<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
------------------- -------------------
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 $455 million as of February 16, 1999,
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 $584 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 16, 1999 is 127,932,119, not including 101,147,884 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 1999 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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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PART I
Items 1 and 2. Business and Properties........................................... 1
Item 3. Legal Proceedings....................................................... 31
Item 4. Submission of Matters to a Vote of Security Holders..................... 33
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters... 34
Item 6. Selected Financial Data................................................. 37
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 38
Item 7A Quantitative and Qualitative Disclosures About Market Risk.............. 47
Item 8. Financial Statements and Supplementary Data............................. 48
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 74
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 74
Item 11. Executive Compensation.................................................. 74
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 74
Item 13. Certain Relationships and Related Transactions.......................... 74
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 75
</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,
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 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 and silver,
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, appeals of agency decisions or other litigation, changes
in laws or regulations or the interpretation and enforcement thereof, the
occurrence of unusual weather or operating conditions, force majeure events, 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 and 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.
<PAGE>
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 in the United States, Canada, Bolivia and
Australia and in the exploration, evaluation and development of precious metals
properties primarily in Latin America, Australia, Canada and the United States.
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, 1998, the Company had four operating mines in three
countries and on three continents: the Golden Giant mine in Ontario, Canada; the
Holloway mine (in which BMG has an 84.7% attributable interest) in Ontario,
Canada; the Kori Kollo mine (88% attributable interest) in Oruro, Chuquina,
Bolivia; and the Vera/Nancy mine in Queensland, Australia (50% attributable
interest). 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 near Battle Mountain, Nevada.
The Company is also carrying out an international exploration and acquisition
program to replace and expand its reserve base.
The Company's mining operations at the Reona heap leach facility at the
Battle Mountain Complex ceased during the first quarter of 1998, but production
from residual leaching continued throughout the remainder of 1998 and will
continue into 1999 on a month to month basis depending on profitability.
BMCL owns approximately 50.5% of Niugini Mining Limited ("Niugini
Mining"), a Papua New Guinea company publicly traded on the Australian Stock
Exchange. Niugini Mining in turn owns and operates the San Cristobal mine where
residual heap leaching is taking place and owns a 17.15% interest in Lihir Gold
Limited ("Lihir"), which owns the Lihir mine in Papua New Guinea. The Company
plans to pursue options to dispose of BMCL's interest in Niugini Mining, and as
a result, the Company has characterized BMCL's interest in Niugini Mining as an
asset held for sale on the Company's consolidated balance sheet at December 31,
1998. The Company, therefore, has deconsolidated Niugini Mining in its December
31, 1998 consolidated balance sheet and will do so in its future financial and
operating statements. The value of this asset is largely based on Niugini
Mining's cash-on-hand and on the quoted market price of Lihir shares held by
Niugini Mining. Therefore, the Company's investment will fluctuate in value
based on Lihir's operating and financial results, the value of Lihir's publicly
traded stock, gold reserves, the amount of Niugini Mining's cash-on-hand and
other developments that may occur from time to time.
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The Company's attributable gold production was 889,000 ounces in 1998
and 876,000 ounces in 1997. The weighted average cash cost per gold ounce sold
declined to $161 in 1998, compared with $197 per ounce in 1997.
See Note 12 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 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
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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).......................... 889 992 876 975
Gold sales (000s oz)............................... 884 987 875 976
Average realized gold price per oz................. $ 303 $ 306 $ 340 $ 342
Silver production (000s oz)........................ 1,034 1,187 1,204 1,562
Silver sales (000s oz)............................. 1,032 1,186 1,214 1,581
Average realized silver price per oz............... $ 5.50 $ 5.50 $ 4.88 $ 4.86
Copper production (000s lbs)....................... -0- -0- 4,124 8,175
Copper sales (000s lbs)............................ -0- -0- 4,339 8,600
Average realized copper price per lb............... na na $ 0.99 $ 0.99
Weighted average cost per gold ounce sold(3):
Cash production costs............................ $ 161 $ 164 $ 197 $ 206
Depreciation, depletion and amortization......... 93 na 82 na
Reclamation and mine closure costs............... 5 5 9 9
------ ------
Total operating costs........................ $ 259 na $ 288 na
------ ------
------ ------
</TABLE>
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(1) Represents the Company's attributable interest.
(2) Includes 100% of Niugini Mining and Inti Raymi plus BMG's interest in
proportionately consolidated and equity accounted joint ventures.
(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 are affected by numerous
factors such as demand, central bank sales, purchases and lending, currency
valuations, production levels, the expectation of inflation, forward selling by
producers, investor sentiment, and global or regional political and economic
events. 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.
Continued uncertainty regarding these factors could continue to adversely impact
the market price of gold. While the Company is one of the world's lowest cost
gold producers, a sustained period of low gold prices could have a material
adverse affect on its financial position and results of operations. Consistent
with the Company's impairment policy, the Company has reduced the carrying
values on several of its long-lived assets due to the persistent low gold price
environment. If gold prices were to decline to a point below the
2
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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 annual 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>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
High............. $313 $367 $415 $397 $396
Low.............. $273 $283 $367 $374 $369
Average.......... $294 $331 $388 $384 $384
</TABLE>
The Company has no material hedged forward sales or option contracts
outstanding as of December 31, 1998 with respect to its production and reserves
of gold and silver; however, the Company has not precluded engaging in hedging
transactions in the future. See "-- Sales and Hedging Activities" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Also see Note 14 of Notes to
Consolidated Financial Statements under Item 8 of Part II herein.
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. The ore reserve figures for 1998 presented herein were
calculated using a gold price of $325 per ounce. The Company has reviewed and
generally estimated the effects of a $25 variance from the $325 per ounce gold
price on its reserves. Based on these estimates, the Company's total reserves
would be reduced by approximately 5.5% using a gold price of $300 per ounce, and
would be increased by approximately 6% using a gold price of $350 per ounce.
Such approximations should not be relied upon as being indicative of
approximations of the Company's total reserves at other gold prices.
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,
problems with rock mechanics and stability, 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.
The vast majority of the Company's production in 1998 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
3
<PAGE>
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, 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 Overseas
Private Investment Corporation. This insurance provides coverage of $25 million
for inconvertibility and $14.4 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.
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. Since its election in June 1997, the new administration continues to
implement these reforms. It is difficult to predict, however, what impact these
and associated reforms will have on the Company's Bolivian operations.
The Company also has a significant investment in the Lihir mine located
in Papua New Guinea which is being held as an asset for disposal. Since 1974,
when Papua New Guinea achieved independence, the Papua New Guinea government has
maintained a policy favoring direct foreign investment in general, and foreign
investment in the mining sector in particular. The Papua New Guinea 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
Papua New Guinea 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 investment. Furthermore, a deterioration in Papua New Guinea's
political stability or an adverse change in the Papua New Guinea government's
policy towards foreign-owned companies in Papua New Guinea could adversely
affect the Lihir mine and the Company's financial condition.
4
<PAGE>
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."
The following table contains a summary of the Company's operations,
costs and reserve data for gold, silver and copper. The data for 1997 gold
reserves was calculated using a gold price of $350 while the data for 1998 gold
reserves was calculated using a gold price of $325. Also, the data for 1997 and
1998 gold reserves excludes Lihir, San Cristobal and Red Dome because of the
deconsolidation of Niugini Mining in the Company's financial statements.
[Table provided on pages 6 and 7]
5
<PAGE>
OPERATIONS, COSTS AND RESERVES DATA
FOR GOLD
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MINE OR PROJECT OPERATIONS AND COST DATA
- --------------------------------------------------------------------------------------------------------------
Attributable Gold ounces Percent of Cash Total
% of mine recovered total BMG production operating
production Year (000s) production costs ($/oz) costs ($/oz)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Golden Giant 100% 1998 366 42 122 192
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1997 362 41 134 201
- --------------------------------------------------------------------------------------------------------------
Kori Kollo 88% 1998 295 33 175 307
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1997 280 32 193 322
- --------------------------------------------------------------------------------------------------------------
Holloway 84.7% 1998 80 9 222 340
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1997 53 7 341 471
- --------------------------------------------------------------------------------------------------------------
Battle Mountain 100% 1998 37 4 282 330
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Complex (Reona) 1997 78 9 272 354
- --------------------------------------------------------------------------------------------------------------
Lihir 8.7% 1998 45 5 217 414
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1997 12 1 200 377
- --------------------------------------------------------------------------------------------------------------
Vera/Nancy 50% 1998 47 5 135 167
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1997 19 2 183 214
- --------------------------------------------------------------------------------------------------------------
San Cristobal 50.5% 1998 19 2 159 222
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1997 37 4 421 492
- --------------------------------------------------------------------------------------------------------------
Red Dome 50.5% 1998 - - - -
1997 25 3 245 276
- --------------------------------------------------------------------------------------------------------------
Silidor 55% 1998 - - - -
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1997 10 1 319 363
- --------------------------------------------------------------------------------------------------------------
Totals 1998 889 100 161 259
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1997 876 100 197 288
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
MINE OR PROJECT PROVEN AND PROBABLE RESERVES DATA (1)
- --------------------------------------------------------------------------------------------------------------
Attributable Average Contained Percent of
% of mine Reserves grade ounces Recovery total BMG
reserves Year (000s tons (oz/ton) (000s) factor reserves
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Golden Giant 100% 1998 7,647 0.278 2,130 96 23
-----------------------------------------------------------------------------------
1997 8,915 0.286 2,550 96 29
- --------------------------------------------------------------------------------------------------------------
Kori Kollo 88% 1998 28,849 0.049 1,410 63 16
-----------------------------------------------------------------------------------
1997 36,135 0.052 1,900 68 21
- --------------------------------------------------------------------------------------------------------------
Holloway 84.7% 1998 4,180 0.197 825 95 9
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1997 4,961 0.195 965 95 11
- --------------------------------------------------------------------------------------------------------------
Battle Mountain 100% 1998 81,737 0.043 3,515 85 39
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Complex (2) 1997 63,300 0.040 2,505 81 28
- --------------------------------------------------------------------------------------------------------------
Vera/Nancy 50% 1998 1,021 0.394 400 96 4
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1997 370 0.390 140 96 2
- --------------------------------------------------------------------------------------------------------------
Crown Jewel 54% 1998 4,399 0.188 825 88 9
-----------------------------------------------------------------------------------
Project (3) 1997 4,485 0.185 830 88 9
- --------------------------------------------------------------------------------------------------------------
Totals (4) 1998 9,105(4) 100
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1997 8,890(4) 100
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The ore reserve figures presented herein for 1997 were calculated using a
gold price of $350 per ounce and for 1998 using a gold price of $325 per
ounce.
(2) Includes the Phoenix project and assumes permitting and approvals of that
project.
(3) Assumes permitting and approvals.
(4) Reserve data for 1998 and 1997 does not include Lihir, San Cristobal and
Red Dome because of the deconsolidation of Niugini Mining in the Company's
financial statements. The 1997 reserve totals included 1,245,000 contained
ounces for Lihir, and 5,000 contained ounces for San Cristobal, for a total
of 10,140,000 contained ounces for 1997.
The estimation of reserves and future mining operations can be affected by
numerous factors. See "Certain Factors Affecting Reserves, Foreign Investments
and Properties."
6
<PAGE>
OPERATIONS, COST AND RESERVES DATA
FOR SILVER AND COPPER
<TABLE>
<CAPTION>
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MINE OR PROJECT OPERATIONS AND COST DATA
----------------------------------------------------------------------------------------
Attributable
% of mine Silver ounces Copper pounds
production Year recovered (000's) recovered (000s)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Golden Giant 100% 1998 26 na
------------------------------------------------------------
1997 15 na
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Kori Kollo 88% 1998 852 na
------------------------------------------------------------
1997 784 na
----------------------------------------------------------------------------------------
Battle Mountain 100% 1998 80 na
------------------------------------------------------------
Complex 1997 129 na
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Lihir 8.7% 1998 na na
------------------------------------------------------------
1997 1 na
----------------------------------------------------------------------------------------
Vera/Nancy 50% 1998 40 na
------------------------------------------------------------
1997 20 na
----------------------------------------------------------------------------------------
San Cristobal 50.5% 1998 37 na
------------------------------------------------------------
1997 78 na
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Red Dome 50.5% 1998 na na
------------------------------------------------------------
1997 177 4,124
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Totals 1998 1,035 na
------------------------------------------------------------
1997 1,204 4,124
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</TABLE>
<TABLE>
<CAPTION>
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MINE OR PROJECT RESERVES DATA
----------------------------------------------------------------------------------------
Attributable
% of mine Silver contained Copper contained
Reserves Year ounces (000s) pounds (000s)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Golden Giant 100% 1998 na na
------------------------------------------------------------
1997 na na
----------------------------------------------------------------------------------------
Kori Kollo 88% 1998 7,555 na
------------------------------------------------------------
1997 10,960 na
----------------------------------------------------------------------------------------
Battle Mountain 100% 1998 22,605 182,592
------------------------------------------------------------
Complex (1) 1997 13,119 na
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Vera/Nancy 50% 1998 400 na
------------------------------------------------------------
1997 na na
----------------------------------------------------------------------------------------
Crown Jewel Project (2) 54% 1998 420 na
------------------------------------------------------------
1997 435 na
----------------------------------------------------------------------------------------
Totals (3) 1998 30,980(3) 182,592
------------------------------------------------------------
1997 24,514(3) na
----------------------------------------------------------------------------------------
</TABLE>
(1) Includes the Phoenix project and assumes permitting and approvals of that
project.
(2) Assumes permitting and approvals.
(3) Reserve data for 1998 and 1997 does not include Lihir, San Cristobal and
Red Dome because of the deconsolidation of Niugini Mining in the Company's
financial statements.
The estimation of reserves and future mining operations can be affected by
numerous factors. See "Certain Factors Affecting Reserves, Foreign
Investments and Properties."
7
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[WORLD MAP DESCRIPTION INSERTED PAGES 8 AND 9]
MAP OF NORTH AND SOUTH AMERICA
The graphics on pages 8 and 9 consist of maps depicting the Company's mines
and offices in North America, South America 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 and Manitouwadge, Ontario; and
Hermosillo and Torreon, 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 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 Australian 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 Guniea.
8
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[MAP OF AUSTRALIA]
9
<PAGE>
OFFICES
BMG's corporate office is located in Houston, Texas. BMCL's
corporate office is located in Toronto, Ontario, Canada. BMG's exploration
program is managed from its office in Houston, Texas. Other exploration
offices are located in Reno, Nevada; Manitouwadge and Timmins, Ontario,
Canada; Hermosillo and Torreon, Mexico; San Juan, Argentina; and Lima, Peru.
Empresa Minera Inti Raymi S.A. ("Inti Raymi") , in which the Company
owns an 88% interest, maintains corporate and exploration offices in La Paz,
Bolivia.
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 3,300 tons of ore per day during the fourth quarter of 1988 and
produced approximately 366,000 ounces of gold in 1998 and 362,000 ounces of
gold in 1997. Although production at the Golden Giant exceeded target by
about 35,000 ounces in 1998 as a result of higher than expected grades and
changes in the mining sequence, grades for 1999 are expected to approximate
the remaining ore reserve grade and to yield approximately 332,000 ounces of
gold.
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 processed rock
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 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 in favor
of BMCL for a further term of 21 years upon application to the appropriate
Ministry and the payment of the prescribed fees. See "-- Property Interests
- -- Canada."
Exploration continues at the Golden Giant mine and in the
surrounding area.
The total cost of the property and its associated plant and
equipment is $306.6 million with a net book value of $96.8 million at
December 31, 1998.
GEOLOGY. The Golden Giant ore body 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 barite-rich. The main zone is
tabular in nature and is characterized by its regularity and consistent gold
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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.
