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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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.
---
The aggregate market value of the common stock held by non-affiliates of
the registrant was approximately $271 million as of April 30, 2000, 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 $338 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
April 30, 2000 is 131,526,469, not including 98,859,948 shares of Exchangeable
Shares of the registrant's wholly-owned subsidiary, Battle Mountain Canada
Ltd., that entitle holders to economically equivalent 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: NONE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Items 1 and 2. Business and Properties....................................................... 1
Item 3. Legal Proceedings.................................................................. 30
Item 4. Submission of Matters to a Vote of Security Holders................................ 30
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.............. 31
Item 6. Selected Financial Data............................................................ 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................... 45
Item 8. Financial Statements and Supplementary Data........................................ 46
Item 9. Change in and Disagreements with Accountants on Accounting and Financial
Disclosure......................................................................... 76
PART III
Item 10. Directors and Executive Officers of the Registrant................................. 76
Item 11. Executive Compensation............................................................. 77
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 83
Item 13. Certain Relationships and Related Transactions..................................... 84
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 85
</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, the inability to maintain
or put in place necessary environmental or reclamation financial assurances,
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>
RESTATEMENT
After issuing Battle Mountain's 1999 financial statements and filing the
Form 10-K with the Securities and Exchange Commission, following extensive
discussion with its independent accountants, management determined it was
necessary to revise the financial statement presentation of Battle Mountain's
former interest in Niugini Mining Limited. In 1998, Battle Mountain resolved
to dispose of its 50.45% equity interest in Niugini Mining Limited and
deconsolidated the subsidiary, classifying it as an asset held for sale.
However, in accordance with provisions of Statement of Financial Accounting
Standards No. 94, "Consolidation of all Majority-Owned Subsidiaries," Battle
Mountain's 1999 and 1998 financial statements and related disclosures are
restated from amounts previously reported to properly reflect the full
consolidation of Battle Mountain's interest in Niugini Mining. See Note 19 of
Notes to Consolidated Financial Statements under Item 8 for the principal
effects of this restatement.
For the purpose of this Form 10-K/A, Battle Mountain Gold has amended
and restated in its entirety the 1999 Form 10-K orignally filed. In order to
preserve the nature and character of the disclosures as of March 23, 2000,
the date on which the 1999 Form 10-K was originally filed, no attempt has
been made in this Form 10-K/A to modify or update such disclosures except as
required to reflect the effects of the restatement.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
BUSINESS AND PROPERTIES OF THE COMPANY
INTRODUCTION
Battle Mountain Gold Company was incorporated in Nevada in 1985. We
are engaged, directly or through our subsidiaries, in the gold mining
business in the United States, Canada, Bolivia and Australia, and in the
exploration and evaluation of precious metals properties primarily in Latin
America, Australia, Canada and the United States. Battle Mountain Gold
Company is headquartered in Houston, Texas, and our common stock is traded
principally on the New York Stock Exchange. Battle Mountain Gold Company
(together with its subsidiaries, unless the context otherwise requires), is
referred to as "Battle Mountain" or "the Company".
On July 19, 1996, Battle Mountain 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., the new
name for the former Hemlo Gold ("Battle Mountain Canada"), and Battle
Mountain acquired all of the common shares of Battle Mountain Canada. The
Battle Mountain Canada exchangeable shares entitle holders to dividends and
other rights economically equivalent to Battle Mountain common stock,
including the right to vote through a voting trust at Battle Mountain
stockholder meetings, and are exchangeable at the option of holders into
Battle Mountain Gold common stock on a one-for-one basis. See "Description of
Exchangeable Shares of Battle Mountain Canada Ltd." under Item 5.
At December 31, 1999, we had four operating mines in three countries
and on three continents: the Golden Giant mine in Ontario, Canada; the
Holloway mine (in which Battle Mountain Gold has an 84.65% attributable
interest) in Ontario, Canada; the Kori Kollo mine (88% attributable interest)
in Oruro, Chuquina, Bolivia; and the Vera/Nancy mine (50% attributable
interest) in Queensland, Australia. Additionally, we are developing the
Phoenix project at the Battle Mountain Complex near Battle Mountain, Nevada.
We also are carrying out an international exploration and acquisition program
in order to expand reserves.
1
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Production from our Reona heap leach facility at the Battle Mountain
Complex continued throughout 1999, although it was placed on care and
maintenance effective January 1, 1999.
The Company's attributable gold production was 770,000 ounces in
1999 as compared with 889,000 ounces in 1998; however, our attributable gold
production in 1998 included a total of 64,000 ounces attributable to the
Company's interest in Lihir and San Cristobal mines. Our attributable
percentage of mine production in the Lihir and San Cristobal mines is not
included in the 770,000 ounces of gold produced in 1999 as the Company had
made the decision to dispose of its investment in Niugini Mining effective
December 31, 1998. See "-Niugini Mining-Lihir Gold Limited".
See Note 13 of Notes to Consolidated Financial Statements under Item
8 for information on the Company's revenues, operating income and assets by
geographic segment.
AGGREGATE OPERATING DATA
The following table provides aggregate operating data for all operating
mines for 1999 and 1998. Although production from residual heap leaching
continued throughout 1999, production data for the Reona mine at the Battle
Mountain Complex is not presented for 1999 because it was placed on care and
maintenance effective January 1, 1999. Data for the Lihir and San Cristobal
mines are not included in 1999 as the Company had made the decision to
dispose of its investment in Niugini Mining effective December 31, 1998.
<TABLE>
<CAPTION>
1999 1998
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COMPANY COMPANY
AGGREGATE OPERATING DATA NET(1) 100%(2) NET(1) 100%(3)
------------------------ ----- ----- ----- ------
<S> <C> <C> <C> <C>
Gold production (000s oz)....................................... 770 806 889 992
Gold sales (000s oz)............................................ 771 806 884 987
Average realized gold price per oz.............................. $278 $278 $303 $306
Silver production (000s oz)..................................... 759 852 1,034 1,187
Silver sales (000s oz).......................................... 759 853 1,032 1,186
Average realized silver price per oz............................ $5.22 $5.22 $5.50 $5.50
Weighted average cost per gold ounce produced(4):
Cash production costs........................................ $164 $165 $160 $166
Depreciation, depletion and amortization..................... 79 79 94 91
Reclamation and mine closure costs........................... 8 8 5 5
----- ----- ----- -----
Total operating costs................................. $251 $253 $259 $262
===== ===== ===== =====
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</TABLE>
(1) Represents the Company's attributable interest.
(2) Includes 100% of the Kori Kollo mine plus Battle Mountain's interest in
proportionately consolidated joint ventures.
(3) Includes 100% of the Kori Kollo and San Cristobal mines, Niugini Mining's
share of the Lihir mine, and Battle Mountain's interest in proportionately
consolidated joint ventures.
(4) Effective January 1, 1999, current and prior period production costs are
presented on an ounces-produced basis, versus and ounces-sold basis as
previously reported. 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.
2
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GOLD PRICE VOLATILITY
The Company's profitability is significantly affected, both positively
and negatively, 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 our control, is impossible for
management of the Company to predict. While we are a low cost gold producer,
a sustained period of low gold prices would have a material adverse affect on
our financial position and results of operations. If revenue from gold sales
were to decline to a point below our cash production costs and remain below
that level for any substantial period, we could determine that it is not
economically feasible to continue commercial production at some or all of our
operations or to continue the development of some or all of our projects. 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>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
High.......................... $326 $313 $367 $415 $397
Low........................... $253 $273 $283 $367 $374
Average....................... $279 $294 $331 $388 $384
</TABLE>
The Company has implemented a limited number of hedges. 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 15 of Notes to Consolidated Financial Statements
under Item 8.
OPERATIONS, COSTS AND RESERVE DATA
The following tables contain a summary of our operations, costs and
reserve data for gold, silver and copper. The data for 1998 and 1999 gold
reserves were calculated using a gold price of $325. The estimated tonnages
and grades in the data for 1998 and 1999 gold reserves were determined by the
Company's Senior Vice President - Operations and Exploration together with
several of our geologists. The estimation of reserves and future mining
operations can be affected by numerous factors. See "Certain Factors
Affecting Reserves, Foreign Investments and Properties."
3
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PRODUCTION, COSTS AND RESERVES DATA
FOR GOLD
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MINE OR PROJECT PRODUCTION AND COST DATA (1)
- -------------------------------------------------------- ---------------------------------------------------------
Attributable Gold ounces Percent of Cash Total
% of mine recovered total BMG production operating
production Year (000s) production costs ($/oz) costs ($/oz)
- -------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Golden Giant 100% 1999 356 46 145 215
------------------------- ---------------------------------------------------------
1998 366 42 122 192
- -------------------------------------------------------- ---------------------------------------------------------
Kori Kollo 88% 1999 256 33 190 294
------------------------- ---------------------------------------------------------
1998 295 33 165 303
- -------------------------------------------------------- ---------------------------------------------------------
Holloway 84.65% 1999 91 12 198 331
------------------------- ---------------------------------------------------------
1998 80 9 216 332
- -------------------------------------------------------- ---------------------------------------------------------
Vera/Nancy 50% 1999 67 9 124 168
------------------------- ---------------------------------------------------------
1998 47 5 135 168
- -------------------------------------------------------- ---------------------------------------------------------
Other (2) 1999
------------------------- ---------------------------------------------------------
1998 101 11 253 356
- -------------------------------------------------------- ---------------------------------------------------------
Totals 1999 770 100 164 251
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1998 889 100 160 259
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</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MINE OR PROJECT PROVEN AND PROBABLE RESERVES DATA
- ------------------------------------------------------ -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Metal- Percent
Attributable Average Contained lurgical of total
% of mine Reserves grade ounces Recovery BMG
reserves Year (000s tons) (oz/ton) (000s) factor (%) reserves
- ------------------------------------------------------ -----------------------------------------------------------
Golden Giant 100% 1999 6,157 0.281 1,725 96 17
------------------------- -----------------------------------------------------------
1998 7,647 0.278 2,130 96 23
- ------------------------------------------------------ -----------------------------------------------------------
Kori Kollo 88% 1999 28,603 0.046 1,330 63 14
------------------------- -----------------------------------------------------------
1998 28,849 0.049 1,410 63 16
- ------------------------------------------------------ -----------------------------------------------------------
Holloway 84.65% 1999 4,040 0.190 765 95 8
------------------------- -----------------------------------------------------------
1998 4,180 0.197 825 95 9
- ------------------------------------------------------ -----------------------------------------------------------
Battle Mountain 100% 1999 150,707 0.038 5,680 82 57
------------------------- -----------------------------------------------------------
Complex (3) 1998 81,737 0.043 3,515 85 39
- ------------------------------------------------------ -----------------------------------------------------------
Vera/Nancy 50% 1999 1,151 0.382 440 96 4
------------------------- -----------------------------------------------------------
1998 1,021 0.394 400 96 4
- ------------------------------------------------------ -----------------------------------------------------------
Other (4) 1999
------------------------- -----------------------------------------------------------
1998 825 9
- ------------------------------------------------------ -----------------------------------------------------------
Totals 1999 9,940 100
------------------------- -----------------------------------------------------------
1998 9,105 100
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Effective January 1, 1999, current and prior period production costs are
presented on an ounces-produced basis, versus an ounces-sold basis as
previously reported. Cash production costs are presented in accordance
with guidelines established by The Gold Institute. Royalties paid to the
Bolivian government for the Kori Kollo mine are treated as income tax for
per ounce cost calculations and therefore are not included in these cost
calculations.
(2) Includes the Reona, Lihir and San Cristobal mines. Production data for the
Reona mine at the Battle Mountain Complex is not presented for 1999 because
it was placed on care and maintenance effective January 1, 1999. Data for
the Lihir and San Cristobal mines are not included in 1999 as Battle
Mountain had made a decision to dispose of its investment in Niugini
Mining effective December 31, 1998.
(3) Includes the Phoenix project and assumes permitting and approvals of that
project.
(4) No proven and probable reserves are attributed to the Crown Jewel
project for 1999 due to an adverse ruling by an administrative tribunal
relating to certain permits required for the project as proposed and
uncertainties arising therefrom.
4
<PAGE>
PRODUCTION AND RESERVES DATA
FOR SILVER AND COPPER
<TABLE>
<CAPTION>
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MINE OR PROJECT PRODUCTION DATA
--------------------------------------- ------------------------------
Attributable
% of mine Silver ounces
production Year recovered (000s)
--------------------------------------- ------------------------------
<S> <C> <C> <C>
Golden Giant 100% 1999 22
------------ ------------------------------
1998 26
--------------------------------------- ------------------------------
Kori Kollo 88% 1999 687
------------ ------------------------------
1998 852
--------------------------------------- ------------------------------
Vera/Nancy 50% 1999 50
------------ ------------------------------
1998 40
--------------------------------------- ------------------------------
Other (1) 1999
------------ ------------------------------
1998 117
--------------------------------------- ------------------------------
Totals (2) 1999 759
------------ ------------------------------
1998 1,035
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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>
Kori Kollo 88% 1999 6,850 na
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1998 7,555 na
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Battle Mountain 100% 1999 42,723 426,728
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Complex (2) 1998 22,605 182,592
------------------------------------------------- --------------------------------------
Vera/Nancy 50% 1999 377 na
---------------------- --------------------------------------
1998 400 na
------------------------------------------------- --------------------------------------
Other (3) 1999
---------------------- --------------------------------------
1998 420 na
------------------------------------------------- --------------------------------------
Totals 1999 49,950 426,728
---------------------- --------------------------------------
1998 30,980 182,592
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</TABLE>
(1) Includes the Reona and San Cristobal mines. Production
data for the Reona mine at the Battle Mountain Complex is
not presented for 1999 because it was placed on care and
maintenance effective January 1, 1999. Data for the San
Cristobal mine is not included in 1999 as Battle Mountain
had made a decision to dispose of its investment in
Niugini Mining effective December 31, 1998.
(2) Includes the Phoenix project and assumes permitting and
approvals of that project.
(3) No proven and probable reserves are attributed to the
Crown Jewel project for 1999 due to an adverse ruling by
an administrative tribunal relating to certain permits
required for the project as proposed and uncertainties
arising therefrom.
5
<PAGE>
[WORLD MAP DESCRIPTION]
MAP OF NORTH AMERICA
The graphics on pages 6 and 7 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; Exploration Offices in Reno, Nevada; Timmins,
Ontario; and Torreon, Mexico. The North America map also includes the
following operating locations: San Luis 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.
6
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[MAP OF SOUTH AMERICA]
The South America map references the Inti Raymi corporate office in La Paz,
Bolivia; the Kori Kollo Mine in central Bolivia; and Exploration Offices in
Lima, Peru and San Juan, Argentina. The Australian map references the Pajingo
Complex in Queensland, Australia; and the Lihir Mine northeast of mainland
Papua New Guinea.
7
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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 1999 presented herein
were calculated using a gold price of $325 per ounce. We have reviewed and
generally estimated the effects of using a $275, $300 and $350 per ounce gold
price on Battle Mountain's reserves. Based on these estimates, the Company's
total reserves would be reduced by approximately 4% using a gold price of
$300 per ounce and 9% using a gold price of $275 per ounce, and would be
increased by approximately 4% using a gold price of $350 per ounce. Such
estimates should not be relied upon as being indicative of estimates of the
Company's total reserves at other gold prices.
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. Also, sustained market price fluctuations of gold and
silver, as well as increased production costs or reduced recovery rates, may
ultimately result in an adjustment of ore reserves. Moreover, many factors
relating to each mine, such as the design of the mine plan, unexpected
operating and processing problems, problems with ground stability, increases
in the stripping ratio and the complexity of the metallurgy of an ore body,
may adversely affect 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.
Our production in 1999 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, and
uncertain political and economic environments as well as risks of war and
civil disturbances or other risks which may limit or disrupt production and
markets, restrict the movement of funds or result in the deprivation of
contract rights or the taking of property by nationalization or appropriation
without fair compensation. Although the Company has not experienced any
significant problems in foreign countries arising from such risks, there can
be no assurance that such problems will not arise in the future.
A significant portion of the Company's reserves comes from the
Phoenix project in Nevada. Risks associated with conducting business in the
United States, including risks relating to permitting and land tenure, are
therefore significant to the Company. See "--Environmental Matters" and
"--Property Interests".
The Company holds a 9.74% equity interest in Lihir Gold Limited, the
owner of the Lihir gold mine located on Lihir Island in Papua New Guinea. The
Papua New Guinea government maintains a policy favoring direct foreign
investment. 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.
8
<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."
OFFICES
Battle Mountain's corporate office is located in Houston, Texas.
Battle Mountain Canada's corporate office is located in Marathon, Ontario,
Canada. Battle Mountain's exploration program is managed from its office in
Houston, Texas. Other exploration offices are located in Reno, Nevada;
Manitouwadge and Timmins, Ontario, Canada; Torreon, Mexico; San Juan,
Argentina; and Lima, Peru. Empresa Minera Inti Raymi S.A., 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 Battle Mountain Canada 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, the first
gold bullion was poured in April, 1985, and the Golden Giant mine reached the
design rate of approximately 3,300 tons of ore per day during the fourth
quarter of 1988. The Golden Giant mine produced approximately 356,000 ounces
of gold in 1999 and 366,000 ounces of gold in 1998.
Around the Golden Giant mine, Battle Mountain Canada holds a land
position consisting of an area of 6,155 acres under eight standard mining
leases between Battle Mountain Canada 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 Battle Mountain Canada for a further
term of 21 years upon application to the appropriate Ministry and the payment
of the prescribed fees. See "-- Property Interests -- Canada."
Limited 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 $333.7 million, with a net book value of $88.4 million at
December 31, 1999.
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 DEG., a dip to the northeast of 60 DEG. to 70 DEG.
and an average thickness of about 20 meters. The gold mineralization occurs
along the contact between metasedimentary and felsic metavolcanic rocks. The
ore zone is pyrite-rich and occasionally barite-rich. The main zone is
tabular in nature and is characterized by its regularity and consistent gold
values. The main zone is cut by several diabase dykes. The gold occurs
primarily as finely-disseminated native gold with minor quantities of silver
in pyritiferous schists. The lower zone lies 30 to 80 meters
stratigraphically below the main zone. It is similar to the main zone, is
narrower and less continuous, and for the most part is below the lowest
current mining level.
9
<PAGE>
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-pulp circuit. The mine is subject to the environmental laws
of Canada and the Province of Ontario. See "-- Environmental Matters --
Canada."
KORI KOLLO
Battle Mountain owns 88% of Empresa Minera Inti Raymi S.A., 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.
The Company's attributable gold production decreased in 1999 to
256,000 ounces compared with 295,000 ounces in 1998 due to lower head grades.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
The total cost of the property and its associated plant and
equipment is $229.3 million, with a net book value of $51.1 million at
December 31, 1999.
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-pulp 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."
HOLLOWAY
The Holloway mine, in which Battle Mountain Canada has an 84.65%
interest through a joint venture (the "Holloway Joint Venture"), is located
approximately 35 miles east of Matheson in Ontario, Canada. The remaining
15.3% interest in the Holloway Joint Venture is held by Teddy Bear Valley
Mines, Limited. The Holloway Joint Venture was formed in 1992, with Battle
Mountain Canada as the operator. The three separate claims within the mine
are subject to net profits royalty interests. As of December 31, 1999, Battle
Mountain Canada also had a 5.3% equity interest in Teddy Bear Valley Mines,
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. Access to the Holloway mine is by way of a
driveway-type exit off of a provincial highway. The Holloway mine
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<PAGE>
produced approximately 91,000 attributable ounces of gold for 1999 compared
with 80,000 attributable ounces in 1998. The increase in production by almost
14% in 1999 was 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 $99.4 million, with a net book
value of $71.0 million at December 31, 1999.
GEOLOGY. The various claim blocks contain a gold deposit called the
Lightning Zone. The Lightning Zone gold deposit occurs at the contact between
altered mafic volcanic rocks and underlying ultramafic rocks. The deposit
occurs adjacent to the Destor-Porcupine Fault Zone which runs east-west from
Timmins, Ontario to Destor, Quebec, through Harker and Holloway Townships. The
Destor-Porcupine Fault Zone is a regional structural feature which is closely
associated with many gold deposits in the area. The deposit strikes east and
west for 2,600 feet and dips an average 50 DEG. to 70 DEG. to the south. The
deposit starts at 660 feet below the surface and extends to 2,600 feet below
the 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. Battle Mountain
Canada 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 Battle Mountain 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 and Reona was placed
on care and maintenance effective January 1, 1999. Sales resulting from
residual gold recoveries from the Reona mine are netted against production
costs for financial statement purposes.
Battle Mountain holds title to the Battle Mountain property in the
form of fee land, unpatented lode, placer and millsite claims and leased
claim acreage. See "-- Property Interests -- United States."
The total cost of the property and its associated plant and
equipment is $63.0 million, with a net book value of $52.1 million at
December 31, 1999.
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.
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<PAGE>
MINING, PROCESSING AND ENVIRONMENTAL COMPLIANCE. Battle Mountain
conducted its operations at the Battle Mountain Complex utilizing
conventional open pit mining methods. Reona was placed on care and
maintenance effective January 1, 1999. 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."
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. 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. Milling
facilities were expanded in 1999 and production nearly doubled by the end of
the fourth quarter in 1999. The Company's attributable production in 1999 was
approximately 67,000 ounces, as compared with 47,000 ounces in 1998.
The Company's joint venture interest share of the total cost of the
property and its associated plant and equipment is $36.4 million, with a net
book value of $31.4 million at December 31, 1999.
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 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."
RECLAMATION ACTIVITIES AT NON-OPERATING MINES
SAN LUIS
The San Luis property is 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.
Most required reclamation work has been completed. In 1999, the Colorado
Department of Public Health and the Environment issued a Notice of Violation
and Cease and Desist Order to Battle Mountain, alleging discharges at the San
Luis mine to waters not permitted under
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<PAGE>
the Colorado Water Quality Control Act. See "--Environmental Matters --United
States--San Luis." Battle Mountain accrued $9.5 million in the third quarter
of 1999 to address long-term water-quality issues at the San Luis property.
It is reasonably possible that this estimate may change in future reporting
periods as further information becomes available.
The total cost of the property and its associated plant and
equipment was $55.4 million, with a net book value of $2.1 million at
December 31, 1999.
MINING, PROCESSING AND ENVIRONMENTAL COMPLIANCE. Mining operations
at San Luis were conducted utilizing conventional open pit mining methods.
Ore was processed at a mill in a carbon-in-pulp cyanide leach circuit.
