indirectly, of Company Securities representing 30 percent or more of
the combined voting power of the then outstanding Company Securities;
b. the first purchase of Company Securities pursuant to a
tender or exchange offer (other than a tender or exchange offer made by
the Company);
c. the approval by the holders of Company Securities of a
reorganization, merger, combination or consolidation, a sale or
disposition of all or substantially all of the Company's assets or a
plan of liquidation or dissolution of the Company, unless in each case
following the consummation of such transaction more than 70 percent of
the combined voting power of Company Securities outstanding prior to
such consummation will continue (as Company Securities or as securities
of a successor entity) to be beneficially owned, directly or
indirectly, by all or substantially all of the persons who were
beneficial owners immediately prior thereto in substantially the same
proportion; or
d. during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of
the Company cease for any reason to constitute at least a majority
thereof, provided that any new director whose election or nomination
for election by the holders of Company Securities was approved in
advance by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period shall be
considered as though such person were a director at the beginning of
the period.
"Company Securities" shall mean the common stock of the Company and the
exchangeable shares of Battle Mountain Canada Ltd. taken together.
2.5 CODE LIMITS means the limits imposed by Sections 401(a)(17) and 415
the Internal Revenue Code of 1986, as amended, on the benefits which can be
provided under the Base Plan. Section 401(a)(17) limits the dollar amount of
Considered Compensation used in determining the Accrued Pension under the Base
Plan. Section 415 limits the amount of Accrued Pension which is payable under
the Base Plan.
2.6 COMMITTEE means the Compensation and Stock Option Committee of
the Board of Directors of the Company.
2.7 COMPANY means Battle Mountain Gold Company, a Nevada corporation,
or any successor.
2.8 DISABILITY means total and permanent disability as defined in the
Base Plan.
2.9 EFFECTIVE DATE means December 2, 1997; the original effective
date of the Plan was March 1, 1995.
2
<PAGE> 3
2.10 EXECUTIVE EMPLOYEE means a key employee of the Company.
2.11 PARTICIPANT means an Executive Employee who is selected by the
Committee to participate in the Plan and who continues to participate in the
Plan pursuant to Article 3.
2.12 SERP or PLAN means the Battle Mountain Gold Company Supplemental
Executive Retirement Plan, as amended and restated effective December 2, 1997,
and as it may be amended from time to time.
2.13 SERP BENEFIT means the benefit described in Article 4.
2.14 TERMINATION FOR CAUSE means a termination of the Executive
Employee's employment which is evidenced by a written notice stating the
termination date and specifying that the Executive Employee (a) willfully and
continually failed to substantially perform his or her duties with the Company
(other than a failure resulting from the Executive Employee's incapacity due to
Disability), or (b) willfully engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise.
ARTICLE 3
PARTICIPATION
The Committee may, in its discretion, designate one or more Executive
Employees as Participants. A Participant shall cease to be a Participant in the
Plan with respect to subsequent benefit accruals if the Committee, in its
discretion, determines that such Executive Employee is no longer a current
Participant.
Participation shall be conclusively evidenced by minutes of Committee meetings.
ARTICLE 4
BENEFIT
4.1 ACCRUED PENSION. Subject to Section 4.6, the Accrued Pension of a
Participant under the SERP as of any date is equal to the excess, if any, of (a)
over (b), where:
(a) is the Participant's vested Normal, Early, Postponed, or
Disability Retirement Pension, or Deferred Vested Pension, whichever is
applicable, as of such date under the Base Plan, modified as follows:
(i) Code Limits are ignored;
(ii) Considered Compensation includes a Participant's
elective deferrals of base compensation and bonus under any
nonqualified deferred compensation plan;
(iii) The Participant's Vesting Service and Benefit
Service under the
3
<PAGE> 4
Base Plan is increased to reflect any service credit which
the Committee, in its discretion, grants for certain service
prior to employment with the Company with respect to an
individual when the individual becomes a Participant, which
additional service credit is indicated on Attachment A; and
(iv) The changes described in Section 4.5 of the SERP
are made; and
(b) is the Participant's vested Normal, Early, Postponed, or
Disability Retirement Pension, or Deferred Vested Pension, whichever is
applicable, as of such date under the Base Plan, or, if benefits under
(a) and (b) above are to be paid over different periods, the Actuarial
Equivalent of such Pension under the Base Plan paid over the same
period as the SERP Benefit.