Production from the milling facility at the Kori Kollo mine
commenced in February 1993. 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."
The Company's attributable gold production increased in 1998 to
295,000 ounces compared with 280,000 ounces in 1997. The Company's
attributable gold production is expected to decline in 1999 to about 253,000
ounces due to lower head grades. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
In the fourth quarter of 1998, the Company recorded a $49.9 million
write-down of the carrying value of the Kori Kollo mine assets to reflect the
fair value of the assets in the current low gold price environment.
The total cost of the property and its associated plant and
equipment is $344.3 million with a net book value of $70.0 million at
December 31, 1998.
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 quantities of
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 21,000 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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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, 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, 1998, BMCL also had a 5.3% equity interest in
Teddy Bear Valley Mines Limited, giving it an 85.5% combined 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 produced approximately 80,000 attributable ounces
of gold for 1998 compared with 53,000 attributable ounces in 1997. The
Company anticipates an increase in production by almost 10% in 1999 to almost
90,000 ounces due to higher ore grades and a 5% increase in the mining rate.
The Company's joint venture share of the total cost of the property
and its associated plant and equipment is $89.3 million with a net book value
of $74.4 million at December 31, 1998.
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 50DEG. to 70DEG. 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."
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 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. Mining operations at the Reona heap leach
facility ceased during the first quarter of 1998, but production from
residual leaching will continue into 1999 on a month to month basis depending
on profitability.
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."
In the fourth quarter of 1998, the Company wrote-off $10.8 million
representing the remaining carrying value of property, plant and equipment
and deferred mining costs of the Reona mine to reflect the fair value of the
assets in the current low gold price environment.
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The total cost of the property and its associated plant and
equipment is $88.9 million with a net book value of $39.3 million at December
31, 1998.
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 formed locally. 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 conducted its
operations at the Battle Mountain Complex utilizing conventional open pit
mining methods. Leach grade ore is processed at Reona by heap leaching.
Throughout the first three quarters of 1998, the precious metals refinery and
desorption plant at Copper Canyon processed solution from the Reona heap
leach facility. The Copper Canyon refinery was shut down during the fourth
quarter of 1998 and the carbon is now being transported to the Golden Giant
for processing. 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."
LIHIR
BMCL owns approximately 50.5% of Niugini Mining but has announced
its intention to dispose of the asset. Niugini Mining is currently being
carried on the Company's consolidated balance sheet as an asset held for
sale. Niugini Mining owns a 17.15% equity interest in Lihir, 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. 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 dore, and associated infrastructure.
The Lihir ore is refractory in nature, requiring complex processing methods.
The ore body is associated with an active geothermal system, and extensive
dewatering and geothermal control systems are necessary to avoid problems
with hot water or steam during mining. The ore body is also largely below sea
level. The milling facility began processing oxide ore in mid-1997, and
sulfide ore processing was initiated in August 1997. Production was adversely
affected during 1998 by various equipment constraints, principally the oxygen
plant and low autoclave availability. The Company's attributable production
in 1998 was approximately 45,000 ounces compared with the Company's
attributable production of 12,000 ounces in 1997 when Lihir commenced
production in October of that year at the Lihir mine. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "-- Environmental Matters -- Papua New
Guinea."
In the fourth quarter of 1998, the Company recorded a $90.0 million
write-down of the carrying value of the Company's investment in Niugini
Mining to reflect the fair value of its investment in Lihir. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources."
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VERA/NANCY
The Vera/Nancy mine at 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
Vera/Nancy mine is by way of a 13-mile paved road, which connects to a state
highway. Production from the state-issued mining lease is subject to an
annual royalty payable to the State of Queensland. See "-- Property Interests
- -- Australia" and "-- Taxes -- Australia."
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 at the Pajingo Complex 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.
The Company owns a 50% interest in the Vera/Nancy mine and the
Pajingo Complex. Normandy Mining Limited, an Australian gold mining company,
owns the other 50% interest and is the operator of the Vera/Nancy mine. 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 are being carried out as underground mining progresses. An
optimization study conducted by Normandy Mining during 1998 indicated that it
was feasible to double production from the Vera/Nancy ore body to 200,000
ounces per year. The joint venture has agreed to implement this expansion,
which is expected to be completed in the Year 2000. The company's share of
the estimated capital cost in connection with the expansion is $15 million.
The Company's joint venture interest share of the total cost of the
property and its associated plant and equipment is $21.8 million with a net
book value of $19.7 million at December 31, 1998.
GEOLOGY. The Vera/Nancy ore body is 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. Mining of the
Vera/Nancy ore body utilizes underground methods. 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 Niugini Mining, BMG has a 50.5% attributable interest in the
San Cristobal gold mine located on 52.5 square miles of government-issued
mining concessions in northern Chile, 68 miles from the port city of
Antofagasta. See "-- Property Interests -- Chile." The San Cristobal mine is
owned and operated by Niugini Mining's wholly-owned Chilean subsidiary,
Inversiones Mineras del Inca, S.A. The mine is readily accessible by existing
roads. Commercial production of the mine began in July 1991.
In the third quarter of 1996, the Company recorded a $17.5 million
write-down (approximately $8.9 million attributable to BMG) of the carrying
value of the San Cristobal mine assets to reflect the results of detailed
mine studies and a review of related projects. As a result of lower than
planned gold prices and poor operating results, mining at San Cristobal
ceased in January 1998. Although mining operations have ceased, residual heap
leaching continued throughout 1998 and is expected to continue through the
first quarter of 1999.
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The total capitalized cost of the property and its associated plant
and equipment was $53 million and has been fully amortized as of December 31,
1998.
MINING, PROCESSING AND ENVIRONMENTAL COMPLIANCE. Ore at the San
Cristobal mine is processed by heap leaching and San Cristobal operations are
subject to Chilean environmental laws and regulations. See "-- Environmental
Matters -- Chile."
RECLAMATION ACTIVITIES AT NON-OPERATING MINES
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.
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 was 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 Niugini Mining, 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. In 1998, the tailings impoundment was capped.
Reclamation activities, including the planting of native vegetation, the
rehabilitation of 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. Niugini Mining'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 as are reclamation activities which are also
subject to 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.
Reclamation and regulatory obligations for monitoring of site groundwaters
continued throughout 1998 and will continue into 1999.
The total cost of the property and its associated plant and
equipment was $55.3 million with a net book value of $2.0 million at December
31, 1998.
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 and reclamation activities at San Luis are subject to federal and
state environmental laws and regulations. See "-- Environmental Matters
- -- United States -- San Luis."
NEW WORLD
BMCL owns 60% of the outstanding stock of Crown Butte Resources
Ltd., a Canadian public company listed on The Toronto Stock Exchange ("Crown
Butte"). Crown Butte, through a wholly-owned subsidiary, Crown Butte Mines,
Inc., a Montana corporation ("CBM", and together with Crown Butte,
hereinafter referred to as "Crown"), owned the New World project in Montana.
The New World project was located approximately two miles from Yellowstone
National Park. In September 1993, several groups filed a complaint against
Crown and others in U.S. District Court, District of Montana, alleging that
certain discharges from the New World Property were in violation of the U.S.
Clean Water Act (the "CWA Litigation"). In October 1995, the District Court
issued a Memorandum and Order ruling that Crown was in violation of the U.S.
Clean Water Act for not yet having obtained a Clean Water Act National
Pollution Discharge Elimination System Permit for water coming from historic
workings. In August 1996, Crown, the United States government and certain
groups entered into an exchange agreement which provided a framework, among
other things, for Crown to obtain environmental releases and exchange
property interests within the New World Mining District for U.S. assets. In
August 1998, Crown disposed of its interest in the New World project in a
series of transactions pursuant to the terms of the 1996 exchange agreement
(as amended by a Consent Decree and Settlement Agreement effective August 7,
1998) and an agreement made in September 1997 between Crown and its principal
lessor. In return, the CWA Litigation was settled, Crown obtained releases
from the parties to the Consent Decree and Settlement Agreement with respect
to further environmental liabilities related to the New World property, and
Crown was paid $65 million. Of this amount, $22.5 million was surrendered for
the completion of reclamation and restoration programs in the New World
District. Immediately following the closing of the Settlement Agreement,
Crown repaid loans in the amount of $7 million to BMCL. The remaining cash
constitutes Crown's only significant asset. In January 1999, the shareholders
of Crown Butte voted in favor of the voluntary liquidation and dissolution of
the corporation. The initial distribution to the shareholders will likely be
made in the first quarter of 1999, with a further minor distribution to
follow. Crown Butte estimates that the total distribution to the shareholders
will be approximately $32.5 million, of which BMCL will receive $19.5 million
(60% of the total).
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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. In 1992, BMG announced its decision to develop the
Crown Jewel project, subject to obtaining requisite permits and approvals.
Based on recently revised estimates, total capital costs for the project,
including plant construction, exploration, evaluation and option payments,
are anticipated to be approximately $160 million, excluding capitalized
interest, of which approximately $80.2 million had been spent through
December 31, 1998. Of the amount spent, $8.2 million was expensed as
exploration costs prior to the decision to proceed with development of the
mine and $72.0 million was capitalized. In 1998, the Company wrote off $40.3
million of the amount capitalized to reflect the fair value of the asset in
the current gold price environment and the cost of an unexpectedly lengthy
permitting process. These revised estimates anticipate that cash production
costs per gold ounce sold will average approximately $165 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, unpatented mining claims, millsite claims and
state lands. 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 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.
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 94,000 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 was finalized and a Record of Decision and
certain permits were issued in 1997. Additional permits were secured in 1998
and early 1999; however, additional state and federal permits and approvals
are required to commence construction. See "--Property Interests--United
States." See "--Environmental Matters--United States." A number of appeals
with respect to the project have been filed by certain individuals and groups
and certain favorable rulings have been received. See Item 3 "Legal
Proceedings." See "--Environmental Matters--United States." There can be no
assurance as to the outcome or timing of the permits, required approvals or
appeals.
PHOENIX
At the Battle Mountain Complex in Nevada, work on the Phoenix
project advanced significantly in 1998 resulting in improved economics, scope
and reserves. Metallurgical testing conducted during 1998 indicated that all
of the ore at the Phoenix project is receptive to flotation and gravity
separation. As a result, the Company conducted additional reserve delineation
work at Phoenix during 1998. This additional work has resulted in an increase
in estimated reserves of approximately 1,000,000 contained ounces. As a
result, total estimated proven and probable Phoenix reserves now stand at
3,515,000 contained ounces. Additional drilling is planned for the Fortitude,
Midas and Phoenix pits in 1999 in an effort to further expand the reserves.
In permitting work, a revised Plan of Operations for the
Environmental Impact Statement was submitted to the Bureau of Land Management
in January 1999 to reinitiate the permitting process due to the
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<PAGE>
expanded scope and improved economics of the Phoenix project. The new Plan
of Operations is designed to include best-case scenarios in order to minimize
the need for additional permitting in the future. It is difficult to predict
the timing of completion of permitting and potential start-up dates for the
mine; however, the earliest feasible start-up date for Phoenix currently
appears to be in the second half of 2001. See "-- Environmental Matters
- --United States -- Battle Mountain Complex."
The Company is in the process of carrying out a revised feasibility
study and currently expects the total capital costs of the Phoenix project to
be in the range of $150 million to $160 million upon its completion,
excluding capitalized interest. Approximately $30.1 million of the expected
total capital costs had been spent through December 31, 1998. 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."
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, Chile and Australia. 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."
SALES AND HEDGING ACTIVITIES
Sales. The Company primarily produces dore, an unrefined alloy of
gold, silver and other impurities, at its mines, which it sells under sales
and/or refining agreements. Two buyers of production from the Company each
accounted for more than 10% of the Company's total 1998 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.
Hedging. The Company may use a variety of techniques to manage
exposures to price fluctuations, movements in interest rates and foreign
currency exchange rates, and other risks. As of December 31, 1998, the
Company had no material hedge positions.
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 mine 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 mine valuable
mineral deposits discovered upon unappropriated federal lands, provided that
such lands have not been withdrawn from mineral location. These laws also
provide that
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proprietors of valid mining claims may obtain possessory rights to
nonwithdrawn, unappropriated nonmineral federal lands for mining or milling
purposes through the location of unpatented millsite claims. Significant
portions of the proposed Crown Jewel and Phoenix mines and related facilities
are located upon unpatented mining and 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
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 millsite
claims 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 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
millsite claims 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, if at all, until a decision is made
to develop a property, and some titles, particularly titles to undeveloped
properties, may be defective. It has been the long-standing practice of the
mining industry, permitted by the Department of the Interior, to locate
necessary millsite claims in excess of the number of mining claims being
developed. At Crown Jewel, the ratio of millsite claims necessary for
proposed facilities to mining claims within the proposed pit is significantly
greater than 1:1. In early 1997, the Bureau of Land Management and the United
States Forest Service issued a Record of Decision for the Crown Jewel project
which selected BMG's proposed mine configuration from among those being
considered. In November of 1997, the Solicitor of the Department of the
Interior issued an opinion, which was concurred with by the Secretary of the
Interior, which stated, among other things, that the Bureau of Land
Management should not approve plans of operations which rely on a greater
number of millsite claims than the number of mining claims being developed
unless the use of the additional lands is obtained through means other than
millsite claims. In connection with the review of the Company's Plan of
Operations for the Crown Jewel project, the Bureau of Land Management has
recently advised the Company that it plans to obtain an opinion from legal
counsel before making a decision regarding final approval of the Plan of
Operations.
Legislative amendment of the General Mining Law of 1872, under which
the Company holds claims on federal lands, could take place in 1999. Among
other things, such legislation could impose a royalty or
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tax. 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 or tax. Approximately 12% 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 Province of Ontario.
In Ontario, mineral rights on public land are initially reserved to
the Crown. An individual or company who is the holder of a prospector's
license issued by the Crown may stake a mining claim on public land to the
exclusion of third parties. Upon performance of the prescribed assessment
work, the holder of the claim may become entitled to a lease from the Crown
of the mining and/or surface rights of the lands comprising the area staked.
Each lease is granted for an initial term of 21 years subject to a right of
renewal in favor of the lessee for a further term of 21 years upon
application to the appropriate Ministry and the payment of the prescribed
fees. Such renewal is subject to the provision of evidence of mineral
production occurring continuously on the lands subject to such lease for more
than one year since issuance or last renewal of such lease, or the lessee
having demonstrated a reasonable effort to bring the lands into production.
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 in full force and effect.
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 are held by third parties and, by agreement, a person may
acquire all or a percentage interest therein upon performing work on the
property or by making payments to the third party, or both, and it is common
for such agreements to provide for a residual royalty interest for the third
party.
BOLIVIA
Mineral interests in Bolivia are under the domain of the federal
government. Concessions for exploration and mining are issued pursuant to the
Bolivian Mining Code (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.
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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.
Niugini Mining, through subsidiaries, owns the group of mining concessions
within which the San Cristobal mine and operating facilities are located.
Also, the Company, through a wholly-owned subsidiary, owns an additional
group of mining concessions.
AUSTRALIA
The High Court of Australia recognized "native title" in relation to
land for the first time in 1992 in MABO V. QUEENSLAND. Native title is the
name for the bundle of rights held by an Aboriginal group to use land in
accordance with their traditional laws and customs for traditional purposes,
such as subsistence or ceremonial worship. Native title will survive in
respect of portions of land where the traditional landholders have maintained
an ongoing connection with this land, and there has been no inconsistent
grant of tenure made by the Government. Native title may co-exist with other
titles such as mining leases or pastoral leases; however, where the rights of
the native title holders and the lessee cannot practically co-exist, native
title is extinguished to the extent of the inconsistency.
