<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ______________
COMMISSION FILE NUMBER 1-9666
BATTLE MOUNTAIN GOLD COMPANY
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 76-0151431
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Clay Street, 42nd Floor, Houston, Texas 77002
(Address of principal executive offices, including Zip Code)
(713) 650-6400
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock outstanding as of the latest
practicable date, April 30, 1999: 128,036,614. In addition, as of such date,
there were outstanding 101,813,405 Exchangeable Shares of Battle Mountain
Canada Ltd. which are exchangeable at any time into Common Stock on a
one-for-one basis, entitle their holders to dividend and other rights
economically equivalent to those of the Common Stock, and through a voting
trust, vote at meetings of stockholders of the Registrant.
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<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information (Unaudited)
Condensed Consolidated Statement of Operations
for the three months ended March 31, 1999 and 1998 1
Condensed Consolidated Balance Sheet
at March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statement of Cash Flows
for the three months ended March 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Supplemental Information 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------
MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998
- ---------------------------------- ---- ----
<S> <C> <C>
Sales $ 53.8 $ 78.9
-------- --------
Costs and expenses
Production costs 36.6 43.7
Depreciation, depletion and amortization 14.4 22.9
Exploration, evaluation & other lease costs, net 3.9 5.3
General and administrative expenses 3.3 3.7
Asset write-downs (Note 2) 10.4 -
-------- --------
Total costs and expenses 68.6 75.6
-------- --------
Operating income (loss) (14.8) 3.3
Interest expense (3.7) (4.8)
Interest income 1.0 2.6
Foreign currency exchange gain, net 3.1 0.5
Equity in losses of Lihir - (1.4)
Other income, net 0.4 0.1
-------- --------
Income (loss) before income taxes and
minority interest (14.0) 0.3
Income tax benefit 2.1 0.2
Mining tax expense (0.2) (1.8)
Minority interest in net loss (income) 0.2 (0.3)
-------- --------
Net loss (11.9) (1.6)
Preferred dividends 1.9 1.9
-------- --------
Net loss to common shares $ (13.8) $ (3.5)
======== ========
Loss per common share
Basic and diluted (Note 3) $ (.06) $ (.02)
======== ========
Dividends per common share $ - $ .025
======== ========
Average common shares outstanding for
loss per share purposes - basic and diluted 229.8 229.8
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
MILLIONS (Unaudited)
- --------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 102.7 $ 147.6
Restricted cash 7.7 7.7
Accounts and notes receivable 10.4 13.8
Product inventories 12.4 12.5
Materials and supplies, at average cost 24.4 23.4
Assets held for sale (Note 2) 97.9 108.3
Other current assets 3.9 2.0
------- -------
Total current assets 259.4 315.3
Investments 19.9 19.4
Property, plant and equipment, net 336.3 339.0
Other assets 18.7 20.4
------- -------
Total assets $ 634.3 $ 694.1
======= =======
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $ - $ 14.9
Current maturities of long-term debt (Note 5) 37.0 37.0
Accounts payable 18.2 14.3
Income and mining taxes payable 17.9 23.9
Other current liabilities 8.8 12.9
------- -------
Total current liabilities 81.9 103.0
Long-term debt (Note 5) 192.0 203.6
Deferred income and mining taxes 70.1 72.0
Other liabilities 50.9 50.1
------- -------
Total liabilities 394.9 428.7
Minority interest 7.3 17.7
Commitments and contingencies (Notes 5, 7 and 9) - -
Shareholders' equity (Note 4) 232.1 247.7
------- -------
Total liabilities and shareholders' equity $ 634.3 $ 694.1
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------
MILLIONS 1999 1998
- -------- ---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (11.9) $ (1.6)
Adjustments to reconcile net loss to cash flows
from operating activities:
Depreciation, depletion and amortization 14.4 22.9
Deferred income taxes (2.9) (3.9)
Foreign currency exchange gain, net (3.1) (0.5)
Asset write-downs (Note 2) 10.4 -
Equity in losses of Lihir - 1.4
Change in working capital accounts, net (4.5) 1.4
Other, net (0.3) 3.4
------- -------
Net cash flows provided by operating activities 2.1 23.1
------- -------
Cash flows from investing activities
Capital expenditures (9.3) (14.0)
Crown Butte liquidating dividend to minority shareholders (11.0) -
Other, net 0.2 -
------- -------
Net cash flows used in investing activities (20.1) (14.0)
------- -------
Cash flows from financing activities
Debt repayments (11.6) (11.6)
Decrease in short-term borrowings (14.9) (4.9)
Cash dividend payments (1.9) (7.6)
Increase in restricted cash - (16.0)
Other, net 0.1 -
------- -------
Net cash flows used in financing activities (28.3) (40.1)
------- -------
Effect of exchange rate changes on cash and cash equivalents 1.4 0.5
------- -------
Net decrease in cash and cash equivalents (44.9) (30.5)
Cash and cash equivalents at beginning of period 147.6 185.0
------- -------
Cash and cash equivalents at end of period $ 102.7 $ 154.5
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. General Information
The unaudited condensed consolidated financial statements included herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission and include all normal recurring adjustments which are, in
the opinion of the management of Battle Mountain Gold Company ("BMG"), necessary
for a fair presentation. Certain information and footnote disclosures required
by generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These financial statements include the
accounts of BMG and its wholly-owned and majority-owned subsidiaries ("the
Company") and should be read in conjunction with the consolidated financial
statements which are included in the Company's Annual Report on Form 10-K (File
No. 1-9666) for the year ended December 31, 1998. Certain amounts for prior
periods may have been reclassified in order to conform to the current reporting
presentation.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted the first
quarter of fiscal years beginning after June 15, 1999. This standard requires
companies to record derivative financial instruments on the balance sheet as
assets or liabilities, as appropriate, at fair value. Gains or losses resulting
from changes in the fair values of those derivatives are accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting.
Based on the current level of its hedging activities, the Company believes that
the implementation of this standard will not have a material adverse effect on
the Company's consolidated results of operations, financial position or
liquidity.
Note 2. Asset Write-Downs
In the first quarter of 1999, the Company recorded a $10.4 million write-down
of its investment in Niugini Mining Limited ("NML"), an asset held for sale.
A drop in the market value of the Lihir Gold Limited ("Lihir") stock held by
NML necessitated the write-down.
Note 3. Loss per Common Share
The computations of the Company's basic and diluted loss per share amounts were
the same for the respective periods presented on the condensed consolidated
statement of operations. Securities that could potentially dilute basic loss per
share amounts in each of those periods that were not included in the
calculations because they were anti-dilutive were the Company's outstanding
common stock options, convertible debentures and convertible preferred stock.
Note 4. Comprehensive Loss
The Company's comprehensive loss follows:
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------
MILLIONS 1999 1998
-------- ---- ----
<S> <C> <C>
Net loss $ (11.9) $ (1.6)
Foreign currency translation adjustments (1.9) (0.2)
------- -----
Comprehensive loss $ (13.8) $ (1.8)
======= ======
</TABLE>
4
<PAGE>
Note 5. Debt
The Company's outstanding loan agreement with Canadian Imperial Bank of
Commerce (the "Loan Agreement") has been amended. Also, certain provisions
have been waived until March 31, 2000. The amendment to the Loan Agreement
requires a reduction in the amount owed to Canadian Imperial Bank of
Commerce, either by partial repayment or by an assignment or syndication of
the loan, no later than July 31, 1999. The Company expects the reduction to
occur by that date.