Closure 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
Battle Mountain Canada owns 60% of the outstanding stock of Crown Butte
Resources Ltd., a Canadian public company listed on The Toronto Stock
Exchange. Crown Butte Resources, through a wholly-owned subsidiary (together
with Crown Butte Resources "Crown"), owned the New World project in Montana.
In 1998, Crown disposed of its interest in the New World project in a series
of transactions in accordance with the terms of a Consent Decree and
Settlement Agreement. 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. In 1999, the
shareholders of Crown Butte Resources voted in favor of the voluntary
liquidation and dissolution of the corporation and an initial distribution
was made. Pursuant to such distribution, Battle Mountain Canada received
$16.5 million. Crown Butte Resources anticipates that a further small
distribution will follow upon the winding up of the Company.
DEVELOPMENT PROJECTS
BATTLE MOUNTAIN COMPLEX-PHOENIX
At the Battle Mountain Complex in Nevada, work on the Phoenix
project advanced significantly in 1999 resulting in improved reserves and
economics. Additional reserve delineation work conducted by the Company at
Phoenix during 1999 resulted in an increase in estimated gold reserves of
approximately 2,165,000 contained ounces. As a result, total estimated proven
and probable Phoenix gold reserves now stand at 5,680,000 contained ounces.
Additional drilling is planned in 2000 in an effort to further expand the
reserves. The Company is preparing a feasibility study and currently expects
future capital costs, excluding capitalized interest, to be in the range of
$160 million to $170 million. Approximately $42.7 million had been spent
through December 31, 1999. 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."
We are proceeding with permitting of the Phoenix project. It is
anticipated that a draft Environmental Impact Statement will be released in
mid-2000. 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 year 2002. See "--
Environmental Matters -- United States -- Battle Mountain Complex." The
project is located in north-central Nevada on lands consisting of patented
lands and unpatented claims. See "Property Interests-- United States."
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<PAGE>
LLALLAGUA
Battle Mountain conducted small scale benchmark tests in 1998 of a
bio-oxidation heap leach process at the Llallagua sulfide resource near our
88%-owned Kori Kollo mine in Bolivia that consistently returned recoveries
exceeding 70%. As a result, the Company initiated in the first quarter of
1999 a year-long 200,000 ton pilot plant test. The test is designed to
determine the feasibility and economics of a full operation.
CROWN JEWEL
The Company has been working toward permitting the Crown Jewel
project near Oroville, Washington for almost ten years. In January 2000, the
Washington Pollution Control Hearings Board reversed prior favorable
decisions by the Department of Ecology on water rights and 401 Certification.
The water rights and 401 Certification are necessary for the project as
proposed. The Company is currently evaluating its options with respect to the
Crown Jewel project.
The Crown Jewel Joint Venture Agreement grants Battle Mountain an
option to earn from Crown Resources Corporation a 54% joint venture interest
in the Crown Jewel project by constructing and equipping at its sole cost a
mine and mill having a capacity of at least 3,000 tons per day and achieving
commercial production therefrom. The Joint Venture provides that at such time
as the joint venture may produce 1.6 million ounces of gold, our joint
venture interest would be reduced to 51%. In 1998, the Company wrote off
$40.3 million of the amount capitalized to reflect the fair value of the
asset based upon the then current gold price environment and the cumulative
cost of an unexpectedly long permitting process. At the end of 1999, the
Company wrote off the remaining $35.9 million due to uncertainties
surrounding the project. See "--Environmental Matters --United States."
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Certain permits have been obtained for the Crown Jewel project.
However, additional permits and approvals would be required to commence
operations. Furthermore, as previously set forth, the Washington Pollution
Control Hearings Board has reversed the Reports of Examination for the water
rights and vacated the 401 Certification which had previously been issued by
the Washington Department of Ecology and are necessary for the project as
proposed. See "--Environmental Matters --United States." Additionally, a
number of appeals with respect to the project have been filed by certain
individuals and groups. See "--Environmental Matters --United States." There
can be no assurance as to favorable outcome or timing with respect to the
permits, required approvals or appeals and the Company is currently
evaluating its options with respect to the project. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of a $35.9
million non-cash write-off of the Crown Jewel assets.
The project is located in northeastern Washington State on lands
consisting of patented lands, unpatented mining claims, unpatented millsite
claims and state lands. See "-- Property Interests -- United States." Federal
Public Law 106-31, enacted on May 21, 1999, mandated the reinstatement of the
Record of Decision for the Crown Jewel project and the approval of the
Company's Plan of Operations. Shortly after the enactment of the law, the
Departments of the Interior and Agriculture reinstated the project's Record
of Decision, and the United States Forest Service and Bureau of Land
Management approved the Company's Plan of Operations. The approval of the
Plan of Operations has been appealed by project opponents.
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<PAGE>
NIUGINI MINING-LIHIR GOLD LIMITED
Battle Mountain Canada owned approximately 50.45% of Niugini Mining
Limited, hereinafter referred to as "Niugini Mining", a Papua New Guinea
company publicly traded on the Australian Stock Exchange. Niugini Mining in
turn owned and operated the San Cristobal mine where gold continued to be
recovered as a result of residual heap leaching and the Red Dome mine where
reclamation activities were nearing completion. Niugini Mining also owned a
14.91% interest in Lihir Gold Limited, hereinafter referred to as "Lihir",
which owns the Lihir mine in Papua New Guinea. 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." At December 31, 1998 Battle Mountain made a decision to dispose
of its interest in Niugini Mining. On October 6, 1999 Niugini Mining and
Lihir announced a plan to merge the two companies by way of a scheme of
arrangement in accordance with the laws of Papua New Guinea. In anticipation
of the completion of the transaction with Lihir, Niugini Mining sold its
interests in the San Cristobal mine and the Red Dome mine. The merger with
Lihir Gold was effective February 2, 2000, the result of which is that Battle
Mountain Canada now owns a direct 9.74% equity interest in Lihir. Battle
Mountain Canada has agreed not to sell its shares in Lihir Gold on market for
a period of three months from February 2, 2000.
Asset write-downs in 1999 related to the decrease in the value of
Niugini Mining's investment in Lihir totaled $76.2 million ($46.8 million net
of minority interest). See "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 in the United States, Canada, Mexico, Argentina, Bolivia,
Peru and Australia. Our primary objective is to develop high-quality ore
deposits with low operating costs per ounce. We seek 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. Three buyers of production from the Company each
accounted for more than 10% of the Company's total 1999 sales. Substantially
all of Battle Mountain's current operating mines contributed to sales to
those customers. 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. During the third quarter of 1999, Battle Mountain modified
its hedging policy. The purpose of the current hedging policy is to reduce
exposure to fluctuating commodity prices and currency exchange rates. The
hedging policy allows the use of various derivative financial instruments,
including forward sales contracts and options.
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Gold contracts outstanding at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Total or
2000 2001 2002 2003 Average
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Written call options:
Ounces 87,500 87,500 87,500 87,500 350,000
Average price per ounce $349 $349 $349 $349 $349
Purchased put options:
Ounces 87,500 87,500 87,500 87,500 350,000
Average price per ounce $293 $293 $293 $293 $293
Forwards:
Ounces 25,000 25,000 25,000 25,000 100,000
Average price per ounce $312 $312 $312 $312 $312
</TABLE>
No material option contracts were delivered against or financially
settled during 1999, 1998 or 1997, and there are no margin requirements
related to any of the currently existing contracts. The estimated fair value
of the written call options and purchased put options outstanding at December
31, 1999, net was $(0.3) million. The estimated fair value of the forwards
outstanding at December 31, 1999 was $(0.5) million. These estimated fair
values were determined from a third-party model.
As part of its overall financial planning, pursuant to pricing
provisions as set forth in certain customer forward sales contracts as of
December 31, 1999, Battle Mountain Canada had committed to deliver 198,000
ounces of gold valued at approximately $55.2 million at an average price of
$279 per ounce. This gold was on deposit at a refinery or leased to third
parties. All such contracts mature by March 31, 2000. From time to time,
Battle Mountain Canada also enters into gold leasing transactions prior to
delivery of gold held in inventory related to these commitments. Battle
Mountain, at times, is a party to these leasing transactions and will sell
the leased gold into the spot market. Whenever a spot sale is made, a forward
purchase contract is entered into to assure delivery of the gold at the end
of the lease. Battle Mountain Canada had outstanding lease contracts with
Battle Mountain for 108,000 ounces of gold at December 31, 1999.
Battle Mountain may be exposed to certain credit-related losses in
the event of nonperformance by the counterparties to hedged agreements,
generally by the amount by which the contract price exceeds the spot price of
a commodity. Attempts to minimize credit exposure are made by limiting
counterparties to major financial institutions that meet specific credit
rating standards. Collateral is not required from counterparties. Management
believes that the risk of incurring significant credit-related losses is
remote.
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 proprietors of valid mining claims may obtain possessory rights
to nonwithdrawn, unappropriated nonmineral federal lands for
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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 claims.
The location of a valid unpatented mining claim on federal lands
requires the discovery of valuable minerals and compliance with certain
procedures, while the location of a valid unpatented 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. Under some circumstances, it may
be possible to acquire the right to use lands owned by the federal government
for mining operations by way of special use permits, leases, land exchanges
or other means.
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 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 claims are often located with less than sophisticated
surveying techniques, difficulty may arise in determining the validity and
ownership of specific 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.
Although the Company attempts 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 title,
particularly titles to undeveloped properties, may be defective. 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. Federal Public
Law 106-31, enacted on May 21, 1999, mandated the reinstatement of the Record
of Decision for the Crown Jewel project and the approval of the project's
Plan of Operations, which had respectively been revoked and denied based upon
the Solicitor's Opinion. Shortly after the enactment of the law, the
Departments of the Interior and Agriculture reinstated the project's Record
of Decision, and the United States Forest Service and Bureau of Land
Management approved our Plan of Operations. The approval of the Plan of
Operations has been appealed by project opponents. Federal Public Law
106-113, enacted on November 29, 1999 exempts some operations from the
limitation alleged in the Solicitor's Opinion for a period of two years.
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It is possible that the General Mining Law of 1872, under which we
hold claims on federal lands, could be legislatively amended. Among other
things, such legislation could impose a royalty or 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. 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. A portion of the Phoenix project reserves
and approximately 80% of the Crown Jewel mineralization are on federal lands.
A patent covering the unpatented portion of the Crown Jewel mineralization
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
certain of 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.
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 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 provided that the individual has complied with
applicable requirements of the MINING ACT (Ontario). Upon performance of the
prescribed assessment work, the holder of the claim may make application for
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 and the lessee, upon application to the appropriate Ministry and the
payment of the prescribed fees, may apply for renewal of the lease for a
further term of 21 years. 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, fee simple patents in good standing issued
pursuant to an application made under the provisions of the predecessor
legislation 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
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. The use of the surface
rights is limited to purposes of the mining industry.
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.
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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 includes the Kori Kollo mine and
operating facilities. A concession constitutes a right other than that of
ownership of the land where the concession is located. The payment of patents
(fees) is now the essential requirement to keep concessions in good standing.
A valid concession gives the concessionaire the exclusive right to explore
for and exploit minerals subject to the concession from the area covered by
the concession.
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 titleholders 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 titleholders (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 mines or development
properties that would preclude the economic development or operation of any
of the Company's mines or projects.
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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 or maintained 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." Various laws require that financial
assurances be in place for certain environmental and reclamation obligations
and potential liabilities. Battle Mountain Gold has in place certain
environmental and reclamation financial assurances and will be required to
put additional financial assurances in place in the future. There can be no
guarantee that the Company will be able to maintain and/or put in place the
necessary assurances. This could cause the Company to not proceed with the
development or operation of a mine and 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 consisted of tailings treatment
circuits that process plant effluent and tailings facilities designed to hold
the processed tailings. These facilities were 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 closure and
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 14, "Commitments and
Contingencies."
LAWS AND REGULATIONS. We are 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"), the
Water Pollution Control Act ("WPCA"), the Toxic Substance Control Act
("TSCA"), 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.
In addition to the requirements of the WPCA, 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. Changes could render certain mining
operations uneconomical and could prevent or delay the development of new
operations.
BATTLE MOUNTAIN COMPLEX. Battle Mountain 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, Battle Mountain filed an application for a
reclamation permit covering the Battle Mountain Complex area. This
application for the entire Complex is under review, but reclamation permits
have been issued for specific projects and activities at the Complex. Because
of this, much of the original application has been superseded, and at the
request of the state agency, Battle Mountain is preparing a revised
reclamation plan to cover the entire Complex, which the Company anticipates
it will submit in the first quarter of 2000. The Company has investigated the
infiltration of liquids from the tailings facility at the Battle Mountain
Complex into the groundwater. This facility is of an earthen design and
construction, which was in keeping with accepted engineering and
environmental control practices at the time it was constructed. Pursuant to
the state-issued water pollution control permit, the Company has conducted a
groundwater investigation regarding the tailings area and based upon the
investigation 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.
In the interim, the Company has implemented a state approved groundwater
pump-back system. Also, pursuant to work plans developed under the state
issued water pollution control permit covering the site, the Company has
investigated certain low quality stormwater run-off in adjacent highly
mineralized areas, and based upon these investigations, the Company designed
and obtained state approvals to install a system to collect and use,
evaporate or treat this water. Residual localized contamination in the
groundwater in these areas will be addressed pursuant to groundwater site
characterization and closure activities discussed immediately below.
We are currently conducting further site characterization studies
for the Battle Mountain Complex area and are 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.
Battle Mountain is proceeding with permitting of the Phoenix
project. It is anticipated that a draft Environmental Impact Statement will
be completed by mid-2000. The 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." We have in place certain environmental
and reclamation financial assurances related to the Battle Mountain Complex
and it is anticipated that additional financial assurances will be required
in the future. There can be no guarantee that we will be able to maintain
and/or put in place the necessary assurances. See "Management's Discussion
and Analysis of Financial Condition and results of Operations-Liquidity and
Capital Resources."
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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. Certain permits have
been obtained for the Crown Jewel project. However, additional permits and
approvals would be required to commence operations. Furthermore, the
Washington Pollution Control Hearings Board has reversed the Reports of
Examination for the water rights and vacated the 401 Certification which had
previously been issued by the Washington Department of Ecology and are
necessary for the project as proposed. Additionally, a number of appeals with
respect to the project have been filed by certain individuals and groups.
Battle Mountain has in place certain environmental and reclamation financial
assurances related to the Crown Jewel project and it is anticipated that
additional financial assurances would be required to commence construction.
There can be no guarantee that the Company would be able to maintain and/or
put in place the necessary assurances. There can be no assurance of favorable
outcome or timing with respect to permits, required approvals or appeals and
the Company is currently evaluating its options with respect to the project.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources" for a discussion of a $35.9
million non-cash write-off of the Crown Jewel assets.
SAN LUIS. The San Luis mine ceased operations in November 1996, and
subsequent site activities have addressed closure and reclamation
requirements. The mine 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 disposal 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
course of implementing the approved reclamation plan, the Company voluntarily
partially backfilled the San Luis West Pit. As water percolates through the
oxidized backfilled rock, the water contacts and solubilizes certain
naturally occurring oxidation by-products which have been identified at
elevated levels at monitoring sites located within and downgradient of the
West Pit. An Independent Ecological Risk Assessment has been conducted which
indicates that the elevated levels of these constituents do not pose a risk
to human health or the environment.
In 1998, we provided notice to the requisite regulatory agencies and
undertook implementation of a response plan triggered by the identification
of elevated levels of naturally occurring constituents 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 Colorado Mined Land Reclamation Board held a formal public hearing to
consider the matter on January 26, 1999, and determined that no violation had
occurred and ordered the Company to implement the response plan. The Company
has made all of the submittals required by the Board, has implemented those
measures which have been approved, and is awaiting final approval for
permanent response measures set forth in a technical revision to the
facility's permit.
By letter dated August 10, 1999, the United States Environmental
Protection Agency (the "EPA") advised the Colorado Department of Public
Health and Environment and the Company that the EPA believed that discharges
of pollutants without a permit have occurred near the West Pit in violation
of the Clean Water Act. The letter notified the Company and the Department of
Public Health and the Environment (the "Department of Public Health") that
the EPA would take direct action if the Department of Public Health failed to
take action and secure appropriate injunctive relief and penalty.
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On August 20, 1999, the Department of Public Health and Environment
issued a Notice of Violation and Cease and Desist Order to the Company,
alleging discharges to waters not permitted under the Colorado Water Quality
Control Act. We have filed an Answer to the Notice denying that such a
violation has occurred. The Notice requires the Company to take a number of
steps that the Department of Public Health and Environment asserts to be
necessary to attain compliance with the Water Quality Control Act. These
steps include the submittal of a permit application, a monitoring plan and a
response plan. We have made all submittals required by the Notice and have
commenced extensive response activities. On October 8, 1999, the Department
of Public Health issued an Amendment to the Notice. The Amendment authorized
the operation of a water treatment facility and the discharge of treated
water. The Company has commenced treatment and discharge operations.
On October 4, 1999, the Colorado Division of Minerals and Geology
sent the Company a letter stating that the Division had reason to believe
that there might be a reasonable potential for degradation of groundwater
quality in certain portions of the aquifer near the West Pit. The letter
requires the Company to modify its permit to protect the quality of
groundwater in the uncontaminated portion of the aquifer.
It is not possible to predict the nature or scope of any further
action that might be taken by regulatory authorities, which actions could
include seeking injunctive relief, mandating the posting of financial
assurance, requiring further on-site response actions and the imposition of
monetary penalties. Battle Mountain has in place certain environmental and
reclamation financial assurances related to the San Luis property and it is
possible that additional financial assurances will be required in the future.
There can be no guarantee that we will be able to maintain and/or put in
place the necessary assurances. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Liquidity and Capital
Resources." An environmental remediation charge of $9.5 million was recorded
in the third quarter of 1999 based upon Battle Mountain's current best
estimate of costs to address technical long-term water quality issues at the
San Luis property. It is reasonably possible that this estimate may change in
future reporting periods as further information becomes available.
CANADA
The mining industry in Canada is subject to legislation at both the
federal and provincial levels related to protection of the environment. We
are 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. We expect 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 we would not proceed with the further
development or operation of a mine.
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Each of the Company's Canadian mining properties has an extensive
array of environmental controls installed to meet regulatory requirements.
All of the environmental controls and pollution prevention projects are
designed to minimize the release of any substances that may be potentially
harmful to the environment. The principal controls include treatment
facilities for final effluent discharges, tailings disposal facilities, dust
recovery on material transfer operations and spill containment facilities for
storage vessels and along tailings pipeline corridors. With respect to
pollution prevention, the Company has implemented one or more of the
following programs at its Canadian mining sites: hazardous and non-hazardous
waste separation and recycling, waste water recycling, freshwater use
minimization, power conservation, product substitutions, new materials
review/approval program, re-usable product shipping containers and other
process changes benefiting the environment.
Certain Canadian federal and provincial environmental requirements
include requirements for treatment of water prior to discharge to achieve
certain effluent water quality limits. The Holloway mine has at certain
limited times had difficulties meeting sediment compliance limits. However,
we have constructed a new sediment control system and implemented underground
controls and the Holloway Mine has met the effluent sediment limits at all
times subsequent to February of 1999. In August 1997, the Holloway mine
became subject to toxicity compliance limits for effluent discharges. A
limited number of samples from the Holloway Mine have not achieved the
toxicity limits. This indicates that additional controls may be required.
In 1999, approval was obtained to expand the tailings facility at
Golden Giant to a capacity sufficient to handle anticipated tailings
deposition for the presently anticipated mine life. Full compliance with
effluent discharge requirements was attained for the Golden Giant mine in
1999. The Certificate of Approval for the Golden Giant mine does not
currently contain an ammonia limit. However, the Certificates of Approval for
the Golden Giant mine are being consolidated through a renewal process and an
un-ionized ammonia limit is being proposed. Results in 1999 indicate that the
proposed un-ionized ammonia limit can be achieved, although additional
controls may be required if full compliance is not achieved in the future.
The Company will also incur reclamation expenditures as reserves at
existing mines are exhausted and the facilities are closed. We are 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 had these
plans accepted and approved and the Company has given such financial
assurances under its closure plans as required by law.
BOLIVIA
Bolivia first enacted federal environmental legislation in 1992 and
the promulgation of general environmental regulations followed in December
1995. 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 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
Company received final approval of the environmental license for the Kori
Kollo mine in March 1999.
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In August 1997, new regulations, the Environmental Regulations for
Mining Activities, were promulgated in Bolivia. 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.
Under the transitory provisions of the Environmental Regulations for Mining
Activities, we have eighteen (18) months from the date of approval of the
environmental license for the Kori Kollo mine to submit a document which
reflects compliance with the new regulations.
AUSTRALIA
The mining industry in Australia is regulated primarily 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. Such legislation requires each miner to develop an Environmental
Management Overview Strategy (hereinafter referred to as "EMOS") which sets
out the life of mine strategies for dealing with these impacts. In addition,
a plan of operations is required which sets out in detail what environmental
management measures will be undertaken over a stated period. The plan of
operations must be independently audited to ensure that it complies with the
overarching strategies of the EMOS.
These planning measures are complemented by a requirement for the
operator to lodge a security deposit calculated by taking the real cost of
rehabilitation for the maximum area of disturbance and allowing a discount
for proven environmental performance. Prior to a mine closing, a final
rehabilitation report must be prepared and approved which addresses final
land form and land use and how the strategies of the EMOS with respect to
rehabilitation and remediation have been implemented.
Under the provisions of a memorandum of understanding between the
Department of Environment and the Department of Mines and Energy, mines in
Queensland are also required to hold licenses for industrial processes which
are specified in the Environmental Protection Act. However, the major
environmental impacts which are associated with mining and stockpiling
continue to be dealt with by virtue of the specific mining legislation.
Accordingly, there are only minor ancillary activities which now require
licensing under the Environmental Protection Act. A process to consolidate
these two environmental legislative schemes into one approval and regulatory
system has been informally adopted and is expected to be finalized in the
near future.
Finally, there is a range of both state and federal legislation
targeted at specific areas of the environment. Examples include dealing with
environmentally sensitive areas, aboriginal cultural heritage, preservation
of rare and endangered flora and fauna and the implementation of
international agreements. By focusing on specific areas or parts of the
broader environment, these legislative provisions do not automatically affect
all mining projects but may be triggered by specific circumstances of an
individual operation.
In addition to complying with various environmental protection
statutes, the Vera/Nancy mine in Queensland was required to obtain plan of
operations approvals from the Minister of Mines pursuant to the Mineral
Resources Act. The plan of operations at the Pajingo Complex has been
approved, including an approved EMOS, which covered 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.
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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.