Federal and state governments have formulated a complementary
legislative response to the recognition of native title.
The Federal Government's NATIVE TITLE ACT 1993 (as amended): (1)
recognizes native title rights and sets down some basic principles in
relation to native title in Australia; (2) provides for the validation of
titles that may be invalid because of the existence of native title, and
confirms the extinguishment of native title in some circumstances; (3)
provides a regime in which native title rights are protected and conditions
imposed on future acts affecting native title land and waters, and grants
procedural and compensation rights in such circumstances; and (4) provides a
process by which claims for native title and compensation can be determined.
The Company's exploration and mining property in Australia is
located in Queensland. Much of this land is Crown land held under pastoral
leases by third parties. The Company holds its interest in the lands under
mining leases, authorities to prospect and exploration licenses. The
Vera/Nancy mine and associated operating facilities are on lands held
pursuant to mining leases in the State of Queensland. The Company believes
that the existence of native title will not have a materially adverse effect
on the Company's Vera/Nancy mine or on the Company's exploration properties
in Australia. However, the NATIVE TITLE ACT 1993 will mean that the Company
may have to negotiate with native title holders (including with respect to
compensation ) prior to the grant of future mining titles.
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
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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
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 on the Company. 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
and water pollutants, spill containment and the storage and disposal of
hazardous and solid wastes. The Company will also incur ongoing 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 13, "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.
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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 second covers the remaining
facilities at the Complex. The second permit was 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 for the Company to estimate what 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 Revised Plan of Operations for the
Phoenix project in January 1999, and this document re-initiated the
Environmental Impact Statement ( the "EIS") process. These 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 was jointly prepared to respond to both NEPA and SEPA
requirements. The completion of the NEPA/SEPA process was 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 was rendered by the U.S. Forest Service and the Bureau of Land
Management. Certain public interest groups challenged the adequacy of the EIS
and appealed the Forest Service's Record of Decision. This challenge was
denied in U.S. Federal District Court in late 1998. See "Legal Proceedings"
under Item 3 herein. 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
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difficult 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.
SAN LUIS. The San Luis mine ceased operations in November, 1996, and
subsequent site activities have addressed closure and reclamation
requirements. The mill and associated gold production facilities were
decommissioned and all chemicals and chemical waste products were removed
from the site and managed in accordance with applicable regulations. A
substantial portion of the reclamation earth work has been completed
including partial backfilling of the west pit, regrading and topsoiling of
waste rock facilities and a portion of the tailings pond area. Revegetation
work has been undertaken on all regraded and topsoiled areas. The remaining
reclamation work will include the mill area, one waste rock disposal facility
and certain on-site roadways. In addition, the remainder of the tailings area
will require regrading, topsoiling and revegetation along with the
construction of the final drainage features and spillway.
In the last quarter of 1998, the Company provided notice to the
requisite regulatory agencies and undertook implementation of a response plan
triggered by the identification of elevated total dissolved solids and
sulfate levels detected in a monitoring well located downgradient from the
west pit. The response plan involves the investigation and characterization
of the geohydrology and geochemistry pertinent to the immediate area and the
subsequent development of a long term response strategy to address the
elevated constituent levels. The Company is coordinating its activities
closely with the Colorado Division of Minerals and Geology and the Colorado
Department of Public Health and Environment to assure that its response
activities meet the requirements of applicable regulations. This work is
underway and the Company anticipates completion of the investigation and
characterization, as well as the selection of a long-term response strategy
during 1999. Given the ongoing nature of the project, it is not possible to
predict the nature and scope of the long term response obligation which may
be required for this area.
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 and 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, reusable product shipping containers and other
process changes benefiting the environment.
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Effluent water quality limitations are addressed by Canadian federal
and provincial laws and regulations. Certain limits are mandatory, while
others are merely objectives. The Holloway mine has, at certain limited
times, not met the applicable sediment compliance limits, but an action plan
designed to ensure compliance has been developed. In August 1997, all mines
in the province of Ontario became subject to toxicity compliance limits for
effluent discharges. A limited number of samples from the Golden Giant and
Holloway mines have not achieved the toxicity limits. Based upon the
available information, it does not appear that additional controls will be
required at Golden Giant, but a study of alternatives designed to
continuously achieve the toxicity limits at Holloway has been undertaken and
additional controls may be implemented. The Certificates of Approval for the
Golden Giant mine do not currently contain an effluent compliance limit for
ammonia. However, the Certificates of Approval for the Golden Giant mine are
being renewed and combined and additional controls may be required in the
event that ammonia becomes a compliance limit in the renewed Certificate.
In December of 1998, regulatory approval was sought to expand the
tailings facility at the Golden Giant mine to a capacity sufficient to handle
anticipated tailings deposition for the presently anticipated mine life.
Approval of the expansion is expected in the first quarter of 1999.
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. Both of the Company's operations in Canada
have submitted their respective reclamation/closure plans to the appropriate
provincial agency and both such plans have been 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, establish air and water quality discharge
standards, establish 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. The Company has
been actively working with the Bolivian Ministry of Sustainable Development to
obtain final approval of the environmental license for the Kori Kollo mine.
Following such approval, 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
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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, and 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.
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 (Vera/Nancy) are also regulated by
legislation which specifically deals with the major environmental impacts of
mining. It requires each miner to develop an Environmental Management Overview
Strategy ("EMOS") which sets out the life of mine strategies for dealing with
these impacts. In addition, a plan of operations is required which sets out in
detail what environmental management measures will be undertaken over a stated
period.
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.
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In addition to complying with various environmental protection
statutes, the Vera/Nancy and Red Dome mine (now in the reclamation stage) in
Queensland were required to obtain plan of operations approvals from the
Minister of Mines pursuant to the Mineral Resources Act. 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. When approved, the plans of operations became part of the
conditions of the mining lease issued by the state. The Vera/Nancy ore deposit
at the Pajingo Complex was added to its 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.
PAPUA NEW GUINEA
Mining operations in Papua New Guinea are subject to comprehensive
environmental regulations pursuant to legislation requiring the preparation of
an Environmental Impact Statement 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, 1998, the Company had approximately $87.5 million of regular net operating
losses and $30.0 million of alternative minimum tax net operating loss
carryforwards, expiring beginning in 2007 and 2009, respectively, 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.
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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%.
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
Prior to 1997, 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 and subjected Inti Raymi, effective April 1, 1997, to
a 25% income tax as well as a sliding royalty on gold sales. The royalty ranges
from 4% to 7%, depending on the price of gold; however, any royalty paid is
creditable against the income tax imposed on operations. 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
other non-Bolivian 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."
AUSTRALIA
Battle Mountain (Australia) Inc., a Delaware corporation and a
wholly-owned subsidiary of BMG, is subject to tax on income derived from 1998
exploration and mining operations. However, no taxes are expected to be paid for
1998 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.
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.
INSURANCE
The Company carries insurance against property damage risks, business
interruption and third party liability. The Company is also insured against
losses from certain dishonesty, including limited losses from the theft of gold,
as well as losses of other goods in transit. From time to time, the Company
reviews and modifies its insurance coverage 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
28
<PAGE>
waste products occurring from exploration and production) is not generally
available to the Company or to other companies within the industry at
acceptable premium levels. 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 results of operations, cash flows and financial condition of the
Company.
EMPLOYEES
The number of full-time employees of the Company (including employees
of majority-owned subsidiaries other than Niugini Mining) at December 31, 1998
was 1,545.
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 18, 1999, the foreign exchange spot purchase rates for U.S.
dollars, as quoted at 4:00 p.m. Eastern time by Bloomberg, were A$1.00 equals
US$0.6355 and C$1.00 equals US$0.6725.
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.
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.
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<PAGE>
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.
REFRACTORY ORE--ore that is difficult or expensive to treat for
recovery of its valuable substances.
SULFIDE--a mineral compound characterized by the presence of sulfur.
TAILING--processed ore after the recoverable minerals have been
extracted.
TAILINGS FACILITY --a natural or man-made area suitable for depositing
ground processed rock 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.
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.
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<PAGE>
ITEM 3. 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 approving
the Crown Jewel project provided that the Forest Service later approves the
Company's detailed Plan of Operations. 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
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.
It is possible that plaintiffs will appeal the decision of the District Court to
the Ninth Circuit Court of Appeals.
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
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<PAGE>
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, which hearing is now scheduled for September 1999. On October
23, 1998, the PCHB entered an order dismissing certain of 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 relief, including injunctive relief, as the PCHB deems
appropriate. A hearing on the merits has been scheduled for September, 1999.
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.
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<PAGE>
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. It is possible that plaintiff will appeal the decision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages as of February 16, 1999, 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>
<CAPTION>
<S> <C> <C>
Ian D. Bayer (59) - President and Chief Executive Officer
Ian Atkinson (49) - Senior Vice President - Exploration
Phillips S. Baker, Jr. (39) - Vice President and Chief Financial Officer
Thomas P. Bausch (51) - Treasurer
Joseph J. Baylis (42) - Senior Vice President - Corporate Development
Greg V. Etter (40) - Vice President, General Counsel and Secretary
Stanford M. Haley (55) - Vice President - Human Resources
John A. Keyes (55) - Senior Vice President - Operations
Jeffrey L. Powers (46) - 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 Niugini Mining, 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.
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<PAGE>
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.
Mr. Baker joined BMG in March 1998 as Vice President and Chief
Financial Officer. Mr. Baker most recently served as Vice President, Finance and
Chief Financial Officer of Pegasus Gold Inc. Prior to joining Pegasus in 1994,
Mr. Baker worked for approximately eight years in various positions with BMG,
culminating as Treasurer.
Mr. Bausch joined BMG in September 1996 as Treasurer. Mr. Bausch was
previously employed by Tenneco Inc. as its Assistant Treasurer from 1993 to
1996.
Mr. Baylis joined BMG in July 1996 following the combination with Hemlo
Gold, where he was previously Vice President-Investor Relations and General
Counsel. He also serves as President and Chief Executive Officer of Niugini
Mining, a position he has held since November 1996.
Mr. Etter joined BMG as Corporate Attorney in 1993 and was appointed
General Counsel and Corporate Secretary in February 1997. In April 1998, he was
appointed as Vice President in addition to his then current position.
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, Baker, Baylis, Bausch, Keyes and Powers also
serve as executive officers of BMCL. Mr. Bayer serves as Director, President and
Chief Executive Officer and each of Messrs. Atkinson, Baker, Baylis and Keyes
serves as Vice President. Mr. Powers serves as Vice President and Controller. 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.
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
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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>
HIGH LOW
-------- ---------
<S> <C> <C>
1998
First Quarter..................... $ 6 11/16 $ 4 13/16
Second Quarter.................... $ 7 1/2 $ 4 13/16
Third Quarter..................... $ 6 7/16 $ 3 1/16
Fourth Quarter.................... $ 6 3/4 $ 3 7/8
1997
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
</TABLE>
As of February 16, 1999, the Company had 15,162 record holders of BMG
Common Stock and 651 record holders of Exchangeable Shares.
Cash dividends of $0.05 per share were paid in 1997 and 1998. In
February 1999, the Company suspended its semi-annual common stock dividends. 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 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
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<PAGE>
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). 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>
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 1998 (1) 1997 (2) 1996 (3) 1995 1994
- ---------------------------------- -------- -------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Sales $ 277 $ 345 $ 424 $ 401 $ 430
====== ====== ====== ====== ======
Operating income (loss) $ (200) $ (3) $ (43) $ 44 $ 111
====== ====== ====== ====== ======
Income (loss) before cumulative effect of
accounting change $ (241) $ (5) $ (74) $ 30 $ 57
Cumulative effect of accounting change, net (4) -- (4) -- -- --
------ ------ ------ ------ ------
Net income (loss) (241) (9) (74) 30 57
Preferred dividends 8 8 8 8 8
------ ------ ------ ------ ------
Net income (loss) to common shares $ (249) $ (17) $ (82) $ 22 $ 49
====== ====== ====== ====== ======
Per common share
Basic earnings (loss) $(1.08) $ (.07) $ (.36) $ .10 $ .22
====== ====== ====== ====== ======
Diluted earnings (loss) $(1.08) $ (.07) $ (.36) $ .10 $ .21
====== ====== ====== ====== ======
Cash dividends $ .05 $ .05 $ .07 $ .08 $ .13
====== ====== ====== ====== ======
DECEMBER 31
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance Sheet:
Total assets $ 694 $1,093 $1,037 $1,142 $1,103
====== ====== ====== ====== ======
Long-term debt, less current maturities $ 204 $ 241 $ 139 $ 169 $ 166
====== ====== ====== ====== ======
Shareholders' equity $ 248 $ 506 $ 538 $ 629 $ 626
====== ====== ====== ====== ======
</TABLE>
(1) Includes the following impairment write-downs: BMG's investment in
Niugini Mining, $90.0 million; Kori Kollo, $49.9 million; Crown Jewel,
$40.3 million; and Reona, $10.8 million.
(2) 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.
(3) 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.
(4) 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).
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's operations are primarily related to gold mining and related
activities. Accordingly, Golden Giant, Kori Kollo, Holloway, Battle Mountain
Complex, Vera/Nancy (Pajingo), and Crown Jewel are the Company's operational
and significant developmental mines that are considered segments for
financial reporting purposes.
OVERVIEW
Increased gold production and decreased cash production costs by the Company's
mines in 1998 helped improve cash flows from operations compared with 1997,
despite a $34 per ounce lower attributable average realized gold price. However,
$194.9 million of non-cash asset write-downs, necessitated by continued low gold
prices, and $12.4 million of net foreign currency exchange losses resulted in a
$248.8 million, or $1.08 per share, net loss to common shares. This compares
with a $16.3 million, or $.07 per share, net loss in 1997, and an $81.8 million,
or $.36 per share, net loss in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of $147.6
million. Of this, $104.7 million was held by BMCL, $41.2 million by BMG and
$1.7 million by Inti Raymi. An additional $7.6 million of restricted cash was
held by Inti Raymi for future debt service.
OPERATING ACTIVITIES
The Company generated operating cash flows of $82.8 million, $61.2 million, and
$56.6 million from operating activities in 1998, 1997 and 1996, respectively.
The increase in cash flows in 1998 was primarily the result of higher
production, lower operating costs and decreased accounts receivable, despite
lower gold prices. The decrease in cash flows in 1996 resulted primarily from
the payment of merger expenses and decreased cash flows at Kori Kollo and at the
Company's other mines other than Golden Giant.
INVESTING ACTIVITIES
Cash used in investing activities increased to $74.1 million in 1998 as compared
with $63.0 million in 1997. Capital expenditures totaled $46.5 million in 1998
as compared with $62.4 million in 1997. The Company invested approximately $8.7
million at Golden Giant, $8.2 million on the Pajingo Joint Venture Vera/Nancy
mine, $8.2 million at Crown Jewel, $7.7 million at Battle Mountain Complex,
primarily on the Phoenix project, $3.6 million at Holloway and $3.3 million at
Kori Kollo. In addition, in conjunction with contributions made by certain other
equity investors of Lihir, in May 1998, Niugini Mining increased its investment
in Lihir by $11.5 million and maintained a 17.15% interest.
Also in 1998, the Company closed the sale of the New World project and received
cash proceeds, net of related disbursements, of $34.9 million.
Cash used for investing activities increased to $63.0 million in 1997 as
compared with $55.2 million in 1996. In 1997, approximately $16.6 million was
spent on the Pajingo Joint Venture, $7.4 million on Kori Kollo, $10.3 million at
Golden Giant, $8.2 million at Crown Jewel, $9.1 million at Battle Mountain
Complex and $3.7 million at Holloway. In 1996, approximately $10.3 million was
spent on Battle Mountain Complex, $9.3 million at Holloway, $9.7 million at
Crown Jewel, $7.1 million at Golden Giant and $6.8 million at Kori Kollo.