Note 6. Geographic and Segment Information
Financial information by segment for the applicable periods presented in the
condensed consolidated financial statements follows:
<TABLE>
<CAPTION>
Golden Kori Battle Vera/ Crown Corp &
MILLIONS Total Giant Kollo Holloway Mountain Nancy Jewel Other
- -------- ------ ------- ------ -------- -------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
- ----
Total assets $ 634.3 $ 106.3 $ 103.4 $ 78.2 $ 44.7 $ 26.0 $ 33.1 $ 242.6
====== ======= ====== ===== ====== ===== ==== ======
Gross revenues $ 53.8 $ 21.6 $ 22.2 $ 6.0 $ - $ 4.0 $ - $ -
Operating expenses 68.6 18.2 23.0 7.4 0.1 2.1 - 17.8
------ ------- ------ ----- ------- ----- ---- ------
Operating income (loss) (14.8) $ 3.4 $ (0.8) $ (1.4) $ (0.1) $ 1.9 $ - $ (17.8)
======= ====== ===== ======= ===== ==== ======
Other income, net 0.8
------
Loss before income taxes
& minority interest $ (14.0)
======
1998
- ----
Total assets $ 694.1 $ 144.6 $ 107.9 $ 79.7 $ 42.4 $ 24.8 $ 31.8 $ 262.9
====== ======= ====== ===== ====== ==== ==== =====
Gross revenues $ 78.9 $ 31.5 $ 27.3 $ 5.5 $ 6.1 $ 3.5 $ - $ 5.0
Operating expenses 75.6 19.4 29.5 7.0 4.0 2.0 - 13.7
------ ------- ------ ----- ------ ----- ---- ------
Operating income (loss) 3.3 $ 12.1 $ (2.2) $ (1.5) $ 2.1 $ 1.5 $ - $ (8.7)
======= ====== ===== ====== ===== ==== ======
Other expenses, net (3.0)
------
Income before income taxes
& minority interest $ 0.3
======
</TABLE>
Note 7. Crown Jewel
The Company is continuing to work toward earning up to a 54% interest in the
Crown Jewel project in Washington state by bringing the property into commercial
production. Many of the proposed facilities at the Crown Jewel project are
to be located on unpatented lode mining claims and millsite claims. The
validity of the claims, or obtaining some other rights from the federal
government, is a prerequisite to the construction of the facilities.
On May 12, 1999, the United States House/Senate Appropriations Conference
Committee voted to overturn the notification discussed below that vacated
Crown Jewel's Record of Decision. The provision voted upon, which would
mandate the approval of the Company's Plan of Operations and reinstatement of
its Record of Decision, is part of the Supplemental Appropriations Bill. In
order to become law, the Supplemental Appropriations Bill would have to be
passed by the United States House and Senate and be signed by the President.
On March 26, 1999, the Company was notified by the Departments of the
Interior and Agriculture that the January 1997 Record of Decision for the
Crown Jewel project had been vacated, and that the Plan of Operations for the
project could not be approved. The notification claimed that a project
cannot legally rely on a greater number of millsite claims than the number of
associated lode mining claims being developed. At Crown Jewel, the ratio of
millsite claims necessary for proposed facilities to lode mining claims
within the proposed pit is significantly greater than 1 to 1. The basis for
the governmental denial is contrary to the custom and practice of the
industry, as long recognized by the federal government in internal guidance
documents and approval of numerous plans of operation without regard to the
ratio of millsite claims to lode claims. The Company is vigorously pursing
the reversal of the decision set forth in the government's notification.
In the event that the Company is unable to construct the Crown Jewel project,
the Company would have to write off the capitalized costs associated with the
5
<PAGE>
project of approximately $32.7 million and the Company's proved and probable
reserves would decrease by approximately 825,000 ounces.
Note 8. Summarized Financial Information
The following summarized information of Battle Mountain Canada Ltd. ("BMCL") is
presented in accordance with the Securities and Exchange Commission's reporting
requirements as they pertain to the BMCL Exchangeable Shares:
<TABLE>
<CAPTION>
Three months ended
March 31
-----------------------
MILLIONS 1999 1998
-------- ---- ----
<S> <C> <C>
Sales $ 27.5 $ 42.0
Costs and expenses 38.0 34.3
-------- -------
Operating income (loss) $ (10.5) $ 7.7
======== =======
Net income (loss) $ (8.8) $ 2.0
======== =======
</TABLE>
Note 9. Other Contingencies
See "Part II - Other Information - Legal Proceedings" for information
concerning significant legal proceedings of the Company. In addition to the
legal proceedings described therein, the Company is party to a number of
actions arising in the ordinary course of business. While the final outcome
of these actions cannot be predicted with certainty, the Company believes
that the outcome of these actions will not have a material adverse effect on
the Company's results of operations, financial condition or cash flows.
6
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
SUPPLEMENTAL INFORMATION - OPERATING DATA (Unaudited)(1)
(Production data reflects BMG attributable interests)
(Ounces in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
------------------
1999 1998
------- -------
<S> <C> <C>
GOLDEN GIANT
Gold ounces recovered 78 103
Silver ounces recovered 3 10
- -----------------------------------------------------------------------------------------------------
Cost per Gold Ounce Produced
Cash production costs $ 167 $ 114
Depreciation, depletion and amortization 64 69
Reclamation and mine closure costs 4 4
----- -----
Total production costs $ 235 $ 187
- -----------------------------------------------------------------------------------------------------
KORI KOLLO (88% Interest)
Gold ounces recovered 64 77
Silver ounces recovered 201 236
- -----------------------------------------------------------------------------------------------------
Cost per Gold Ounce Produced (2)
Cash production costs $ 189 $ 167
Depreciation, depletion and amortization 85 134
Reclamation and mine closure costs 11 10
---- ----
Total production costs $ 285 $ 311
- -----------------------------------------------------------------------------------------------------
HOLLOWAY (84.65% Interest)
Gold ounces recovered 20 18
- -----------------------------------------------------------------------------------------------------
Cost per Gold Ounce Produced
Cash production costs $ 206 $ 253
Depreciation, depletion and amortization 126 120
Reclamation and mine closure costs 2 2
----- -----
Total production costs $ 334 $ 375
- -----------------------------------------------------------------------------------------------------
VERA/NANCY (50% Interest)
Gold ounces recovered 14 12
Silver ounces recovered 12 10
- -----------------------------------------------------------------------------------------------------
Cost per Gold Ounce Produced
Cash production costs $ 116 $ 138
Depreciation, depletion and amortization 31 27
Reclamation and mine closure costs 1 1
----- -----
Total production costs $ 148 $ 166
- -----------------------------------------------------------------------------------------------------
OTHER (3)
Gold ounces recovered 35
Silver ounces recovered 36
- -----------------------------------------------------------------------------------------------------
Cost per Gold Ounce Produced
Cash production costs $ 214
Depreciation, depletion and amortization 98
----
Total production costs $ 312
- -----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
SUPPLEMENTAL INFORMATION - OPERATING DATA (Unaudited)(1)
(Production data reflects BMG attributable interests)
(Ounces in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
-------------------
1999 1998
------- -------
<S> <C> <C>
AGGREGATE DATA
Gold ounces recovered - BMG share 176 246
Gold ounces sold - BMG share 177 244
Gold ounces recovered 185 276
Gold ounces sold 186 262
Average price per gold ounce realized $ 286 $ 307
- -----------------------------------------------------------------------------------------------------
Silver ounces recovered - BMG share 216 291
Silver ounces sold - BMG share 217 288
Silver ounces recovered 244 336
Silver ounces sold 245 332
Average price per silver ounce realized $ 5.26 $ 6.37
- -----------------------------------------------------------------------------------------------------
Weighted Average Cost per Gold Ounce Produced
Cash production costs $ 175 $ 156
Depreciation, depletion and amortization 76 96
Reclamation and mine closure costs 6 5
----- -----
Total production costs $ 257 $ 257
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective January 1, 1999, current and prior period production costs are
presented on an ounces-produced basis, versus an ounces-sold basis, as
previously reported.
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 standard also provides for reporting on a cost per
gold ounce basis, rather than cost per equivalent gold ounce.
(2) Royalties paid to the Bolivian government for the Kori Kollo mine are
treated as income tax for per ounce cost calculations and are therefore not
included in these cost calculations.