In July 2000, the Environmental Protection and Biodiversity
Conservation Act will become effective. This Act requires Commonwealth
government approvals for new projects and extensions of existing projects. It
is triggered by having a significant impact on a matter of national
environmental significance. The details as to how this trigger will work have
not been developed at the present time. It is therefore not clear whether it
would apply to any future extension of the Australian operations.
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, 1999, the Company had approximately
$105.8 million of regular net operating losses and $49.7 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 $0.8 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. We are also
subject to state and local taxes in jurisdictions in which we are engaged in
business operations.
CANADA
The Company's Canadian operations are conducted by Battle Mountain
Canada and are subject to Canadian federal and provincial income taxes, as
well as provincial mining taxes and duties. The Golden Giant and Holloway
mines are located in Ontario.
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 administers its own income and capital tax
regimes under separate provincial statutes. Ontario offers certain resource
incentives. The Ontario income tax rate on mining operations is 13.5%. The
capital tax rate for Ontario is 0.3%.
The Ontario Mining Tax is a mineral royalty or duty paid to the
province under unique statutes and is levied at 20% of the operator's profits
from Ontario mining operations, as defined.
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;
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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
Battle Mountain 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 at a discount. 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 Battle Mountain, is subject to tax on income
derived from 1999 exploration and mining operations. However, no taxes are
expected to be paid for 1999 due to existing loss carryforwards of
approximately $16.5 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
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
We carry 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, we
review and modify insurance coverage and may obtain additional policies,
cancel existing policies or self-insure as deemed appropriate.
The Company is not insured against most environmental risks.
Insurance against most environmental risks (including potential liability for
pollution or other hazards as a result of the disposal of waste products
occurring from exploration and production) is not generally available to the
Company or to other companies within the industry at acceptable premium
levels. We periodically evaluate 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, then payment of such
environmental liabilities would reduce the funds available to the Company.
Should we 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 we 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.
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EMPLOYEES
The number of full-time employees of the Company (including
employees of majority-owned subsidiaries other than Niugini Mining) at
December 31, 1999 was 1,282.
The non-supervisory employees at some of our mines are represented
by labor unions. The current labor agreements with the Operating Engineers at
the Battle Mountain Complex and the United Steelworkers of America at the
Golden Giant Mine would respectively expire April 30, 2000 and July 31, 2000
unless extended by mutual consent.
COMPETITION
The Company competes with other mining companies in connection with
the acquisition of precious metal mining interests and in the recruitment and
retention of qualified employees. There is significant and increasing
competition for the limited number of gold acquisition opportunities in the
United States, Canada, Australia and other countries. As a result of this
competition, the Company may be unable to acquire attractive gold mining
properties on terms it considers acceptable. In the pursuit of such
acquisition opportunities, the Company competes with many United States and
international companies that have substantially greater financial resources
than the Company. There is a world market for gold, silver and copper. The
Company believes that no single company has sufficient market power to affect
the price or supply of gold, silver and copper in the world market. See "--
Gold Price Volatility."
EXPLANATORY NOTE REGARDING EXCHANGE RATES
In this report, references to "dollar," "US$" and "$" are to United
States dollars. References to "A$" are to Australian dollars and references
to "C$" are to Canadian dollars.
On March 8, 2000, the foreign exchange spot purchase rates for U.S.
dollars, as quoted in the Wall Street Journal, were A$1.00 equals US$0.6095
and C$1.00 equals US$0.6868.
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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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.
29
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On August 20, 1999, the Colorado Department of Public Health and the
Environment issued a Notice of Violation and Cease and Desist Order to Battle
Mountain, alleging discharges at the San Luis mine to waters not permitted
under the Colorado Water Quality Control Act. Battle Mountain filed an Answer
to the Notice denying that such a violation had occurred. See Note 14 of
Notes to Consolidated Financial Statements under Item 8. Battle Mountain also
is a party to a number of legal actions arising in the ordinary course of
business. While the final outcome of these actions cannot be predicted with
certainty, it is the opinion of management that none of these actions when
resolved will have a material adverse effect on the results of operations,
financial condition or cash flows of Battle Mountain.
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 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages as of March 2, 2000, of each of
the present executive officers of the Company as well as the individual who
has assumed the duties of Chief Executive Officer as of July 1999, 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. None of the listed individuals are related to
any other by blood, marriage or adoption. No arrangement or understanding
exists between any officer and any other person under which any officer was
elected.
<TABLE>
<S> <C> <C>
Karl E. Elers (61) - Acting Chief Executive Officer
John A. Keyes (56) - President and Chief Operating Officer
Ian Atkinson (50) - Senior Vice President - Operations and Exploration
Phillips S. Baker, Jr. (40) - Vice President and Chief Financial Officer
Thomas P. Bausch (52) - Treasurer
Joseph J. Baylis (43) - Senior Vice President - Corporate Development
Greg V. Etter (41) - Vice President, General Counsel and Secretary
Stanford M. Haley (56) - Vice President - Human Resources
Jeffrey L. Powers (47) - Vice President and Controller
</TABLE>
Mr. Elers assumed the duties of Chief Executive Officer in July 1999
pursuant to the terms of a consulting agreement when Ian D. Bayer retired
from the position of President and Chief Executive Officer. Mr. Elers is
working with the Company's Board of Directors to select a Chief Executive
Officer. Mr. Elers also continues to serve as the Company's non-executive
Chairman of the Board, a position he has held since February 28, 1997, when
he retired from the executive officer positions as Chairman of the Board and
Co-Chief Executive Officer. Prior to that date, Mr. Elers had served as the
Company's Chairman since April 1990 and as the Company's Chief Executive
Officer from April 1990 to July 1996.
Mr. Keyes was appointed President and Chief Operating Officer of
Battle Mountain in July 1999. Previously, Mr. Keyes had been Senior Vice
President-Operations since 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.
30
<PAGE>
Mr. Atkinson was appointed Senior Vice President-Operations and
Exploration of Battle Mountain in August 1999. Previously, Mr. Atkinson had
been Senior Vice President-Exploration of Battle Mountain since July 1996.
Prior to joining Battle Mountain, 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 Battle Mountain 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 Battle Mountain, culminating as Treasurer.
Mr. Bausch joined Battle Mountain in September 1996 as Treasurer.
Mr. Bausch was previously employed by Tenneco Inc. as its Assistant Treasurer
from 1993 to 1996.
Mr. Baylis joined Battle Mountain in July 1996 following the
combination with Hemlo Gold, where he was previously Vice President-Investor
Relations and General Counsel. He also served as President and Chief
Executive Officer of Niugini Mining from November 1996 until February 2000.
Mr. Etter joined Battle Mountain as Corporate Attorney in 1993 and
was appointed General Counsel and Corporate Secretary in February 1997. In
April 1998, he was appointed Vice President in addition to his then current
position.
Mr. Haley joined Battle Mountain in January 1997. Prior to that, he
was the managing partner at Chairmans' Counsel, Inc., an organization
development consulting firm.
Mr. Powers joined Battle Mountain in August 1992 as Manager of
Corporate Accounting. He was appointed Controller in January 1994 and to his
current position in February 1997.
Messrs. Atkinson, Baker, Baylis, Bausch, Etter, Keyes and Powers
also serve as executive officers of Battle Mountain Canada. Mr. Keyes serves
as President and Chief Executive Officer, and each of Messrs. Atkinson and
Baylis serves as Vice President. Mr. Baker serves as Vice President and Chief
Financial Officer. Mr. Etter serves as Vice President and Corporate Secretary
and Mr. Powers serves as Vice President and Controller. Mr. Bausch serves as
Treasurer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Battle Mountain'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." Battle Mountain Canada exchangeable shares, which have no
denominated par value (the "Exchangeable Shares"), entitle holders to dividends
and other rights economically equivalent to BMG Common Stock and are
exchangeable at the option of holders into BMG Common Stock on a one-for-one
basis. The Exchangeable Shares are traded on The Toronto Stock Exchange under
the ticker symbol "BMC."
31
<PAGE>
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>
1999 HIGH LOW
--------- -------
<S> <C> <C>
First Quarter $ 4 11/16 $ 2 5/8
Second Quarter $ 3 3/8 $ 2 3/16
Third Quarter $ 3 5/8 $ 1 3/4
Fourth Quarter $ 3 13/16 $ 2 1/16
1998 HIGH LOW
--------- -------
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
</TABLE>
As of March 8, 2000, the Company had 13,983 record holders of BMG
Common Stock and 623 record holders of Exchangeable Shares.
In February 1999, the Company suspended its semi-annual common stock
dividends. Any 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.
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 Battle Mountain Canada to redeem such Exchangeable Shares in exchange
for an equivalent number of shares of BMG Common Stock. Battle Mountain 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), Battle Mountain Canada has the right,
but not the obligation, to purchase such Exchangeable Shares in exchange for
an equivalent number of shares of BMG Common Stock. Battle Mountain 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 Battle Mountain Canada's right to redeem such
Exchangeable Share would terminate.
The shares of outstanding Exchangeable Shares, other than shares
held by Battle Mountain and certain of its subsidiaries, are entitled to vote
at Battle Mountain 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 Battle Mountain (the "Special Voting
Stock"), is entitled to a number of votes on all matters on which holders of
BMG Common Stock are entitled to vote equal to the number of Exchangeable
Shares outstanding 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
32
<PAGE>
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 Battle Mountain, 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 Battle Mountain 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 Battle Mountain on the same basis as
holders of BMG Common Stock.
Each Exchangeable Share has an associated right (hereinafter
referred to as 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 Battle Mountain (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 9, "Shareholders' Equity," of Notes to Consolidated Financial
Statements under Item 8.
33
<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 1999 (1,6) 1998 (2,6) 1997 (3) 1996 (4) 1995
- ---------------------------------- ---------- ---------- -------- -------- ----
(as restated) (as restated)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Sales $ 228 $ 277 $ 345 $ 424 $ 401
======= ======= ======= ======= =======
Operating income (loss) $ (63) $ (110) $ (3) $ (43) $ 44
======= ======= ======= ======= =======
Income (loss) before cumulative effect of accounting
change $ (119) $ (241) $ (5) $ (74) $ 30
Cumulative effect of accounting change, net (5) - - (4) - -
------- ------- ------- ------- -------
Net income (loss) (119) (241) (9) (74) 30
Preferred dividends 8 8 8 8 8
------- ------- ------- ------- -------
Net income (loss) to common shares $ (127) $ (249) $ (17) $ (82) $ 22
======= ======= ======= ======= =======
Per common share
Earnings (loss) - basic and diluted $ (.55) $ (1.08) $ (.07) $ (.36) $ .10
======= ======= ======= ======= =======
Cash dividends $ - $ .05 $ .05 $ .07 $ .08
======= ======= ======= ======= =======
DECEMBER 31
1999 (6) 1998 (6) 1997 1996 1995
-------- -------- ---- ---- ----
BALANCE SHEET:
Total assets $ 569 $ 787 $ 1,093 $ 1,037 $ 1,142
======= ======= ======= ======= =======
Long-term debt, less current maturities $ 177 $ 204 $ 241 $ 139 $ 169
======= ======= ======= ======= =======
Shareholders' equity $ 119 $ 248 $ 506 $ 538 $ 629
======= ======= ======= ======= =======
</TABLE>
(1) Includes a $76.2 million impairment loss ($46.8 million net of minority
interest) related to an investment in Lihir, a $35.9 million write-off
of Crown Jewel assets, a $9.5 million environmental remediation charge
at San Luis and a $7.7 million net charge related to deferred tax
assets.
(2) Includes the following impairment write-downs: Lihir, $90.0 million;
Kori Kollo, $49.9 million; Crown Jewel, $40.3 million; and Reona,
$10.8 million.
(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 subsidiaries,
which resulted in the recognition of the tax benefit of net operating
loss carryforwards at these subsidiaries.
(4) In 1996, the carrying values of the Reona and San Cristobal mines were
written down by $17.5 million and $17.6 million, respectively, both
gross and net of income taxes. Also in 1996, $22.7 million in merger
expenses were incurred related to the combination of Battle Mountain
and Hemlo Gold.
(5) Reflects the cumulative effects of Inti Raymi changing its method of
calculating depreciation, depletion and amortization and Battle Mountain
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).
(6) The financial data as of and for the years ended December 31, 1999 and
1998 has been restated as described in Note 19 of Notes to Consolidated
Financial Statements in Item 8.
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Battle Mountain's operations are related to gold mining and related
activities. Accordingly, Golden Giant, Kori Kollo, Holloway and Vera/Nancy
(Pajingo) are the operating mines, and the Battle Mountain Complex is the
significant development project, that are considered segments for financial
reporting purposes.
RESTATEMENT
After issuing Battle Mountain's 1999 financial statements and filing
the Form 10-K with the Securities and Exchange Commission, following
extensive discussion with its independent accountants, management determined
it was necessary to revise the financial statement presentation of Battle
Mountain's former interest in Niugini Mining Limited. In 1998, Battle
Mountain resolved to dispose of its 50.45% equity interest in Niugini Mining
Limited and deconsolidated the subsidiary, classifying it as an asset held
for sale. However, in accordance with provisions of Statement of Financial
Accounting Standards No. 94, "Consolidation of all Majority-Owned
Subsidiaries," Battle Mountain's 1999 and 1998 financial statements and
related disclosures are restated from amounts previously reported to properly
reflect the full consolidation of Battle Mountain's interest in Niugini
Mining.
OVERVIEW
Lower gold prices and fewer ounces of attributable gold production
decreased cash flows from operating activities compared with 1998. A $76.2
million impairment loss ($46.8 million after minority interest) related to the
market value of the investment in Lihir, a $35.9 million non-cash
write-off of the Crown Jewel project and a $9.5 million environmental
remediation charge contributed significantly to a $126.9 million, or $0.55 per
share, net loss to common shares. This compares with a $248.8 million, or
$1.08 per share, net loss in 1998 and a $16.3 million, or $.07 per share, net
loss in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $91.0 million at December 31, 1999.
Of this, Battle Mountain Canada held $22.0 million and Niugini Mining held
$54.7 million. An additional $40.0 million of restricted cash was held by
Battle Mountain Gold Company for a loan facility. See "Financing Activities"
for further discussion.
OPERATING ACTIVITIES
Cash flows of $32.5 million, $82.8 million and $61.2 million were
generated from operating activities in 1999, 1998 and 1997, respectively.
Lower gold prices and production and higher tax payments, partially offset by
lower exploration and production costs, decreased cash flows in 1999. The
increase in cash flows in 1998 compared with 1997 was primarily the result of
higher production, lower operating costs and decreased accounts receivable.
INVESTING ACTIVITIES
Cash used in investing activities increased to $48.5 million in 1999
compared with $24.5 million in 1998. Capital expenditures totaled $49.3
million in 1999 compared with $46.5 million in 1998. Approximately $12.8
million was invested at the Battle Mountain Complex, primarily on the Phoenix
project, $10.2 million at the Vera/Nancy mine, $9.7 million at Golden Giant,
$7.0 million at Kori Kollo and $3.9 million at Holloway. In addition, an $11.0
million liquidating dividend, related to the 1998 sale of the New World
project, was paid to Crown Butte Resources Ltd. minority shareholders in 1999
and $11.9 million was received from the sales of assets, primarily a $10.2
million sale of the investment in First Toronto Investments Limited.
35
<PAGE>
Cash used in investing activities totaled $24.5 million in 1998,
compared with $63.0 million in 1997. Capital expenditures were $46.5 million
in 1998 compared with $62.4 million in 1997. Approximately $8.7 million was
invested in 1998 at Golden Giant, $8.2 million on the Vera/Nancy mine, $8.2
million at Crown Jewel, $7.7 million at the 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. In
addition, the sale of the New World project closed and cash proceeds, net of
related disbursements, of $34.9 million were received.
Cash used for investing activities totaled $63.0 million 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 the Battle Mountain Complex and $3.7 million at
Holloway.
Battle Mountain expects to invest approximately $49.2 million in
capital expenditures in 2000. Major capital expenditures by site are: Golden
Giant, $16.1 million; Phoenix, $15.1 million; Kori Kollo, $8.5 million,
including Llallagua; Pajingo, $5.2 million; and Holloway, $4.3 million.
PHOENIX PROJECT. The Phoenix project is located in the Copper Canyon
area of the Battle Mountain Complex. Permitting of the Phoenix project is
proceeding. It is anticipated that a draft Environmental Impact Statement will
be completed by mid-2000. 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 2002. Battle
Mountain is preparing a feasibility study and currently expects future capital
costs, excluding capitalized interest, to be in the range of $160 million to
$170 million. Approximately $42.7 million had been spent on the project
through December 31, 1999.
CROWN JEWEL PROJECT. Battle Mountain has been working toward
permitting the Crown Jewel project near Oroville, Washington for almost 10
years. The Crown Jewel joint venture agreement grants Battle Mountain an
option to earn from Crown Resources Corporation a 54% joint venture interest
in the Crown Jewel project by constructing and equipping at its sole cost a
mine and mill having a capacity of at least 3,000 tons per day and achieving
commercial production therefrom. Certain permits have been obtained for the
Crown Jewel project. However, additional permits and approvals would be
required to commence operations. In January 2000, the Washington Pollution
Control Hearings Board reversed prior favorable decisions by the Department of
Ecology on water rights and 401 Certification. The water rights and 401
Certification are necessary for the project as proposed. There can be no
assurance as to a favorable outcome or the timing with respect to the permits,
required approvals or appeals. Battle Mountain is currently evaluating its
options with respect to the project.
A non-cash asset write-down of $35.9 million was recorded in the
fourth quarter of 1999 representing the remaining carrying value of the Crown
Jewel project. This write-down was recorded as a result of the Washington
Pollution Control Hearings Board decision previously mentioned. A $40.3
million impairment write-down in the carrying value of the Crown Jewel project
was recorded in the fourth quarter of 1998 to reflect the fair value of the
assets in the low gold price environment and the cost of an unexpectedly
lengthy permitting process.
LIHIR. Battle Mountain held an indirect interest in the Lihir mine in
Papua New Guinea through its 50.45% ownership of Niugini Mining, which in turn
owned 14.91% of Lihir at December 31, 1999 and 17.15% at both December 31,
1998 and 1997. Commercial production at Lihir commenced in October 1997. In
December 1998, Battle Mountain decided to pursue options for disposing of its
interest in Niugini Mining. On October 6, 1999, Lihir and Niugini Mining
announced a proposed scheme of arrangement under which Lihir would merge with
Niugini Mining. The merger was effective February 2, 2000. Niugini Mining
shareholders received one share of Lihir for each share of Lihir held,
together with one additional share of Lihir for each A$1.45 of Niugini
Mining's net cash balance of $54.6 million at the effective date of the
transaction. As a result, Battle Mountain, which held a 50.45% interest in
Niugini Mining prior to the merger, received 111.3 million shares of Lihir,
representing a 9.74% equity interest in Lihir. Battle Mountain has agreed to
not sell on market the Lihir shares for a 90-day period and will classify them
as
36
<PAGE>
current marketable securities in the consolidated balance sheet. Battle
Mountain, through its investment in Niugini Mining, held a 7.52% and an 8.65%
equity interest in Lihir at December 31, 1999 and 1998, respectively.
FINANCING ACTIVITIES
Debt payments of $31.2 million were made during 1999, compared with
$44.3 million and $24.5 million in 1998 and 1997, respectively. In 1997,
Battle Mountain sold its interest in Niugini Mining to Battle Mountain Canada,
facilitated primarily by a $145 million bank borrowing by Battle Mountain
Canada. Total restricted cash increased $31.0 million in 1999, primarily the
result of a $40.0 million cash collateral account established in connection
with a restructuring of a Battle Mountain Canada loan facility in October 1999
discussed below. Partially offsetting the increase in restricted cash due to
this debt restructuring was the release of funds previously held in connection
with Inti Raymi debt that was retired in 1999. Restricted cash decreased $10.2
million net in 1998, primarily the result of the release of escrow funds to
Niugini Mining.
The Canadian Imperial Bank of Commerce loan agreement was
restructured effective October 1, 1999. Under the terms of the new agreement,
the loan is segregated into three "tranches": a $40.0 million tranche due
December 31, 2003 which will be repaid with the $40.0 million cash collateral
account; a $30.0 million tranche due the earlier of the date of the receipt of
cash from the sale of Battle Mountain's investment in Lihir or December 31,
2003; and a $34.4 million tranche payable in 14 equal quarterly installments
beginning September 30, 2000. The restructuring of this loan agreement
significantly improved Battle Mountain's scheduled debt service.
The loan agreement requires Battle Mountain Canada to meet certain
financial covenants which include maintenance covenants relating to the
market value of the Lihir shares held by Battle Mountain, gold reserves and the
present value of future cash flows from the Battle Mountain Canada mines, as
well as certain restrictions on, among other things, cash transfers,
expenditures, additional debt, liens and the disposition of assets. In March
2000, $10.0 million of the $30.0 million tranche was repaid because the
market value of the Lihir shares declined to less than two times the
Lihir-related tranche as required by loan agreement. The market value of the
Lihir shares could continue to decline, requiring additional principal
payments in the near future.
Battle Mountain Canada has a C$5.0 million letter of credit line and
a C$5.0 million operating credit line with a Canadian bank. At December 31,
1999, C$4.8 million was outstanding under the letter of credit line.
In the determination of the amount of any dividends to be paid to
common shareholders, the Board of Directors regularly considers factors such
as projected operating results, cash flows, capital requirements and financial
position. In 1999, the semi-annual dividends on common stock were suspended;
however, the Board, at their discretion, may reinstate dividends in the
future. Dividends of $11.5 million, or $0.05 per share, were paid to common
shareholders in 1998 and 1997.
Battle Mountain has an effective registration statement on file with
the Securities and Exchange Commission (the "SEC") for the issuance of up to
$150.0 million of debt and/or equity securities. As of the date of this
report, no securities have been issued nor are there any current plans to
issue any securities under this registration statement. Battle Mountain also
has registration statements on file with the SEC and regulatory authorities in
Canada which qualify for sale the 65.2 million shares of Battle Mountain
common stock effectively held by Noranda Inc. Battle Mountain will not receive
proceeds from the sales of any shares that may be sold under the registration
statements covering the shares held by Noranda.