4.2 BENEFIT ON RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT. On
termination of employment for reasons other than Disability or death, the SERP
Benefit is equal to the Accrued Pension described in Section 4.1 above on
termination of employment. The SERP Benefit shall be paid to Participants in the
form of an annuity payable for the life of the Participant, except that a
Participant with a Deferred Vested Pension under the Base Plan and a Spouse
shall receive the Actuarial Equivalent of the SERP Benefit in the form of a
joint and 50 percent surviving Spouse annuity. The Benefit Commencement Date
shall be the later of the Participant's 55th birthday or termination of
employment. Annuities shall be paid monthly.
4.3 BENEFIT ON DISABILITY. On termination of employment due to
Disability, the SERP Benefit shall be equal to the Accrued Pension described in
Section 4.1, determined based on a Disability Retirement. The Benefit
Commencement Date is the Participant's age 65. The Disability benefit shall be
paid in the form provided in 4.2 above.
4.4 BENEFIT ON DEATH. The SERP Benefit payable on account of the
Participant's death shall be equal to the excess, if any, of (a) any death
benefit which would have been paid to the Participant's Surviving Spouse on
account of the Participant's death under the Base Plan were the Participant's
Accrued Benefit as stated in Section 4.1 above, over (b) the benefit which is
actually payable to the Participant's Surviving Spouse under the Base Plan. The
Benefit Commencement Date for the death benefit shall be the date of the
Participant's death. The death benefit shall be paid monthly to the
Participant's Spouse for the Spouse's life, and if the Participant is not
survived by a Spouse, no benefit will be paid after the Participant's death. A
trust created for the benefit of Participant's Surviving Spouse may be
designated as a beneficiary under the SERP if the Participant designates the
beneficiary in writing and files such designation with the Company.
4.5 CHANGE IN CONTROL.
a. EFFECT ON SERP BENEFIT. In the event of a Change in
Control, the Participant shall be fully vested in the SERP Benefit.
4
<PAGE> 5
b. LIMIT TO AVOID PARACHUTE PAYMENT.
(i) The SERP Benefit shall be reduced such that the
aggregate present value of all parachute payments to or for
the benefit of the Participant under this Plan or any other
plan of the Company or an affiliate of the Company shall not
exceed three times the disqualified individual's base amount
less one dollar in order to avoid excise taxes on disqualified
individuals under Section 4999 of the Code and the
disallowance of a deduction to the Company pursuant to Section
280G of the Code. For purposes of this Section 4.5, the terms
"parachute payment," "base amount," "present value," and
"disqualified individual" shall have the meanings assigned to
them under Sections 280G and 4999 of the Code and regulations
thereunder. Where other plans of the Company contain similar
restrictions on benefits to avoid tax consequences under
Sections 280G and 4999 of the Code, any accelerated vesting
hereunder on a change in control shall be reduced as necessary
to implement such restrictions for all such plans.
(ii) All determinations required to be made under
Subsection 4.5(b), including whether a reduction of SERP
Benefit is required and the amount of such reduction, shall be
made by an independent certified public accounting firm
retained by the Company ("Accounting Firm"), which shall
provide detailed supporting calculations both to the Company
and the Participant prior to the Benefit Commencement Date.
Any determination by the Accounting Firm shall be binding upon
the Company and the Participant. If as a result of the
uncertainty in the application of Sections 280G and 4999 of
the Code, the Accounting Firm or the Internal Revenue Service
later determine that the reduction is insufficient, the
parachute payment will be a payment due to a mistake of fact,
and the Participant is obligated to return the parachute
payment to the Company.
4.6 TERMINATION OF EMPLOYMENT FOR CAUSE. In the event of a Termination
for Cause of a Participant prior to age 65, the Participant will not be entitled
to any benefits under the SERP.