(3) Includes Battle Mountain Complex, Lihir and San Cristobal. Production data
is not presented for 1999 as the Battle Mountain Complex Reona mine has
been placed on care and maintenance effective January 1, 1999. Results of
Lihir Gold Limited and San Cristobal are not consolidated in 1999 as the
Company has classified its investment in Niugini Mining Limited as an asset
held for sale as of December 31, 1998.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K (File No. 1-9666) for the year ended
December 31, 1998 and the historical condensed consolidated financial
statements and notes preceding this discussion.
OVERVIEW
A $10.4 million asset write-down, lower gold production and continued low
gold prices resulted in a net loss of $13.8 million ($.06 per share) for the
three month period ended March 31, 1999. Decreased depreciation and higher
foreign currency exchange gains partially offset the impacts of these
unfavorable items. Operating cash flows declined from 1998 due to lower sales
and gold prices and an increase in working capital. The Company's cash
position declined $44.9 million as a result of capital expenditures, a
liquidating dividend and debt repayments.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Company generated cash flows of $2.1 million from
operating activities during the three months ended March 31, 1999 compared
with $23.1 million for the same period in 1998. The decrease was primarily
the result of lower gold prices and production, and increased working capital
primarily resulting from higher income tax payments in 1999.
INVESTING ACTIVITIES. Capital expenditures totaled $9.3 million in the first
quarter of 1999 compared with $14.0 million during the same period in 1998.
Capital expenditures in 1998 included $4.5 million of capitalized interest
paid related to the Company's investment in Lihir. The Company currently
expects to invest approximately $47 million of capital expenditures in 1999
and is continuing to evaluate strategic opportunities that may exist as a
result of depressed gold prices. In March 1999, Crown Butte Resources Ltd.
paid an $11.0 million liquidating dividend to its minority shareholders.
FINANCING ACTIVITIES. The Company made $26.5 million of debt and short-term
borrowing repayments in 1999 compared with $16.5 million in 1998. Cash
dividends in the first quarter decreased from $7.6 million in 1998 to $1.9
million in 1999 as the Company suspended its semi-annual common stock
dividend in February 1999. Restricted cash balances of NML increased $16.0
million in first quarter of 1998 as required by the Lihir financing agreement.
The Company will not receive proceeds from the sales of any shares sold,
should they occur, through the effective registration statement on file with
the Securities and Exchange Commission and similar filings in Canada. The
filings are for the aggregate 65.2 million shares of the Company's common
stock effectively held by Noranda Inc.
CONCLUSION. The Company believes it will be able to fund its cash
requirements over the next twelve months through a combination of current
cash, future cash flows from operations, proceeds from potential asset sales
including NML, and future project or other financings.
RESULTS OF OPERATIONS
The Company recorded net losses of $13.8 million ($.06 per share) and $3.5
million ($.02 per share) for the three month periods ended March 31, 1999 and
1998, respectively. Results in 1999 were negatively impacted by a $10.4
million write-down of the Company's investment in NML and lower gold
production and prices, partially offset by decreased depreciation and higher
foreign currency exchange gains.
9
<PAGE>
The results of operations of the Lihir and San Cristobal mines are not included
with those of the Company in 1999 as NML is an asset held for sale effective
December 31, 1998. Lihir was accounted for as an equity investment in 1998.
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------
1999 1998
------- -------
<S> <C> <C>
Gold sales - 100%, thousand ounces 186 262
Average gold revenue realized per ounce - 100% $ 286 $ 307
Average London PM gold fix per ounce $ 287 $ 294
</TABLE>
Sales decreased for the three month period ended March 31, 1999 compared with
the same period in 1998 primarily as a result of decreased production and lower
realized gold prices. Excluding the Company's 24,000 ounce share of Lihir gold
sales in 1998, sales volumes were 52,000 ounces lower in 1999. Lower production
at Golden Giant in 1999 was attributable to increased gold inventory in the mill
circuit and lower head grades, while decreases at Kori Kollo were primarily the
result of lower head grades. Also contributing to the overall decrease was the
placing of the Battle Mountain Complex Reona mine on care and maintenance
effective January 1, 1999.
The average realized price of gold decreased in 1999 as a result of decreased
spot gold prices. Average realized prices for the three month period in 1998
were higher than the average London PM fix price for the same period due to
gains recognized from forward sales at Lihir.
<TABLE>
<CAPTION>
AGGREGATE ATTRIBUTABLE PRODUCTION COSTS Three months ended
PER OUNCE OF GOLD PRODUCED March 31
-------------------
1999 1998
------ ------
<S> <C> <C>
Direct mining costs $ 175 $ 156
Deferred stripping adjustments - 2
Third party smelting, refining and transportation costs 2 2
By-product credits included in sales (6) (7)
------ ------
Cash operating costs 171 153
Royalties* 4 3
------ ------
Total cash costs 175 156
Depreciation, depletion and amortization 76 96
Reclamation and mine closure costs 6 5
------ ------
Total production costs $ 257 $ 257
====== ======
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF AGGREGATE ATTRIBUTABLE CASH COSTS
PER OUNCE TO CONSOLIDATED FINANCIAL STATEMENTS*
Three months ended
March 31
-------------------
MILLIONS, EXCEPT OUNCES PRODUCED AND PER OUNCE AMOUNTS 1999 1998
------------------------------------------------------ ------ ------
<S> <C> <C>
Production costs per financial statements $ 36.6 $ 43.7
Lihir production costs - 2.5
Minority interest portion of production costs (1.7) (3.6)
By-product credits included in sales (1.1) (1.8)
Reclamation and mine closure costs (1.2) (1.3)
Inventory change and other (1.8) (1.0)
------ ------
Production costs for per ounce calculation purposes $ 30.8 $ 38.5
====== ======
Gold ounces produced, thousands 176 246
====== ======
Total cash costs per gold ounce produced $ 175 $ 156
====== ======
</TABLE>
* Royalties paid to the Bolivian government for the Kori Kollo mine are treated
as income tax for per ounce cost calculations and are therefore not included
in these cost calculations.
10
<PAGE>
Total production costs decreased in the first quarter of 1999 primarily as a
result of the exclusion of costs from the San Cristobal and Reona mines in 1999.
Lower total costs at Kori Kollo were partially offset by higher costs at Golden
Giant. Consolidated per ounce cash costs increased in 1999 compared with 1998.
Increased per ounce costs at Golden Giant and Kori Kollo were partially offset
by decreases at the Holloway and Vera/Nancy mines. Cost increases at Golden
Giant and Kori Kollo were primarily the result of lower production.
Depreciation, depletion and amortization decreased in total and on a cost per
gold ounce produced basis for the three month period ended March 31, 1999
compared with the same period in 1998. These decreases were attributable to
lower production and lower asset carrying values resulting from write-downs
taken at the end of 1998.
Exploration, evaluation and other lease costs decreased in 1999 as a result of
differences in the timing of expenditures and higher exploration property sales
in 1999. A write-down of $10.4 million was made in the first quarter of 1999
related to the Company's investment in NML. A 16% decline in the market value of
the Lihir stock held by NML necessitated the write-down.
Interest expense decreased in the three month period ended March 31, 1999 due to
lower levels of average debt outstanding in 1999 compared to 1998, while
interest income decreased primarily as a result of lower average levels of cash
invested.
Foreign currency exchange gains were higher in 1999 than in 1998 as a result of
the effects of stronger foreign currencies on U.S. dollar-denominated debt of
the Company's subsidiaries, primarily that of BMCL.
Equity in losses of Lihir totaled $1.4 million in the first three months of
1998. Results of Lihir are not reflected in 1999 as NML was classified as an
asset held for sale effective December 31, 1998.
The Company's income tax benefit increased in the first quarter of 1999 compared
with the first quarter of 1998 as a result of higher losses in the first three
months of 1999. The Company's effective income tax rate for the first three
months of 1999 was 32%. The effects of foreign currency exchange gains and the
write-down of NML are not included in the calculation of 1999 income taxes
because the net deferred tax asset resulting from these gains and losses was
subjected to a valuation allowance.