CONCLUSION. Battle Mountain believes cash requirements over the next
twelve months will be funded through a combination of current cash, future
cash flows from operations, proceeds from potential asset sales and/or future
debt or equity security issuances. Significant additional capital will be
required in the foreseeable future in order to continue the development of
current and future mining projects, including the Phoenix project. Battle
Mountain's ability to raise capital is highly dependent upon the commercial
viability of its projects and the associated price of gold. Because of the
recent volatility of gold prices and
37
<PAGE>
how it effects Battle Mountain's financial condition, a deterioration of gold
prices may negatively impact short-term liquidity and our ability to raise
additional capital for long-term development projects. In the event that cash
balances decline to a level that cannot support the operations of the
Company, management will defer planned capital and exploration expenditures
as needed to conserve cash for operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SEGMENT INFORMATION
MILLIONS 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
Operating income (loss)
Golden Giant $ 20.1 $ 38.3 $ 46.6
Kori Kollo (8.8) (58.7) 0.3
Holloway (6.1) (3.7) (6.6)
Battle Mountain Complex 0.4 (12.1) (2.2)
Vera/Nancy 7.3 6.2 1.9
Corporate and other (75.9) (80.1) (43.3)
------ ------ -----
Total operating loss (63.0) (110.1) (3.3)
Other expense, net (49.0) (117.4) (12.5)
------ ------ -----
Loss before income taxes $(112.0) $(227.5) $(15.8)
====== ====== =====
</TABLE>
SALES
Sales decreased in 1999 compared with 1998 as a result of decreased
gold production and lower realized gold prices. Excluding Battle Mountain's
share of Lihir gold sales in 1998, gold production decreased 97,000 ounces.
The placing of the Battle Mountain Complex Reona mine and the Niugini Mining
San Cristobal mine in care and maintenance effective January 1, 1999 was the
primary reason for decreased gold production. Sales of production at these
mines were netted against production costs for financial statement
presentation purposes. Also contributing to the decrease in production were
lower head grades at the Golden Giant and Kori Kollo mines. Average realized
prices for gold decreased as a result of lower spot gold prices.
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 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
their decreased production during the latter half of the year due to that
change in the mining sequence and labor problems that have since been resolved.
<TABLE>
GOLD DATA 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Gold sales (000 oz.) - 100% 806 987 976
Gold revenue realized per ounce - 100% $ 278 $ 306 $ 342
Average London PM fix per ounce $ 279 $ 294 $ 331
</TABLE>
38
<PAGE>
COSTS AND EXPENSES
Total production costs decreased in 1999 primarily due to lower
production. Consolidated per ounce cash costs increased slightly in 1999
compared with 1998. Higher per ounce cash costs at Golden Giant and Kori Kollo
were partially offset by decreases at Holloway and Vera/Nancy and the
exclusion of Lihir from 1999 calculations. The cost per ounce increase at
Golden Giant was primarily attributable to reduced stope sizes, increased
ground support costs and Block 5 test mining, while the Kori Kollo per ounce
increase was primarily the result of lower production.
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 the 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 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.
<TABLE>
<CAPTION>
AGGREGATE ATTRIBUTABLE PRODUCTION COSTS PER OUNCE OF GOLD PRODUCED
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Direct mining costs $ 166 $ 161 $ 200
Deferred stripping adjustments - 1 -
Third party smelting, refining and transportation costs 2 2 5
By-product credits included in sales (7) (7) (12)
------- ------- -------
Cash operating costs 161 157 193
Royalties 3 3 4
------- ------- -------
Total cash costs 164 160 197
Depreciation, depletion and amortization 79 94 80
Reclamation and mine closure costs 8 5 14
------- ------- -------
Total production costs $ 251 $ 259 $ 291
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF AGGREGATE ATTRIBUTABLE CASH COSTS PER OUNCE PRODUCED
TO CONSOLIDATED FINANCIAL STATEMENTS
MILLIONS, EXCEPT OUNCES PRODUCED AND PER OUNCE AMOUNTS 1999 1998 1997
------------------------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Production costs per financial statements $ 149.7 $ 163.3 $ 234.3
Lihir production costs - 12.3 2.2
Minority interest portion of production cost (7.1) (10.5) (8.0)
By-product credits included in sales (3.9) (5.8) (16.2)
Reclamation and mine closure costs (6.4) (4.7) (12.7)
Inventory change and other (5.7) (12.0) (27.0)
------ ------ ------
Production costs for per ounce calculation purposes $ 126.6 $ 142.6 $ 172.6
======= ======= =======
Gold ounces produced, THOUSANDS 770 889 876
======= ======= =======
Total cash costs per gold ounce produced $ 164 $ 160 $ 197
======= ======= =======
</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.
39
<PAGE>
Depreciation, depletion and amortization ("DD&A") decreased in total
and on a cost per gold ounce produced basis in 1999 compared with 1998. These
decreases were attributable to lower production and lower asset carrying
values resulting from asset write-downs taken at the end of 1998. DD&A
increased in total and on a cost per ounce basis in 1998 compared with 1997.
The increase in total DD&A in 1998 was primarily a result of higher production
while DD&A from the Lihir mine, which commenced commercial operations in the
fourth quarter of 1997, contributed to the cost per ounce increase.
Exploration, evaluation and other lease costs, net totaled $16.7
million in 1999 compared with $24.8 million in both 1998 and 1997 as
exploration expenditures were reduced due to continued low gold prices.
Exploration costs were net of exploration project sales of $0.5 million, $0.4
million and $4.0 million in 1999, 1998 and 1997, respectively. It is expected
that approximately $11.0 million will be invested in exploration programs in
2000 in search of potential additional mineral deposits. A majority of these
exploration funds have been allocated to five priority projects. Actual
exploration expenditures may vary as a result of the acquisition of new
properties and the success at existing properties.
An environmental remediation charge of $9.5 million was recorded in the
third quarter of 1999 based upon Battle Mountain's current best estimate of
costs to address technical long-term water quality issues at the San Luis
property. See "Other Information" below for further discussion.
Asset write-downs of $35.9 million were recorded in the fourth quarter
of 1999 representing the remaining carrying value of the Crown Jewel project.
The write-downs were recorded due to current permitting uncertainties
resulting from a January 19, 2000 Washington Pollution Control Hearings Board
decision that reversed Crown Jewel's water rights permits and vacated its
Clean Water Act certification.
In the fourth quarter of 1998, as a result of continued low gold
prices, $104.9 million of asset write-downs were recorded, including: Kori
Kollo, $49.9 million; Crown Jewel, $40.3 million; and Reona, $10.8 million.
Discounted future net cash flows were determined to be the appropriate
measurement of fair value of the mine assets mentioned above.
Interest expense decreased in 1999 compared with 1998 due to lower
average levels of outstanding debt. Interest expense increased in 1998
compared with 1997 primarily as a result of a full year of borrowing under the
$145 million bank borrowing by Battle Mountain Canada in September 1997 and
the expensing of interest on convertible debentures which were related to the
Lihir project.
Interest income decreased in 1999 compared with 1998 as a result of
lower average levels of cash invested, while interest income increased in 1998
compared with 1997 due to higher average levels of cash invested.
Net foreign currency exchange gains totaled $8.2 million in 1999,
mostly on U.S. dollar-denominated debt of subsidiaries, primarily Battle
Mountain Canada. This compares with net foreign currency exchange losses of
$12.4 million in 1998 and $7.8 million in 1997.
Equity in losses and impairment charges of Lihir totaled $80.9 million
in 1999 and $97.9 million in 1998, compared with equity in income of $0.2
million in 1997. A $76.2 million impairment charge related to Niugini
Mining's investment in Lihir was recorded in 1999 ($52.8 million in the
fourth quarter) and a $90 million charge was recorded in 1998 (in the fourth
quarter) as a result of decreases in the market value of the Lihir stock held
by Niugini Mining. These decreases in value were considered to be other than
temporary. The estimated fair value of the investment in Lihir at December
31, 1999 was determined to be the quoted market price of the Lihir shares to
be held by Battle Mountain upon the effective date of the merger of Lihir and
Niugini Mining, less the other net assets of Niugini Mining at December 31,
1999. The estimated fair value at December 31, 1998 was determined to be the
quoted market price of the Lihir shares held by Niugini Mining at that time.
Lihir commenced commercial production in October 1997.
40
<PAGE>
Minority interest in net loss was $31.7 million in 1999 compared with
minority interest in net income of $0.5 million in 1998 and $2.3 million in
1997. Minority interest in 1999 included the effect of the impairment charges
to Niugini Mining's investment in Lihir.
Capitalized interest on the convertible debentures which were related
to Lihir totaled $4.5 million in 1997. All interest incurred on the debentures
subsequent to October 1997 was expensed.
Income tax expense remained relatively constant in 1999 compared with
1998. An increase in the valuation allowance in 1999 included an $11.0 million
increase associated with tax assets existing at December 31, 1998. This was
partially offset by the release of a portion of the valuation allowance
previously placed on Australian and Canadian deferred tax assets, specifically
Australian net operating loss carryforwards and Canadian foreign currency
exchange losses. Net of these items, however, an increase in the valuation
allowance on deferred tax assets of $42.0 million was recorded in 1999. As a
result, no tax benefits were recorded in 1999 for operating losses or asset
write-downs.
Income tax expense increased in 1998 compared with 1997 due to an $84.6
million increase in the valuation allowance on U.S. and Canadian deferred tax
assets. The increases in the valuation allowance in both 1999 and 1998
resulted from Battle Mountain's assessments that we would not be able to
realize the increases in deferred tax assets during those years because
adequate amounts of future net income and capital gains were not assured under
the "more likely than not" criteria.
Battle Mountain changed its policy in 1999 regarding the permanent
reinvestment of earnings of Battle Mountain Canada and decided that it would
repatriate unremitted earnings from Battle Mountain Canada to the extent that
funds were not required to meet Battle Mountain Canada's needs. No deferred
taxes were recorded at December 31, 1999 as a result of this policy change.
In 1997, certain events caused a revision in Battle Mountain's policy
related to the unremitted earnings of Battle Mountain Canada. Battle Mountain
sold the interest in Niugini Mining to Battle Mountain Canada in 1997 and the
proceeds from the sale were expected to be sufficient to meet the 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 Battle Mountain Canada. The income expected to be derived from
the reinvestment of the sale proceeds from the Niugini Mining sale into U.S.
projects led management in 1997 to project U.S. taxable income in future years
sufficient to recognize a portion of net operating loss carryforwards in the
United States.
As a result of the above, a $16.4 million income tax benefit was
recorded 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. Battle
Mountain 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 subsidiaries.
Mining taxes decreased each year as a result of lower levels of
Canadian mining income.
Net operating loss carryforwards will expire beginning 2007 as follows:
$13.9 million, $23.4 million, $16.9 million and $7.3 million in the years 2007
through 2010, respectively, $19.2 million in 2012, $8.5 million in 2018 and
$16.7 million in 2019.
OTHER
MARKET RISK. Battle Mountain'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 gold sales, purchases and lending, currency
valuations, investor sentiment and production levels. While Battle Mountain is
a low-cost gold producer, a sustained period of low gold prices would have a
material adverse effect on results of operations, financial position and cash
flows.
41
<PAGE>
FOREIGN CURRENCY RISK. Battle Mountain has operations in Canada,
Bolivia, Australia and the United States. Gold produced at these operations
is sold in the international markets for U.S. dollars. The cost structures of
the Canadian and Australian operations are primarily Canadian and Australian
dollar denominated, and accordingly, these affiliates' functional currencies
are the Canadian dollar and the Australian dollar, respectively. As such,
Battle Mountain is exposed to foreign currency risk at those locations to the
extent that there are fluctuations in local currency exchange rates against
the U.S. dollar. The potential foreign currency exchange gain or loss in
earnings from a hypothetical 10% change in the 1999 year-end exchange rates
of the Canadian and Australian dollar is approximately $11.8 million in the
aggregate. Similar exchange rate gains or losses of other subsidiaries are
immaterial since those companies' functional currencies are the U.S. dollar
and immaterial balances are maintained in local currencies.
The Canadian and Australian subsidiaries also have U.S. dollar
denominated intercompany debt that totaled $85.4 million in the aggregate at
December 31, 1999. While these intercompany balances are eliminated in
consolidation, exchange rate changes do affect consolidated earnings. The
potential foreign currency exchange gain or loss in non-cash earnings from a
hypothetical 10% change in each of the respective December 31, 1999 exchange
rates on these intercompany balances is $8.3 million in the aggregate.
At December 31, 1999, Battle Mountain Canada also had outstanding
$104.4 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, 1999 Canadian dollar exchange rate
is approximately $10.2 million.
The investment in Lihir, effective with the merger of Lihir and
Nuigini Mining, will be classified as marketable securities available for
sale. The carrying value of this asset will be adjusted for any impacts
resulting from changes in the market value of Lihir common stock and
Australian currency exchange rates. The potential non-cash effect on
comprehensive income from a hypothetical 10% change in the exchange rate used
in the December 31, 1999 valuation of this asset is approximately $6.3
million.
INTEREST RATE RISK. Approximately $104.4 million of long-term debt
outstanding at December 31, 1999, including current portions, is variable
interest rate based. The potential increase or decrease in interest expense
from a hypothetical one percent change in the December 31, 1999 interest rates
in effect for this debt is approximately $1.0 million.
EQUITY RISK. The potential non-cash effect on comprehensive income
from a hypothetical 10% change in the market value of the Lihir common stock
at December 31, 1999 is approximately $6.3 million.
DERIVATIVE FINANCIAL INSTRUMENTS. During the third quarter of 1999,
Battle Mountain modified its hedging policy. The purpose of the current
hedging policy is to reduce exposure to fluctuating commodity prices and
currency exchange rates. The hedging policy allows the use of various
derivative financial instruments, including forward sales contracts and
options. Battle Mountain does not use derivative financial instruments for
trading purposes.
<TABLE>
<CAPTION>
Gold contracts outstanding at December 31, 1999 were as follows:
Total or
2000 2001 2002 2003 Average
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Written call options:
Ounces 87,500 87,500 87,500 87,500 350,000
Average price per ounce $349 $349 $349 $349 $349
Purchased put options:
Ounces 87,500 87,500 87,500 87,500 350,000
Average price per ounce $293 $293 $293 $293 $293
Forwards:
Ounces 25,000 25,000 25,000 25,000 100,000
Average price per ounce $312 $312 $312 $312 $312
</TABLE>
42
<PAGE>
No material option contracts were delivered against or financially
settled during 1999, 1998 or 1997, and there are no margin requirements
related to any of the currently existing contracts. The estimated fair value
of the written call options and purchased put options outstanding at December
31, 1999, net, was $(0.3) million. The estimated fair value of the forwards
outstanding at December 31, 1999 was $(0.5) million. These estimated fair
values were determined from a third-party model.
As part of its overall financial planning, pursuant to pricing
provisions as set forth in certain customer forward sales contracts
outstanding as of December 31, 1999, Battle Mountain Canada had committed to
deliver 198,000 ounces of gold valued at approximately $55.2 million at an
average price of $279 per ounce. This gold was on deposit at a refinery or
leased to third parties. All such contracts mature by March 31, 2000. From
time to time, Battle Mountain Canada also enters into gold leasing
transactions prior to delivery of gold held in inventory related to these
commitments. Battle Mountain, at times, is a party to these leasing
transactions and will sell the leased gold into the spot market. Whenever a
spot sale is made, a forward purchase contract is entered into to assure
delivery of the gold at the end of the lease. Battle Mountain Canada had
outstanding lease contracts with Battle Mountain for 108,000 ounces of gold at
December 31, 1999.
Battle Mountain may be exposed to certain credit-related losses in
the event of nonperformance by the counterparties to hedged agreements,
generally by the amount by which the contract price exceeds the spot price of
a commodity. Attempts to minimize credit exposure are made by limiting
counterparties to major financial institutions that meet specific credit
rating standards. Collateral is not required from counterparties. Management
believes that the risk of incurring significant credit-related losses is
remote.
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 results of operations.
FOREIGN OPERATIONS. All revenues generated during 1999 were from
mining operations outside the United States, while assets attributable to
those operations were approximately $308.6 million at December 31, 1999. As a
result, Battle Mountain is exposed to risks normally associated with
operations located outside the United States, including political, economic,
social and labor instabilities, as well as foreign exchange controls, currency
fluctuations and taxation changes.
Foreign operations and investments may also be subject to laws and
policies of the United States affecting foreign trade, investment and taxation
that could affect the conduct or profitability of those operations.
ENVIRONMENTAL MATTERS. All of Battle Mountain's mining and processing
operations are subject to reclamation and closure requirements. Such
requirements are monitored and cost estimates are prepared to meet the legal
and regulatory requirements of the various jurisdictions in which business is
conducted are periodically revised. Where possible, plans for ongoing
operations and future mine development are implemented in a manner that
contributes to the fulfillment of reclamation and closure obligations in a
cost effective manner through the conduct of ongoing operating activities.
Costs estimated to be incurred in future periods which cannot be addressed in
this manner are charged to operations through provisions based on the
units-of-production method such that the estimated cost of 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. Battle Mountain
believes that these policies and practices adequately address 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, these
future costs, including severance costs and remediation costs, are estimated
to be approximately $53.9 million, of which $35.8 million had been accrued at
December 31, 1999. Approximately $6.3 million of these costs are recorded as
current liabilities.
As part of closure and reclamation efforts with respect to the San
Luis mine in Colorado, which ceased operations in November 1996, Battle
Mountain voluntarily partially backfilled the San Luis West
43
<PAGE>
Pit. As water percolates through the oxidized backfilled rock, the water
contacts and solubilizes certain naturally occurring oxidation by-products
which have been identified at elevated levels at monitoring sites located
within and downgradient of the West Pit. An Independent Ecological Risk
Assessment has been performed which indicates that the elevated levels of
these constituents do not pose a risk to human health or the environment.
On August 20, 1999 the Colorado Department of Public Health and the
Environment issued a Notice of Violation and Cease and Desist Order to Battle
Mountain, alleging discharges at the San Luis mine to waters not permitted
under the Colorado Water Quality Control Act. Battle Mountain filed an Answer
to the Notice denying that such a violation has occurred. The Notice requires
Battle Mountain to take a number of steps that the Department of Public
Health asserts to be necessary to attain compliance with the Water Quality
Control Act. These steps include the submittal of a permit application, a
monitoring plan and a response plan. Battle Mountain has made all submittals
required by the Notice and has commenced extensive response activities. On
October 8, 1999, the Department of Public Health issued an Amendment to the
Notice. The Amendment authorized the operation of a water treatment facility
and the discharge of treated water. Battle Mountain has commenced treatment
and discharge operations.
It is not possible to predict the nature or scope of any further
action that might be taken by regulatory authorities regarding the San Luis
property. These actions could include seeking injunctive relief, mandating the
posting of financial assurance, requiring further on-site response actions
and/or the imposition of monetary penalties.
An environmental remediation charge of $9.5 million was recorded in
the third quarter of 1999 to address technical long-term water quality issues
at the San Luis property. It is reasonably possible that this estimate may
change in future reporting periods as further information becomes available.
Battle Mountain has investigated the infiltration of liquids from the
tailings facility at the Battle Mountain Complex into the groundwater. This
facility is of an earthen design and construction, which was in keeping with
accepted engineering and environmental control practices at the time it was
constructed. Pursuant to the state-issued water pollution control permit,
Battle Mountain has conducted a groundwater investigation regarding the
tailings area and based upon the investigation has prepared and submitted an
evaluation of mitigation alternatives for the groundwater. It is expected that
the affected groundwater will be utilized in connection with Battle Mountain's
proposed Phoenix operations. In the interim, a state approved groundwater
pump-back system has been implemented. Also, pursuant to work plans developed
under the state issued water pollution control permit covering the site,
Battle Mountain has investigated certain low quality stormwater run-off in
adjacent highly mineralized areas, and based upon these investigations, has
designed and obtained state approvals to install a system to collect and use,
evaporate or treat this water. Residual localized contamination in the
groundwater in these areas will be addressed pursuant to groundwater site
characterization and closure activities discussed immediately below.
Battle Mountain 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.
Bolivia first enacted federal environmental legislation in 1992 and
the promulgation of general environmental regulations followed in December
1995. 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 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. Battle
Mountain received final approval of the environmental license for the Kori
Kollo Mine in March 1999.
44
<PAGE>
In August 1997, new regulations, the Environmental Regulations for
Mining Activities, 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.
Under the transitory provisions of the Environmental Regulations for Mining
Activities, we will have eighteen (18) months from the date of approval of
its environmental license to submit a document which reflects compliance with
the new 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 financial condition, cash flows or results of operations.
However, based on the evaluation of the data collected to date, and assuming
reasonable interpretation and implementation of existing regulations and the
reasonableness of the adoption of additional specific technical standards,
Battle Mountain does not anticipate that compliance will have a material
adverse effect on results of operations, financial condition or cash flows.
PENDING ACCOUNTING STANDARDS. In June 1998, Financial Accounting
Standards Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This standard was amended by Accounting
Standard No. 137, which deferred the effective date of implementation to the
first quarter of fiscal years beginning after June 15, 2000. Accounting
Standard No. 133 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. Battle Mountain is evaluating the impact that
implementation of this standard may have on its consolidated results of
operations, financial position and liquidity.
YEAR 2000. The change from 1999 to the Year 2000 had no effect on
Battle Mountain's ability to conduct business. No disruptions that were
attributable to the Year 2000 occurred at any location nor did the date change
have any visible affect on Battle Mountain's vendors and suppliers. Even
though the date change has passed, monitoring of suppliers and systems will
continue. While there were no interruptions immediately following the change
to Year 2000, there is still the possibility of problems that may arise as a
result of unused vendors or suppliers, infrequently used parts of the business
system or periodic business processes not yet executed. Although no assurance
can be given, Battle Mountain does not anticipate any material adverse effect
regarding Year 2000 compliance on consolidated results of operations,
financial position or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other."
45
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
<S> <C>
I. Battle Mountain Gold Company
Report of Independent Accountants.................................................................. 47
Consolidated Statement of Operations............................................................... 48
Consolidated Balance Sheet......................................................................... 49
Consolidated Statement of Shareholders' Equity..................................................... 50
Consolidated Statement of Cash Flows............................................................... 51
Notes to Consolidated Financial Statements......................................................... 52
Supplemental Financial Information (Unaudited)..................................................... 75
II. Lihir Gold Limited
The financial statements of Lihir Gold Limited will be filed through an amendment to this
Form 10-K within 180 days of December 31, 1999.
</TABLE>
46
<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 cash
flows present fairly, in all material respects, the financial position of
Battle Mountain Gold Company and its subsidiaries at December 31, 1999 and
December 31, 1998 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of Battle Mountain'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 auditing standards generally accepted in the United States, 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 described in Note 19, Battle Mountain revised its December 31,
1999 and 1998 consolidated financial statements to present its 50.45%
interest in Niugini Mining Limited as a consolidated subsidiary.