4.7 LEAVE OF ABSENCE. A Participant who is considered to be on a leave
of absence under the Base Plan is considered to be on a leave of absence under
this SERP. During a leave of absence, the Participant will still be considered
to be in the continuous employment of the Company for purposes of this SERP.
ARTICLE 5
NO FUNDING OR ASSIGNMENT OF BENEFITS
5.1 NO FUNDING. Participants have the status of general unsecured
creditors of the Company. The SERP constitutes a mere promise by the Company to
make benefit payments in
5
<PAGE> 6
the future. The Company has created a grantor trust and intends to hold assets
in the trust to assist it in meeting its obligations under the SERP. Such trust
and assets shall conform to the terms of the model trust described in Revenue
Procedure 92-64, or a successor of that Revenue Procedure. It is the intention
of the Company that these arrangements be unfunded for tax purposes and for
purposes of Title I of ERISA.
5.2 NO ASSIGNMENT. A Participant's rights to benefit payments under
this SERP are not subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment, or garnishment by
creditors of the Participant or the Participant's Surviving Spouse, other than
by transfer by will or by the laws of descent and distribution.
ARTICLE 6
WITHHOLDING OF TAXES
The Company shall pay both the Participant's and the Company's portion
of the Hospital Insurance tax imposed by Code Sections 3101(b) and 3111(b) which
may be due on benefit accruals under this SERP. The Company may elect any one of
the timing options for payment under regulations promulgated under such Code
Sections. The Company shall pay any additional federal income tax withholding on
its payment of the Participant's portion of the Hospital Insurance tax. Federal,
state or local taxes required to be withheld from benefits paid under the SERP
shall be deducted from the amount of any benefits payable under the SERP.
ARTICLE 7
CLAIMS PROCEDURE
7.1 CLAIM. If a Participant or his or her Surviving Spouse (a
"Claimant") is denied all or any portion of an expected SERP benefit for any
reason, he or she may file a claim with the Company. The Company shall notify
the Claimant within 90 days of allowance or denial of the claim. The notice
shall be in writing, sent by mail to Claimant's last known address, and must
contain the following information:
a. The specific reasons for the denial;
b. Specific reference to the pertinent sections of the SERP
on which the denial is based; and
c. If applicable, a description of any additional information
or material necessary to perfect the claim, an explanation of why such
information or material is necessary, and an explanation of the claims
review procedure.
7.2 REVIEW PROCEDURE.
a. REQUEST FOR REVIEW. A Claimant is entitled to request a
review of any denial of his or her claim. The request for review must
be submitted in writing within 60 days of the mailing of a notice of
the denial. Absent a request for review within the
6
<PAGE> 7
60-day period, the claim will be deemed to be conclusively denied. The
Claimant or his or her representative shall be entitled to review all
pertinent documents, and submit issues and comments in writing.
b. FINAL DETERMINATION. The Company shall review the claim and
render the final decision.
7.3 FINAL DECISION. Within 60 days of the mailing of a request for
review, the Company shall allow or deny the claim. The decision shall be
communicated in writing to the Claimant. The decision shall recite the facts and
reasons for denial, with specific reference to the pertinent provisions of the
SERP.
7.4 SPECIAL CIRCUMSTANCES. If the Company requires a longer time for
processing the claim or the review of the claim due to special circumstances, it
shall notify the Claimant in writing before the date it would otherwise be
required to issue its decision under Sections 7.1 and 7.3 above that an
extension may be required. This extension notice will explain why additional
time is required to process the claim and will indicate the date the decision is
expected to be given. The Company may defer its decision an additional 90 days
for an initial decision under Section 7.1 and an additional 60 days for a final
decision under Section 7.3.
7.5 ARBITRATION AND ENFORCEMENT. The Claimant must exhaust his or her
administrative remedies as described above before appealing to a third party.
All disputes, controversies and claims arising out of, in relation to, or in
connection with this Plan, including whether the claim is arbitrable, shall be
exclusively and finally settled by binding arbitration before a single
arbitrator. Such arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. Either
party may initiate arbitration by filing notice to the other party. If the
parties cannot agree upon the selection of an arbitrator within 30 days after
arbitration is initiated, the selection shall be made by the American
Arbitration Association. The decision rendered by the arbitrator may be entered
into any court. The Company shall pay the fees and expenses of the arbitration,
except that the Company and the Claimant shall each pay its own travel costs and
attorney's fees. Arbitration shall be conducted in Houston, Texas.