Mining taxes decreased for the three month period ended March 31, 1999 compared
with the same period in 1998 due to decreased mining income from the Company's
Canadian mines.
OTHER
See Part II - Other Information - Legal Proceedings and Notes 5, 7 and 9 of
Notes to Condensed Consolidated Financial Statements for a discussion of
material contingencies.
The Company's profitability is significantly affected by changes in the market
price of gold. Gold prices can fluctuate widely and are affected by numerous
factors, such as demand, forward selling by producers, central bank sales and
purchases, currency valuations, investor sentiment and production levels. While
the Company is one of the lowest cost gold producers, a sustained period of low
gold prices could have a material adverse affect on its results of operations,
financial position and cash flows.
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 interest rate, foreign currency
11
<PAGE>
exchange rate and commodity price risks. The Company had no material hedged
forward sales contracts outstanding at March 31, 1999. In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be
adopted the first quarter of fiscal years beginning after June 15, 1999. See
Note 1 of Notes to Condensed Consolidated Financial Statements for further
discussion.
The Company has operations in Canada and Australia in addition to operations
in the United States and other countries. Gold produced at these operations
is sold in the international markets for U.S. dollars. The cost structures at
these operations are primarily Canadian and Australian dollar denominated,
and accordingly, these companies' functional currencies are the Canadian
dollar and the Australian dollar, respectively. As such, the Company is
exposed to foreign currency risk to the extent that there are fluctuations in
local currency exchange rates against the U.S. dollar.
Mining operations outside the U.S. and Canada represented approximately 49%
of the total gross revenues of the Company for the three months ended March
31, 1999, while assets attributable to those operations were approximately
$129.4 million. 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.
The risks associated with the year 2000 ("Y2K") are the result of computer
technology utilizing only the last two digits of a year rather than all four
to define a specific year. Absent corrective actions, some computer programs
that are not "Y2K-compliant" may recognize a date using "00" as the year
1900, rather than the year 2000. This could result in system failure or
miscalculations, causing disruptions to various activities and operations.
The Company is in the final stage of its Y2K readiness program, with a review
of its computer systems inventory, systems validation, and certification and
testing stages having been completed. Both information technology ("IT") and
non-IT systems, such as various equipment used at the Company's mines, that
have been determined to be Y2K non-compliant are being replaced or upgraded,
as appropriate. The cost of replacing those affected non-IT systems is
immaterial to the Company. The Company's potential Y2K problems should also
be resolved upon the implementation of a previously planned Y2K-compliant IT
systems upgrade. In addition, critical vendor/supplier readiness
confirmations are currently being obtained. An outside contractor has advised
the Company on its Y2K readiness program and it is expected that the program
will be completed before the fourth quarter of 1999.
The Company is reviewing and evaluating its most likely worst-case scenario
with regards to Y2K. The Company is also developing business contingency
plans in order to mitigate potential disruptions, including those that may
result from non-compliant systems utilized by unrelated third party
governmental and business entities. It is expected that the plans will be
completed by mid-1999. These plans will be reviewed and updated as necessary
until the year 2000.
Although no assurance can be given, the Company does not anticipate any
material adverse effect regarding Y2K compliance on the Company's
consolidated results of operations, financial position or cash flows. The
Company believes that third party noncompliance will be the area of greatest
risk of year 2000 having a material adverse effect on the Company.
12
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The U.S. securities laws provide a "safe harbor" for certain forward-looking
statements. This report contains forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those projected in such forward-looking statements. Statements regarding the
expected commencement dates of mining operations, projected quantities of future
production, capital costs, production rates, costs and expenditures and other
operating and financial data are based on expectations that the Company believes
are reasonable, but it can give no assurance that such expectations will prove
to have been correct. Factors that could cause actual results to differ
materially include, among others: risks and uncertainties relating to general
domestic and international economic and political conditions, the cyclical and
volatile prices of gold, silver and copper, political and economic risks
associated with foreign operations, unanticipated ground and water conditions,
unanticipated grade and geological problems, metallurgical and other processing
problems, availability of materials and equipment, the delays in the receipt of
or failure to receive necessary governmental permits, changes in laws or
regulations or the interpretation and enforcement thereof, the occurrence of
unusual weather or operating conditions, force majeure events, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications or expectations, labor relations, accidents,
delays in anticipated start-up dates, environmental risks, the results of
financing efforts and financial market conditions. These and other risk factors
are discussed in more detail in the Company's Annual Report on Form 10-K (File
No. 1-9666) for the year ended December 31, 1998. 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is working toward earning up to a 54% interest in the Crown Jewel
project in Washington State. Certain positive permit decisions and approvals
have been received for the Crown Jewel project, but additional state and federal
permit decisions and approvals are pending. Certain persons and groups oppose
the Crown Jewel project. The legal proceedings detailed below have been
initiated by project opponents. The Company expects that additional appeals may
be brought and that injunctions will be sought. The final resolution of existing
and expected appeals and the timing thereof cannot be determined with any
accuracy at this time.
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 issued a
final Environmental Impact Statement and Record of Decision for the Crown
Jewel project. The Forest Service received four administrative appeals to its
Environmental Impact Statement and Record of Decision, all of which the
Forest Service denied in the second quarter of 1997. On May 29, 1997, the
Okanogan Highlands Alliance, the Washington Environmental Council, the
Colville Indian Environmental Protection Alliance and the Kettle Range
Conservation Group instituted the above-referenced action against the Forest
Service and certain individual Forest Service decision makers in United
States District Court for the District of Oregon. The action appealed the
Forest Service's Environmental Impact Statement, its Record of Decision and
its denial of the administrative appeals. The action sought the following
rulings: 1) that the Environmental Impact Statement and Record of Decision
were inadequate and violated the National Environmental Policy Act and the
Administrative Procedures Act; 2) that the Forest Service's decision not to
prepare and issue a
13
<PAGE>
supplemental Environmental Impact Statement was not in accordance with law;
and 3) that the Record of Decision violated certain specified laws. The
action also sought an award of fees and costs associated with the litigation
and indicated that the plaintiffs would seek injunctive relief restraining
the Forest Service from approving or authorizing the Plan of Operations or
any other action related to the Crown Jewel project. The Company intervened
in the action and the Confederated Tribes of the Colville Reservation (the
"Colville Confederated Tribes") also intervened and filed a complaint
alleging that the Record of Decision was issued in violation of certain
tribal rights. On December 31, 1998, the District Court granted the Company's
and the Forest Service's motions for summary judgment, thereby upholding the
Forest Service's Environmental Impact Statement, Record of Decision and
administrative denial of plaintiffs' claims. On March 17, 1999, the District
Court entered the order of final judgment and dismissed the case with
prejudice. It is possible that plaintiffs will appeal the decision of the
District Court to the Ninth Circuit Court of Appeals.
On March 26, 1999, the Company received notification (the "Notification")
from the Department of the Interior and the Department of Agriculture that
the January 1997 Record of Decision for the Crown Jewel project had been
vacated, and that the Plan of Operations for the project could not then be
approved. The Notification alleged that a project cannot legally rely on a
greater number of millsite claims than the number of associated lode mining
claims being developed. This is contrary to the custom and practice of the
industry, as long recognized by the federal government in internal guidance
documents and by the granting of numerous plans of operation without regard
for the lode claim to millsite ratio. The Company is vigorously pursuing the
reversal of the decision set forth in the Notification. See Note 7, "Crown
Jewel," of Notes to Condensed Consolidated Financial Statements under Item 1
herein.