The Company plans to use operating cash flow and cash on hand to fund an
expected $47 million of capital expenditures in 1999. Major capital expenditures
by site are: Golden Giant, $11.7 million; Phoenix, $9.9 million; Pajingo, $9.1
million; and Kori Kollo, $6.6 million. The Company continues to evaluate
strategic opportunities that may exist in the marketplace as a result of
depressed gold prices.
38
<PAGE>
Phoenix Project. The Phoenix project is located in the Copper Canyon area of the
Battle Mountain Complex. In permitting work, a revised Plan of Operations for
the Environmental Impact Statement was submitted to the Bureau of Land
Management in January 1999 to reinitiate the permitting process due to the
expanded scope and improved economics of the Phoenix project. The new Plan of
Operations is designed to include best-case scenarios in order to minimize the
need for additional permitting in the future. It is difficult to predict the
timing of completion of permitting and potential start-up dates for the mine;
however, the earliest feasible start-up date for Phoenix currently appears to be
in the second half of 2001.
The Company is in the process of carrying out a revised feasibility study and
currently expects the total capital costs of the Phoenix project to be in the
range of $150 million to $160 million upon its completion, excluding capitalized
interest. The Company has spent $30.1 million on the development of this project
through December 31, 1998.
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 permits were secured in 1998 and early 1999, as well
as several court rulings on appeals by opposition groups. Additional state and
federal permits and approvals, and resolutions of certain appeals by opposition
groups are required to commence construction. The Company cannot predict with
certainty the timing or outcome of governmental and court determinations with
respect to these permits, approvals and appeals.
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. Based on recently revised estimates,
the total estimated cost of acquisition and development of the Crown Jewel
project is anticipated to be approximately $160 million, excluding capitalized
interest. As of December 31, 1998, $80.2 million has been spent on the
project. In the fourth quarter of 1998, the Company recorded a $40.3 million
impairment write-down to the carrying value of the Crown Jewel project to
reflect the fair value of the assets in the current low gold price environment
and the cost of an unexpectedly lengthy permitting process. The carrying value
of the Crown Jewel project was $31.7 million as of December 31, 1998.
Lihir. The Company holds an indirect interest in the Lihir mine in Papua New
Guinea through its 50.5% ownership of Niugini Mining, which in turn owns 17.15%
of Lihir Gold Limited ("Lihir"). Commercial production at Lihir commenced on
October 1, 1997. At December 31, 1998, BMG decided to pursue options for
disposing of its interest in Niugini Mining. As a result, the accounts of
Niugini Mining were deconsolidated from the December 31, 1998 consolidated
balance sheet and the Company's $108.3 million associated investment was
classified as an asset held for sale. The estimated fair value of the Company's
investment was determined to be the quoted market price of the Lihir shares held
plus the Company's share of residual Niugini Mining net assets, primarily cash.
The effect of the deconsolidation on cash and cash equivalents is shown as an
investing activity in the consolidated statement of cash flows.
Financing for the Lihir project involved bank debt facilities and an initial
public offering of common stock of Lihir. In connection with the Lihir debt
financing, Niugini Mining guaranteed, until project completion, 30% of Lihir's
obligations under the facility. In August 1998, Niugini Mining's obligations
under the Lihir financing agreement were fulfilled and funds previously held in
escrow were released to Niugini Mining.
FINANCING ACTIVITIES
The Company made $44.3 million of debt payments during 1998, as compared with
$24.5 million and $50.4 million of payments in 1997 and 1996, respectively.
Restricted cash balances decreased $10.2 million, net in 1998 primarily because
of the release of escrow funds to Niugini Mining. In September 1997, BMG sold
its interest in Niugini Mining to BMCL, facilitated primarily by a $145 million
bank borrowing by BMCL.
39
<PAGE>
The Company currently has a C$10.0 million line of credit in place with a
Canadian bank and a $15.0 million uncommitted revolving facility with a
European bank, of which letters of credit totaling C$4.8 million and $0.1
million, respectively, were outstanding at December 31, 1998. In addition,
$14.9 million of borrowings were outstanding at December 31, 1998 under the
European bank facility.
In 1992, Inti Raymi established separate but coordinated term credit facilities
with various international lending institutions for the development of its Kori
Kollo mine in Bolivia. 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, 1998, Inti Raymi owed $18.4 million under these facilities. The
International Finance Corporation ("IFC") facility includes a $5.0 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 semi-annually
through 1999. 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 1998, Inti Raymi paid dividends of $2.1
million to its shareholders ($1.8 million to BMG).
In the determination of the amount of any dividends to be paid to common
shareholders, the Board of Directors regularly reviews, among other factors, the
Company's projected operating results, cash flows, capital requirements and
financial position. In February 1999, the Company suspended its semi-annual
common stock dividends. The Company paid dividends of $11.5 million, or $0.05
per share, to common shareholders in 1998.
As of the date of this report, BMG has an effective registration statement filed
with the Securities and Exchange Commission, and similar filings in Canada, for
the sale of up to an aggregate 65.2 million shares of BMG common stock and/or
BMCL Exchangeable Shares currently beneficially owned by Noranda Inc., a
Canadian natural resource company which owns approximately 28% of the Company's
outstanding common shares. BMG will not receive any proceeds from the sale of
any of the shares.
Conclusion. The Company expects 1999 cash requirements will be met with cash
currently held and future cash flows from operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SEGMENT INFORMATION
MILLIONS 1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Operating income (loss)
Golden Giant $ 38.3 $ 46.6 $ 69.3
Kori Kollo (58.7) 0.3 14.2
Holloway (3.7) (6.6) (0.8)
Battle Mountain Complex (12.1) (2.2) (17.7)
Vera/Nancy 6.2 1.9 --
Crown Jewel (40.3) -- --
Corporate and other (129.8) (43.3) (107.5)
------- ------- --------
Total operating loss (200.1) (3.3) (42.5)
Interest and other income (expense) (26.9) (10.2) 1.3
------- ------- --------
Loss before income taxes and minority interest $(227.0) $ (13.5) $ (41.2)
======= ======= ========
</TABLE>
40
<PAGE>
SALES
Sales decreased in 1998 compared with 1997 as a result of lower average realized
gold prices, partially offset by slightly higher gold production. Average
realized prices for gold decreased as a result of lower spot gold prices.
Average realized gold prices in 1998 were slightly higher than the average
London PM fix price due to gains recognized from the Company's forward sales.
Increased production at the Holloway, Pajingo and Kori Kollo mines partially
offset the effects of ceasing production at the Red Dome mine in the second half
of 1997 and the ceasing of mining operations at the San Cristobal mine in the
first quarter of 1998. Decreased ounces recovered from the Reona mine also
partially offset increased production from the other mines. Golden Giant's
increased production during the first half of 1998 from higher ore grades mined
as a result of a change in the mining sequence partially offset its decreased
production during the latter half of the year due to that change in the mining
sequence and internal labor problems that have since been resolved.
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 in the second half of
1997. Partially offsetting these decreases were increased production from the
Holloway mine and production at the Vera/Nancy mine.
<TABLE>
<CAPTION>
GOLD DATA 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gold sales (000 oz.) - 100% 987 976 1,034
Gold revenue realized per ounce - 100% $ 306 $ 342 $ 391
Average London PM fix per ounce $ 294 $ 331 $ 388
</TABLE>
COSTS AND EXPENSES
Total production costs decreased 30% in 1998 compared with 1997, while
production increased slightly. Lower operating costs resulting from weakened
foreign currencies and the closures of the Red Dome and Silidor mines in 1997
contributed to the overall decrease. Partially offsetting this decrease was $4.7
million of additional reclamation charges accrued in the fourth quarter of 1998,
primarily at Battle Mountain Complex, and a full year of production from the
Vera/Nancy mine. Consolidated per ounce cash costs decreased $42 in 1998
compared with 1997. All of the Company's mines, except the residual heap leach
operations at Reona, experienced per ounce cash cost reductions in 1998. Golden
Giant and Kori Kollo's cash costs per ounce both decreased 9%, primarily a
result of higher ore grades mined and lower overall costs, respectively.
Total cash production costs decreased in 1997 compared with 1996 as a result of
decreased production and lower consolidated per ounce cash costs. 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 benefited 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.
41
<PAGE>
CONSOLIDATED PRODUCTION COSTS PER OUNCE OF GOLD SOLD (1)
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Direct mining costs $ 161 $ 207 $ 217
Deferred stripping adjustments 4 3 2
Third party smelting, refining and transportation costs 2 8 7
By-product credits included in sales (6) (17) (19)
----- ----- -----
Cash operating costs 161 201 207
Royalties 3 5 8
Production taxes -- -- 1
----- ----- -----
Total cash costs 164 206 216
Depreciation, depletion and amortization 92 80 91
Reclamation and mine closure costs 5 9 10
----- ----- -----
Total production costs $ 261 $ 295 $ 317
===== ===== =====
</TABLE>
(1) Represents 100% interests of consolidated subsidiaries
RECONCILIATION OF TOTAL CASH COSTS PER OUNCE TO CONSOLIDATED FINANCIAL
STATEMENTS
<TABLE>
<CAPTION>
MILLIONS, EXCEPT OUNCES SOLD AND PER OUNCE AMOUNTS 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Production costs per financial statements $ 163.3 $ 234.3 $ 259.2
Lihir production costs 19.2 2.2 --
By-product credits included in sales (6.6) (16.2) (20.0)
Reclamation and mine closure costs (5.2) (8.5) (10.3)
Other (9.0) (10.6) (5.1)
------- ------- -------
Production costs for per ounce calculation purposes $ 161.7 $ 201.2 $ 223.8
======= ======= =======
Gold ounces sold, THOUSANDS 987 976 1,034
======= ======= =======
Total cash costs per gold ounce sold $ 164 $ 206 $ 216
======= ======= =======
</TABLE>
Cash production costs are presented in accordance with guidelines
established by The Gold Institute. 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.
Depreciation, depletion and amortization ("DD&A") increased in total and on a
cost per gold ounce sold basis in 1998 compared with 1997. The $6.8 million
increase in total DD&A was primarily a result of higher production. DD&A from
the Lihir mine, which commenced commercial operations in the fourth quarter of
1997, contributed to the increase in DD&A on a cost per ounce sold basis.
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, 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 in 1997 due to the write-downs in 1996.
Exploration and evaluation expenses totaled $24.8 million in both 1998 and 1997,
compared with $32.8 million in 1996, as the Company reduced its exploration
expenditures to focus on high priority projects. Exploration costs in 1998 were
net of exploration project sales of $0.4 million in 1998 and $4.0 million in
1997.
The Company expects to invest approximately $25.0 million on 1999 exploration
programs in search of potential additional mineral deposits. A majority of these
funds have been allocated to seven priority projects. Actual exploration
expenditures may vary as a result of the acquisition of new properties and the
success of exploration on existing properties.
42
<PAGE>
The Company incurred $2.7 million of merger expense in 1997 and $22.7 million in
1996 related to the 1996 combination of BMG and Hemlo Gold.
As a result of continued low gold prices, the Company recorded $194.9 million of
non-cash asset write-downs in the fourth quarter of 1998, including: BMG's
investment in Niugini Mining, $90.0 million; Kori Kollo, $49.9 million; Crown
Jewel, $40.3 million; and Reona, $10.8 million. The estimated fair value of the
Company's investment in Niugini Mining was determined to be the quoted market
price of the Lihir shares held by Niugini Mining plus the Company's share of
residual Niugini Mining net assets, primarily cash. Discounted future net cash
flows were determined to be the appropriate measurement of value of the other
impaired mine assets.
In 1996, prompted by continuing high operating costs experienced at these
properties, the Company wrote down the carrying values of the Reona and San
Cristobal mines. The write-downs totaled $17.5 million and $17.6 million,
respectively. In addition, 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.
General and administrative expenses totaled $14.1 million in 1998 as compared
with $13.6 million in 1997 and $17.7 million in 1996. Increased costs in 1996
primarily resulted from $2.0 million of restructuring costs incurred by Niugini
Mining.
Interest expense increased in 1998 primarily as a result of a full year of
borrowing under the $145 million bank borrowing by BMCL in September 1997 and
the expensing of interest related to the Lihir project. Interest expense
increased slightly in 1997 as compared with 1996 as a result of the bank
borrowing by BMCL and the expensing of interest, previously capitalized, related
to Lihir commencing commercial production on October 1, 1997.
Interest income increased in 1998 compared with the previous year due to higher
average levels of cash invested. Interest income decreased in 1997 compared with
1996 due to lower average levels of cash invested, primarily during the first
three quarters of 1997.
Foreign currency exchange losses, net increased $4.6 million in 1998 and $5.6
million in 1997 primarily related to the effect of weakened foreign currencies
on U.S. dollar-denominated debt of subsidiaries.
Equity in losses of Lihir increased $8.1 million in 1998 as a result of a full
year's amortization of the premium associated with the Lihir investment and the
recording of the Company's share of Lihir losses. Lihir commenced commercial
production in October 1997.
Decreases in capitalized interest in 1998 and 1997 were attributable to the
expensing of interest related to the Lihir project.
Income tax expense increased in 1998 compared with 1997 due to an $84.6 million
increase in the Company's valuation allowance on U.S. and Canadian deferred tax
assets. The increase resulted from the Company's assessment that it would not be
able to realize the increase in its deferred tax assets during 1998 because
adequate amounts of future net income and capital gains were not assured under
the "more likely than not" criteria. As a result, there were no tax benefits
recorded for the 1998 losses.
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.
In 1997, certain events caused BMG to revise its accounting position related to
the unremitted earnings of BMCL. BMG sold its interest in Niugini Mining to
BMCL, as described in Note 7 of the Notes to Consolidated Financial Statements
in Item 8. The proceeds from the sale were expected to be sufficient to meet the
Company's operating needs in the U.S. in the near future. Accordingly,
management no longer expected to remit to the U.S. any accumulated or future
Canadian earnings generated by BMCL.
43
<PAGE>
The income expected to be derived from the reinvestment of the sale proceeds
from the Niugini Mining sale to BMCL into U.S. projects led management in 1997
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 of the above, the Company recorded a $16.4 million income tax
benefit in 1997, representing the release of $11.0 million of deferred tax asset
valuation allowances related to U.S. net operating losses and $5.4 million of
Canadian withholding tax liabilities previously recorded. The Company also
recognized the tax benefit of net operating loss carryforwards in the amount of
$7.2 million in 1997 because of revised projections of future taxable income at
certain of the Company's subsidiaries. Mining taxes decreased each year as a
result of lower levels of Canadian mining income.
In order to realize its U.S. deferred tax assets, the Company would have to
generate additional taxable income of approximately $30 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. In 1997, the Company
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
carry-forwards will expire beginning 2007 as follows: $16.4 million, $23.4
million, $16.9 million and $7.3 million in the years 2007 through 2010,
respectively, $19.2 million in 2012 and $4.8 million in 2018.
Minority interest in net income decreased in 1998 primarily a result of lower
earnings by Inti Raymi. Minority interest in net income increased in 1997
compared with 1996. In 1996, there was a net loss attributable to minority
interests primarily from a $35.4 million loss incurred by Niugini Mining.
Contributing to Niugini Mining's net loss was the San Cristobal write-down, of
which approximately $8.7 million was attributable to minority interests.
OTHER
Market Risk. 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 financial
position and results of operations.
Foreign Currency Risk. 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, respectively. 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. The
potential foreign currency translation gain or loss in earnings from a
hypothetical 10% change in the 1998 year-end exchange rates of the Canadian and
Australian dollar is approximately $10.5 million in the aggregate. Similar
translation gains or losses of the Company's other subsidiaries are immaterial
since those companies' functional currencies are the U.S. dollar and immaterial
balances are maintained in local currencies.