As discussed in Note 2, effective January 1, 1997, Battle Mountain
changed its method of accounting for computing depreciation, depletion, and
amortization related to its Bolivian subsidiary.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Houston, Texas
February 18, 2000, except for Note 19, as to which the date is May 12, 2000
47
<PAGE>
<TABLE>
<CAPTION>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31
MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997
- ---------------------------------- ------------- ------------- ----
(as restated) (as restated)
<S> <C> <C> <C>
Sales (NOTE 13) $ 228.2 $ 276.6 $ 344.9
-------- -------- --------
Costs and Expenses
Production costs 149.7 163.3 234.3
Depreciation, depletion and amortization 64.2 79.6 72.8
Exploration, evaluation and other lease costs, net 16.7 24.8 24.8
Environmental remediation charge (NOTE 14) 9.5 - -
Asset write-downs (NOTE 7) 35.9 104.9 -
Merger expense (NOTE 3) - - 2.7
General and administrative expenses 15.2 14.1 13.6
-------- -------- --------
Total costs and expenses 291.2 386.7 348.2
-------- -------- --------
Operating Loss (63.0) (110.1) (3.3)
Interest expense (15.1) (17.8) (13.9)
Interest income 6.7 10.7 6.0
Foreign currency exchange gain (loss), net 8.2 (12.4) (7.8)
Equity in income (losses) of and impairment
charge of Lihir (Note 4) (80.9) (97.9) 0.2
Minority interest in net loss (income) 31.7 (0.5) (2.3)
Capitalized interest (NOTE 4) - - 4.5
Other income, net 0.4 0.5 0.8
-------- -------- --------
Loss Before Income Taxes (112.0) (227.5) (15.8)
Income tax benefit (expense) (NOTE 10) (7.6) (7.8) 17.4
Mining tax benefit (expense) (NOTE 10) 0.2 (6.0) (6.7)
-------- -------- --------
Loss Before Cumulative Effect of Accounting Change (119.4) (241.3) (5.1)
Cumulative effect of accounting change, net (NOTE 2) - - (3.7)
-------- -------- --------
Net Loss (119.4) (241.3) (8.8)
Preferred dividends (NOTE 9) 7.5 7.5 7.5
-------- -------- --------
Net Loss to Common Shares $ (126.9) $ (248.8) $ (16.3)
======== ======== ========
Basic and Diluted Loss per Common Share
Before cumulative effect of accounting change $ (0.55) $ (1.08) $ (.05)
Accounting change - - (.02)
-------- -------- --------
Total $ (0.55) $ (1.08) $ (.07)
======== ======== ========
Dividends per Common Share $ - $ .05 $ .05
Average Common Shares Outstanding for
Basic and Diluted Loss per Share Purposes 229.9 229.8 229.7
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
<TABLE>
<CAPTION>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31
MILLIONS EXCEPT PER SHARE AMOUNTS 1999 1998
- --------------------------------- ---- ----
(as restated) (as restated)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 91.0 $ 197.2
Restricted cash - 7.7
Accounts and notes receivable, net (NOTE 1) 13.2 14.8
Product inventories 8.7 8.9
Materials and supplies, net (NOTE 1) 22.4 23.6
Other current assets 7.9 2.7
--------- ---------
Total current assets 143.2 254.9
Investments (NOTE 5) 79.0 168.7
Restricted cash (NOTE 8) 40.0 0.7
Property, plant and equipment, net (NOTES 6 AND 7) 299.6 341.9
Other assets (NOTE 10) 6.7 20.4
--------- ---------
Total Assets $ 568.5 $ 786.6
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings (NOTE 8) $ - $ 14.9
Current maturities of long-term debt (NOTE 8) 2.6 37.5
Debt due upon disposal of Lihir (NOTE 8) 30.0 -
Accounts payable 16.0 14.5
Income and mining taxes payable (NOTE 10) 16.7 23.9
Interest payable 6.4 1.5
Salaries, wages and benefits payable 6.1 3.7
Other current liabilities (NOTE 14) 11.1 9.7
--------- ---------
Total current liabilities 88.9 105.7
Long-term debt (NOTE 8) 176.8 203.6
Deferred income and mining taxes (NOTE 10) 64.5 72.0
Deferred mine reclamation and closure costs (NOTE 14) 29.5 25.3
Other liabilities 25.0 25.0
--------- ---------
Total Liabilities 384.7 431.6
--------- ---------
Minority interest 65.1 107.3
--------- ---------
Commitments and contingencies (NOTE 14) - -
Shareholders' equity (NOTE 9)
Convertible preferred stock, $1.00 par value:
Authorized - 50.0 million shares; issued and outstanding -
2.3 million shares (1999 and 1998) 110.6 110.6
Common stock, $.10 par value:
Authorized - 500.0 million shares; issued and outstanding -
229.9 million shares (1999) and 229.8 million shares (1998) 13.2 12.9
Additional paid-in capital 343.8 344.0
Accumulated deficit (327.4) (200.5)
Accumulated other comprehensive loss (21.5) (19.3)
--------- ---------
Total Shareholders' Equity 118.7 247.7
--------- ---------
Total Liabilities and Shareholders' Equity $ 568.5 $ 786.6
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
<TABLE>
<CAPTION>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Retained Accumulated
Additional Earnings Other Total
Preferred Common Paid-in (Accumulated Comprehensive Shareholders'
Stock Stock Capital Deficit) Income (Loss) Equity
----- ----- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
MILLIONS
- --------
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
Net loss - - - (119.4) - (119.4)
Currency translation adjustments - - - - (2.2) (2.2)
-----
Total comprehensive loss (121.6)
Shares issued - - 0.1 - - 0.1
Shares exchanged - 0.3 (0.3) - - -
Preferred stock dividends - - - (7.5) - (7.5)
--------------------------------------------------------------------------------
DECEMBER 31, 1999 $ 110.6 $ 13.2 $ 343.8 $ (327.4) $ (21.5) $ 118.7
================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
MILLIONS 1999 1998 1997
- -------- -------- -------- --------
(as restated) (as restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (119.4) $ (241.3) $ (8.8)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation, depletion and amortization 64.2 79.6 72.8
Environmental remediation charges 9.5 - -
Asset write-downs 35.9 104.9 -
Deferred income and mining taxes 2.1 (7.1) (33.8)
Foreign currency exchange loss (gain), net (8.2) 12.4 7.8
Equity in losses (income) and impairment charge of Lihir 80.9 97.9 (0.2)
Minority interest in net income (loss) (31.7) 0.5 2.3
Cumulative effect of accounting change, net - - 3.7
Increase (decrease) in accrued reclamation costs (3.2) 0.6 4.6
Change in working capital accounts, net (NOTE 16) 3.1 21.4 7.6
Other, net (0.7) 13.9 5.2
-------- -------- --------
Net Cash Flows Provided by Operating Activities 32.5 82.8 61.2
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (49.3) (46.5) (62.4)
Crown Butte liquidating dividend to minority shareholders (11.0) - -
Proceeds from sales of assets 11.9 2.0 4.7
New World settlement, net - 34.9 -
Investment in Lihir Gold Limited - (11.5) -
Other, net (0.1) (3.4) (5.3)
-------- -------- --------
Net Cash Flows Used in Investing Activities (48.5) (24.5) (63.0)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from borrowings - - 156.7
Debt repayments (31.2) (44.3) (24.5)
Increase (decrease) in short-term borrowings (14.9) 9.9 (16.9)
Cash dividend payments (7.5) (19.0) (18.9)
Decrease (increase) in restricted cash (31.0) 10.2 (3.3)
Other, net 0.2 (0.5) 0.7
-------- -------- --------
Net Cash Flows Provided by (Used in) Financing Activities (84.4) (43.7) 93.8
-------- -------- --------
Effect of Exchange Rate Changes on Cash (5.8) (2.4) (1.0)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (106.2) 12.2 91.0
Cash and cash equivalents at beginning of year 197.2 185.0 94.0
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 91.0 $ 197.2 $ 185.0
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Index
<S> <C> <C>
1. Accounting Policies Summary................................................... 52
2. Change in Accounting Method................................................... 55
3. Merger........................................................................ 56
4. Niugini Mining and Lihir Gold Limited......................................... 56
5. Investments................................................................... 57
6. Property, Plant and Equipment................................................. 57
7. Asset Write-downs............................................................. 57
8. Debt.......................................................................... 58
9. Shareholders' Equity.......................................................... 59
10. Income and Mining Taxes....................................................... 60
11. Common Stock and Stock Options................................................ 62
12. Benefit Plans................................................................. 63
13. Geographic and Segment Information............................................ 66
14. Commitments and Contingencies................................................. 67
15. Derivative Financial Instruments.............................................. 69
16. Supplemental Cash Flow Information............................................ 70
17. Fair Value of Financial Instruments........................................... 70
18. Summarized Financial Information.............................................. 71
19. Restatement................................................................... 72
</TABLE>
Note 1. ACCOUNTING POLICIES SUMMARY
NATURE OF OPERATIONS. Battle Mountain Gold Company and its
subsidiaries (collectively "Battle Mountain") are engaged in the gold mining
business in the United States, Canada, Bolivia and Australia, and in the
exploration and evaluation of precious metals properties, primarily in Latin
America, Australia, Canada and the United States. Battle Mountain Gold
Company was incorporated in Nevada in 1985.
BASIS OF PRESENTATION AND RESTATEMENT. The accompanying consolidated
financial statements include the accounts of Battle Mountain Gold Company and
its wholly-owned and majority-owned subsidiaries. All significant intercompany
investments, accounts and transactions have been eliminated in consolidation.
Consistent with accepted mining industry practices, interests in
unincorporated mining joint ventures are reported using the proportionate
consolidation method whereby Battle Mountain 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.
After issuing Battle Mountain's 1999 financial statements and filing
the Form 10-K with the Securities and Exchange Commission, following
extensive discussion with its independent accountants, management determined
it was necessary to revise the financial statement presentation of Battle
Mountain's former interest in Niugini Mining Limited. In 1998, Battle
Mountain resolved to dispose of its 50.45% equity interest in Niugini Mining
Limited and deconsolidated the subsidiary, classifying it as an asset held
for sale. However, in accordance with provisions of Statement of Financial
Accounting Standards No. 94, "Consolidation of all Majority-Owned
Subsidiaries," Battle Mountain's 1999 and 1998 financial statements and
related disclosures are restated from amounts previously reported to properly
reflect the full consolidation of Battle Mountain's interest in Niugini
Mining. See Note 19 for further discussion.
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
52
<PAGE>
estimates relate to mineral reserves, reclamation and environmental
obligations, postretirement and other employee benefit liabilities, valuation
allowances for deferred tax assets, fair values of financial instruments and
recoverability of long-lived assets. While management believes that the
estimates used are reasonable, actual results could differ from these
estimates.
Realization of Battle Mountain's assets is subject to various risks
including permitting of Battle Mountain'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.
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, 1999 and
1998 included other receivables of approximately $3.7 million and $7.2
million, respectively, relating to Value Added Tax credits and import duty
receivables. The December 31, 1999 balance is net of a $1.1 million allowance
for non-recoverable amounts that was established in 1999.
INVENTORIES. Generally, product inventories, consisting of gold and
silver, are reported at the lower of cost or net realizable value using the
first-in, first-out method. Gold produced by Battle Mountain's Golden Giant
mine is valued at estimated net realizable value when it reaches a saleable
form. Inventories of materials and supplies are valued at the lower of
average cost or estimated net realizable value. The December 31, 1999 amount
presented is net of reserves for obsolescence of $2.8 million that were
established in 1999.
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.
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.
INVESTMENTS. Investments in which Battle Mountain 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 Battle Mountain owns less than a 20% interest and does not
have the ability to exercise significant influence are recorded at cost.
Investments in equity securities that have readily determinable fair values
are classified as available for sale. Unrealized gains and losses on
53
<PAGE>
these investments are recorded in accumulated other comprehensive income. For
all investments, unrealized losses that are other than temporary are
recognized in net income. Realized gains and losses are determined on the
specific identification method and are included in net income.
EXPLORATION AND EVALUATION EXPENDITURES. All exploration and
pre-development evaluation expenditures are expensed as incurred.
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, remediation and closure costs of operating sites are accrued on
a units-of-production basis over the estimated lives of the respective mines
and are included in production costs.
REMEDIATION COSTS. Remediation liabilities are expensed upon the
determination that a liability has been incurred and where the minimum cost
or reasonable estimate of the cost can be determined.
INCOME AND MINING TAXES. Battle Mountain 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 Battle Mountain's
share of undistributed earnings of certain foreign subsidiaries and
unconsolidated affiliates because Battle Mountain considers such earnings to
be reinvested indefinitely in whole or in part. 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. Employee stock-based compensation costs
are accounted for using the intrinsic value method. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," is
followed 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 Accounting
Standard No. 52, "Foreign Currency Translation." When local functional
currency is translated to U.S. dollars, the effects of remeasurement 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 rate
related 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. Basic earnings per share is calculated by
dividing net income attributable to common shareholders by the weighted
average number of common shares outstanding, including the Battle Mountain
Canada Ltd. Exchangeable Shares. Diluted earnings per share also gives effect
to the impact convertible securities, such as preferred stock and common
stock options, if dilutive, would have on net income/loss and the average
common shares outstanding if converted at the beginning of the year. Battle
Mountain's outstanding common stock options (see Note 11), convertible
debentures (see Note 8) and convertible preferred stock (see Note 9) were
anti-dilutive and therefore were not included in the calculations of basic
and diluted loss per share amounts in 1999, 1998 and 1997.
ISSUANCE OF STOCK BY SUBSIDIARIES. The issuance of stock by
subsidiaries is accounted for as a capital transaction in the consolidated
financial statements.
54
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS. In the normal course of business,
derivative financial instruments may be used to reduce commodity price,
foreign currency exchange rate, interest rate and other economic risks.
Derivative financial instruments are not held or issued for trading purposes.
Gains, losses and expenses related to contracts for the sales of
produced metals are netted against revenue when the hedged production is
sold. Put and call options may also be purchased and/or sold. Currently, call
options do not qualify for deferral accounting and, accordingly, are marked
to market. Battle Mountain may also enter into offsetting written call
options and purchased put options ("collars") which do qualify for deferral
accounting. Accordingly, the premiums paid or received related to collars are
netted against or added to 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 in 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
are 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.
ACCOUNTING STANDARDS AND STATEMENTS. In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position No.
98-5, "Reporting on the Cost of Start-up Activities". This statement requires
that costs of start-up activities be expensed as incurred, and also requires
retroactive application of the statement. Battle Mountain adopted this
statement as required on January 1, 1999. The adoption of this statement had
no impact on results of operations, financial position or cash flows.
In June 1998, Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued. This standard was
amended by Accounting Standard No. 137, which deferred the effective date of
implementation to the first quarter of fiscal years beginning after June 15,
2000. Accounting Standard No. 133 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. Battle Mountain
is evaluating the impact that implementation of this standard may have on
consolidated results of operations, financial position and liquidity.
Note 2. CHANGE IN ACCOUNTING METHOD
Effective January 1, 1997, Empresa Minera Inti Raymi S.A., an
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. Battle Mountain 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.
Both DD&A methods are acceptable accounting practice. However,
management considers the current method preferable because, in their opinion,
it more accurately matches mining revenues with associated expenses and it
conforms to more prevalent industry practice.
55
<PAGE>
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
Battle Mountain combined with Hemlo Gold Mines, Inc., now known as
Battle Mountain Canada Ltd., through a merger in 1996 which resulted in
Battle Mountain Canada becoming a wholly-owned subsidiary. Pursuant to the
combination agreement, each holder of Hemlo Gold common shares received 1.48
Exchangeable Shares of Battle Mountain Canada for each share held (see Note
9). The combination was accounted for under the pooling of interests method.
Merger-related costs of $2.7 million were expensed in 1997.
Note 4. NIUGINI MINING AND LIHIR GOLD LIMITED
On October 6, 1999, Niugini Mining and Lihir Gold Limited announced
a proposed scheme of arrangement under which Lihir would merge with Niugini
Mining. The merger was effective February 2, 2000. Lihir owns and operates a
mine in Papua New Guinea. Niugini Mining shareholders received one share of
Lihir for each share of Lihir held, together with one additional share of
Lihir for each A$1.45 of Niugini Mining's net cash balance of $54.6 million
at the effective date of the transaction. As a result, Battle Mountain, which
held a 50.45% interest in Niugini Mining prior to the merger, received 111.3
million shares of Lihir, representing a 9.74% equity interest in Lihir.
Battle Mountain has agreed to not sell on market the Lihir shares for a
90-day period and will classify them as current marketable securities in the
consolidated balance sheet. Battle Mountain, through its investment in
Niugini Mining, held a 7.52% and an 8.65% equity interest in Lihir at
December 31, 1999 and 1998, respectively.
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. In December 1998, Battle Mountain decided to pursue
options for disposing of its interest in Niugini Mining. Niugini Mining's
interest in Lihir was accounted for using the equity method of accounting in
1999, 1998 and 1997 due to its ability to exercise significant influence.
Battle Mountain recorded a $76.2 million impairment loss ($46.8
million net of minority interest) in 1999, of which $52.8 million ($26.6
million net of minority interest) was recorded in the fourth quarter of 1999,
and a $90.0 million impairment loss in the fourth quarter of 1998, related to
Niugini Mining's investment in Lihir as a result of decreases in the market
value of the Lihir stock. These decreases in value were considered to be
other than temporary decreases. The estimated fair value of the investment in
Niugini Mining at December 31, 1999 was determined to be the quoted market
price of the Lihir shares to be held by Battle Mountain upon the effective
date of the merger less the other net assets of Niugini Mining at December
31, 1999. The estimated fair value at December 31, 1998 was determined to be
the quoted market price of the Lihir shares held by Niugini Mining at that
time.
The carrying value, net of accumulated amortization, attributed to
Battle Mountain'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. No excess cost remained at December 31, 1999. Such excess was
being amortized against Battle Mountain's share of earnings of Lihir using the
units-sold method based on the estimated recoverable ounces attributable to
the Lihir mine. Amortization of this excess cost totaled $3.2 million, $6.7
million and $1.9 million in 1999, 1998, and 1997, respectively. Interest costs
of $4.5 million were capitalized in 1997 in connection with Battle Mountain's
investment in Lihir. No interest costs were capitalized in 1999 or 1998.
56
<PAGE>
Note 5. INVESTMENTS
Battle Mountain's long-term investments as of December 31 included the
following:
<TABLE>
<CAPTION>
MILLIONS 1999 1998
-------- ------- -------
<S> <C> <C>
Lihir Gold Limited $ 68.4 $ 149.3
First Toronto Investments Limited - 9.8
Cash surrender value of life insurance, net 8.3 7.6
Other 2.3 2.0
------- -------
Total $ 79.0 $ 168.7
======= =======
</TABLE>
See Note 4 for a discussion of Lihir Gold Limited. Battle Mountain
sold, at book value, its investment in First Toronto Investments Limited for
$10.2 million in the third quarter of 1999. First Toronto is associated with
Noranda, Inc., a Canadian natural resource company which owns approximately
28% of Battle Mountain's outstanding common shares. Battle Mountain's
investment in First Toronto represented approximately 2% of First Toronto
shares. In August 1998, Battle Mountain closed the sale of the New World
project and received cash proceeds, net of related disbursements, of $34.9
million. Battle Mountain recorded an estimated $0.8 million loss on the sale
of the New World project in 1997.
Note 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31 consisted of the
following:
<TABLE>
<CAPTION>
MILLIONS 1999 1998
-------- ------- -------
<S> <C> <C>
Mining, milling and other equipment $ 441.2 $ 454.8
Leasehold and mine development 440.2 431.1
Other 22.0 22.9
------- -------
Gross property, plant and equipment 903.4 908.8
Accumulated depreciation, depletion and amortization (603.8) (566.9)
------- -------
Net property, plant and equipment $ 299.6 $ 341.9
======= =======
</TABLE>
See Note 7 for a discussion of 1999 and 1998 impairment write-downs
of property, plant and equipment.
Prior to 1999, Battle Mountain's proportionate share of the Inti
Raymi Kori Kollo and Llallagua gold deposits exceeded Inti Raymi's historical
cost basis in these deposits. This excess was capitalized to property, plant
and equipment and was being amortized using the units-sold method based on
the deposits' estimated recoverable reserves. Amortization of the excess cost
amounted to $13.6 million in 1998 and $13.0 million in 1997. In December
1998, the remaining $45.6 million unamortized balance was written off as a
result of an impairment write-down.
Note 7. ASSET WRITE-DOWNS
Battle Mountain's liquidity and cash flows from operations are
highly sensitive to the price of gold. In assessing the recoverability of
long-lived assets, management has used a gold price of $300 per ounce for
2000 and 2001, and $325 per ounce thereafter. Because of the recent
volatility of gold prices and how it effects Battle Mountain's financial
condition, a deterioration of gold prices may negatively impact short-term
liquidity, the ability to recover the investments in long-lived assets,
resulting in possible further asset write-downs, and impact our ability to
raise additional capital for long-term development projects.
Asset write-downs of $35.9 million were recorded in the fourth
quarter of 1999 representing the remaining carrying value of the Crown Jewel
project. The write-downs were recorded due to current permitting
uncertainties resulting from a January 19, 2000 Washington Pollution Control
Hearings Board decision that reversed Crown Jewel's water rights permits and
vacated its Clean Water Act certification.
57
<PAGE>
The following impairment write-downs were recorded in the fourth
quarter of 1998 as a result of continued low gold prices: 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 and lease costs.
Discounted net cash flows were used to measure the fair value of the mine
assets mentioned above.
Note 8. DEBT
Battle Mountain had the following long-term debt outstanding as of
December 31:
<TABLE>
<CAPTION>
MILLIONS 1999 1998
-------- ------- -------
<S> <C> <C>
Canadian Imperial Bank of Commerce loan, due 2003, variable rate $ 104.4 $ 121.8
Convertible subordinated debentures, due 2005, 6% 100.0 100.0
Inti Raymi Kori Kollo project financing loans, variable rates in 1998 5.0 18.4
Other - 0.9
------- -------
Total 209.4 241.1
Less current portion of long-term debt (2.6) (37.5)
Less debt due upon disposal of Lihir (30.0) -
------- -------
Total long-term debt $ 176.8 $ 203.6
======= =======
</TABLE>
CANADIAN IMPERIAL BANK OF COMMERCE. The Canadian Imperial Bank of
Commerce loan agreement was restructured effective October 1, 1999. Under the
terms of the new agreement, the loan is segregated into three "tranches": a
$40.0 million tranche due December 31, 2003 which will be repaid with the
$40.0 million cash collateral account; a $30.0 million tranche due the
earlier of the date of the receipt of cash from the sale of Battle Mountain's
investment in Lihir or December 31, 2003; and a $34.4 million tranche payable
in 14 equal quarterly installments beginning September 30, 2000. The weighted
average interest rate for this loan was 7.1% at December 31, 1999.