OKANOGAN HIGHLANDS ALLIANCE, ET AL. V. STATE OF WASHINGTON DEPARTMENT OF
ECOLOGY, ET AL., WASHINGTON POLLUTION CONTROL HEARINGS BOARD, (PCHB NOS. 97-182;
97-183; 97-186; AND 99-019)
In November 1997, the Washington Department of Ecology (the "Department of
Ecology") approved certain applications for new water rights and certain
applications for changes to existing water rights that are necessary for the
Crown Jewel project. On December 1, 1997, Roger Lorenz instituted the action
designated PCHB No. 97-182 against the Department of Ecology, appealing the
Department's approval of one new water right application and one water right
change application. On the same date, the Okanogan Highlands Alliance, the
Washington Environmental Council and the Center for Environmental Law and Policy
instituted the action designated PCHB No. 97-183 against the Department of
Ecology and the Company. The action challenges the Department of Ecology's water
rights decisions, claiming that such decisions violated the State Water Code,
Water Resources Act, Administrative Procedures Act and Environmental Policy Act.
The action seeks an order reversing the Department of Ecology's decisions or, in
the alternative, vacating the Reports of Examination and remanding the
applications to the Department of Ecology for further study. The action has been
joined by Triple Creek, a nonprofit corporation. On December 2, 1997, the
Colville Confederated Tribes instituted the action designated PCHB No. 97-186
against the Department of Ecology and the Company. The action makes the same
challenge and seeks the same relief as PCHB No. 97-183. The Washington Pollution
Control Hearings Board granted the Company's request to consolidate PCHB Nos.
97-182; 97-183; and 97-186 for hearing. However, the Board determined that the
water quality issues raised by the appeals will only be decided after a hearing
on the 401 Water Quality Certification. On October 23, 1998, the PCHB entered an
order dismissing certain of the plaintiffs' claims and ruled in favor of the
Company on eight additional claims on February 16, 1999.
In January 1999, the Department of Ecology granted the Company 401 Water Quality
Certification for the Crown Jewel project. On February 12, 1999, the Okanogan
Highlands Alliance and the Washington Environmental Council instituted an action
designated PCHB No. 99-019 against the Department of Ecology and the Company,
appealing the Department's grant of the 401 Certification, approval of certain
performance securities, and issuance of an Addendum to the Environmental Impact
Statement. The action has been consolidated with the above-described actions.
The action seeks determinations that: 1) the 401 Certification is invalid,
illegal, null, and void; 2) the performance security fails to meet the
requirements of the Washington Metals Mining and Milling Act; 3) the Addendum
violates the State Environmental Policy Act; 4) all decisions based on the
Addendum are null and void; 5) the matter be remanded to the Department of
Ecology for preparation of a Supplemental Environmental Impact Statement; and 6)
other
14
<PAGE>
relief, including injunctive relief, as the PCHB deems appropriate. A hearing
on the merits was scheduled for September 1999. However, in light of the
Notification denying the Company's Plan of Operations, the hearing has been
canceled and the matter continued for ninety days. See Note 7, "Crown Jewel,"
of Notes to Condensed Consolidated Financial Statements under Item 1 herein.
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
In November 1997, the Department of Ecology approved certain of the Company's
applications for new water rights and for changes to existing water rights
that are necessary for the Crown Jewel project. The Department granted the
Company's applications in part based upon a streamflow mitigation plan. On
December 2, 1997, the Colville Confederated Tribes instituted the
above-referenced action against the Department of Ecology and the Company. On
the same date, Okanogan Highlands Alliance, the Washington Environmental
Council and the Center for Environmental Law and Policy instituted an action
designated Civil No. 97-2-02831-8 against the Department of Ecology and the
Company. On November 13, 1998, the two actions were consolidated. The
consolidated action seeks an order holding that the Department of Ecology's
approval of the streamflow mitigation plan constituted a rulemaking in
violation of the Administrative Procedures Act and an order that such
approval exceeds the Department of Ecology'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. The plaintiffs seek
reversal of the Department of Ecology's decisions with respect to the
Company's water rights applications, along with an injunction precluding the
Company from taking action in reliance on such decisions. The plaintiffs also
seek to be reimbursed for their costs and attorney fees. On November 5, 1998,
the Department of Ecology filed a motion to dismiss, which was subsequently
joined by the Company. The motion was denied on January 8, 1999, allowing the
case to proceed.
OKANOGAN HIGHLANDS ALLIANCE V. OKANOGAN COUNTY, ET AL., SUPERIOR COURT OF THE
STATE OF WASHINGTON FOR OKANOGAN COUNTY, CIVIL NO. 98-2-00180-3
On May 4, 1998, the Okanogan Highlands Alliance instituted the above-referenced
action against Okanogan County, the Company and Crown Resources Corporation in
the Superior Court of the State of Washington in and for Okanogan County. On May
20, 1998, the Okanogan Highlands Alliance amended the action by naming the
Okanogan County Health District as an additional respondent. The action
challenged the decision of the Okanogan County Health District that Solid Waste
Permits are not required for the Crown Jewel mine tailings and waste rock piles.
The action sought an order declaring that such decision violated the Washington
Solid Waste Management Act and other state and local laws and regulations and
was therefore null and void. On January 21, 1999, the Court ruled that the
Company and the other respondents were entitled to have the action dismissed
and, on February 12, 1999, the Court entered the final judgment. The time for
appeal has elapsed without the plaintiffs filing a notice of appeal.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Limited Waiver and Amending Agreement, dated as
of April 30, 1999, between Battle Mountain
Canada Ltd. and Canadian Imperial Bank of
Commerce
11 Computations of Earnings (Loss) per Common Share
27 Financial Data Schedule
99 Letter from the Department of the Interior and
the Department of Agriculture regarding the
January 1997 Record of Decision for the Crown
Jewel project
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated March 26, 1999,
was filed containing a press release issued by Battle
Mountain Gold Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BATTLE MOUNTAIN GOLD COMPANY
Date: May 17, 1999 /s/ Jeffrey L. Powers
----------------------------------------
Jeffrey L. Powers
Vice President and Controller
16
<PAGE>
LIMITED WAIVER AND AMENDING AGREEMENT
THIS LIMITED WAIVER AND AMENDING AGREEMENT (this "Agreement"), dated as
of April 30, 1999, is made by and between (i) BATTLE MOUNTAIN CANADA LTD. (the
"Borrower") and (ii) CANADIAN IMPERIAL BANK OF COMMERCE (the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank are party to a reducing term credit
facility agreement (the "Credit Facility") dated September 30, 1997, pursuant to
which the Bank agreed to make a loan to the Borrower in the aggregate principal
amount of U.S.$145,000,000; and
WHEREAS, Annex III to the Credit Facility provides, among other things,
that the Borrower shall (i) at all times maintain a minimum "Reserve Tail" of at
least 676,000 ounces of proven and probable recoverable gold reserves, (ii)
maintain minimum adjusted tangible net worth of U.S.$200 million plus an amount
equal to 50% of cumulative unconsolidated net income of the Borrower, if
positive, after September 30, 1997, and (iii) maintain a maximum Total Debt to
Total Capitalization Ratio of 0:45:1; and
WHEREAS, Annex III to the Credit Facility further provides that a senior
financial officer of the Borrower shall certify compliance with each of the
covenants set forth in the preceding clause on a quarterly basis; and
WHEREAS, Annex VI to the Credit Facility provides that, among other
things, the Borrower shall deliver to the Bank as soon as available and in
any event within 120 days after the end of each fiscal year (i) its annual
audited unconsolidated financial statements, together with comparative
figures for the previous fiscal year, accompanied by a report and opinion of
the Borrower's auditors, (ii) its annual business plan, which shall include,
without limitation, its annual operating budgets and a financial forecast for
the then-current year as well as up to two years beyond the Final Repayment
Date, all as approved by the Board of Directors of the Borrower, and (iii) a
compliance certificate of the chief financial officer, treasurer or
controller of the Borrower; and
WHEREAS, the Borrower has requested the Bank, and the Bank is willing, to
waive certain provisions of the Credit Facility, all as more fully set forth
herein; and
WHEREAS, the Borrower has requested the Bank, and the Bank is willing, to
amend certain provisions of the Credit Facility, all as more fully set forth
herein; and
WHEREAS, all capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Credit Facility;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agrees as follows:
<PAGE>
-2-
ARTICLE 1
LIMITED WAIVERS
SECTION 1.01 WAIVER OF RESERVE TAIL REQUIREMENT.