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATOR. The SERP shall be administered by the Company.
8.2 NAMED FIDUCIARY. The Company shall be the named fiduciary of
the Plan.
8.3 POWERS AND DUTIES OF COMPANY. The Company shall have such powers as
may be necessary to discharge its duties hereunder, which it shall execute in
its sole discretion, including, but not by way of limitation, the following
powers and duties:
7
<PAGE> 8
a. To construe and interpret the Plan, decide all questions
of eligibility and determine the amount, manner and time of payment of
any benefits hereunder;
b. To determine all questions arising in the administration of
the Plan; and
c. To set down uniform and nondiscriminatory rules of
interpretation and administration which may be modified from time to
time in light of the Company's experience.
8.4 DISINTERESTED REVIEW. No Executive Employee shall vote in a
determination of his or her SERP Benefit.
8.5 RECORDS AND REPORTS. The Company shall keep a record of all of its
proceedings and acts, and shall keep all such books of account, records and
other data as may be necessary for the proper administration of the Plan.
8.6 AGENT FOR SERVICE OF PROCESS. The Company shall be the agent for
service of legal process for the SERP. The Company's address is 333 Clay Street,
42nd Floor, Houston, Texas 77002.
ARTICLE 9
AMENDMENT AND TERMINATION
The Committee may amend or terminate the SERP at any time. An amendment
to the SERP shall be in writing, adopted and signed by a duly authorized officer
of the Company, and attached to or substituted for this document. The Plan shall
be terminated by appropriate resolution of the Committee. Any such amendment or
termination shall not affect the rights of a Participant to the benefit he or
she would be entitled to were he or she to terminate employment on the date such
amendment or termination is adopted without such Participant's written consent.
However, an amendment may stop increases in benefits payable under the SERP
after the date the amendment is adopted, and a termination shall stop such
increases. Upon termination of the SERP, the Committee in its discretion may
make distributions to Participants in single lump sums, provided that all
Participants shall be treated the same with respect to receipt of lump sums and
provided that the lump sums shall be the Actuarial Equivalent of the benefit
otherwise due under the SERP.
ARTICLE 10
GENERAL PROVISIONS
10.1 SUCCESSORS, MERGERS, OR CONSOLIDATION. This SERP shall inure to
the benefit of and be binding upon (a) the Company, and its successors and
assigns which acquire substantially all of the common stock or the assets and
business of the Company, or any corporation into which the Company may be merged
or consolidated, and (b) the Participant, and his or her beneficiaries, heirs,
executors, administrators and legal representative.
8
<PAGE> 9
10.2 NO RIGHT TO EMPLOYMENT. This SERP is not an employment agreement.
Nothing contained in this SERP shall be construed to limit in any way the rights
of the Company or any Affiliate to terminate a Participant's employment with the
Company or an Affiliate at any time. Nothing contained in this SERP shall be
evidence of any agreement or understanding, express or implied, that the Company
or any Affiliate will employ a Participant in any particular position or at any
particular rate of remuneration. The Participant's employment, in the absence of
any other written agreement to the contrary, shall be on an at will basis,
terminable by either the Company or the Participant on notice to the other.
10.3 REPLACEMENT OF PRIOR PLANS. This Plan replaces and is a substitute
for any plans, employment agreements, other agreements, offer letters, and other
communications, whether oral or written, effective prior to the Effective Date
which provide or refer to supplemental unfunded pension benefits to Participants
who are employees of the Company on or after the Effective Date. Participation
in this Plan is contingent upon the Executive Employee's signing a waiver and
release of all rights under such plans, agreements, letters and other
communications which is satisfactory to the Company with respect to form,
substance and timeliness.
10.4 PROTECTIVE PROVISIONS. Payment of benefits under this SERP is
conditioned upon the Participant's cooperation with the Company by furnishing
any and all information requested by the Company in order to facilitate the
payment of benefits hereunder.