Under the terms of the agreement, a $40.0 million restricted cash
collateral account was established and security interests in all current and
future Battle Mountain Canada assets were granted. The loan agreement also
requires Battle Mountain Canada to meet certain financial covenants which
include maintenance covenants relating to the market value of the Lihir
shares held by Battle Mountain, gold reserves and the present value of future
cash flows from the Battle Mountain Canada mines, as well as certain
restrictions on, among other things, cash transfers, expenditures, additional
debt, liens and the disposition of assets. In March 2000, $10.0 million of
the $30.0 million tranche was repaid because the market value of the Lihir
shares declined to less than two times the Lihir-related tranche as required
by the loan agreement. The market value of the Lihir shares could continue to
decline, requiring additional principal payments in the near future.
OTHER. The convertible subordinated debentures are convertible into
shares of Battle Mountain 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 common stock reserved for issuance upon conversion
of these debentures. The debentures are redeemable at Battle Mountain'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 mine in Bolivia. As of December 31, 1999, one
credit facility remained outstanding. This $5.0 million, 11% interest-bearing
convertible loan is payable on March 1, 2002 and is convertible at any time
at the holder's option into a 3.98% ownership interest in Inti Raymi.
58
<PAGE>
Battle Mountain Canada established a C$5.0 million letter of credit
line and a C$5.0 million operating credit line with a Canadian bank in 1999.
At December 31, 1999, C$4.8 million was outstanding under the letter of
credit line. Also in 1999, Battle Mountain canceled a $15.0 million
uncommitted revolving credit facility with a European bank. There was $14.9
million outstanding under this facility at December 31, 1998. Interest rates
were variable and the weighted average interest rate for borrowings under
this facility was 7.8% in 1998 and 6.3% in 1997.
Scheduled maturities of long-term debt for the years 2000 through
2003 are $2.6 million, $9.8 million, $14.8 million and $82.2 million,
respectively, of which $40.0 million will be repaid with restricted cash. The
$100.0 million subordinated debentures are due in a lump-sum payment in 2005.
Note 9. SHAREHOLDERS' EQUITY
See Note 8 for information regarding the number of shares of common
stock reserved for issuance upon the conversion of Battle Mountain's
outstanding convertible subordinated debentures.
The Board of Directors is authorized to divide Battle Mountain'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, 1999, 2.3 million
shares of convertible preferred stock were outstanding 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
common stock and is redeemable at the option of Battle Mountain solely for
shares of common stock. There are 11.0 million shares of common stock
reserved for issuance upon conversion of the preferred stock.
EXCHANGEABLE SHARES. In connection with the combination with Hemlo
Gold, each holder of Hemlo Gold common stock received 1.48 Exchangeable
Shares of Battle Mountain Canada in exchange for each share held. The
Exchangeable Shares are exchangeable, at the option of the holder, for Battle
Mountain common stock on a share-for-share basis. The Exchangeable Shares
remain securities of Battle Mountain Canada and entitle their holders to
dividend and other rights economically equivalent to that of Battle Mountain
common stock and, through a voting trust, to vote at meetings of stockholders
of Battle Mountain.
STOCK RIGHTS. Each outstanding share of common stock, including the
Exchangeable Shares, carries a right that entitles the holder to purchase
1/100 of a share of Series A Junior Participating Preferred Stock, par value
$1.00 per share, at an exercise price of $60, subject to adjustment. The
stock rights are not exercisable or transferable apart from the common stock
until such time as a person or group acquires 20% of Battle Mountain or
initiates a tender offer that will result in ownership of 30% of Battle
Mountain; however, such exercise rights are not triggered solely by the
acquisition by a single person of 20% or more of Battle Mountain common stock
from Noranda or from the first person to whom Noranda sells such a block. In
the event that Battle Mountain 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 Battle Mountain's common stock at a
50% discount. The rights may be redeemed by Battle Mountain for one cent per
right at any time until 10 days following the first public announcement of a
20% acquisition of beneficial ownership of Battle Mountain common stock.
59
<PAGE>
Note 10. INCOME AND MINING TAXES
Federal and foreign income and mining tax expense (benefit) consisted
of the following:
<TABLE>
MILLIONS 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
Current
Canada $ (3.4) $ 19.1 $ 21.8
Other foreign 6.5 0.2 0.9
------ ------ -------
Total current 3.1 19.3 22.7
------ ------ -------
Deferred
United States - federal 13.3 1.9 (14.6)
Canada 0.8 (6.5) (17.9)
Other foreign (9.8) (0.9) (0.9)
------ ------ -------
Total deferred 4.3 (5.5) (33.4)
------ ------ -------
Total income and mining tax
expense (benefit) $ 7.4 $ 13.8 $ (10.7)
====== ====== =======
</TABLE>
Consolidated income before income taxes included losses from foreign
operations of $51.7 million in 1999, $108.8 million in 1998 and income from
foreign operations of $13.4 million in 1997.
Deferred income tax assets and liabilities as of December 31, 1999 and
1998 related to the following:
<TABLE>
MILLIONS 1999 1998
-------- ---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 40.7 $ 38.2
Alternative minimum tax credit carryforward 0.8 0.8
Employee compensation and benefits accrued 6.9 6.8
Foreign currency exchange rate losses 2.1 5.5
Property, plant and equipment 85.9 69.2
Accrued reclamation 6.3 4.2
Other 25.4 16.8
------- -------
Gross deferred income tax assets 168.1 141.5
Valuation allowance (143.4) (101.4)
------- -------
Net deferred income tax assets 24.7 40.1
------- -------
Deferred tax liabilities
Property, plant and equipment 62.2 71.8
Undistributed earnings of subsidiaries 21.4 21.2
Other 2.0 5.8
------- -------
Net deferred income tax liabilities 85.6 98.8
------- -------
Net deferred tax liability $ (60.9) $ (58.7)
======= =======
</TABLE>
The net deferred tax liability at December 31, 1999 consisted of a
net U.S. and Canadian deferred tax liability of $64.5 million and U.S. and
other foreign tax assets of $3.6 million (included in other current assets).
The net deferred tax liability of $58.7 million at December 31, 1998 consisted
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 at December 31, 1998 was the result of net operating loss
carryforwards which management expected to realize as an offset against future
taxable income.
60
<PAGE>
A reconciliation of income tax at the U.S. statutory rate to income
tax expense follows:
<TABLE>
MILLIONS 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
Income tax benefit based on statutory rate of 35% $ (39.2) $ (79.6) $ (5.5)
Increases (decreases) resulting from
Foreign withholding tax, net (0.3) (1.0) (5.4)
Canadian mining taxes 2.2 5.5 6.7
Change in filing position regarding foreign
tax credits - - 46.7
Undistributed losses (earnings) of foreign
subsidiaries not subject to income tax (0.7) 0.9 0.6
Change in valuation allowance 42.0 84.6 (52.7)
Foreign tax rate differential (2.7) (4.7) 2.0
Change in alternative minimum tax credits - - 3.8
Adjustments to prior year accruals 5.3 8.5 (8.1)
Other, net 0.8 (0.4) 1.2
------ ------ ------
Income and mining tax expense (benefit) $ 7.4 $ 13.8 $ (10.7)
====== ====== ======
</TABLE>
During 1999, Battle Mountain increased its valuation allowance by
$42.0 million. The increase resulted from Battle Mountain's assessment in
1999 that it would not be able to realize the increase in its deferred tax
assets 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 1999 losses. The $143.4 million valuation
allowance recorded at December 31, 1999 reduced 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 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.
Battle Mountain changed its policy in 1999 regarding the permanent
reinvestment of earnings of Battle Mountain Canada and decided that it would
repatriate unremitted earnings from Battle Mountain Canada to the extent that
funds were not required to meet Battle Mountain Canada's needs. No deferred
taxes were recorded at December 31, 1999 as a result of this policy change.
Effective in the third quarter of 1997, certain events caused Battle
Mountain to revise its policy related to the unremitted earnings of Battle
Mountain Canada. In the third quarter of 1997, Battle Mountain sold its
interest in Niugini Mining to Battle Mountain Canada. Proceeds from the sale
were expected to be sufficient to meet future operating needs in the U.S.
Accordingly, management no longer expected to remit to the U.S. any
accumulated or future Canadian earnings generated by Battle Mountain Canada.
The income expected to be derived from the reinvestment of the sale
proceeds from the Niugini Mining sale to Battle Mountain Canada into U.S.
projects led management in 1997 to project U.S. taxable income in future years
sufficient to recognize a portion of net operating loss carryforwards in the
United States.
As a result of the above, a $16.4 million income tax benefit was
recorded 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 tax benefit of net operating loss carryforwards in the amount of
$7.2 million was also recognized in 1997 because of revised projections of
future taxable income at certain subsidiaries.
61
<PAGE>
At December 31, 1999, Battle Mountain had approximately $105.8
million of regular net operating loss carryforwards and $49.7 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 $0.8 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 the net operating loss
carryforwards. In addition, at December 31, 1999, approximately $9.3 million
of net operating loss carryforwards were available to offset future Australian
federal income taxes.
Note 11. COMMON STOCK AND STOCK OPTIONS
STOCK OPTIONS. Under the 1994 Long-Term Incentive Plan, 10.0 million
shares of common stock were reserved for issuance as of December 31, 1999.
This share reserve includes the reserve for the Battle Mountain Canada
Long-Term Incentive Plan (see below). Of these shares, 4.8 million shares were
available at December 31, 1999 for future grants of stock options, restricted
stock, performance shares and other stock awards.
Options to employees residing in Canada are issued under the Battle
Mountain Canada 1997 Long-Term Incentive Plan. Under this plan, 2.5 million
shares were reserved for issuance as of December 31, 1999. Of these shares,
1.8 million shares were available for future grants of stock options,
restricted stock, performance shares and other stock awards. Share issuances
under this plan also affect the number of shares available for issuance under
Battle Mountain'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,
which became effective January 1, 2000 and replaced an existing plan that
expired during 1998, 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 and available for future grants at December
31, 1999. Options granted pursuant to the plan become exercisable the later of
six months after grant date or the beginning of the calendar year immediately
following the year in which the option was granted. The options expire no
later than 10 years after the date of grant. The amount of deferred
compensation is accrued as compensation expense during the period earned.
Changes in options outstanding for the combined plans were as follows:
<TABLE>
Weighted Average
OPTIONS IN MILLIONS Options Exercise Price
------------------- ------- --------------
<S> <C> <C>
Outstanding at December 31, 1996 5.2
Granted 0.9 $ 5.27
Exercised (0.1) $ 5.37
Forfeited (1.0) $ 10.21
----
Outstanding at December 31, 1997 5.0 $ 8.49
Granted 1.1 $ 5.56
Exercised - -
Forfeited (0.3) $ 12.29
----
Outstanding at December 31, 1998 5.8 $ 7.57
Granted 1.8 $ 2.88
Exercised - -
Forfeited (0.3) $ 9.10
----
Outstanding at December 31, 1999 7.3 $ 6.42
====
</TABLE>
62
<PAGE>
At December 31, 1999, expiration dates for the outstanding options
ranged from 2000 to 2009. Significant ranges of outstanding and exercisable
options at December 31, 1999 were as follows (options in millions):
<TABLE>
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Option Price Options Exercise Price Remaining Life Options Exercise Price
------------ ------- -------------- -------------- ------- --------------
$ 1.88 to $ 3.54 1.8 $ 2.88 9.8 years - $ -
$ 4.46 to $ 5.89 2.1 5.42 7.4 years 1.2 4.96
$ 6.00 to $ 7.63 0.9 6.88 3.8 years 0.9 6.88
$ 8.00 to $ 9.85 1.2 8.49 5.7 years 1.1 8.40
$ 10.42 to $ 11.38 1.3 10.62 6.4 years 0.3 11.32
--- ---
$ 1.88 to $ 11.38 7.3 6.42 7.1 years 3.5 7.42
=== ===
</TABLE>
Had compensation expense for stock-based compensation been determined
based on the fair values of the options at the grant dates, 1999 net loss to
common shares would have been $131.0 million, or $.57 per common share, 1998
net loss would have been $252.4 million, or $1.10 per share, and 1997 net loss
would have been $19.1 million, or $0.08 per share.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option model pricing. Significant assumptions
used were as follows:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield - 1.9% 0.8%
Expected stock price volatility 67.1% 51.0% 35.7%
Risk-free interest rate 6.1% 5.2% 5.6%
Expected life of options 10 years 10 years 10 years
</TABLE>
The weighted average fair values of options granted during 1999, 1998
and 1997 was $2.28, $3.05 and $2.66 per share, respectively.
REGISTRATION STATEMENTS. Battle Mountain has an effective
registration statement on file with the Securities and Exchange Commission
(the "SEC") for the issuance of up to $150.0 million of debt and/or equity
securities. As of the date of this report, no securities have been issued nor
are there any immediate plans to issue any securities under this registration
statement. Battle Mountain also has registration statements on file with the
SEC and regulatory authorities in Canada which qualify for sale the 65.2
million shares of BMG's common stock effectively held by Noranda. Battle
Mountain will not receive proceeds from the sales of any shares that may be
sold under the registration statements covering the shares held by Noranda.
Note 12. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
BENEFITS. Canadian salaried and substantially all U.S. employees of Battle
Mountain are covered by non-contributory pension plans. In addition,
substantially all of Battle Mountain's U.S. employees may become eligible for
certain unfunded health care and life insurance benefits when they reach
retirement age while working for Battle Mountain.
63
<PAGE>
Net periodic benefit costs for these plans included the following
components:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
MILLIONS 1999 1998 1997 1999 1998 1997
- -------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 0.8 $ 1.7 $ 1.7 $ 0.3 $ 0.2 $ 0.3
Interest cost 3.7 3.7 3.8 0.6 0.5 0.6
Expected return on plan assets (4.5) (4.0) (3.8) - - -
Amortization of prior service costs 0.6 0.7 0.8 - 0.1 0.1
Amortization of transitional asset (0.1) (0.1) (0.1) - - -
Net actuarial gain (0.2) (0.3) (0.1) (0.2) (0.1) -
---- ---- ---- ---- ---- ----
Net periodic benefit cost $ 0.3 $ 1.7 $ 2.3 $ 0.7 $ 0.7 $ 1.0
==== ==== ==== ==== ==== ====
</TABLE>
The following sets forth the plans' funded status and related amounts
as of December 31:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
MILLIONS 1999 1998 1999 1998
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
- ----------------------------
Benefit obligation at beginning of year $ 56.5 $ 54.0 $ 8.7 $ 9.1
Service cost 0.8 1.6 0.3 0.3
Interest cost 3.6 3.7 0.6 0.6
Transition obligation - - - 1.2
Actuarial loss (gain) (5.6) 1.1 (2.1) (2.0)
Curtailment gain - (0.2) - -
Foreign currency exchange loss (gain) 0.9 (1.0) 0.1 -
Benefits paid (2.9) (2.7) (0.5) (0.5)
----- ----- ----- -----
Benefit obligation at end of year 53.3 56.5 7.1 8.7
----- ----- ----- -----
Change in Plan Assets
- ---------------------
Fair value of plan assets at beginning of year 53.3 49.8 - -
Actual return on plan assets 6.9 6.3 - -
Administrative expenses (0.2) (0.2) - -
Employer contributions 0.7 1.2 - -
Foreign currency exchange gain (loss) 1.0 (1.1) - -
Benefits paid (2.9) (2.7) - -
----- ----- ----- -----
Fair value of plan at end of year 58.8 53.3 - -
----- ----- ----- -----
Funded status of plans 5.5 (3.2) (7.1) (8.7)
Unrecognized net actuarial gain (13.7) (6.2) (5.1) (3.1)
Unrecognized prior service cost 5.0 6.8 - 0.4
Unrecognized transition obligation (0.3) (0.4) 0.4 -
----- ----- ----- -----
Accrued benefit cost $ (3.5) $ (3.0) $ (11.8) $ (11.4)
===== ===== ===== =====
</TABLE>
Included in the pension plans described above is an unfunded
supplemental retirement plan covering certain executives. The benefit
obligation associated with this plan was $7.5 million and $5.8 million at
December 31, 1999 and 1998, respectively.
64
<PAGE>
Weighted average rate assumptions used in determining estimated
benefit obligations were as follows:
<TABLE>
Pension Benefits Other Benefits
---------------- --------------
PERCENT 1999 1998 1999 1998
------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate
U.S. plans 7.8 6.8 7.8 6.8
Canadian plans 7.8 6.5 7.8 7.0
Expected return on plan assets
U.S. plans 9.5 9.0 N/A N/A
Canadian plans 7.8 6.5 N/A N/A
Rate of increase in compensation levels
U.S. plans 4.8 4.8 N/A N/A
Canadian plans N/A 4.5 3.0 3.0
</TABLE>
The service and interest cost components of the other postretirement
benefits obligation were computed based on an assumed 6.5% annual rate of
increase in the per capita cost of covered health care benefits in the year
2000. 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. Battle Mountain has defined contribution plans
available for most of its employees. Contributions to the plans are expensed
and funded currently. The cost of such contributions to the plans was $1.5
million, $1.0 million and $1.4 million in 1999, 1998 and 1997, respectively.
65
<PAGE>
Note 13. GEOGRAPHIC AND SEGMENT INFORMATION
Battle Mountain's operations are related to gold mining and related
activities. Accordingly, operational mines and significant development
projects are considered segments for financial reporting purposes. The Golden
Giant and Holloway mines are located in Canada, Kori Kollo is located in
Bolivia, the Battle Mountain Complex is located in the United States and the
Vera/Nancy mine is located in Australia.
Financial information by segment follows:
<TABLE>
Golden Kori Battle Vera / Corp &
MILLIONS Total Giant Kollo Holloway Mountain Nancy Other
- -------- ----- ----- ----- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1999
- ----
Gross revenues $228.2 $ 99.0 $ 84.9 $ 25.8 $ - $ 18.5 $ -
Production costs 149.7 55.7 68.1 19.7 (0.4) 8.4 (1.8)
Deprec., deplet. & amort. 64.2 23.2 25.6 12.2 - 2.8 0.4
Environmental remediation 9.5 - - - - - 9.5
Asset write-downs 35.9 - - - - - 35.9
Other expenses 31.9 - - - - - 31.9
------ ------ ------ ----- ------- ----- ------
Operating income (loss) (63.0) 20.1 (8.8) (6.1) 0.4 7.3 (75.9)
====== ====== ===== ======= ===== ======
Equity in losses and
impairment charge of Lihir (80.9)
Minority interest in
net losses (income) 31.7
Interest & other income 0.2
------
Loss before income taxes (112.0)
======
Property, plant & equip, net 299.6 88.4 51.1 71.0 52.1 31.4 5.6
===== ===== ==== ==== ==== ==== =====
Total assets 568.5 118.1 78.4 76.1 54.3 36.0 205.6
===== ===== ==== ==== ==== ==== =====
Capital expenditures 49.3 9.7 7.0 3.9 12.8 10.2 5.7
===== ===== ==== ==== ==== ==== =====
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 104.9 0.8 49.9 - 11.0 - 43.2
Other expenses 38.9 - - - - - 38.9
------ ---- ---- ---- ----- ---- ------
Operating income (loss) (110.1) 38.3 (58.7) (3.7) (12.1) 6.2 (80.1)
===== ===== ==== ===== ==== ======
Equity in losses and
impairment charge of Lihir (97.9)
Interest & other expense (19.5)
------
Loss before income taxes (227.5)
======
Property, plant & equip, net 341.9 96.8 70.0 74.7 39.3 22.6 38.5
===== ===== ===== ==== ==== ==== =====
Total assets 786.6 144.6 107.9 79.8 42.4 24.8 387.1
===== ===== ===== ==== ==== ==== =====
Capital expenditures 46.5 8.7 3.3 3.6 7.7 8.2 15.0
===== ===== ===== ==== ==== ==== =====
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)
===== ===== ===== ===== ==== =====
Equity in income of Lihir 0.2
Interest & other income (12.7)
-----
Loss before income taxes (15.8)
=====
Property, plant & equip, net 489.3 120.9 157.7 84.5 37.1 14.2 74.9
======= ===== ===== ==== ==== ==== =====
Total assets 1,093.2 161.8 200.0 90.5 47.0 17.2 576.7
======= ===== ===== ==== ==== ==== =====
Capital expenditures 62.4 10.3 7.4 3.7 9.1 16.6 15.3
======= ===== ===== ==== ==== ==== =====
</TABLE>
66
<PAGE>
"Corporate and Other" includes, among other things, the Crown Jewel
project and the investment in Lihir. The $3.7 million cumulative effect of the
accounting method change discussed in Note 2 is attributable to the Kori Kollo
mine.
Sales to customers that accounted for 10% or more of Battle
Mountain's consolidated revenues in 1999, 1998 or 1997 follows: sales to one
customer totaled $81 million (1999), $106 million (1998) and $81 million
(1997), sales to a second customer totaled $41 million (1999), $32 million
(1998) and $153 million (1997), and sales to a third customer totaled $40
million (1999). Substantially all of Battle Mountain's current operating mines
contributed to sales to those customers during the years. There were no export
sales in 1999 or 1998 and $31.5 million in 1997.
Since all sales are made to precious metals smelters, refiners or
traders, the precious metals industry has substantial influence over the
market for Battle Mountain'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 effect on results of operations,
financial position or cash flows.
Note 14. COMMITMENTS AND CONTINGENCIES
Battle Mountain believes cash requirements over the next twelve
months will be funded through a combination of current cash, future cash
flows from operations, proceeds from potential asset sales and/or future debt
or equity security issuances. Significant additional capital will be required
in the foreseeable future in order to continue the development of current and
future mining projects, including the Phoenix project. Battle Mountain's
ability to raise capital is highly dependent upon the commercial viability of
its projects and the associated price of gold. Because of the recent
volatility of gold prices and how it effects Battle Mountain's financial
condition, a deterioration of gold prices may negatively impact short-term
liquidity and our ability to raise additional capital for long-term
development projects. In the event that cash balances decline to a level that
cannot support the operations of the Company, management will defer planned
capital and exploration expenditures as needed to conserve cash for
operations.
Total operating lease rental expenses, exclusive of mineral leases,
were $2.6 million, $3.0 million and $3.4 million in 1999, 1998 and 1997,
respectively. Aggregate minimum rentals, exclusive of mineral leases, under
non-cancelable leases for the years 2000 through 2003 were $1.6 million, $1.4
million, $1.0 million and $0.8 million, respectively. There were no
significant lease commitments beyond 2003.