(a) The Borrower has requested that the Bank waive, until and
including March 31, 2000, the requirement set forth in Annex III to the
Credit Facility that the Borrower shall at all times maintain a minimum
"Reserve Tail" of at least 676,000 ounces of proven and probable
recoverable gold reserves.
(b) The Bank hereby (i) waives, until and including March 31, 2000,
the requirement set forth in Annex III to the Credit Facility that the
Borrower shall at all times maintain a minimum "Reserve Tail" of at least
676,000 ounces of proven and probable recoverable gold reserves, and (ii)
acknowledges and accepts that the compliance certificates delivered by
the Borrower after the date hereof will reflect the terms of this
Agreement.
SECTION 1.02 WAIVER OF TANGIBLE NET WORTH REQUIREMENT.
(a) The Borrower has requested that the Bank waive, until and
including March 31, 2000, the requirement set forth in Annex III to the
Credit Facility that the Borrower shall maintain minimum adjusted
tangible net worth of U.S.$200 million plus an amount equal to 50% of
cumulative unconsolidated net income of the Borrower, if positive, after
September 30, 1997;
(b) The Bank hereby (i) waives, until and including March 31, 2000,
the requirement set forth in Annex III to the Credit Facility that the
Borrower shall maintain minimum adjusted net worth of U.S.$200 million
plus an amount equal to 50% of cumulative unconsolidated net income of
the Borrower, if positive, after September 30, 1997, and (ii)
acknowledges and accepts that compliance certificates delivered by the
Borrower after the date hereof will reflect the terms of this Agreement.
SECTION 1.03 WAIVER OF TOTAL DEBT TO TOTAL CAPITALIZATION RATIO.
(a) The Borrower has requested that the Bank waive, until and
including March 31, 2000, the requirement set forth in Annex III to the
Credit Facility that the Borrower shall maintain a maximum Total Debt to
Total Capitalization Ratio of 0.45:1;
(b) The Bank hereby (i) waives, until and including March 31, 2000,
the requirement set forth in Annex III to the Credit Facility that the
Borrower shall maintain a maximum Total Debt to Total Capitalization
Ratio of 0.45:1, and (ii) acknowledges and accepts that the compliance
certificates delivered by the Borrower after the date hereof will reflect
the terms of this Agreement.
SECTION 1.04 WAIVER OF AUDITED FINANCIAL STATEMENTS REQUIREMENT.
(a) The Borrower has requested that the Bank waive, until and
including July 31, 1999, the requirement set forth in Annex VI to the
Credit Facility that the annual
<PAGE>
-3-
unconsolidated financial statements of the Borrower to be delivered to
the Bank within 120 days after the end of each fiscal year be audited
and accompanied by a report and opinion of the Borrower's auditors.
(b) The Bank hereby (i) waives, until and including July 31, 1999, the
requirement set forth in Annex VI to the Credit Facility that the annual
unconsolidated financial statements of the Borrower to be delivered to
the Bank within 120 days after the end of each fiscal year be audited and
accompanied by a report and opinion of the Borrower's auditors, provided
that the financial statements that are so delivered are certified correct
by the chief financial officer, treasurer or controller of the Borrower
(it being acknowledged that the classification of the Term Loans as long
term debt or short term debt remains to be determined); (ii) accepts
that, until and including July 31, 1999, the certification of quarterly
unaudited unconsolidated financial statements by the chief financial
officer, treasurer or controller of the Borrower need not address whether
the Term Loans are properly classified therein; and (iii) acknowledges
and accepts that the compliance certificates delivered by the Borrower
after the date hereof will reflect the terms of this Agreement.
ARTICLE 2
AMENDMENT
SECTION 2.01 APPROVAL BY BOARD OF DIRECTORS.
(a) The Borrower has requested that the Agreement be amended with
respect to the requirements set forth in subparagraph (a)(iii) of Annex
VI to the Credit Facility.
(b) Subparagraph (a)(iii) of Annex VI to the Credit Facility is
amended to read as follows:
(iii) its annual operating budget (which shall be approved by the Board
of Directors of the Borrower) and a financial forecast for the
then-current year as well as extending two years beyond the Final
Repayment Date (which shall be approved by the President and the
chief financial officer, treasurer or controller of the Borrower),
SECTION 2.02 REDUCTION IN BANK EXPOSURE.
(a) The Bank has advised the Borrower that (i) the Bank requires that
the amount owing by the Borrower to the Bank under the Term Loan be
reduced to not more than U.S.$27,200,000 not later than July 31, 1999,
and (ii) the Bank requires that additional interest be paid to the Bank
under the Credit Facility.
(b) Annex VII to the Credit Facility is hereby amended by adding the
following new affirmative covenant:
<PAGE>
-4-
(11) take all steps which are necessary or desirable to ensure that,
from and after July 31, 1999, the principal amount owing by the
Borrower to the Bank under the Term Loan shall be reduced to an
amount not exceeding U.S.$27,200,000 on terms satisfactory to the
Bank (it being acknowledged that such reduction may occur as a
result of a repayment of the Term Loan or as a result of an
assignment by the Bank of a portion of the Term Loan, provided
that such assignment is made to an assignee satisfactory to the
Bank and on terms and conditions satisfactory to the Bank).
(c) Annex IX to the Credit Facility is hereby amended by adding the
following new Event of Default:
(15) if, by July 31, 1999, the amount owing by the Borrower to the Bank
under the Term Loan has not been reduced to an amount not
exceeding U.S.$27,200,000 on terms satisfactory to the Bank (it
being acknowledged that such reduction may occur as a result of a
repayment of the Term Loan or as a result of an assignment by the
Bank of a portion of the Term Loan, provided that such assignment
is made to an assignee satisfactory to the Bank and on terms and
conditions satisfactory to the Bank).
(d) The Borrower agrees that, from January 1, 1999, the Applicable
Margins shall be the highest margins shown on the pricing grid in Annex
II of the Credit Facility.
(e) Unless the principal amount owing by the Borrower to the Bank
under the Term Loan shall have been reduced to an amount not exceeding
U.S.$27,200,000 on terms satisfactory to the Bank and prior to July 15,
1999, the Borrower shall pay to the Bank on July 15, 1999 a "ticking fee"
in an amount equal to the product of (A) the principal amount outstanding
under the Term Loan owing to the Bank on July 15, 1999, minus the
aggregate of U.S.$27,200,000 plus the amount of any binding commitment by
a prospective assignee to purchase a portion of the Term Loan from the
Bank, multiplied by (B) 0.20%.
ARTICLE 3
MISCELLANEOUS
SECTION 3.01 NO OTHER MODIFICATION. Except as expressly provided herein, the
Credit Facility shall be unchanged and shall remain in full force and effect.
The Credit Facility, as amended by this Agreement, is hereby confirmed by the
Borrower and the Bank.
SECTION 3.02 NO IMPLICIT WAIVER. The waivers set forth in this Agreement shall
not be deemed a waiver by the Bank of any other provisions of the Credit
Facility, and no course of dealing and no failure or delay by the Bank in
exercising any right, power or remedy under the Credit Facility shall operate as
a waiver thereof or otherwise prejudice the Bank's rights, powers or remedies.
<PAGE>
-5-
SECTION 3.03 ENTIRE AGREEMENT. This Agreement embodies the entire
understanding of the parties hereto with respect to the subject matter hereof,
and supersedes all prior negotiations, understandings and agreements among them
with respect thereto.
SECTION 3.04 BINDING ON SUCCESSORS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of the parties hereto. For
greater certainty, the references to "Bank" in Section 2.02 hereof mean Canadian
Imperial Bank of Commerce and not any assignee of Canadian Imperial Bank of
Commerce.