The Company's Canadian and Australian subsidiaries also have U.S. dollar
denominated intercompany debt that totaled $55.5 million in the aggregate at
December 31, 1998. While these intercompany balances are eliminated in
consolidation, exchange rate changes do affect consolidated earnings. The
potential foreign currency translation gain or loss in non-cash earnings from a
hypothetical 10% change in the respective December 31, 1998 exchange rates from
these intercompany balances is $6.1 million in the aggregate.
44
<PAGE>
At December 31, 1998, the Company's Canadian subsidiary also had outstanding
$121.8 million of U.S. dollar denominated bank borrowings. The potential foreign
currency translation gain or loss in non-cash earnings from a hypothetical 10%
change in the December 31, 1998 Canadian dollar exchange rate is approximately
$13.9 million.
Interest Rate Risk. Approximately $140.2 million of the Company's long-term debt
outstanding at December 31, 1998, including current portions, is variable
interest rate based. A hypothetical one percent change in the December 31, 1998
interest rates in effect for this debt is approximately $1.6 million.
The Company's investment in Niugini Mining, comprised mostly of its investment
in Lihir, is classified as an asset held for sale at December 31, 1998. The
carrying value of this asset is adjusted for any negative impacts resulting from
changes in the market value of the Lihir stock or local currency exchange rates.
The potential foreign currency translation loss in non-cash earnings from a
hypothetical 10% change in the December 31, 1998 exchange rate related to this
asset is approximately $8.3 million.
Equity Risk. The potential loss in non-cash earnings from a hypothetical 10%
change in the market value of the Lihir common stock at December 31, 1998 is
approximately $8.3 million.
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 interest rate, foreign
currency exchange rate and commodity price risks. The Company had no material
hedged contracts outstanding at December 31, 1998.
Pursuant to pricing provisions as set forth in certain customer forward sales
contracts as of December 31, 1998, the Company had committed to deliver 137,000
ounces of gold, valued at approximately $40.3 million at prices determined
during various pricing periods in 1998. All such contracts expired by February
1, 1999. The average price of gold sold under these commitments was
approximately $294 per ounce.
The Company may be exposed to certain credit-related losses in the event of
nonperformance by the counterparties to hedged 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 credit-related losses is remote.
In future periods, the Company may continue to employ selective hedging
strategies, where appropriate, to protect cash flows for specific needs.
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 and by changes
in foreign currency exchange rates.
Foreign Operations. The Company continues to expand and geographically diversify
its resource base through the exploration, acquisition, development and
production of foreign gold reserves. Assets attributable to the Company's
operations outside the U.S. and Canada as of December 31, 1998 were
approximately $132.7 million. Mining operations outside the U.S. and Canada
represented approximately 43% of total gross revenues for the year ended
December 31, 1998. 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.
45
<PAGE>
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.
Environmental Matters. 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 costs of the ultimate reclamation and closure of the mine 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, 1998, the Company estimated these future costs,
including severance costs, to be approximately $52.8 million, of which $30.9
million has been accrued.
The Company has investigated the infiltration of liquids from the tailings
facility at the Battle Mountain Complex to 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 for the Company to estimate what
remediation might be required with respect to this area.
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, establish air and water quality discharge standards, establish
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. The Company has
been actively working with the Bolivian Ministry of Sustainable Development to
obtain final approval of the environmental license for the Kori Kollo mine.
Following such approval, the Company will have 18 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
46
<PAGE>
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.
Pending Accounting Standards. In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is required to be
adopted for 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 financial position or results of operations.
Year 2000 ("Y2K") Issue. The risks associated with the Year 2000 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other."
47
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants............................. 49
Consolidated Statement of Operations.......................... 50
Consolidated Balance Sheet.................................... 51
Consolidated Statement of Shareholders' Equity................ 52
Consolidated Statement of Cash Flows.......................... 53
Notes to Consolidated Financial Statements.................... 54
Supplemental Financial Information (Unaudited)................ 73
</TABLE>
48
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Battle Mountain Gold Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Battle
Mountain Gold Company and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, 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 conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits 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.
PricewaterhouseCoopers LLP
Houston, Texas
February 2, 1999
49
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
MILLIONS, EXCEPT PER SHARE AMOUNTS 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SALES (Note 12) $ 276.6 $ 344.9 $ 424.0
------- ------- -------
COSTS AND EXPENSES
Production costs 163.3 234.3 259.2
Depreciation, depletion and amortization 79.6 72.8 94.2
Asset write-downs (Note 6) 194.9 - 39.9
Exploration, evaluation and other lease costs, net 24.8 24.8 32.8
Merger expense (Note 3) - 2.7 22.7
General and administrative expenses 14.1 13.6 17.7
------- ------- -------
Total costs and expenses 476.7 348.2 466.5
------- ------- -------
OPERATING LOSS (200.1) (3.3) (42.5)
Interest expense (17.8) (13.9) (13.3)
Interest income 10.7 6.0 8.8
Foreign currency exchange losses, net (12.4) (7.8) (2.2)
Equity in income (losses) of Lihir (Note 4) (7.9) 0.2 -
Capitalized interest (Note 4) - 4.5 6.4
Other income, net 0.5 0.8 1.6
------- ------- -------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (227.0) (13.5) (41.2)
Income tax expense (benefit) (Note 9) 7.8 (17.4) 37.4
Mining taxes (Note 9) 6.0 6.7 11.7
Minority interest in net loss (income) (0.5) (2.3) 16.0
------- ------- -------
LOSS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (241.3) (5.1) (74.3)
Cumulative effect of accounting change, net (Note 2) - (3.7) -
------- ------- -------
NET LOSS (241.3) (8.8) (74.3)
Preferred stock dividends (Note 8) 7.5 7.5 7.5
------- ------- -------
NET LOSS TO COMMON SHARES $(248.8) $ (16.3) $ (81.8)
======= ======= =======
Loss per common share
Before cumulative effect of accounting change $ (1.08) $ (.05) $ (.36)
Accounting change - (.02) -
------- ------- -------
Basic and diluted $ (1.08) $ (.07) $ (.36)
======= ======= =======
Dividends per common share $ .05 $ .05 $ .07
======= ======= =======
Average common shares outstanding for loss
per share purposes - basic and diluted 229.8 229.7 229.6
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
MILLIONS EXCEPT PER SHARE AMOUNTS 1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 147.6 $ 185.0
Restricted cash 7.7 17.7
Accounts receivable 13.8 33.0
Product inventories 12.5 8.3
Materials and supplies 23.4 25.4
Assets held for sale (Note 5) 108.3 42.5
Other current assets 2.0 12.1
-------- --------
Total current assets 315.3 324.0
Investments (Notes 4 and 6) 19.4 255.2
Property, plant and equipment, net (Notes 5 and 6) 339.0 489.3
Other assets (Note 9) 20.4 24.7
-------- --------
TOTAL ASSETS $ 694.1 $1,093.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings (Note 7) $ 14.9 $ 4.9
Current maturities of long-term debt (Note 7) 37.0 44.0
Accounts payable 14.3 24.0
Interest payable 1.5 5.8
Salaries, wages and benefits payable 1.8 4.6
Income and mining taxes payable (Note 9) 23.9 10.1
Other current liabilities 9.6 12.7
-------- --------
Total current liabilities 103.0 106.1
Long-term debt (Note 7) 203.6 241.0
Deferred income and mining taxes (Note 9) 72.0 84.1
Deferred mine reclamation and closure costs (Note 13) 25.3 30.6
Other liabilities 24.8 17.7
-------- --------
Total liabilities 428.7 479.5
-------- --------
Minority interest 17.7 107.7
-------- --------
Commitments and contingencies (Note 13) - -
Shareholders' equity (Note 8)
Convertible preferred stock, $1.00 par value:
Authorized - 50.0 million shares; issued and
outstanding, 1998 and 1997 - 2.3 million shares 110.6 110.6
Common stock, $.10 par value:
Authorized - 500.0 million shares; issued and
outstanding, 1998 and 1997 - 229.8 million shares 12.9 12.3
Additional paid-in capital 344.0 344.3
Retained earnings (accumulated deficit) (200.5) 59.8
Accumulated other comprehensive losses (19.3) (21.0)
-------- --------
Total shareholders' equity 247.7 506.0
-------- --------
Total liabilities and shareholders' equity $ 694.1 $1,093.2
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings Other Total
Preferred Common Paid-in (Accumulated Comprehensive Shareholders'
Stock Stock Capital Deficit) Income (Losses) Equity
----- ----- ------- -------- --------------- ------
MILLIONS
- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 $110.6 $ 8.1 $344.0 $ 184.8 $(18.1) $ 629.4
Net loss - - - (74.3) - (74.3)
Currency translation adjustments - - - - 2.7 2.7
-----
Total comprehensive loss - - - - - (71.6)
Shares issued - - 3.4 - - 3.4
Shares exchanged - 3.2 (3.2) - - -
Common stock dividends - - - (15.4) - (15.4)
Preferred stock dividends - - - (7.5) - (7.5)
---------------------------------------------------------------------------------------
DECEMBER 31, 1996 110.6 11.3 344.2 87.6 (15.4) 538.3
Net loss - - - (8.8) - (8.8)
Currency translation adjustments - - - - (5.6) (5.6)
-----
Total comprehensive loss - - - - - (14.4)
Shares issued - - 1.1 - - 1.1
Shares exchanged - 1.0 (1.0) - - -
Common stock dividends - - - (11.5) - (11.5)
Preferred stock dividends - - - (7.5) - (7.5)
---------------------------------------------------------------------------------------
DECEMBER 31, 1997 110.6 12.3 344.3 59.8 (21.0) 506.0
Net loss - - - (241.3) - (241.3)
Currency translation adjustments - - - - 1.7 1.7
------
Total comprehensive loss - - - - - (239.6)
Shares issued - - 0.3 - - 0.3
Shares exchanged - 0.6 (0.6) - - -
Common stock dividends - - - (11.5) - (11.5)
Preferred stock dividends - - - (7.5) - (7.5)
---------------------------------------------------------------------------------------
DECEMBER 31, 1998 $110.6 $12.9 $344.0 $(200.5) $(19.3) $ 247.7
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
MILLIONS 1998 1997 1996
- -------- ---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(241.3) $ (8.8) $ (74.3)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation, depletion and amortization 79.6 72.8 94.2
Deferred income taxes (Note 9) (7.1) (33.8) 10.8
Asset write-downs (Note 6) 194.9 - 39.9
Foreign currency exchange losses 12.4 7.8 2.2
Equity in losses (income) of Lihir 7.9 (0.2) -
Minority interest in net income (loss) 0.5 2.3 (16.0)
Cumulative effect of accounting change, net (Note 2) - 3.7 -
Increase in accrued reclamation costs 0.6 4.6 7.0
Net change in working capital accounts (Note 15) 21.4 7.6 (5.4)
Other, net 13.9 5.2 (1.8)
------- ------- --------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 82.8 61.2 56.6
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (46.5) (62.4) (57.0)
Investment in Lihir (11.5) - -
New World settlement, net 34.9 - -
Proceeds from sales of assets 2.0 4.7 0.9
Effects on cash of deconsolidation of Niugini Mining (Note 4) (49.6) - -
Other, net (3.4) (5.3) 0.9
------- ------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (74.1) (63.0) (55.2)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from borrowings - 156.7 18.7
Debt repayments (44.3) (24.5) (50.4)
Increase (decrease) in short-term borrowings 9.9 (16.9) 8.8
Cash dividend payments (19.0) (18.9) (22.6)
Decrease (increase) in restricted cash 10.2 (3.3) 0.7
Other, net (0.5) 0.7 2.7
------- ------- --------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES (43.7) 93.8 (42.1)
------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2.4) (1.0) 2.2
------- ------- --------
Net increase (decrease) in cash and cash equivalents (37.4) 91.0 (38.5)
Cash and cash equivalents at beginning of year 185.0 94.0 132.5
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 147.6 $ 185.0 $ 94.0
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Index
<S> <C> <C> <C>
1. Accounting Policies Summary.............................. 54
2. Change in Accounting Method.............................. 57
3. Merger................................................... 58
4. Investments.............................................. 58
5. Property, Plant and Equipment............................ 59
6. Asset Write-downs........................................ 59
7. Debt..................................................... 60
8. Shareholders' Equity..................................... 61
9. Income and Mining Taxes.................................. 62
10. Common Stock and Stock Options........................... 64
11. Benefit Plans............................................ 66
12. Geographic and Segment Information....................... 68
13. Commitments and Contingencies............................ 69
14. Hedging Activities....................................... 70
15. Supplemental Cash Flow Information....................... 71
16. Fair Value of Financial Instruments...................... 71
17. Summarized Financial Information......................... 72
</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 and
Australia, and in the exploration, evaluation and development of precious
metals properties, primarily in Latin America, Australia, 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, with the exception of Niugini Mining Limited ("Niugini
Mining"). BMG deconsolidated its investment in Niugini Mining and classified
it as an asset held for sale in the December 31, 1998 consolidated balance
sheet. The December 31, 1997 balance sheet and the consolidated statements of
operations and cash flows for all periods presented include the activities of
Niugini Mining.
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 to conform with the current presentation.
In July 1996, BMG combined with Hemlo Gold Mines Inc. ("Hemlo Gold") 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 Gold.
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
54
<PAGE>
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 a financing activity
for purposes of cash flows. At December 31, 1998 and 1997, this account
included a debt reserve account of $7.6 million and $8.5 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 Niugini Mining related to a
guarantee of Lihir Gold Limited debt.
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, 1998 and 1997
included other receivables of approximately $7.2 million and $11.4 million,
respectively, relating to Value Added Tax credits 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. 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 remaining
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 estimated future undiscounted cash flows to be
generated from the asset are less than its carrying amount. The amount of
impairment loss recorded is the difference between the fair value and the
carrying value of the impaired asset.
55
<PAGE>
Investments. Investments in which the Company owns a 20% to 50% interest or
has the ability to exercise significant influence are accounted for using the
equity method. Other 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. When a decline in the market value of an investment is other than
temporary, the investment is written down to market value.
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 Interest. Interest costs incurred to finance 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 current tax laws. Deferred income taxes are established 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 Canadian 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 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.
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 other comprehensive income in the
consolidated statement 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 are included in
income.
Earnings per Share. The Company calculates earnings per share in accordance
with SFAS No. 128, "Earnings per Share." 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
("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.
The Company's convertible debentures (see Note 7), convertible preferred
stock (see Note 8) and common stock options (see Note 10) were not included
in the 1998, 1997 and 1996 calculations of diluted earnings per share because
they were anti-dilutive.
56
<PAGE>
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 financial instruments to reduce commodity price, foreign currency
exchange rate, interest rate and other economic 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 a 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 and losses under cap agreements are recorded as a reduction of or
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 and 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 other comprehensive income when the underlying
transactions are realized. Amortization of the discount or premium on such
contracts is recognized in shareholders' equity as other comprehensive income
over the life of the contract.
Pending Accounting Standards. 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 for 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 financial position or results of
operations.
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 correspondingly changed its method of
amortizing the premium associated with its investment in Inti Raymi to an
ounces-sold basis. Previously, both such DD&A calculations were based on a
tonnes-milled rate applied to the capital costs incurred to date.
57
<PAGE>
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 recognized in the first quarter of 1997.
Note 3. MERGER
On July 19, 1996, BMG combined with Hemlo Gold, 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 Hemlo Gold common shares received 1.48 Exchangeable Shares of BMCL
for each 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.