As part of closure and reclamation efforts with respect to the San
Luis mine in Colorado, which ceased operations in November 1996, Battle
Mountain voluntarily partially backfilled the San Luis West Pit. As water
percolates through the oxidized backfilled rock, the water contacts and
solubilizes certain naturally occurring oxidation by-products which have been
identified at elevated levels at monitoring sites located within and
downgradient of the West Pit. An Independent Ecological Risk Assessment has
been performed which indicates that the elevated levels of these constituents
do not pose a risk to human health or the environment.
On August 20, 1999 the Colorado Department of Public Health and the
Environment issued a Notice of Violation and Cease and Desist Order to Battle
Mountain, alleging discharges at the San Luis mine to waters not permitted
under the Colorado Water Quality Control Act. Battle Mountain filed an Answer
to the Notice denying that such a violation has occurred. The Notice requires
Battle Mountain to take a number of steps that the Department of Public
Health asserts to be necessary to attain compliance with the Water Quality
Control Act. These steps include the submittal of a permit application, a
monitoring plan and a response plan. Battle Mountain has made all submittals
required by the Notice and has commenced extensive response activities. On
October 8, 1999, the Department of Public Health issued an Amendment to the
Notice. The Amendment authorized the operation of a water treatment facility
and the discharge of treated water. Battle Mountain has commenced treatment
and discharge operations.
67
<PAGE>
It is not possible to predict the nature or scope of any further
action that might be taken by regulatory authorities regarding the San Luis
property. These actions could include seeking injunctive relief, mandating the
posting of financial assurance, requiring further on-site response actions
and/or the imposition of monetary penalties.
An environmental remediation charge of $9.5 million was recorded in
the third quarter of 1999 based upon Battle Mountain's current best estimate
of costs to address technical long-term water quality issues at the San Luis
property. It is reasonably possible that this estimate may change in future
reporting periods as further information becomes available.
An additional $4.7 million and $5.2 million was recorded in the
fourth quarters of 1998 and 1997, respectively, for estimated reclamation and
environmental liabilities, respectively, primarily at the Battle Mountain
Complex.
Mining and processing operations are subject to reclamation and
closure requirements. Battle Mountain monitors such requirements and
periodically revises its cost estimates to meet the legal and regulatory
requirements of the various jurisdictions in which it conducts business. Where
possible, plans for ongoing operations and future mine development are
implemented in a manner that contributes to the fulfillment of reclamation and
closure obligations in a cost effective manner through the conduct of ongoing
operating activities. Costs estimated to be incurred in future periods which
cannot be addressed in this manner are charged to operations through
provisions based on the units-of-production method such that the estimated
cost of 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. Battle Mountain 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. Battle Mountain estimated these undiscounted future costs, including
severance costs and remediation costs, to be approximately $53.9 million, of
which $35.8 million had been accrued at December 31, 1999. Approximately $6.3
million of these costs are recorded as current liabilities.
Based on current environmental regulations and known reclamation
requirements, Battle Mountain believes it has included the best estimate of
costs of these obligations in its reclamation and environmental accruals.
However, it is reasonably possible that Battle Mountain'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.
Various laws require that financial assurances be in place for
certain environmental and reclamation obligations and potential liabilities.
Battle Mountain has certain environmental and reclamation financial assurances
in place and will be required to put additional financial assurances in place
in the future. There can be no guarantee that Battle Mountain will be able to
maintain and/or put in place the necessary assurances.
The Golden Giant mine property includes the Quarter Claim acquired
from Teck Corporation and Homestake Canada Inc. Battle Mountain is obligated
to pay a net profits 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.
Battle Mountain 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 resolved will have a material adverse effect
on results of operations, financial position or cash flows.
68
<PAGE>
Note 15. DERIVATIVE FINANCIAL INSTRUMENTS
Battle Mountain's results of operations are affected significantly
by the market price of gold, which it cannot control. During the third
quarter of 1999, Battle Mountain modified its hedging policy. The purpose of
the current hedging policy is to reduce exposure to fluctuating commodity
prices and currency exchange rates. The hedging policy allows the use of
various derivative financial instruments, including forward sales contracts
and options.
Gold contracts outstanding at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Total or
2000 2001 2002 2003 Average
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Written call options:
Ounces 87,500 87,500 87,500 87,500 350,000
Average price per ounce $349 $349 $349 $349 $349
Purchased put options:
Ounces 87,500 87,500 87,500 87,500 350,000
Average price per ounce $293 $293 $293 $293 $293
Forwards:
Ounces 25,000 25,000 25,000 25,000 100,000
Average price per ounce $312 $312 $312 $312 $312
</TABLE>
No material option contracts were delivered against or financially
settled during 1999, 1998 or 1997, and there are no margin requirements
related to any of the currently existing contracts.
As part of its overall financial planning, pursuant to pricing
provisions as set forth in certain customer forward sales contracts
outstanding as of December 31, 1999, Battle Mountain Canada had committed to
deliver 198,000 ounces of gold valued at approximately $55.2 million at an
average price of $279 per ounce. This gold was on deposit at a refinery or
leased to third parties. From time to time, Battle Mountain Canada also
enters into gold leasing transactions prior to delivery of gold held in
inventory related to these commitments. Battle Mountain, at times, is a party
to these leasing transactions and will sell the leased gold into the spot
market. Whenever a spot sale is made, a forward purchase contract is entered
into to assure delivery of the gold at the end of the lease. Battle Mountain
Canada had outstanding lease contracts with Battle Mountain for 108,000
ounces of gold at December 31, 1999.
Battle Mountain 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. Credit exposure is minimized by limiting counterparties to major
financial institutions which meet established credit rating standards. Battle
Mountain does not require collateral from its counterparties. Management
believes that the risk of incurring significant credit-related losses is
remote.
69
<PAGE>
Note 16. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information follows:
<TABLE>
<CAPTION>
MILLIONS 1999 1998 1997
-------- ------ ------ -----
<S> <C> <C> <C>
Changes in working capital accounts
Decrease in accounts receivable $ 0.7 $ 14.7 $ 16.9
Decrease (increase) in product inventories 1.5 (4.2) 1.9
Decrease in materials and supplies inventories 1.2 2.0 3.5
Decrease (increase) in other current assets (2.0) 0.6 3.0
Increase (decrease) in income and mining
taxes payable (7.2) 13.8 (8.0)
Increase (decrease) in interest payable 4.9 (4.3) (1.1)
Increase (decrease) in salaries, wages and
benefits payable 2.4 (2.8) (4.4)
Increase (decrease) in accounts payable and other
current liabilities 1.6 1.6 (4.2)
------ ------ -----
Change in working capital accounts, net $ 3.1 $ 21.4 $ 7.6
====== ====== =====
Cash paid during the year for:
Income, mining and withholding taxes,
net of tax refunds $ 17.1 $ 4.6 $30.7
Interest, net of amounts capitalized 10.2 21.8 8.2
</TABLE>
Note 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the carrying amounts and estimated fair
values of financial instruments at December 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
Carrying Fair Carrying Fair
MILLIONS Amount Value Amount Value
-------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Long-term debt, including
current portion $209.4 $168.4 $241.1 $216.9
</TABLE>
The fair value of the 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 Canadian Imperial Bank loans, the carrying amounts approximate
the fair values. The carrying values of cash and cash equivalents, restricted
cash, trade receivables, and trade payables approximate their estimated fair
values. The estimated fair value of the written call options and purchased
put options outstanding at December 31, 1999, net, was $(0.3) million. The
estimated fair value of the forwards outstanding at December 31, 1999 was
$(0.5) million. These estimated fair values were determined from a
third-party model.
Battle Mountain had corporate guarantees outstanding totaling $5.2
million and $4.4 million at December 31, 1999 and 1998, respectively, to
ensure that the reclamation of the Battle Mountain Complex will be performed
as specified in the operating permits issued. In addition, Battle Mountain
had corporate guarantees outstanding totaling $68.4 million and $68.7 million
at December 31, 1999 and 1998, respectively, as collateral for surety bonds
provided as security for various reclamation obligations. The carrying values
of these financial instruments approximate their fair values.
70
<PAGE>
Note 18. SUMMARIZED FINANCIAL INFORMATION
The following summarized financial information of Battle Mountain
Canada is presented in accordance with the Securities Exchange Commission's
reporting requirements as they pertain to the Battle Mountain Canada
Exchangeable Shares:
<TABLE>
<CAPTION>
December 31
MILLIONS 1999 1998
-------- ------- -------
<S> <C> <C>
Current assets $ 149.1 $ 162.5
Non-current assets 232.8 338.2
------- -------
Total assets $ 381.9 $ 500.7
======= =======
Current liabilities $ 54.8 $ 59.0
Non-current liabilities 148.7 173.9
------- -------
Total liabilities 203.5 232.9
Minority interests 59.7 100.1
Shareholder's equity 118.7 167.7
------- -------
Total liabilities and shareholder's equity $ 381.9 $ 500.7
======= =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
MILLIONS 1999 1998 1997
-------- ------ ------- -------
<S> <C> <C> <C>
Sales $124.7 $ 144.3 $ 197.1
Costs and expenses 125.8 96.0 174.6
------ ------- -------
Operating income (loss) $ (1.1) $ 48.3 $ 22.5
====== ======= =======
Net income (loss) $(45.8) $ (76.4) $ 14.7
====== ======= =======
</TABLE>
Summarized financial information of Lihir Gold Limited follows:
<TABLE>
<CAPTION>
December 31
MILLIONS 1999 1998
-------- ---- ----
<S> <C> <C>
Current assets $ 99.1 $ 124.5
Non-current assets 936.6 924.2
-------- --------
Total assets $1,035.7 $1,048.7
======== ========
Current liabilities $ 78.1 $ 74.1
Non-current liabilities 144.2 284.8
-------- --------
Total liabilities 222.3 358.9
Shareholder's equity 813.4 689.8
-------- --------
Total liabilities and shareholder's equity $1,035.7 $1,048.7
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31
MILLIONS 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
Sales $ 206.6 $ 184.7 $ 57.0
Costs and expenses 190.8 161.8 32.3
-------- -------- -------
Operating income $ 15.8 $ 22.9 $ 24.7
======== ======== =======
Net income (loss) $ (7.4) $ (10.3) $ 11.8
======== ======== =======
</TABLE>
71
<PAGE>
Note 19. RESTATEMENT
After issuing Battle Mountain's 1999 financial statements and filing
the Form 10-K with the Securities and Exchange Commission, following
extensive discussion with its independent accountants, management determined
it was necessary to revise the financial statement presentation of Battle
Mountain's former interest in Niugini Mining Limited. In 1998, Battle
Mountain resolved to dispose of its 50.45% equity interest in Niugini Mining
Limited and deconsolidated the subsidiary, classifying it as an asset held
for sale. However, in accordance with provisions of Statement of Financial
Accounting Standards No. 94, "Consolidation of all Majority-Owned
Subsidiaires," Battle Mountain's 1999 and 1998 financial statements and
related disclosures are restated from amounts previously reported to properly
reflect the full consolidation of Battle Mountain's interest in Niugini
Mining.
The following sets forth the effects of the restatement on Battle
Mountain's accompanying consolidated statement of operations, balance sheet
and statement of cash flows:
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
1999 1998
---- ----
As As
As Previously As Previously
MILLIONS, EXCEPT PER SHARE AMOUNTS Restated Reported Restated Reported
- ---------------------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Sales $ 228.2 $ 228.2 $ 276.6 $ 276.6
------- ------- ------- -------
Costs and Expenses
Production costs 149.7 151.5 163.3 163.3
Depreciation, depletion and amortization 64.2 64.2 79.6 79.6
Exploration, evaluation and other lease costs, net 16.7 16.7 24.8 24.8
Environmental remediation charge 9.5 9.5 - -
Asset write-downs 35.9 35.9 104.9 194.9
Loss related to assets held for sale - 46.6 - -
General and administrative expenses 15.2 14.1 14.1 14.1
------- ------- ------- -------
Total costs and expenses 291.2 338.5 386.7 476.7
------- ------- ------- -------
Operating Loss (63.0) (110.3) (110.1) (200.1)
Interest expense (15.1) (15.1) (17.8) (17.8)
Interest income 6.7 4.1 10.7 10.7
Foreign currency exchange gain (loss), net 8.2 8.2 (12.4) (12.4)
Equity in income (losses) and impairment
charges of Lihir (80.9) - (97.9) (7.9)
Minority interest in net loss (income) 31.7 1.5 (0.5) (0.5)
Other income, net 0.4 (0.4) 0.5 0.5
------- ------- ------- -------
Loss Before Income Taxes (112.0) (112.0) (227.5) (227.5)
Income tax benefit (expense) (7.6) (7.6) (7.8) (7.8)
Mining tax benefit (expense) 0.2 0.2 (6.0) (6.0)
------- ------- ------- -------
Net Loss (119.4) (119.4) (241.3) (241.3)
Preferred dividends 7.5 7.5 7.5 7.5
------- ------- ------- -------
Net Loss to Common Shares $(126.9) $(126.9) $(248.8) $(248.8)
======= ======= ======= =======
Basic and Diluted Loss per Common Share
Before cumulative effect of accounting change $ (0.55) $ (0.55) $ (1.08) $ (1.08)
Accounting change - - - -
------- ------- ------- -------
Total $ (0.55) $ (0.55) $ (1.08) $ (1.08)
======= ======= ======= =======
Dividends per Common Share $ - $ - $ .05 $ .05
Average Common Shares Outstanding for Basic and Diluted
Loss per Share Purposes 229.9 229.9 229.8 229.8
</TABLE>
72
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------- ---------------------
As As
As Previously As Previously
MILLIONS Restated Reported Restated Reported
- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 91.0 $ 36.3 $ 197.2 $ 147.6
Restricted cash - - 7.7 7.7
Accounts and notes receivable, net 13.2 12.9 14.8 13.8
Product inventories 8.7 8.6 8.9 8.9
Materials and supplies, net 22.4 22.3 23.6 23.4
Assets held for sale - 61.7 - 108.3
Other current assets 7.9 7.9 2.7 2.7
------- ------- ------- -------
Total current assets 143.2 149.7 254.9 312.4
Investments 79.0 10.6 168.7 19.4
Restricted cash 40.0 40.0 0.7 -
Property, plant and equipment, net 299.6 299.6 341.9 341.9
Other assets 6.7 6.7 20.4 20.4
------- ------- ------- -------
Total Assets $ 568.5 $ 506.6 $ 786.6 $ 694.1
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ - $ - $ 14.9 $ 14.9
Current maturities of long-term debt 2.6 2.6 37.5 37.0
Debt due upon disposal of assets held for sale 30.0 30.0 - -
Accounts payable 16.0 15.9 14.5 14.3
Income and mining taxes payable 16.7 16.6 23.9 23.9
Interest payable 6.4 6.4 1.5 1.5
Salaries, wages and benefits payable 6.1 5.4 3.7 3.1
Other current liabilities 11.1 9.2 9.7 8.3
------- ------- ------- -------
Total current liabilities 88.9 86.1 105.7 103.0
Long-term debt 176.8 176.8 203.6 203.6
Deferred income and mining taxes 64.5 64.5 72.0 72.0
Deferred mine reclamation and closure costs 29.5 29.5 25.3 25.3
Other liabilities 25.0 25.0 25.0 24.8
------- ------- ------- -------
Total Liabilities 384.7 381.9 431.6 428.7
------- ------- ------- -------
Minority interest 65.1 6.0 107.3 17.7
------- ------- ------- -------
Commitments and contingencies - - - -
Shareholders' equity
Convertible preferred stock 110.6 110.6 110.6 110.6
Common stock, $.10 par value: 13.2 13.2 12.9 12.9
Additional paid-in capital 343.8 343.8 344.0 344.0
Accumulated deficit (327.4) (327.4) (200.5) (200.5)
Accumulated other comprehensive loss (21.5) (21.5) (19.3) (19.3)
------- ------- ------- -------
Total Shareholders' Equity 118.7 118.7 247.7 247.7
------- ------- ------- -------
Total Liabilities and Shareholders' Equity $ 568.5 $ 506.6 $ 786.6 $ 694.1
======= ======= ======= =======
</TABLE>
73
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
As As
As Previously As Previously
MILLIONS Restated Reported Restated Reported
- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(119.4) $(119.4) $(241.3) $(241.3)
Adjustment to reconcile net loss to net cash flows from
operating activities:
Depreciation, depletion and amortization 64.2 64.2 79.6 79.6
Environmental remediation charges 9.5 9.5 - -
Asset write-downs 35.9 35.9 104.9 194.9
Loss related to assets held for sale - 46.6 - -
Deferred income and mining taxes 2.1 2.1 (7.1) (7.1)
Foreign currency exchange loss (gain), net (8.2) (8.2) 12.4 12.4
Equity in losses and impairment
charges of Lihir 80.9 - 97.9 7.9
Minority interest in net income (loss) (31.7) (1.5) 0.5 0.5
Increase (decrease) in accrued reclamation costs (3.2) (2.5) 0.6 0.6
Change in working capital accounts, net 3.1 2.1 21.4 21.4
Other, net (0.7) (0.7) 13.9 13.9
------- ------- ------- -------
Net Cash Flows Provided by Operating Activities 32.5 28.1 82.8 82.8
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (49.3) (49.3) (46.5) (46.5)
Crown Butte liquidating dividend to minority
shareholders (11.0) (11.0) - -
Proceeds from sales of assets 11.9 11.9 2.0 2.0
New World settlement, net - - 34.9 34.9
Investment in Lihir Gold Limited - - (11.5) (11.5)
Effects on cash of deconsolidation of Niugini Mining - - - (49.6)
Other, net (0.1) (0.1) (3.4) (3.4)
------- ------- ------- -------
Net Cash Flows Used in Investing Activities (48.5) (48.5) (24.5) (74.1)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayments (31.2) (31.2) (44.3) (44.3)
Increase (decrease) in short-term borrowings (14.9) (14.9) 9.9 9.9
Cash dividend payments (7.5) (7.5) (19.0) (19.0)
Decrease (increase) in restricted cash (31.0) (31.7) 10.2 10.2
Other, net 0.2 0.2 (0.5) (0.5)
------- ------- ------- -------
Net Cash Flows Used in Financing
Activities (84.4) (85.1) (43.7) (43.7)
------- ------- ------- -------
Effect of Exchange Rate Changes on Cash (5.8) (5.8) (2.4) (2.4)
------- ------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (106.2) (113.3) 12.2 (37.4)
Cash and cash equivalents at beginning of year 197.2 147.6 185.0 185.0
------- ------- ------- -------
Cash and Cash Equivalents at End of Year $ 91.0 $ 36.3 $ 197.2 $ 147.6
======= ======= ======= =======
</TABLE>
74
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
Foreign Equity in
Currency Income Basic and
Operating Exchange (Loss) and Diluted
MILLIONS EXCEPT Income Gain Impairment Loss per Dividends per Share
PER SHARE AMOUNTS Sales (Loss) (Loss) in Lihir Net Loss Share Common Preferred
- --------------------- -------- --------- -------- ---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (AS RESTATED)
First quarter $ 53.8 $ (3.8) $ 3.1 $(12.2) $ (12.6) $ (.06) $ - $0.8125
Second quarter 53.4 (7.4) 3.7 (14.2) (15.4) (.07) - 0.8125
Third quarter (1) 54.6 (15.7) 0.1 0.2 (18.1) (.09) - 0.8125
Fourth quarter (2) 66.4 (36.1) 1.3 (54.7) (73.3) (.33) - 0.8125
------ ------- ------ ------ ------- -------
Total year $228.2 $ (63.0) $ 8.2 $(80.9) $(119.4) (.55) - $3.2500
====== ======= ====== ====== ======= =======
1998 (AS RESTATED)
First quarter $ 78.9 $ 3.3 $ 0.5 $ (1.4) $ (1.6) $ (.02) $0.025 $0.8125
Second quarter 68.3 (2.2) (5.9) (1.3) (9.3) (.05) - 0.8125
Third quarter 70.0 3.7 (7.2) (1.8) (7.7) (.04) 0.025 0.8125
Fourth quarter (3) 59.4 (114.9) 0.2 (93.4) (222.7) (.98) - 0.8125
------ ------- ------ ------ ------- ------ -------
Total year $276.6 $(110.1) $(12.4) $(97.9) $(241.3) (1.08) $0.050 $3.2500
====== ======= ====== ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Gain Foreign
(Loss) on Currency Basic and
Assets Operating Exchange Diluted
MILLIONS EXCEPT Held for Income Gain Loss per Dividends per Share
PER SHARE AMOUNTS Sales Sale (Loss) (Loss) Net Loss Share Common Preferred
- --------------------- -------- --------- --------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (AS PREVIOUSLY
REPORTED)
First quarter $ 53.8 $(10.4) $ (14.8) $ 3.1 $ (11.9) $ (.06) $ - $0.8125
Second quarter 53.4 (9.5) (17.2) 3.7 (15.4) (.07) - 0.8125
Third quarter (1) 54.6 6.6 (9.2) 0.1 (12.1) (.06) - 0.8125
Fourth quarter (2) 66.4 (33.3) (69.1) 1.3 (80.0) (.36) - 0.8125
------ ------ ------- ------ ------- -------
Total year $228.2 $(46.6) $(110.3) $ 8.2 $(119.4) (.55) - $3.2500
====== ====== ======= ====== ======= =======
1998 (AS PREVIOUSLY
REPORTED)
First quarter $ 78.9 $ - $ 3.3 $ 0.5 $ (1.6) $ (.02) $0.025 $0.8125
Second quarter 68.3 - (2.2) (5.9) (9.3) (.05) - 0.8125
Third quarter 70.0 - 3.7 (7.2) (7.7) (.04) 0.025 0.8125
Fourth quarter (4) 59.4 - (204.9) 0.2 (222.7) (.98) - 0.8125
------ ------- ------ ------- ------ -------
Total year $276.6 $ - $(200.1) $(12.4) $(241.3) (1.08) $0.050 $3.2500
====== ======= ====== ======= ====== =======
</TABLE>
(1) Includes a $9.5 million environmental remediation charge related to the San
Luis property (see Note 14).
(2) Includes a $35.9 million write-off of the investment in Crown Jewel (see
Note 7) and a $7.7 million net charge related to deferred tax assets (see
Note 10).
(3) Includes before and after-tax charges of $104.9 million for asset
write-downs (see Note 7).
(4) Includes before and after-tax charges of $194.9 million for asset
write-downs.
75
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth below, see also "Executive
Officers of the Registrant" appearing in Part I of this Annual Report.
The following sets forth information concerning the four Class III
directors whose terms are due to expire this year, including information as
to each director's age as of March 2, 2000, position with Battle Mountain and
business experience during the past five years.