SECTION 3.05 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
SECTION 3.06 GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with the laws of the Province of Ontario.
IT WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered on its behalf by its duly authorized representative
on the date first above written.
BATTLE MOUNTAIN CANADA LTD.
By: /s/ Thomas P. Bausch
--------------------------------
Name: Thomas P. Bausch
Title: Treasurer
By: /s/ Jeffrey L. Powers
--------------------------------
Name: Jeffrey L. Powers
Title: Vice President and Controller
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ Edward G. Ramsay
--------------------------------
Name: Edward G. Ramsay
Title: Executive Director
By: /s/ David Clee
--------------------------------
Name: David Clee
Title: Managing Director
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
COMPUTATIONS OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998
- ---------------------------------- ---- ----
<S> <C> <C>
BASIC INCOME LOSS PER SHARE
Net loss
Net loss $ (11.9) (1.6)
Deduct dividends on preferred shares (1.9) (1.9)
------- -------
Net loss applicable to common stock $ (13.8) $ (3.5)
======= =======
Shares
Weighted average number of common shares outstanding 229.8 229.8
======= =======
Basic loss per common share $(0.060) $(0.015)
======= =======
DILUTED LOSS PER SHARE
Net loss applicable to common stock $ (13.8) $ (3.5)
======= =======
Shares
Weighted average number of common shares outstanding 229.8 229.8
======= =======
Diluted loss per share, assuming conversion $(0.060) $(0.015)
======= =======
CALCULATIONS OF CONVERSIONS OF SECURITIES PRODUCING ANTI-DILUTIVE RESULTS
CONVERSION OF PREFERRED SHARES
Net loss
Net loss applicable to common stock $ (13.8) $ (3.5)
Effect on net loss if preferred shares were converted 1.9 1.9
------- -------
Net loss $ (11.9) $ (1.6)
======= =======
Shares
Weighted average number of common shares outstanding 229.8 229.8
Effect on average shares outstanding if preferred shares were converted 11.0 11.0
------- -------
Weighted average number of common shares outstanding, as adjusted 240.8 240.8
======= =======
Diluted loss per share, assuming conversion $(0.049) $(0.007)
======= =======
CONVERSION OF DEBENTURES
Net loss
Net loss applicable to common stock $ (13.8) $ (3.5)
Effect on net loss if debentures were converted 1.0 1.0
------- -------
Net loss, as adjusted $ (12.8) $ (2.5)
======= =======
Shares
Weighted average number of common shares outstanding 229.8 229.8
Effect on average shares outstanding if debentures were converted 4.8 4.8
------- -------
Weighted average number of common shares outstanding, as adjusted 234.6 234.6
======= =======
Diluted loss per share, assuming conversion $(0.055) $(0.011)
======= =======
CONVERSION OF OPTIONS
Net loss
Net loss applicable to common stock $ (13.8) $ (3.5)
======= =======
Shares
Weighted average number of common shares outstanding 229.8 229.8
Effect on average shares outstanding if options were converted - 0.1
------- -------
Weighted average number of common shares outstanding, as adjusted 229.8 229.9
======= =======
Diluted loss per share, assuming conversion $(0.060) $(0.015)
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Battle
Mountain Gold Company Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 110,400
<SECURITIES> 0
<RECEIVABLES> 10,400
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<PAGE>
[LETTERHEAD]
Greg Etter, Esq.
Vice President and General Counsel
Battle Mountain Gold Company
333 Clay Street
Suite 4200
Houston TX 77002-4103
RE: CROWN JEWEL MINE, OKANOGAN COUNTY, WASHINGTON
Dear Mr. Etter:
We are writing to advise you that the United States Bureau of Land Management
(BLM) and the United States Forest Service (USFS) are unable to approve the
proposed Plan of Operations (Plan) for the Crown Jewel Mine, in Okanogan
County, Washington, because the Plan does not comply with the requirements of
the Mining Law of 1872, 30 U.S.C. sections 22 ET SEQ. (the Mining Law).
Battle Mountain Gold Company (BMG) proposes to develop fifteen lode mining
claims, four patented and eleven unpatented.(1) Under the Plan, BMG proposes
to use 117 unpatented mill sites, covering approximately 565 acres, for
ancillary facilities such as buildings, tailings piles, waste rock dumps,
soil and ore stockpiles, and sediment traps. Forty-six of these mill sites
are on public lands administered by BLM, and 71 mill sites are on lands
administered by USFS.
The Mining Law allows claimants to locate up to five acres of nonmineral land
for mill site use in association with each valid mining claim.(2) Any mill
site acreage in excess of five acres per valid mining claim is not valid. No
rights of any kind attach to invalid mining claims or mill
- -------------------
(1) The patented claims are the A&R, Umatilla, Panhandle, and Van Dyke
claims; the unpatented claims are the MAG 30, MAG 31, MAG 32, MAG 33, MAG 34,
MAG 39, MAG 40, MAG 41, MAG 42, MAG 47, and MAG 53.
(2) SEE LIMITATIONS ON PATENTING MILLSITES UNDER THE MINING LAW OF 1872,
M-36988 (Nov. 7, 1997) [hereinafter Solicitor's Opinion].
<PAGE>
sites.(3) Under the Mining Law, BMG may locate a maximum of 75 mill site
acres, depending on whether all of the fifteen lode claims in the Plan are
valid.(4) Based on the information in the Plan, the Crown Jewel Mine exceeds
the allowable amount of mill sites by at least 490 acres.
BMG also proposes to site some surface facilities, including waste rock
dumps, soil stockpiles, and sediment traps, on 22 unpatented lode claims that
it does not intend to mine.(5) While the Mining Law does permit the use of a
valid lode claim for facilities that are ancillary to mining on that claim,
it does not permit use of a lode claim for facilities to support mining
solely on OTHER lode claims.(6) For this reason, the lode claims BMG has
identified for mill site use likely are
- -------------------
(3) CAMERON V. UNITED STATES, 252 U.S. 450, 460 (1920).
(4) BLM and USFS have not determined the validity of any of BMG's lode
claims or mill sites. However, only valid mining claims being developed may
be used to calculate the allowable mill site acreage under the Mining Law.
SEE PINE VALLEY BUILDERS, INC., 103 IBLA 384, 390 (1988) ("[I]f none of the
associated mining claims are being operated, the appellant cannot be using
the millsites for mining purposes."); UNITED STATES V. WEDERTZ, 71 Pub. Lands
Dec. 368, 373 (1964) (millsite claimed in connection with previously patented
lode claims invalid where exploration was only activity conducted on lode
claims); ALASKA COPPER CO., 32 Pub. Lands Dec. 128, 131 (1903) ("A mill site
is required to be used or occupied distinctly and explicitly for mining or
milling purposes in connection with the lode claim with which it is
associated."). BMG's lode claims outside the Plan area thus cannot be used to
calculate the Crown Jewel mill site acreage.
One mining claimant has sought to avoid the five mill site acres per
mining claim limitation by relocating numerous small lode claims over its
existing 20-acre claims, arguing that the Mining Law requires no minimum size
for lode claims. However, the Department of the Interior currently is
reviewing whether any attempted relocation for the purpose of avoiding the
mill site limit might be invalid. UNITED STATES V. CITY AND COUNTY OF SAN
FRANCISCO, 310 U.S. 16, 28 (1940) ("ingenuity of contractual expression" will
not be permitted to thwart Congress's intent to restrict federal land grant);
LEAVENWORTH, LAWRENCE & GALVESTON R.R. V. UNITED STATES, 92 U.S. 733, 740
(1876) (federal land grants should not be "enlarged by ingenious reasoning");
BOISE CASCADE CORP. V. ENVIRONMENTAL PROTECTION AGENCY, 942 F.2d 1427, 1432
(9th Cir. 1991) (statutes should be interpreted in a manner that avoids
rendering any provision of the statute meaningless).