Note 4. INVESTMENTS
The Company's long-term investments as of December 31 included the following:
<TABLE>
<CAPTION>
MILLIONS 1998 1997
-------- ------- -------
<S> <C> <C>
Lihir Gold Limited $ - $ 235.4
First Toronto Investments Limited 9.8 10.5
Cash surrender value of life insurance, net 7.6 6.6
Other 2.0 2.7
------- -------
Total $ 19.4 $ 255.2
======= =======
</TABLE>
Lihir Gold Limited ("Lihir") is a company created specifically for the
development, financing, operating and ownership of the Lihir mine in Papua
New Guinea. In conjunction with contributions made by certain other equity
investors of Lihir, in May 1998, Niugini Mining increased its investment in
Lihir by $11.5 million and maintained Niugini Mining's 17.15% interest. The
Company, through Niugini Mining, had an 8.65% attributable interest in Lihir
at December 31, 1998 and 1997. Niugini Mining's interest in Lihir was
accounted for using the equity method of accounting in 1998, 1997 and 1996
due to Niugini Mining's ability to exercise significant influence. In
December 1998, BMG decided to pursue options for disposing of its interest in
Niugini Mining, and as a result, of its interest in Lihir. As such, the
Company's interest in Niugini Mining, including Lihir, was classified as an
asset held for sale in the consolidated balance sheet at December 31, 1998.
See also Note 6 for discussion of the 1998 impairment write-down of the
Company's investment in Lihir.
The carrying value, net of accumulated amortization, attributed to the
Company's proportionate share of Niugini Mining's investment in Lihir
exceeded its proportionate share of Niugini Mining's historical cost basis in
Lihir by $54.0 million and $139.1 million at December 31, 1998 and 1997,
respectively. Such excess was being amortized against the Company's share of
earnings of Lihir by the units-sold method based on the estimated recoverable
ounces attributable to the Lihir mine. Commercial production at Lihir
commenced in October 1997 and $6.7 million and $1.9 million of such excess
cost was amortized in 1998 and 1997, respectively. Interest costs amounting
to $4.5 million in 1997 and $6.0 million in 1996 were capitalized in
connection with the Company's investment in Lihir. No interest costs were
capitalized in 1998.
First Toronto Investments Limited ("First Toronto") is associated with
Noranda, Inc., a Canadian natural resource company which owns approximately
28% of the Company's outstanding common shares. BMG's investment in First
Toronto represents approximately 2% of First Toronto shares.
58
<PAGE>
Note 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31 consisted of the following:
<TABLE>
<CAPTION>
MILLIONS 1998 1997
-------- -------- ---------
<S> <C> <C>
Mining, milling and other equipment $ 424.4 $ 455.4
Leasehold and mine development 382.8 479.1
Other 20.0 120.1
-------- ---------
Gross property, plant and equipment 827.2 1,054.6
Accumulated depreciation, depletion and amortization (488.2) (565.3)
-------- ---------
Net property, plant and equipment $ 339.0 $ 489.3
======== =========
</TABLE>
See also Note 6 for a discussion of the 1998 impairment write-downs of
property, plant and equipment.
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 was capitalized to
property, plant and equipment and was being amortized by the units-sold
method based on the deposits' estimated recoverable reserves. Amortization of
the excess cost amounted to $13.6 million, $13.0 million and $10.6 million in
1998, 1997 and 1996, respectively. In December 1998, the $45.6 million
remaining unamortized balance of this excess cost was written off as a result
of the impairment write-down as described in Note 6.
In December 1998, BMG decided to pursue options for disposing of its interest
in Niugini Mining. As a result, the accounts of Niugini Mining were
deconsolidated from the December 31, 1998 consolidated balance sheet and the
Company's estimated net realizable value of Niugini Mining totaling $108.3
million was classified as an asset held for sale. The timing of the disposal
of the Company's investment in Niugini Mining cannot be predicted with any
certainty at this time. In August 1998, the Company closed the sale of the
New World project, which was recorded as an asset held for sale in the
December 31, 1997 consolidated balance sheet, and received cash proceeds, net
of related disbursements, of $34.9 million. The Company recorded an estimated
$0.8 million loss on the sale of the New World project in 1997.
Note 6. ASSET WRITE-DOWNS
As a result of continued low gold prices, the following impairment
write-downs were recorded in the fourth quarter of 1998: BMG's investment in
Niugini Mining, $90.0 million; Kori Kollo, $49.9 million; Crown Jewel, $40.3
million; and Reona, $10.8 million. In addition, $3.9 million of write-downs
were recorded related to certain other plant assets, uncollectable
receivables and capitalized land lease costs.
The estimated fair value of the Company's investment in Niugini Mining was
determined to be the quoted market price of the Lihir shares held by Niugini
Mining plus the Company's share of residual Niugini Mining net assets,
primarily cash. Discounted net cash flows were used to measure the value of
the other impaired mine assets.
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 Niugini Mining, 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.
59
<PAGE>
Note 7. DEBT
The Company had the following long-term debt outstanding as of December 31:
<TABLE>
<CAPTION>
MILLIONS 1998 1997
-------- ------ ------
<S> <C> <C>
CIBC loan, due 2003, variable rate $121.8 $145.0
Convertible subordinated debentures, due 2005, 6% 100.0 100.0
Inti Raymi Kori Kollo project financing loans, variable rates 18.4 38.7
Other 0.4 1.3
------ ------
Total 240.6 285.0
Less current portion of long-term debt (37.0) (44.0)
------ ------
Total long-term debt $203.6 $241.0
====== ======
</TABLE>
On September 30, 1997, BMG sold its interest in Niugini Mining 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 Niugini Mining held by BMCL, is payable in 25 equal quarterly
principal payments which commenced in January 1998, and matures in December
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
interest rate for this borrowing was 6.1% at December 31, 1998.
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, with certain provisions for accelerated
repayment in the event of substantial Kori Kollo reserve losses or
significantly improved gold market conditions. The International Finance
Corporation ("IFC") facility includes a $5.0 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 semi-annually through 1999.
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 these
borrowings was 8.7% at December 31, 1998.
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 December 31,
1997 Kori Kollo mine plan indicated a two month shortfall in the required
three year production period. Accordingly, at December 31, 1997, the Company
classified the required $6.9 million pre-payment to current portion of
long-term debt in the accompanying consolidated balance sheet. The required
waiver was obtained in the first quarter of 1998.
60
<PAGE>
The Company has an uncommitted revolving credit agreement with CIBC for
unsecured borrowings of up to C$10 million for general operating purposes.
Interest rates under this facility are based on prime commercial lending
rates as quoted by CIBC for loans advanced in Canada which are denominated in
Canadian dollars. No borrowings were outstanding under this facility at
December 31, 1998 and US$4.9 million was outstanding at December 31, 1997.
The weighted average interest rates for borrowings under this facility were
5.5% in 1998 and 1997, and 4.75% in 1996.
The Company also has a $15 million uncommitted revolving credit facility with
a European bank. 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. At December 31, 1998,
$14.9 million was outstanding under this facility. No borrowings were
outstanding at December 31, 1997 and the Company did not borrow against this
facility in 1996. The weighted average interest rates for borrowings under
this facility were 7.8% in 1998 and 6.3% in 1997.
Scheduled maturities of the Company's long-term debt for 1999 through 2003
are $37.0 million, $23.2 million, $23.2 million, $28.2 million and $29.0
million, respectively. The subordinated debentures are due in a lump-sum
payment in 2005.
Note 8. SHAREHOLDERS' EQUITY
See 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, 1998, the Company had 2.3
million shares outstanding 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 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.
Exchangeable Shares. In connection with BMG's combination with Hemlo Gold,
each holder of Hemlo Gold common stock received 1.48 Exchangeable Shares of
BMCL in exchange for each share held. The Exchangeable Shares remain
securities of BMCL and entitle their holders to dividend and other rights
economically equivalent to that of BMG common stock 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. In October 1998, the
Board voted to extend until 2008 the stock rights that otherwise would have
expired in 1998. The stock rights are not exercisable or 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; however, such exercise rights are not triggered
solely by the acquisition by a single person of 20% or more of BMG's shares
of common stock from the Company's
61
<PAGE>
28% shareholder, Noranda, Inc., or from the first person to whom Noranda has
sold such a block of shares. 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 acquiror'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. INCOME AND MINING TAXES
This discussion of income taxes does not reflect the 1997 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 1998 1997 1996
-------- ----- ------ -----
<S> <C> <C> <C>
Current
United States - federal $ - $ - $ 0.5
Canada 19.1 21.8 35.9
Other foreign 0.2 0.9 1.9
----- ------ -----
Total current 19.3 22.7 38.3
----- ------ -----
Deferred
United States - federal 1.9 (14.6) 10.2
Canada (6.5) (17.9) 1.1
Other foreign (0.9) (0.9) (0.5)
----- ------ -----
Total deferred (5.5) (33.4) 10.8
----- ------ -----
Total income and mining tax
expense (benefit) $13.8 $(10.7) $49.1
===== ====== =====
</TABLE>
Consolidated income before income taxes included losses from foreign
operations of $108.8 million in 1998 and income from foreign operations of
$13.4 million and $18.3 million in 1997 and 1996, respectively.
Deferred income tax assets and liabilities as of December 31, 1998 and 1997
related to the following:
<TABLE>
<CAPTION>
MILLIONS 1998 1997
-------- ------- ------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 38.2 $ 34.6
Alternative minimum tax credit carryforward 0.8 0.9
Employee compensation and benefits accrued 6.8 6.3
Foreign exchange rate losses 5.5 2.0
Property, plant and equipment 69.2 26.3
Accrued reclamation 4.2 4.3
Other 16.8 13.0
------- ------
Gross deferred income tax assets 141.5 87.4
Valuation allowance (101.4) (16.8)
------- ------
Net deferred income tax assets 40.1 70.6
------- ------
Deferred tax liabilities
Property, plant and equipment 71.8 117.6
Undistributed earnings of subsidiaries 21.2 20.8
Other 5.8 2.0
------- ------
Net deferred income tax liabilities 98.8 140.4
------- ------
Net deferred tax liability $ (58.7) $(69.8)
======= ======
</TABLE>
62
<PAGE>
The net deferred tax liability of $58.7 million at December 31, 1998 consists
of net U.S. deferred tax assets of $13.3 million (included in other assets),
a Canadian net deferred tax liability of $65.9 million and other foreign
deferred withholding tax liabilities of $6.1 million. The net U.S. deferred
tax asset is the result of net operating loss carryforwards which management
expects to realize as an offset against future taxable income. The net
deferred tax liability of $69.8 million at December 31, 1997 consisted of net
U.S. deferred tax assets of $15.1 million (included in other assets), a
Canadian net deferred tax liability of $77.3 million and other foreign
deferred withholding tax liabilities of $7.6 million. The 1997 net U.S.
deferred tax asset of $15.1 million is the result of net operating loss
carryforwards which management expected to realize as an offset against
future taxable income.
A reconciliation of income tax at the U.S. statutory rate to income tax
expense follows:
<TABLE>
<CAPTION>
MILLIONS 1998 1997 1996
-------- ------ ------ -----
<S> <C> <C> <C>
Income tax benefit based on statutory rate of 35% $(79.6) $ (5.5) $(8.8)
Increases (decreases) resulting from
Foreign withholding tax, net (1.0) (5.4) 8.6
Canadian mining taxes 5.5 6.7 11.7
Change in filing position regarding foreign
tax credits - 46.7 -
Undistributed losses of foreign subsidiaries
not subject to income tax 0.9 0.6 6.2
Change in valuation allowance 84.6 (52.7) 32.0
Foreign tax rate differential (4.7) 2.0 -
Change in alternative minimum tax credits - 3.8 -
Adjustments to prior year accruals 8.5 (8.1) -
Other, net (0.4) 1.2 (0.6)
------ ------ -----
Income tax and mining expense (benefit) $ 13.8 $(10.7) $49.1
====== ====== =====
</TABLE>
During 1998, the Company increased its valuation allowance by $84.6 million.
The increase resulted from the Company's assessment that it would not be able
to realize the increase in its deferred tax assets during 1998 because
adequate amounts of future net income and capital gains were not assured
under the "more likely than not" criteria. As a result, there were no tax
benefits recorded for the 1998 losses. The $101.4 million valuation allowance
recorded at December 31, 1998 reduces the Company's gross deferred tax assets
to management's best estimate of the assets that will ultimately be
recognized. However, it is possible that the valuation allowance could be
adjusted in the future as a result of changes in projected future taxable
income in the United States, based on revised management assumptions and
Company business plans.
U.S. taxes have been provided on the undistributed earnings of subsidiaries
and joint ventures, with the exception of Niugini Mining, which is in a
cumulative loss position, and BMCL, for which earnings are deemed to be
permanently reinvested, as discussed below.
The current business plans of BMG continue to support the position developed
in 1997 that the unremitted earnings of BMCL are permanently reinvested.
Therefore, no U.S. or foreign withholding taxes have been accrued at December
31, 1998. It would be impractical to estimate the U.S. tax consequences
related to the unremitted earnings of BMCL. The Canadian withholding taxes
related to the unremitted earnings are estimated to be $2.1 million based on
the undistributed earnings of BMCL as of December 31, 1998.
Effective in the third quarter of 1997, certain events caused BMG to revise
its accounting position related to the unremitted earnings of BMCL. In the
third quarter of 1997, BMG sold its interest in Niugini Mining to BMCL, as
described in Note 7. The proceeds from the sale were expected to be
sufficient to meet the Company's operating needs in the U.S. in the near
future. Accordingly,
63
<PAGE>
management no longer expected to remit to the U.S. any accumulated or future
Canadian earnings generated by BMCL.
The income expected to be derived from the reinvestment of the sale proceeds
from the Niugini Mining sale to BMCL into U.S. projects 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 of the above, the Company recorded a $16.4 million income tax
benefit in the third quarter of 1997, representing a release of $11.0 million
of deferred tax asset valuation allowances related to U.S. net operating
losses and $5.4 million of Canadian withholding tax liabilities previously
recorded.
The Company also recognized the tax benefit of net operating loss
carryforwards in the amount of $7.2 million in 1997 because of revised
projections of future taxable income at certain of the Company's subsidiaries.
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.
At December 31, 1998, the Company had approximately $87.5 million of regular
net operating loss carryforwards and $30.0 million of alternative minimum tax
net operating loss carryforwards, expiring beginning in 2007 and 2009,
respectively, 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. In
addition, at December 31, 1998, the Company had $16.5 million of net
operating loss carryforwards available to offset future Australian federal
income taxes.
Note 10. 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, 1998. This share reserve includes the reserve for the BMCL
Long-Term Incentive Plan (see below). Of these shares, 6.1 million shares
were available at December 31, 1998 for future grants of stock options,
restricted stock, performance shares or other stock awards.
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, 1998. Of these shares, 2.0 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 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 on 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, 1998. 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
64
<PAGE>
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 were as follows:
<TABLE>
<CAPTION>
OPTIONS IN MILLIONS Options Share Price
------------------- ------- -----------
<S> <C> <C>
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
Granted 1.1 $5.53 to $ 5.75
Exercised - -
Forfeited (0.3) $5.13 to $16.63
----
Outstanding at December 31, 1998 5.8 $4.83 to $16.88
====
Exercisable at December 31, 1998 3.0 $4.83 to $16.88
====
</TABLE>
At December 31, 1998, expiration dates for the outstanding options ranged from
1999 to 2008. The weighted average exercise price per share was $7.57.