10.5 TERMS. Whenever any words are used in this SERP in the singular or
in the plural, they shall be construed as though they were used in the plural or
in the singular, as the case may be, in all cases where they would so apply.
10.6 CAPTIONS. The captions of the articles and paragraphs of the SERP
are for convenience only and shall not control or affect the meanings or
construction of any of its provisions.
10.7 NOTICE. Any notice or filing required or permitted to be given to
the Company under the SERP shall be sufficient if in writing and hand delivered,
or sent by registered or certified mail, to the Company at the principal office
of the Company. Any notice required or permitted to be given to the Participant
under the SERP shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the last known address of the Participant. Such
notice shall be deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark on the receipt for registration or
certification. Participants or beneficiaries receiving payments are required to
provide notice to the Company of a change of address within 30 days of such
change.
10.8 VALIDITY. In case any provision of this SERP shall be held illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this SERP shall be construed and enforced as if such
illegal and invalid provision had never been
9
<PAGE> 10
inserted in the SERP.
10.9 CONSTRUCTION. This Plan shall be subject to and construed under
the laws of the United States and, to the extent not superseded by the laws of
the Untied States, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused the Battle Mountain Gold
Company Supplemental Executive Retirement Plan to be executed by its duly
authorized officer on this______ day of______________, 1997, to be effective
December 2, 1997.
BATTLE MOUNTAIN GOLD COMPANY:
ATTEST:
By:
---------------------------------------
Its:
--------------------------------------
- --------------------------------
<PAGE> 1
EXHIBIT 11
BATTLE MOUNTAIN GOLD COMPANY
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(expressed in million, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
BASIC INCOME (LOSS) PER SHARE
Net income (loss) $ (8.8) $ (74.3) $ 29.7
Deduct dividends on preferred shares (7.5) (7.5) (7.5)
------- ------- ------
Net income (loss) applicable to common stock $ (16.3) $ (81.8) $ 22.2
======= ======= ======
Shares
Weighted average number of common shares outstanding 229.7 229.6 227.9
======= ======= ======
Basic income (loss) per common share $(0.071) $ (0.356) $ 0.097
======= ======= ======
DILUTED INCOME (LOSS) PER SHARE
Net income (loss) applicable to common stock $ (16.3) $ (81.8) $ 22.2
Shares ======= ======= ======
Weighted average number of common shares outstanding 229.7 229.6 227.9
Assuming exercise of stock options reduced by the number of shares
which could have been purchased with the proceeds from exercise
of such options - - 0.7
Effect on average shares outstanding
if debentures were converted - - 4.8
------- ------- ------
Weighted average number of common shares outstanding, as adjusted 229.7 229.6 233.4
======= ======= ======
Diluted income (loss) per share, assuming conversion $(0.071) $(0.356) $0.095
======= ======= ======
CALCULATIONS OF CONVERSIONS OF SECURITIES PRODUCING ANTI-DILUTIVE RESULTS
Conversion of preferred shares
Net income (loss)
Net income (loss) applicable to common stock $ (16.3) $ (81.8) $ 22.2
Effect on net income if preferred shares were converted 7.5 7.5 7.5
------- ------- ------
Net income (loss), as adjusted $ (8.8) $ (74.3) $ 29.7
======= ======= ======
Shares
Weighted average number of common shares outstanding 229.7 229.6 227.9
Effect on average shares outstanding if preferred shares
were converted 11.0 11.0 11.0
------- ------- ------
Weighted average number of common shares outstanding, as adjusted 240.7 240.6 238.9
======= ======= ======
Diluted income (loss) per share, assuming conversion $(0.037) $(0.309) $0.124
======= ======= ======
Conversion of debentures
Net income (loss)
Net income (loss) applicable to common stock $ (16.3) $ (81.8) -
Effect on net income if debentures were converted - - -
------- ------- ------
Net income (loss), as adjusted $ (16.3) $ (81.8) -
======= ======= ======
Shares
Weighted average number of common shares outstanding 229.7 229.6 -