(5) Five of the unpatented lode claims proposed for mill site use are on
BLM-administered land: JR 8, JR 9, JR 10, JR 11, and JR 12. The other 17 lode
claims are on USFS-administered land: JR 13, JR 17, JR 18, MAG 35, MAG 36,
MAG 37, MAG 38, MAG 48, MAG 49, BM 20, BM 21, BM 22, BM 23, BM 24, BM 25, JR 3,
and JR 4.
(6) SEE TELLER V. UNITED STATES, 113 F. 273 (8th Cir. 1901).
2
<PAGE>
invalid.(7) Moreover, BMG may not relocate these lode claims as mill sites
since the Crown Jewel Mine has already exceeded the allowable acreage of mill
sites.
We emphasize that there are ways for BMG to still proceed with developing the
Crown Jewel Mine consistent with the mill site limitation. On both National
Forest and BLM-administered lands, BMG could seek a land exchange, provided
the federal agencies determine that an exchange would be in the public
interest. BLM has also indicated that use of excess mill site acreage on BLM
land could be authorized through approval of a plan of operations under 43
C.F.R. Section 3809.1-6, if the lands are still open to the location under the
Mining Law.(8) Alternatively, BLM is examining the extent to which it may
authorize such use through a lease under Section 302(b) of FLPMA and BLM's
implementing regulations at 43 C.F.R. Section 2920.(9) Because BLM is
currently revisiting the surface use authorization issue, if BMG wishes to
seek surface use authorization, BMG should consult with BLM for a final
determination of the proper authority under which to seek such authorization.
On National Forest System lands, use of lands in excess of what the Mining
Law provides may not be authorized by means of a plan of operations issued
pursuant to 36 C.F.R. Part 228, Subpart A. Those regulations govern only
operations authorized by the United States mining laws, which confer a
statutory right to enter upon the public lands to search for minerals. Such
use may be authorized by a special use authorization under 36 C.F.R. Part
251, Subpart B and the authorities cited therein. However, recent amendments
to those regulations prohibit the issuance of a special use authorization for
certain uses of National Forest System lands. 63 Fed. Reg. 65,950-69 (1998).
In particular, issuance of a special use authorization for disposal of solid
wastes or hazardous substances is barred. 36 C.F.R. Sections 251.54(e)(1)(ix)
and 251.54(e)(2).
When our attorneys met with you and other BMG representatives on March 3, BMG
stated that, for equitable reasons, the Department of the Interior should not
require the Plan to comply with the mill site requirements of the Mining Law
as explained in that the Solicitor's November, 1997, opinion. In particular,
BMG argued against enforcement of the Mining Law on projects, such as the
Crown Jewel Mine, for which a Record of Decision (ROD) had been prepared at
the time that
- -------------------
(7) The validity of these lode claims is also questionable because
permanent deposit of waste rock indicates BMG's own belief that the lode
claims do not contain a valuable mineral deposit, one of the fundamental
requirements for a valid mining claim.
(8) BLM Instruction Memorandum No. 98-154; 64 Fed. Reg. 6422, 6426-27
(1999).
(9) SEE ALANCO ENVTL. RESOURCES CORP., 145 IBLA 289, 298 (1998)
(applicability of Section 3809 regulations, rather than Section 2920, rested
on assumption that claimant was occupying valid mill sites); UNITED STATES V.
ROCKY CONNER, 139 IBLA 361 (1997) (affirming trespass decision under Section
2920.1-2 for occupancy on invalid placer claim); WILLIAM H. SNAVELY, 136 IBLA
350 (1996) (affirming trespass decision under Section 2920.1-2 for occupancy
on invalid mining claims and mill sites).
3
<PAGE>
opinion was signed. BMG restated this position in its March 9, 1999, letter
to the BLM State Director and the USFS Forest Supervisor, including its
contention that application of the mill site limitation to the Crown Jewel
Mine would not be in "keeping with the Interior Department's practice of
providing for a reasonable transition in situations where principles of
fairness and reliance are involved."
After careful and thorough consideration of your arguments, we believe that
it is appropriate to apply the mill site limitation to this project for two
reasons. First, we have no authority to enlarge the rights granted under the
Mining Law; that power is reserved to Congress.(10) Second, the mill site
limitation is not, as BMG's March 9 letter argues, comparable to the proposed
part 3809 regulations, which contain substantive changes in the requirements
for mining operations that would justify a transition period. As the
Solicitor's Opinion notes, the limitations on mill sites in the Mining Law
have been widely appreciated by mining industry lawyers for decades.
Adherence to the Mining Law's limitation on allowable mill site acreage by
all mining claimants thus should not thwart any legitimately-held
expectations.(11)
BMG also stated that, because BLM and USFS have signed the ROD for the Crown
Jewel Mine, the agencies are barred from applying the mill site limitation.
We disagree. Nothing in the ROD vests any right in BMG. The ROD did not
purport to make any determination as to whether BMG has established valid
rights under the Mining Law; it simply selected a preferred alternative. The
ROD stated at page 11:
Approval of the Selected Alternative will not now, nor in the future,
serve as a determination of ownership or validity of any mining claim to
which it may relate, and this Record of Decision does not give the claim
owner or operator any rights they are not otherwise entitled to by law.
- -------------------
(10) WILDERNESS SOCIETY V. MORTON, 479 F.2d 842, 891 (D.C. Cir.) (en
banc), CERT. DENIED, 411 U.S. 917 (1973). Approving the Plan in contravention
of the Mining Law may also be inconsistent with our responsibility to the
Confederated Tribes of the Colville Reservation (CCT). As you are aware, the
CCT recently sued USFS on the basis that the Final Environmental Impact
Statement (FEIS) for the Crown Jewel Mine did not sufficiently examine the
available alternatives. While compliance with applicable laws not
specifically aimed at protecting Indian tribes has been held to satisfy the
trust responsibility, MORONGO BAND OF MISSION INDIANS V. FAA, 161 F.3d 569
(9th Cir. 1998), such compliance would not be present if the agencies approve
the Plan, knowing that it does not comply with the requirements of the Mining
Law.
(11) Solicitor's Opinion, at 12-14, 15; SEE ALSO 4 AMERICAN LAW OF
MINING Section 110.03[1] (2d ed. 1987) ("Because of the relatively uncertain
tenure of mill site claims, few miners choose mill sites as a location for
permanent mining support facilities.").
4
<PAGE>
Selection of the preferred alternative in the Crown Jewel Mine environmental
analysis rested on the premise that BMG had unpatented mining claims and mill
sites that the government could later challenge. The ROD by its very terms
addressed only the selection of an alternative for National Environmental
Policy Act purposes. The ROD is clear that its selection of an alternative is
valid only insofar as the unpatented mining claims and mill sites are valid.
To the extent that BMG has not established rights under the Mining Law, the
ROD did not create such rights or exempt BMG from complying with the law. The
recent court decision rejecting the challenge to the adequacy of the Crown
Jewel Mine's final EIS does not change this result.
We understand your concern that these issues are being raised relatively late
in the process of considering your plan of operations. Nevertheless, the
limitations the Mining Law places on mining claims and mill sites have long
been understood. In these circumstances we have no choice but to enforce the
law. Therefore, we hereby vacate the Crown Jewel Mine Record of Decision and
cannot approve your proposed plan of operations at this time. This decision
constitutes a final agency decision not subject to further administrative
review.
/s/ James R. Lyons /s/ Sylvia Baca
- ---------------------------------- -----------------------------------
James R. Lyons Sylvia Baca
Under Secretary Acting Assistant Secretary
Natural Resources and Environment Land and Minerals Management
Department of Agriculture Department of the Interior
/s/ Charles R. Rawls /s/ John D. Leshy
- ---------------------------------- -----------------------------------
Charles R. Rawls John D. Leshy
General Counsel Solicitor
Department of Agriculture Department of the Interior
5