Details of stock options exercisable at December 31, 1998 follow (options in
millions):
<TABLE>
<CAPTION>
Options Option Price
------- ------------
<S> <C>
0.7 $ 4.83 to $ 5.99
1.0 $ 6.00 to $ 7.63
1.0 $ 8.00 to $ 9.85
0.3 $ 10.42 to $ 16.88
---
3.0 $ 4.83 to $ 16.88
===
</TABLE>
Had compensation expense for stock-based compensation been determined based on
the fair values of the options at the grant dates, the Company's 1998 net loss
to common shares would have been $249.5 million, or $1.09 per common share,
1997 net loss would have been $18.6 million, or $0.08 per common share, and 1996
net loss would have been $85.6 million, or $0.41 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0.8% 0.7% 0.5%
Expected stock price volatility 30.8% 32.3% 35.4%
Risk-free interest rate 5.0% 5.9% 7.4%
Expected life of options 10.0 years 10.0 years 8.1 years
</TABLE>
The weighted average fair values of options granted during 1998, 1997 and 1996
was $2.64, $2.66 and $4.10 per share, respectively.
65
<PAGE>
Registration Statement. As of the date of this report, BMG has an effective
registration statement filed with the Securities and Exchange Commission, and
similar filings in Canada, for the sale of up to an aggregate 65.2 million
shares of BMG common stock and/or BMCL Exchangeable Shares currently
beneficially owned by Noranda Inc, which owns approximately 28% of the Company's
outstanding common shares. BMG will not receive any proceeds from the sale of
any of the shares.
Note 11. BENEFIT PLANS
Pension and Other Postretirement Health Care and Life Insurance Benefits.
Canadian salaried and substantially all U.S. employees of the Company are
covered by non-contributory pension plans. In addition, 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 benefit costs for these plans included the following components:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- -----------------------
MILLIONS 1998 1997 1996 1998 1997 1996
- -------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1.7 $ 1.7 $ 1.6 $ 0.2 $ 0.3 $ 0.3
Interest cost 3.7 3.8 3.2 0.5 0.6 0.6
Expected return on plan assets (4.0) (3.8) (3.5) - - -
Amortization of prior service costs 0.7 0.8 0.5 0.1 0.1 -
Amortization of transitional asset (0.1) (0.1) (0.1) - - -
Net actuarial loss (0.3) (0.1) - (0.1) - -
------ ------ ------ ----- ----- -----
Net periodic benefit cost $ 1.7 $ 2.3 $ 1.7 $ 0.7 $ 1.0 $ 0.9
====== ====== ====== ===== ===== =====
</TABLE>
The following sets forth the plans' funded status and related amounts as of
December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------- ---------------
MILLIONS 1998 1997 1998 1997
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
- ----------------------------
Benefit obligation at beginning of year $55.1 $47.0 $ 9.1 $ 8.6
Service cost 1.6 1.7 0.3 0.3
Interest cost 3.7 3.8 0.6 0.6
Transition obligation - - 1.2 -
Plan amendments - - - 0.5
Actuarial gain 1.1 10.0 (2.0) (0.4)
Curtailment gain (0.2) - - -
Foreign currency exchange gain (1.0) (0.5) - -
Benefits paid (2.7) (6.9) (0.5) (0.5)
----- ----- ------ -----
Benefit obligation at end of year 57.6 55.1 8.7 9.1
----- ----- ------ -----
CHANGE IN PLAN ASSETS
- ---------------------
Fair value of plan assets at beginning of year 49.8 47.2 - -
Actual return on plan assets 6.3 9.0 - -
Administrative expenses (0.2) (0.1) - -
Employer contributions 1.2 1.2 - -
Foreign currency exchange loss (1.1) (0.6) - -
Benefits paid (2.7) (6.9) - -
----- ----- ------ -----
Fair value of plan at end of year 53.3 49.8 - -
----- ----- ------ -----
Funded status of plans (4.3) (5.3) (8.7) (9.1)
Unrecognized net actuarial loss (6.2) (5.5) (3.1) (1.1)
Unrecognized prior service cost 6.8 8.2 0.4 0.4
Unrecognized transition obligation (0.4) (1.8) - -
----- ----- ------ -----
Accrued benefit cost $(4.1) $(4.4) $(11.4) $(9.8)
===== ===== ====== =====
</TABLE>
66
<PAGE>
Included in the pension plans described above is an unfunded supplemental
retirement plan covering certain executives. The benefit obligation associated
with this plan was $5.8 million and $5.0 million at December 31, 1998 and 1997,
respectively.
Weighted average rate assumptions used in determining estimated benefit
obligations were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
PERCENT 1998 1997 1998 1997
------- ---- ---- ---- -----
<S> <C> <C> <C> <C>
Discount rate
U.S. plans 6.8 7.0 6.8 7.0
Canadian plans 6.5 7.5 7.0 n/a
Expected return on plan assets
U.S. plans 9.0 9.0
Canadian plans 6.5 7.5
Rate of increase in compensation levels
U.S. plans 4.8 5.4
Canadian plans 4.5 5.0
</TABLE>
The service and interest cost components of other postretirement benefits
obligation was computed based on an assumed 7% annual rate of increase in the
per capita cost of covered health care benefits in 1999. This rate was assumed
to decrease gradually to 5% in 2002 and remain level thereafter. An increase or
decrease of 1% in the assumed health care cost trend rate does not have a
material effect on the computations.
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 $1.0 million,
$1.4 million and $2.0 million in 1998, 1997 and 1996, respectively.
67
<PAGE>
Note 12. Geographic and Segment Information
The Company's operations are primarily related to gold mining and related
activities. Accordingly, the Company's operational mines and significant
developmental mines are considered segments for financial reporting purposes.
The Company's Golden Giant and Holloway mines are located in Canada, Kori
Kollo is located in Bolivia, Crown Jewel and Battle Mountain Complex are
located in the United States and the Vera/Nancy mine is located in Australia.
Financial information by segment 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>
1998
- ----
Gross revenues $ 276.6 $109.4 $ 103.9 $ 22.5 $ 14.0 $ 14.4 $ - $ 12.4
Production costs 163.3 46.2 71.9 17.2 13.7 6.7 - 7.6
Deprec., deplet. & amort. 79.6 24.1 40.8 9.0 1.4 1.5 - 2.8
Asset write-downs 194.9 0.8 49.9 - 11.0 - 40.3 92.9
Other expenses 38.9 - - - - - - 38.9
-------- ------ ------- ------ ------- ------ ------ -------
Operating income (loss) (200.1) 38.3 (58.7) (3.7) (12.1) 6.2 (40.3) (129.8)
====== ======= ====== ======= ====== ====== =======
Interest & other expense (26.9)
--------
Loss before income taxes
& minority interest (227.0)
========
Property, plant & equip., net 339.0 96.8 70.0 74.4 39.3 19.7 31.7 7.1
======== ====== ======= ====== ======= ====== ====== =======
Total assets 694.1 144.6 107.9 79.4 279.4 24.8 31.8 26.2
======== ====== ======= ====== ======= ====== ====== =======
Capital expenditures 46.5 8.7 3.3 3.6 7.7 8.2 8.2 6.8
======== ====== ======= ====== ======= ====== ====== =======
1997
- ----
Gross revenues 344.9 119.4 109.6 16.3 31.8 6.3 - 61.5
Production costs 234.3 50.0 73.2 16.7 31.1 3.8 - 59.5
Deprec., deplet. & amort. 72.8 22.8 36.1 6.2 2.9 0.6 - 4.2
Other expenses 41.1 - - - - - - 41.1
-------- ------ ------- ------ ------- ------ ------ -------
Operating income (loss) (3.3) 46.6 0.3 (6.6) (2.2) 1.9 - (43.3)
====== ======= ====== ======= ====== ====== =======
Interest & other expense (10.2)
--------
Loss before income taxes
& minority interest (13.5)
========
Property, plant & equip., net 489.3 120.9 157.7 84.5 37.1 14.2 64.0 10.9
======== ====== ======= ====== ======= ====== ====== =======
Total assets 1,093.2 161.8 200.0 90.5 361.7 17.2 64.0 198.0
======== ====== ======= ====== ======= ====== ====== =======
Capital expenditures 62.4 10.3 7.4 3.7 9.1 16.6 8.2 7.1
======== ====== ======= ====== ======= ====== ====== =======
1996
- ----
Gross revenues 424.0 144.1 126.0 1.6 30.0 - - 122.3
Production costs 259.2 53.4 76.0 2.4 25.9 - - 101.5
Deprec., deplet. & amort. 94.2 21.4 32.4 - 4.3 - - 36.1
Asset write-downs 39.9 - 3.4 - 17.5 - - 19.0
Other expenses 73.2 - - - - - - 73.2
------ ------ ------- ------ ------- ------ ------ -------
Operating income (loss) (42.5) 69.3 14.2 (0.8) (17.7) - - (107.5)
====== ======= ====== ======= ====== ====== =======
Interest & other income 1.3
--------
Loss before income taxes
& minority interest (41.2)
========
Property, plant & equip., net 565.4 138.0 190.2 90.0 33.0 - 55.6 58.6
======== ====== ======= ====== ======= ====== ====== =======
Total assets 1,036.9 167.4 234.5 103.6 362.5 - 55.6 113.3
======== ====== ======= ====== ======= ====== ====== =======
Capital expenditures 57.0 7.1 6.8 9.3 10.3 - 9.7 13.8
======== ====== ======= ====== ======= ====== ====== =======
</TABLE>
The $3.7 million cumulative effect of the accounting method change discussed
in Note 2 is attributable to the Kori Kollo mine. The pro forma effects of
the accounting method change, had it been in effect in 1996, would have been
a $0.4 million increase in 1996 operating income.
68
<PAGE>
Sales to two separate customers each accounted for 10% or more of the
Company's consolidated revenues as follows: sales to one customer totaled
$106 million (1998), $81 million (1997) and $89 million (1996), and sales to
another customer totaled $32 million (1998), $153 million (1997) and $145
million (1996). Substantially all of the Company's current operating mines
contributed to sales to those customers during the years. Export sales
totaled $31.5 million in 1997 and $50.9 million in 1996. There were no export
sales in 1998.
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's
financial position, results of operations or cash flows.
Note 13. COMMITMENTS AND CONTINGENCIES
Total operating lease rental expenses, exclusive of mineral leases, were $3.0
million, $3.4 million and $3.8 million in 1998, 1997 and 1996, respectively.
Aggregate minimum rentals, exclusive of mineral leases, subsequent to
December 31, 1998 under non-cancelable leases for the years 1999 through 2003
are estimated to be $2.1 million, $1.7 million, $1.4 million, $1.1 million
and $0.9 million respectively. There are no significant lease commitments
beyond 2003.
Pursuant to pricing provisions as set forth in certain customer forward sales
contracts as of December 31, 1998, the Company had committed to deliver
137,000 ounces of gold, valued at approximately $40.3 million at prices
determined during various pricing periods in 1998. All such contracts expired
by February 1, 1999. The average price of gold sold under these commitments
was approximately $294 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 costs of the ultimate reclamation and closure of the mine 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, 1998, the Company estimated these
undiscounted future costs, including severance costs, to be approximately
$52.8 million, of which $30.9 million has been accrued.
In the fourth quarter of 1998, the Company accrued an additional $4.7 million
of estimated reclamation liabilities, primarily at Battle Mountain Complex.
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.
69
<PAGE>
In 1993, several special interest groups filed a complaint in U.S. District
Court against Crown Butte Resources Ltd. (together with its wholly-owned
subsidiary, "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. The federal judge hearing the case
stayed all matters in the case in light of an agreement, dated August 12,
1996, between CBR, the United States and certain special interest groups (the
"August 1996 Agreement"), the consummation of which resulted in the
settlement of the case.
The August 1996 Agreement provided 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.
In August 1998, CBR disposed of its interest in the New World project in a
series of transactions pursuant to the terms of an agreement made in
September 1997 between CBR and its principal lessor and the August 1996
Agreement, as amended by a Consent Decree and Settlement Agreement. In
return, the litigation under the federal Clean Water Act was settled, CBR
obtained releases from the parties to the Consent Decree and Settlement
Agreement with respect to further environmental liabilities related to the
New World property, and CBR was paid $65.0 million. Of this, $22.5 million
was immediately surrendered for the completion of reclamation and restoration
programs in the New World District in accordance with the terms of the August
1996 Agreement.
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 Lihir. In connection with the Lihir debt
financing, Niugini Mining guaranteed, until project completion, 30% of
Lihir's obligations under the facility. In August 1998, Niugini Mining's
obligations under the Lihir financing agreement were fulfilled and funds
previously held in escrow were released to Niugini Mining.
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 14. 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 interest rate, foreign currency
exchange rate and commodity price risks. The Company had no material hedged
forward sales contracts outstanding at December 31, 1998.
The Company may be exposed to certain credit-related losses in the event of
nonperformance by the counterparties to hedged 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.
70
<PAGE>
Note 15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information follows:
<TABLE>
<CAPTION>
MILLIONS 1998 1997 1996
-------- ----- ----- ------
<S> <C> <C> <C>
Changes in working capital accounts
Decrease (increase) in accounts receivable $14.7 $ 16.9 $(19.9)
Decrease (increase) in product inventories (4.2) 1.9 (5.5)
Decrease in materials and supplies inventories 2.0 3.5 0.6
Decrease (increase) in other current assets 0.6 3.0 (0.7)
Increase (decrease) in salaries, wages and
benefits payable (2.8) (4.4) 7.4
Decrease in interest payable (4.3) (1.1) (0.3)
Increase (decrease) in accounts payable and
other current liabilities 15.4 (12.2) 13.0
----- ----- ------
Net change in working capital accounts $21.4 $ 7.6 $ (5.4)
===== ====== ======
Cash paid during the year for
Income, mining and withholding taxes,
net of tax refunds $ 5.3 $31.9 $ 28.1
Interest, net of amounts capitalized 21.8 8.2 6.7
</TABLE>
Note 16. 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>
1998 1997
---- ----
Carrying Fair Carrying Fair
MILLIONS Amount Value Amount Value
-------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $240.6 $216.4 $285.0 $254.5
</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, assets held for sale, trade payables and forward
currency contracts approximate their estimated fair values. The Company
considers it impracticable to estimate market value for its non-marketable
equity investments held in First Toronto Investments Limited.
The Company issued corporate guarantees totaling $4.4 million and $6.4
million at December 31, 1998 and 1997, respectively, 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 issued corporate guarantees for $68.7 million and $36.5
million at December 31, 1998 and 1997, respectively, 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.