Effect on average shares outstanding if debentures were converted 4.8 4.8 -
------- ------- ------
Weighted average number of common shares outstanding, as adjusted 234.5 234.4 -
======= ======= ======
Diluted income (loss) per share, assuming conversion $(0.070) $ (0.349) -
======= ======= ======
Conversion of options
Net income (loss)
Net income (loss) applicable to common stock $ (16.3) $ (81.8) -
======= ======= ======
Shares
Weighted average number of common shares outstanding 229.7 229.6 -
Effect on average shares outstanding if options were converted 0.1 0.5 -
------- ------- ------
Weighted average number of common shares outstanding, as adjusted 229.8 230.1 -
======= ======= ======
Diluted income (loss) per share, assuming conversion $(0.071) $(0.356) -
======= ======= ======
</TABLE>
<PAGE> 1
EXHIBIT 18
To the Board of Directors of
Battle Mountain Gold Company
Dear Directors:
We have audited the consolidated financial statements included in Battle
Mountain Gold Company's Annual Report on Form 10-K for the year ended December
31, 1997 and issued our report thereon dated February 20, 1998. Note 2 to the
consolidated financial statements describes a change in the units-of-production
methodology for depleting mining properties and certain related assets at the
Company's Kori Kollo mine in Bolivia from the tonnes-milled method to the
ounces-produced method. In addition, the new accounting method applies the
ounces-produced amortization rate to the total estimated development costs to be
incurred throughout the mine life of Kori Kollo, whereas the previous method
applied a tonnes-milled rate to the capital costs incurred to date. It should be
understood that the preferability of one acceptable method of calculating
depreciation, depletion and amortization over another has not been addressed in
any authoritative accounting literature and in arriving at our opinion expressed
below, we have relied on management's business planning and judgment. Based on
our discussion with management and the stated reasons for the change, we believe
that such change represents, in your circumstances, the adoption of a preferable
alternative accounting principle for calculating depreciation, depletion and
amortization in conformity with Accounting Principles Board Opinion No. 20.
PRICE WATERHOUSE LLP
Houston, Texas
February 20, 1998
<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 Holdco, Inc. Nevada
Battle Mountain Canada Ltd. Ontario
Battle Mountain (Dominican Republic) Inc. Nevada
Battle Mountain Exploration Company Texas
Battle Mountain Gold do Brasil Mineracao Ltda. Brazil
BMG (Ghana) Ltd. Ghana
Battle Mountain (Irian Jaya) Ltd. Nevada
Battle Mountain (Ketungau) Inc. Nevada
Battle Mountain (Pacific) Ltd. Nevada
Battle Mountain Resources Inc. Nevada
Battle Mountain Services Company Nevada
Battle Mountain Sub Holdco, Inc. Nevada
Compania Hemlo Gold Chile Limitada Chile
Compania Minera El Aguila Delaware
Compania Minera El Condor Nevada
Compania Minera El Halcon Delaware
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 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
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 20,
1998 appearing on page 51 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
February 24, 1998
<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 52 in this Form 10-K.
ERNST & YOUNG
Chartered Accountants
Toronto, Canada
February 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Battle
Mountain Gold Company Annual Report on Form 10-K for the year ended December 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 202,700
<SECURITIES> 0
<RECEIVABLES> 33,000
<ALLOWANCES> 0
<INVENTORY> 33,700
<CURRENT-ASSETS> 324,000
<PP&E> 1,054,600
<DEPRECIATION> 565,300
<TOTAL-ASSETS> 1,093,200
<CURRENT-LIABILITIES> 106,100
<BONDS> 241,000
0
110,600
<COMMON> 12,300
<OTHER-SE> 383,100
<TOTAL-LIABILITY-AND-EQUITY> 1,093,200
<SALES> 344,900
<TOTAL-REVENUES> 344,900
<CGS> 307,100
<TOTAL-COSTS> 307,100
<OTHER-EXPENSES> 24,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,900
<INCOME-PRETAX> (13,500)
<INCOME-TAX> (10,700)
<INCOME-CONTINUING> (8,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (3,700)
<NET-INCOME> (16,300)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