71
<PAGE>
Note 17. SUMMARIZED FINANCIAL INFORMATION
The following summarized financial information of Battle Mountain Canada Ltd.
is presented in accordance with the Securities Exchange Commission's
reporting requirements as they pertain to the BMCL Exchangeable Shares:
<TABLE>
<CAPTION>
December 31
MILLIONS 1998 1997
-------- ------ ------
<S> <C> <C>
Current assets $220.0 $133.7
Non-current assets 188.2 390.6
------ ------
Total assets $408.2 $524.3
====== ======
Current liabilities $ 56.3 $ 51.8
Non-current liabilities 173.7 208.1
------ ------
Total liabilities 230.0 259.9
Minority interests 10.5 18.7
Shareholder's equity 167.7 245.7
------ ------
Total liabilities and shareholder's equity $408.2 $524.3
====== ======
<CAPTION>
Years ended December 31
MILLIONS 1998 1997 1996
-------- ------ ------ ------
<S> <C> <C> <C>
Sales $144.3 $197.1 $156.3
Costs and expenses 186.0 174.6 110.1
------ ------ ------
Operating income (loss) $(41.7) $ 22.5 $ 46.2
====== ====== ======
Net income (loss) $(76.4) $ 14.7 $ 25.1
====== ====== ======
</TABLE>
The following summarized financial information of Lihir Gold Limited, which
commenced commercial operations on October 1, 1997, is presented in
accordance with the Securities Exchange Commission's reporting requirements
as they pertain to significant subsidiaries, as defined:
<TABLE>
<CAPTION>
December 31
MILLIONS 1998 1997
-------- ------
<S> <C> <C>
Current assets $ 124.5 $ 65.2
Non-current assets 924.2 920.5
-------- ------
Total assets $1,048.7 $985.7
======== ======
Current liabilities $ 74.1 $ 47.1
Non-current liabilities 284.8 305.5
-------- ------
Total liabilities 358.9 352.6
Shareholder's equity 689.8 633.1
-------- ------
Total liabilities and shareholder's equity $1,048.7 $985.7
======== ======
<CAPTION>
Twelve months ended Three months ended
MILLIONS December 31, 1998 December 31, 1997
--------- ----------------- -----------------
<S> <C> <C>
Sales $184.7 $57.0
Costs and expenses 171.2 32.3
------ -----
Operating income $ 13.5 $24.7
====== =====
Net income (loss) $(10.3) $11.8
====== =====
</TABLE>
72
<PAGE>
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
- ----------------- ----- ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
First quarter $ 78.9 $ 3.3 $ (1.6) $ (.02) $ (.02) $ 0.025 $ 0.8125
Second quarter 68.3 (2.2) (9.3) (.05) (.05) - 0.8125
Third quarter 70.0 3.7 (7.7) (.04) (.04) 0.025 0.8125
Fourth quarter (1) 59.4 (204.9) (222.7) (.98) (.98) - 0.8125
--------- --------- --------- -------- ---------
Total year $ 276.6 $ (200.1) $ (241.3) (1.08) (1.08) $ 0.050 $ 3.2500
========= ========= ========= ======== =========
1997
- ----
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 year $ 344.9 $ (3.3) $ (8.8) (.07) (.07) $ 0.050 $ 3.2500
========= ========= ========= ======== =========
</TABLE>
(1) Includes before and after-tax charges of $194.9 million for asset
write-downs (see Note 6).
(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).
73
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Nominees" and "Directors
with Terms Expiring in 2000 and 2001" set forth under "Election of Three
Directors and Director Compensation" in the Company's definitive Proxy
Statement for its 1999 annual meeting of shareholders, as filed within 120
days of December 31, 1998, pursuant to Regulation 14A under the Securities
and Exchange Act of 1934, as amended (the "Company's 1999 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 Three Directors and Director
Compensation" and "Executive Compensation" (other than the Compensation and
Stock Option Committee Report on Executive Compensation) in the Company's
1999 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 Three Directors and Director Compensation" in the
Company's 1999 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 1999 Proxy Statement is incorporated
herein by reference.
74
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
As to financial statements and supplementary information,
reference is made to "Index to Consolidated Financial Statements"
on page 48 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:
One report on Form 8-K was filed during the fourth quarter of 1998.
The report on Form 8-K dated November 16, 1998 was submitted on
November 18, 1998 as the Company's third quarter earnings release.
75
<PAGE>
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 26, 1999
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 or
her 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 or her 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
(a) Principal Executive Officer
/s/ Ian D. Bayer President and Chief February 26, 1999
- ----------------------------------- Executive Officer and
Ian D. Bayer Director
(b) Principal Financial Officer
/s/ Phillips S. Baker, Jr. Vice President February 26, 1999
- ----------------------------------- and Chief Financial
Phillips S. Baker, Jr. Officer
(c) Principal Accounting Officer
/s/ Jeffrey L. Powers Vice President February 26, 1999
- ----------------------------------- and Controller
Jeffrey L. Powers (Chief Accounting
Officer)
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
(c) Other Directors
/s/ Douglas J. Bourne Director February 26, 1999
- -----------------------------------
Douglas J. Bourne
/s/ David L. Bumstead Director February 27, 1999
- -----------------------------------
David L. Bumstead
/s/ Delo H. Caspary Director February 26, 1999
- -----------------------------------
Delo H. Caspary
/s/ Charles E. Childers Director February 26, 1999
- -----------------------------------
Charles E. Childers
/s/ Karl E. Elers Director February 26, 1999
- -----------------------------------
Karl E. Elers
/s/ David W. Kerr Director February 26, 1999
- -----------------------------------
David W. Kerr
/s/ James W. McCutcheon Director February 26, 1999
- -----------------------------------
James W. McCutcheon, Q.C.
/s/ Mary Mogford Director February 26, 1999
- -----------------------------------
Mary Mogford
/s/ William A. Wise Director February 26, 1999
- -----------------------------------
William A. Wise
</TABLE>
77
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
*2(a) -- Plan of Arrangement of Hemlo Gold Mines Inc. under Section 182 of the
Business Corporations Act (Ontario) (Annex D to Exhibit 20(a), Joint
Management Information Circular and Proxy Statement, to the Company's
Current Report on Form 8-K dated June 11, 1996).
*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)(1) -- 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(a)(2) Third Amendment to Rights Agreement, dated and effective as of November 10,
1998, between the Company and The Bank of New York, as Rights Agent.
*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).
E-1
<PAGE>
*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).
*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 (Exhibit 10(a)(2) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 File No. 1-9666).
+*10(b)(1) -- 1985 Stock Option Plan of the Company, as amended and restated effective
April 7, 1993 (Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993).
+*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).
+-*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 in 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 (Exhibit 10(c)(2) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997; File No. 1-9666).
+*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 (Exhibit 10(e)(2) to
the Company's Annual Report on Form 10-K for the year ended December 31,
1997; File No. 1-9666).
E-2
<PAGE>
*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).
*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 Quarterly Report on Form 10-Q
for the quarter 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).
E-3
<PAGE>
+*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.
+-*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).
*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).
+-*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)(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(m)(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(n)(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(n)(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).
E-4
<PAGE>
*10(n)(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).
*10(o)(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(o)(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(p) -- 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.
21 -- Subsidiaries of the Company.
23 -- Consent of PricewaterhouseCoopers LLP.
27 -- Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated by reference as indicated.
+ Represent management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Annual Report by Item
601(10)(iii) of Regulation S-K.
- - 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(l)
above with each of Messrs. Bayer, Atkinson, Baylis and Keyes.
E-5
<PAGE>
Exhibit 4(a)(2)
THIS THIRD AMENDMENT TO RIGHTS AGREEMENT, dated as of November 10, 1998,
is between BATTLE MOUNTAIN GOLD COMPANY, a Nevada corporation (the
"Company"), and THE BANK OF NEW YORK, as rights agent (the "Rights Agent").
RECITALS
WHEREAS, the Company and the Rights Agent are parties to that certain
Rights Agreement dated as of November 10, 1988, as amended as of July 30,
1992 and as further amended and restated as of July 19, 1996 (the "Rights
Agreement");
WHEREAS, the parties desire to amend the Rights Agreement in accordance
with Section 26 of the Rights Agreement; and
WHEREAS, the Distribution Date in connection with the Rights Agreement
has not occurred.
NOW THEREFORE, the parties hereby agree as follows:
1. AMENDMENT OF SECTION 1(a). The penultimate sentence of Section
1(a) is hereby amended by adding the following proviso immediately prior to
the period (.) at the end of such sentence:
"and PROVIDED, FURTHER, that neither the initial acquirer ("Acquirer
A"), nor the first subsequent acquirer from Acquirer A ("Acquirer B"
and together with Acquirer A, the "Subsequent Acquirer") of all
Exchangeable Shares (or Common Stock acquired in exchange therefor)
held by Noranda in connection with and as a result of the consummation
of the Arrangement referred to in the Combination Agreement or a block
of such shares in excess of twenty percent (20%) of the total combined
outstanding Common Stock and Exchangeable Shares as of the date of
such acquisition (such shares an "Exempted Block"), which Subsequent
Acquirer and its Affiliates or Associates do not beneficially own any
Exchangeable Shares or Common Stock at the time of such acquisition,
shall be or become an Acquiring Person solely as a result of the
Subsequent Acquirer becoming the Beneficial Owner of such shares
comprising the Exempted Block, but shall thereafter become an
Acquiring Person if (I) the Subsequent Acquirer or an Affiliate or
Associate of the Subsequent Acquirer shall purchase or otherwise
become the Beneficial Owner of any additional Exchangeable Shares or
shares of Common Stock or (II) any Person (or Persons) who is (or
collectively are) the Beneficial Owner of any Exchangeable Shares or
shares of Common Stock shall become an Affiliate or Associate of the
Subsequent Acquirer unless (x) in either such case the Subsequent
Acquirer together with all Affiliates and Associates of the Subsequent
Acquirer is not then the Beneficial Owner of 20% or more of the total
combined then outstanding shares of
<PAGE>
Common Stock and Exchangeable Shares or (y) the Subsequent Acquirer's
increase in Beneficial Ownership of shares of Common Stock or
Exchangeable Shares is solely as a result of a reduction in the number
of shares of Common Stock or Exchangeable Shares outstanding due to the
purchase or other acquisition of Common Stock or Exchangeable Shares
outstanding by the Company or any Subsidiary thereof, and the Subsequent
Acquirer does not become the Beneficial Owner of any additional
Exchangeable Shares or shares of Common Stock after such reduction in
the number of outstanding shares."
2. AMENDMENT OF SECTION 1(i). Section 1(i) is hereby amended and
restated in its entirety to read as follows:
"(i) "Final Expiration Date" shall mean the close of business on
November 10, 2008."
3. AMENDMENT TO SECTION 26. The following shall be added as the final
sentence of Section 26:
"Notwithstanding the foregoing, the last proviso of the penultimate
sentence of Section 1(a) shall not be amended without the consent
(which consent shall not be unreasonably withheld) of (a) Noranda, if
such amendment is proposed prior to any Person's becoming a Subsequent
Acquirer or (b) Acquirer A if Acquirer A has acquired and continues to
hold an Exempted Block at the time such an amendment is proposed."
4. AMENDMENT OF EXHIBIT B TO THE RIGHTS AGREEMENT. Exhibit B to the
Rights Agreement, the Form of Rights Certificate, is hereby amended and replaced
in its entirety by Exhibit B hereto.
5. EFFECTIVENESS. This Amendment shall be deemed effective as of
November 10, 1998 as if executed on such date. Except as amended hereby, the
Rights Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
6. MISCELLANEOUS. This Amendment shall be deemed to be a contract made
under the laws of the State of Nevada and for all purposes shall be governed by
and construed in accordance with the laws of such state applicable to contracts
to be made and performed entirely within such state. This Amendment may be
executed in any number of counterparts, each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument. If any provision, covenant or
restriction of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, illegal or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Amendment shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
<PAGE>
EXECUTED as of the date set forth above.
Attest: BATTLE MOUNTAIN GOLD COMPANY
/s/ Elizabeth A. Cook /s/ Ian D. Bayer
- --------------------------------- -------------------------------------
Name: Elizabeth A. Cook Name: Ian D. Bayer
Title: Associate General Counsel Title: President and Chief Executive
and Assistant Secretary Officer
Attest: THE BANK OF NEW YORK
/s/ Steven Myers /s/ James Dimino
- --------------------------------- -------------------------------------
Name: Steven Myers Name: James Dimino
Title: Assistant Treasurer Title: Assistant Vice President
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
COMPUTATIONS OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
MILLIONS, EXCEPT PER SHARE AMOUNTS 1998 1997 1996
- ---------------------------------- --------- -------- ---------
BASIC LOSS PER SHARE
<S> <C> <C> <C>
Net loss
Net loss $ (241.3) $ (8.8) $ (74.3)
Deduct dividends on preferred shares (7.5) (7.5) (7.5)
--------- -------- --------
Net loss applicable to common stock $ (248.8) $ (16.3) $ (81.8)
========= ======== ========
Shares
Weighted average number of common shares outstanding 229.8 229.7 229.6
========= ======== ========
Basic loss per common share $ (1.083) $ (0.071) $ (0.356)
========= ======== ========
DILUTED LOSS PER SHARE
Net loss applicable to common stock $ (248.8) $ (16.3) $ (81.8)
========= ======== ========
Shares
Weighted average number of common shares outstanding 229.8 229.7 229.6
Assuming exercise of stock options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options - - -
--------- -------- --------
Weighted average number of common shares outstanding, as adjusted 229.8 229.7 229.6
========= ======== ========
Diluted loss per share, assuming conversion $ (1.083) $ (0.071) $ (0.356)
========= ======== ========
CALCULATIONS OF CONVERSIONS OF SECURITIES PRODUCING ANTI-DILUTIVE RESULTS
CONVERSION OF PREFERRED SHARES
Net loss
Net loss applicable to common stock $ (248.8) $ (16.3) $ (81.8)
Effect on net loss if preferred shares were converted 7.5 7.5 7.5
--------- -------- --------
Net loss, as adjusted $ (241.3) $ (8.8) $ (74.3)
========= ======== ========
Shares
Weighted average number of common shares outstanding 229.8 229.7 229.6
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 240.8 240.7 240.6
========= ======== ========
Diluted loss per share, assuming conversion $ (1.002) $ (0.037) $ (0.309)
========= ======== ========
CONVERSION OF DEBENTURES
Net loss
Net loss applicable to common stock $ (248.8) $ (16.3) $ (81.8)
Effect on net loss if debentures were converted 3.9 - -
--------- -------- --------
Net loss, as adjusted $ (244.9) $ (16.3) $ (81.8)
========= ======== ========
Shares
Weighted average number of common shares outstanding 229.8 229.7 229.6
Effect on average shares outstanding if debentures were converted 4.8 4.8 4.8
--------- -------- --------
Weighted average number of common shares outstanding, as adjusted 234.6 234.5 234.4
========= ======== ========
Diluted loss per share, assuming conversion $ (1.044) $ (0.070) $ (0.349)
========= ======== ========
CONVERSION OF OPTIONS
Net loss
Net loss applicable to common stock $ (248.8) $ (16.3) $ (81.8)
========= ======== ========
Shares
Weighted average number of common shares outstanding 229.8 229.7 229.6
Effect on average shares outstanding if options were converted 0.1 0.1 0.5
--------- -------- --------
Weighted average number of common shares outstanding, as adjusted 229.9 229.8 230.1
========= ======== ========
Diluted loss per share, assuming conversion $ (1.082) $ (0.071) $ (0.356)
========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF BATTLE MOUNTAIN GOLD COMPANY
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Organization
---------- ------------
<S> <C>
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 Condor Nevada
Compania Minera La Barca S.A. (88%) Bolivia
Compania Minera Vicuna Nevada
Crown Butte Mines, Inc. (60%) Montana
Crown Butte Resources Ltd. (60%) Canada
Empresa Minera Inti Raymi S.A. (88%) Bolivia
Empresa Minera La Joya S.R.L. (75.5%) Bolivia
Hemlo 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
</TABLE>
<PAGE>
Exhibit 23
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) and Form S-3 (No. 333-51701) of Battle Mountain Gold
Company of our report dated February 2, 1999 appearing on page 49 of this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Houston, Texas
March 2, 1999
<TABLE> <S> <C>
<PAGE>
<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,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 155,300
<SECURITIES> 0
<RECEIVABLES> 13,800
<ALLOWANCES> 0
<INVENTORY> 35,900
<CURRENT-ASSETS> 315,300
<PP&E> 827,200
<DEPRECIATION> 488,200
<TOTAL-ASSETS> 694,100
<CURRENT-LIABILITIES> 103,000
<BONDS> 203,600
0
110,600
<COMMON> 12,900
<OTHER-SE> 124,200
<TOTAL-LIABILITY-AND-EQUITY> 694,100
<SALES> 276,600
<TOTAL-REVENUES> 276,600
<CGS> 242,900
<TOTAL-COSTS> 242,900
<OTHER-EXPENSES> 219,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,800
<INCOME-PRETAX> (227,000)
<INCOME-TAX> 13,800
<INCOME-CONTINUING> (241,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (248,800)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