DOUGLAS J. BOURNE was Chairman of the Board and Chief
Executive Officer of Battle Mountain until his retirement in
April 1990. Mr. Bourne serves as Chairman of Battle
Mountain's Executive Committee and is a member of Battle
Mountain's Environmental, Safety and Health Committee and
Battle Mountain's Corporate Governance and Nominating
Committee. Mr. Bourne has been a director of Battle Mountain
since 1985 when Battle Mountain was incorporated. He is also
a director of Potash Corporation of Saskatchewan, Inc.
(mining and processing of potash and manufacture of
fertilizers). He is 77 years old.
DAVID L. BUMSTEAD joined Noranda Inc. (an integrated natural
resources company and Battle Mountain's largest stockholder,
"Noranda") in 1963 and assumed his current position as
Executive Vice President of Noranda in 1995. Prior to that,
he served as Executive Vice President, Marketing and Finance
of Noranda Minerals Inc. Mr. Bumstead also serves as a
director of Noranda and Falconbridge Limited. Mr. Bumstead
became a director of Battle Mountain in July 1996.
Mr. Bumstead is Chairman of Battle Mountain's Audit
Committee. He is 58 years old.
DELO H. CASPARY has been engaged for more than five years in
managing his personal investments. He became a director of
Battle Mountain in 1985, and he currently serves as Chairman
of Battle Mountain's Environmental, Safety and Health
Committee, and is a member of Battle Mountain's Audit
Committee. He is 74 years old.
TERRENCE A. LYONS has served as President and Managing
Partner of B.C. Pacific Capital Corporation since May 1988.
Mr. Lyons was appointed to the Board of Directors in July
1999, and serves as a member of the Audit Committee. He is
50 years old.
The following sets forth information concerning the six directors of
Battle Mountain whose present terms will continue until 2001 for Class I
directors or 2002 for Class II directors, including information as to each
director's age as of March 2, 2000, position with Battle Mountain and
business experience during the past five years.
IAN D. BAYER served as the President and Chief Executive
Officer of Battle Mountain from February 1997 to July 1999
following the combination of Hemlo Gold with Battle Mountain
(as described in Items 1 and 2). Mr. Bayer had served as
President and Co-Chief Executive Officer from July 1996
until his appointment as President and Chief Executive
Officer in February 1997. He serves on the Executive
Committee. Prior to joining Battle Mountain, at the time of
the combination, Mr. Bayer had served as Director and
President and Chief Executive Officer of Hemlo Gold since
July 1991. Mr. Bayer became a director of Battle Mountain
in July 1996 and his present term expires in 2002 (Class I).
He is 60 years old.
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<PAGE>
CHARLES E. CHILDERS has served as Chairman of the Board of
Potash Corporation of Saskatchewan, Inc. (mining and
processing of potash and manufacture of fertilizers) since
July 1999. Prior to that Mr. Childers had served as Chairman,
President and Chief Executive Officer of Potash Corporation
since 1990. He became a director of Battle Mountain in 1993
and his present term expires in 2002 (Class II). Mr. Childers
serves on Battle Mountain's Compensation and Stock Option
Committee and on Battle Mountain's Corporate Governance and
Nominating Committee. He is 67 years old.
KARL E. ELERS has served as the non-executive Chairman of the
Board of Battle Mountain since February 1997. Mr. Elers has
assumed the duties of Chief Executive Officer of Battle
Mountain since July 1999 on an interim basis pursuant to the
terms of a consulting agreement. Mr. Elers retired from his
executive officer position of Chairman of the Board and
Co-Chief Executive Officer at the end of February 1997, a
position he assumed in July 1996. From April 1990 through July
1996, he was Chairman of the Board and Chief Executive Officer
of Battle Mountain, and from April 1988 until April 1990, he
was President and Chief Operating Officer of Battle Mountain.
Mr. Elers became a director in 1987 and his present term
expires in 2002 (Class II). Mr. Elers serves on Battle
Mountain's Executive Committee, and on Battle Mountain's
Environmental, Safety and Health Committee. He is 61 years
old.
DAVID W. KERR has served as Chief Executive Officer of Noranda
since 1990 and as its President since November 1997. From
April 1995 until November 1997, he also served as Chairman of
the Board of Noranda. Mr. Kerr became a director of Battle
Mountain in July 1996 and his present term expires in 2001
(Class I). He serves on Battle Mountain's Compensation and
Stock Option Committee and on Battle Mountain's Corporate
Governance and Nominating Committee. Mr. Kerr is also a
director of Noranda and EdperBrascan Corporation. He is 56
years old.
MARY MOGFORD is co-owner of Mogford Campbell Associates, a
business and financial consulting firm in Ontario. She was
formerly Ontario's Deputy Minister of Treasury and Economics
(Finance) and Deputy Minister of Natural Resources. Ms.
Mogford became a director in July 1996, and her present term
expires in 2001 (Class I). She serves as Chairman of Battle
Mountain's Corporate Governance and Nominating Committee and
as a member of Battle Mountain's Compensation and Stock Option
Committee. She is 55 years old.
WILLIAM A. WISE has served as President and Chief Executive
Officer of El Paso Energy Corporation (an integrated energy
company) since January 1990 and as its Chairman of the Board
since January 1994. Mr. Wise has been a director of Battle
Mountain since 1994, and his present term expires in 2001
(Class I). He currently serves as Chairman of Battle
Mountain's Compensation and Stock Option Committee. He is 54
years old.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 submitted to Battle
Mountain during and with respect to 1999 and written representations from
certain reporting persons that no Forms 5 were required from such persons,
Battle Mountain believes that all of the directors and officers of Battle
Mountain have timely filed their respective Forms 3, 4 or 5 required by
Section 16(a) of the Securities Exchange Act during 1999, except that Mr.
Lyons' Form 3 was filed 2 days following the filing deadline, and the Forms 5
required to be filed by Messrs. Bayer, Elers, Bourne, Bumstead, Childers,
Kerr and Wise and Ms. Mogford for 1998 were filed late.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Effective October 27, 1998, each director, other than those who are
regularly employed officers of Battle Mountain or its subsidiaries, receives
a director's fee of $20,000 per annum and an additional fee of $1,000 per day
for attendance at meetings of the Board or its committees. Directors are also
reimbursed for their
77
<PAGE>
travel and other expenses involved in attendance at Board and committee
meetings. Under Battle Mountain's Nonqualified Stock Option Plan for Outside
Directors, as amended effective December 2, 1997, and further amended effective
February 2, 1999, individuals who become nonemployee directors of Battle
Mountain are automatically granted an initial option to purchase 10,000 shares
of Common Stock on the date they become nonemployee directors. On the date of
the annual meeting of each year following the grant of the initial option, each
incumbent nonemployee director is granted an additional option to purchase
5,000 shares of Common Stock. Each option granted pursuant to the Nonqualified
Stock Option Plan for Outside Directors has an exercise price per share equal
to the then current market value of a share of Common Stock on the date the
option is granted, and such options are not exercisable until one year from the
date of grant. Directors who are not also executive officers are not eligible
to participate in any other benefit plans of Battle Mountain. In 1999, Mr.
Elers received a fee of $3,333 per month for his service as the non-executive
Chairman of the Board and commencing in August 1999, an additional fee of
$20,000 per month for carrying out the duties of Acting Chief Executive Officer
of Battle Mountain pursuant to a consulting agreement.
BOARD ORGANIZATION AND COMMITTEES
Battle Mountain's Executive Committee is composed of Messrs. Bourne
(Chairman), Bayer and Elers. The Executive Committee may exercise the powers
of the Board of Directors at times when the Board is not in session.
The Audit Committee of the Board is composed of Messrs. Bumstead
(Chairman), Caspary and Lyons, none of whom is an employee of Battle
Mountain. The Audit Committee provides oversight of Battle Mountain's
performance in fulfilling its responsibility to maintain an organization
which is capable of conducting the financial business of Battle Mountain and
to maintain an internal control environment necessary to conduct and properly
report Battle Mountain's business. The Audit Committee also recommends the
appointment of independent public accountants to conduct audits of Battle
Mountain's financial statements, reviews with the independent accountants the
plan and results of the auditing engagement and evaluates the independence of
the accountants.
The Compensation and Stock Option Committee of the Board is composed
of Messrs. Wise (Chairman), Childers and Kerr and Ms. Mogford, none of whom
is an employee of Battle Mountain. The Compensation and Stock Option
Committee approves, or in some cases recommends to the Board, remuneration
arrangements and compensation plans involving Battle Mountain's outside
directors, executive officers and other key employees.
The Environmental, Safety and Health Committee of the Board is
composed of Messrs. Caspary (Chairman), Bourne and Elers. The Environmental,
Safety and Health Committee oversees Battle Mountain's health, safety and
environmental policies and compliance programs.
The Corporate Governance and Nominating Committee of the Board is
composed of Ms. Mogford (Chairman) and Messrs. Bourne, Childers and Kerr. The
Corporate Governance and Nominating Committee addresses issues related to the
composition of the Board and assists the Chairman of the Board in overseeing
the operation of the Board in discharging its mandate and responsibilities.
During 1999, the Board of Directors held five meetings, the
Environmental, Safety and Health Committee met on five occasions, the
Compensation and Stock Option Committee met on three occasions, the Audit
Committee met on two occasions, the Corporate Governance and Nominating
Committee met on two occasions and the Executive Committee met on one
occasion. All directors attended in excess of 95 percent of the aggregate
number of meetings of the Board of Directors and the committees on which they
served.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE -- The table set forth below contains
information regarding compensation for services in all capacities to Battle
Mountain for 1999, 1998, and 1997 of (i) the individuals who served as, or
had the duties of, the chief executive officer of Battle Mountain during 1999
and (ii) the other four most highly compensated executive officers of Battle
Mountain at December 31, 1999. The format and the information presented are
as prescribed in rules of the Securities and Exchange Commission.
78
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -------------------------------
AWARDS PAYOUTS
--------------------- -------
RESTRICTED SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS (1) (2)
--------------------- ---- ------ --------- ------------ --------- -------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Karl E. Elers (3) 1999 -- -- $144,966 5,000 -- --
Acting Chief Executive 1998 -- -- 25,000 1,500 -- --
Officer 1997 $112,088 $69,287 200,000 1,500 -- $1,692,019
Ian D. Bayer (4) (5) 1999 295,266 81,198 38,799 -- 0 -- 782,462
President and Chief 1998 369,615 120,125 4,420 -- 139,700 -- 53,711
Executive Officer 1997 353,884 123,859 -- -- 97,000 -- 47,104
(retired in July 1999)
John A. Keyes (5) 1999 241,238 53,072 9,674 -- 257,100 -- 24,428
President and Chief 1998 210,614 54,759 5,420 -- 66,900 -- 33,401
Operating Officer 1997 202,330 56,652 -- -- 45,600 -- 27,137
Ian Atkinson (5) 1999 238,746 52,280 3,000 -- 148,500 -- 22,480
Senior Vice President - 1998 221,768 59,761 5,920 -- 66,900 -- 29,651
Operations and 1997 212,330 59,452 -- -- 45,600 -- 21,723
Exploration
Joseph J. Baylis (5) 1999 195,230 42,600 4,450 -- 148,500 -- 18,042
Senior Vice President - 1998 188,460 49,000 3,420 -- 66,900 -- 26,289
Corporate Development 1997 161,315 45,168 -- -- 45,600 -- 39,291
Phillips S. Baker, Jr. (6) 1999 181,078 38,870 51,934 -- 102,200 -- 6,512
Vice President and 1998 140,538 35,976 63,933 -- 43,500 -- 3,646
Chief Financial Officer
</TABLE>
- ----------------
(1) The long term incentive plan awards granted during 1997 to the executive
officers named in the Summary Compensation Table pursuant to Battle
Mountain's Amended and Restated 1994 Long Term Incentive Plan were for a
performance period that matured on December 31, 1999 and no payments were
made under the plan.
(2) The amounts shown for 1999 consist of (a) Battle Mountain's contributions
(vested and unvested) under Battle Mountain's Savings Plan and a related
contribution equalization plan of $4,800 (vested) and $7,662 (unvested) for
Mr. Bayer; $4,800 (vested) and $4,155 (unvested) for Mr. Atkinson; $4,800
(vested) and $2,527 (unvested) for Mr. Baylis; $4,800 (vested) and $4,080
(unvested) for Mr. Keyes; and $4,800 (vested) and $1,712 (unvested) for Mr.
Baker; (b) the benefit to the executive officer of the premiums paid by
Battle Mountain during 1999 under Battle Mountain's split-dollar life
insurance program of $6,974 for Mr. Atkinson, $8,124 for Mr. Baylis, $9,661
for Mr. Keyes, and no benefit for Messrs. Bayer (retired) and Baker
(nonparticipant); (c) Battle Mountain's payment of premiums on long-term
disability insurance policies of $4,882 for Mr. Atkinson, $2,591 for Mr.
Baylis, $5,887 for Mr. Keyes, and no payment of premiums for Messrs. Bayer
and Baker; (d) a subsidy of $1,669 for Mr. Atkinson representing interest
owing and outstanding on a mortgage; and (e) a severance payment of
$770,000 made in connection with Mr. Bayer's retirement.
(3) Mr. Elers retired from executive officer positions as Chairman of the Board
and Co-Chief Executive Officer effective February 1997. He continues to
serve Battle Mountain as the non-executive Chairman of the Board of
Directors. After the retirement of Mr. Bayer effective August 1, 1999, Mr.
Elers became Acting Chief Executive Officer under a consulting agreement
between Mr. Elers and Battle Mountain for $20,000 per month. The options
which Mr. Elers received during 1997, 1998 and 1999 were pursuant to Battle
Mountain's Nonqualified Stock Option Plan for Outside Directors. The
amounts shown under Other Annual Compensation are consulting fees.
(4) Effective August 1, 1999, Mr. Bayer retired from his executive officer
positions and began to receive retirement benefits of $1,994 monthly
compensation under Battle Mountain's qualified pension plan, and $15,748
monthly compensation under Battle Mountain's nonqualified pension plan,
totaling $88,710 in 1999.
(5) Dollar amounts for 1997 consist of a combination of U.S. and Canadian
dollar amounts. Dollar amounts for 1997 are represented in U.S. dollars
using the exchange rate on December 31, 1997 of US$1.00 = C$1.4293.
(6) Mr. Baker joined Battle Mountain in March 1998, and during that year he
received a housing allowance during his transition to Houston in the amount
of $23,020, airfare in the amount of $20,964, and a moving allowance in the
amount of $23,310. In addition, in connection with Mr. Baker's transition
to Houston during 1999, he received airfare in the amount of $13,358, a
mortgage subsidy of $14,660 and the Company paid taxes on Mr. Baker's
imputed income in the amount of $16,310.
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<PAGE>
OPTION GRANTS TABLE -- The following table shows, as to the
executive officers named in the Summary Compensation Table, information
regarding stock options granted pursuant to Battle Mountain's Amended and
Restated 1994 Long-Term Incentive Plan during 1999. All of such options have
an exercise price at least equal to the market price on the date of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE PRESENT
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION VALUE
NAME GRANTED(1) 1999 SHARE DATE (2)
---- ---------- ------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
John A. Keyes....................... 257,100 15.0% $2.875 10/26/09 $586,188
Ian Atkinson........................ 148,500 8.0 2.875 10/26/09 338,580
Joseph J. Baylis.................... 148,500 8.0 2.875 10/26/09 338,580
Phillips S. Baker, Jr............... 102,200 5.8 2.875 10/26/09 233,016
</TABLE>
- ----------------
(1) On October 26, 1999, officers and certain key employees received
options to purchase a specified number of shares at $2.875 (the closing
price of the Common Stock on October 26, 1999). The options vest 50% on
October 26, 2000 and the remaining 50% on October 26, 2001.
(2) Based on the Black-Scholes option pricing model adapted for use in
valuing executive stock options. The actual value, if any, an executive
may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. There is no
assurance the value realized by an executive will be at or near the
value estimated by the Black-Scholes model. The assumptions used under
that model include a volatility of 67.5 percent based on two-year
historical volatility of the Common Stock prior to the grant date, a
risk-free rate of return of 6.2 percent based on the ten-year zero
coupon treasury bond yield at the time of grant, a dividend yield of
0.0 percent based on the 1999 dividend rate and an option term equal to
the full ten-year stated option term. The estimated grant date value
does not reflect any discount on account of vesting or forfeiture
provisions or prohibitions on transfer.
OPTION EXERCISES AND YEAR-END VALUE TABLE -- The table set forth
below contains information with respect to (i) the unexercised options to
purchase Common Stock or in some cases Exchangeable Shares granted in 1999
and prior years under Battle Mountain's Amended and Restated 1994 Long-Term
Incentive Plan and a Hemlo Gold stock option plan to the executive officers
named in the Summary Compensation Table and held by them at December 31,
1999, and (ii) the aggregate number of shares acquired by such executive
officers upon the exercise during 1999 of options to purchase Common Stock
or, in some cases, Exchangeable Shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999(1)
ON VALUE ---------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Karl E. Elers................. 0 $ 0 388,300 241,000 $ 0 $ 0
Ian D. Bayer.................. 0 0 327,250 305,850 0 0
John A. Keyes................. 0 0 160,530 399,550 0 0
Ian Atkinson.................. 0 0 162,750 290,950 0 0
Joseph J. Baylis.............. 0 0 150,530 247,950 0 0
Phillips S. Baker, Jr......... 0 0 81,750 123,950 0 0
</TABLE>
- ----------------
(1) Based on the closing price of the Common Stock on the New York Stock
Exchange Composite Tape on December 31, 1999 ($2.0625).
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<PAGE>
RETIREMENT PLAN AND SUPPLEMENTAL AGREEMENTS -- Battle Mountain
maintains a non-contributory tax-qualified retirement plan generally
available to U.S. salaried employees (the "Retirement Plan"). The Retirement
Plan is a defined benefit plan under which employer contributions are
actuarially determined each year and is administered by an Administrative
Committee appointed by the Board of Directors. The amount of an employee's
retirement benefit is based on final average compensation (as defined below)
and is computed as follows: 1.1 percent of final average compensation for
each year of service, plus 0.6 percent of final average compensation in
excess of $10,000 per year for each year of service up to a maximum of 35
years.
The following table shows the estimated annual retirement benefits
under the Retirement Plan under the formula described above for eligible
employees (including officers) who retire at age 65 (normal retirement age)
and have the average compensation levels and years of service specified in
the table. The amounts listed in the table are payable for the life of the
employee and are not subject to any reduction for Social Security benefits or
other offsetting amounts.
<TABLE>
<CAPTION>
PROJECTED RETIREMENT PLAN BENEFIT
AT AGE 65 WITH SERVICE OF
FINAL AVERAGE ----------------------------------------------------------------------
COMPENSATION(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
150,000 $ 37,350 $ 49,800 $ 62,250 $ 74,700 $ 87,150
175,000 43,725 58,300 72,875 87,450 102,025
200,000 50,100 66,800 83,500 100,200 116,900
225,000 56,475 75,300 94,125 112,950 131,755
250,000 62,850 83,800 104,750 125,700 146,650(2)
300,000 75,600 100,800 126,000 151,200(2) 176,400(2)
350,000 88,350 117,800 147,250(2) 176,700(2) 206,150(2)
400,000 101,100 134,800 168,500(2) 202,200(2) 235,900(2)
450,000 113,850 151,800(2) 189,750(2) 227,700(2) 265,650(2)
500,000 126,600 168,800(2) 211,000(2) 253,200(2) 295,400(2)
600,000 152,100(2) 202,800(2) 253,500(2) 304,200(2) 354,900(2)
700,000 177,600(2) 236,800(2) 296,000(2) 355,200(2) 414,400(2)
800,000 203,100(2) 270,800(2) 338,500(2) 406,200(2) 473,900(2)
900,000 228,600(2) 304,800(2) 381,000(2) 457,200(2) 533,400(2)
1,000,000 254,100(2) 338,800(2) 423,500(2) 508,200(2) 592,900(2)
</TABLE>
- ----------------
(1) Final average compensation means the average of covered remuneration
for the five consecutive years, out of the ten years immediately
preceding retirement, in which the participant's covered remuneration
was the highest. Covered compensation includes salary, bonus and most
other compensation paid or deferred in the year (including performance
unit payments under Battle Mountain's 1988 Long-Term Performance Unit
Plan and Amended and Restated 1994 Long-Term Incentive Plan but
excluding amounts realized from restricted stock and stock options).
However, Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Code") limits the annual compensation taken into account
for an employee under the Retirement Plan. The compensation limit
imposed by Section 401(a)(17) is $170,000 for 2000.
(2) Annual benefits under the Retirement Plan are limited to $135,000 for 2000
by Section 415 of the Code.
Battle Mountain has established the Supplemental Executive
Retirement Plan ("SERP") for all of its executive officers, including those
named in the Summary Compensation Table. For all current executive officers
who have not resigned or retired, the SERP provides the benefit the executive
would have received under the Retirement Plan in the absence of Code limits,
less the amount of the participant's benefit under the Retirement Plan. The
SERP credits prior service with Noranda and its affiliates. For active
employees, participation in the SERP is contingent upon receipt by Battle
Mountain of a waiver and release from each participant with regard to any
other supplemental unfunded pension benefits such participant might have with
Battle Mountain. Messrs. Bayer, Atkinson, Baylis and Keyes had 29, 17, 13 and
24 years of credited service with Noranda and its affiliates, respectively.
The SERP benefit for Messrs. Bayer, Atkinson, Baylis and Keyes will be
reduced by the benefit payable under Noranda's supplemental retirement plan
(the "Noranda Plan"), such that the sum of the two benefits equal the SERP
benefit.
In 1995, Battle Mountain established a split-dollar life insurance
program covering certain executive officers, including those named in the
Summary Compensation Table. This program provides for life insurance coverage
with a death benefit of $1,500,000 for Mr. Bayer, and $750,000 each for Messrs.
81
<PAGE>
Atkinson, Baylis and Keyes; with the executive to pay the term insurance
portion of the premium during a specified period of at least 10 years and
Battle Mountain to pay the balance as long as 10 years or until the executive
reaches age 65. Mr. Baker did not participate in this program during 1999 and
Mr. Bayer purchased his policy upon his retirement. Except in the event of a
change-in-control, Battle Mountain retains the right to terminate premium
payments under any executive officer's policy prior to the end of the
specified period in case of termination of employment, or otherwise upon six
months' notice. Upon death or other termination as to any executive officer,
Battle Mountain will be refunded the aggregate amount of the premium payments
made by it in respect of that officer's policy.
CHANGE-IN-CONTROL ARRANGEMENTS -- Battle Mountain's
change-in-control severance plan applicable to its executive officers
provides that, in the event employment terminates (under the terms set forth
below) as a result of a change-in-control of Battle Mountain, each such
executive officer would receive a cash payment equal to two times his annual
compensation. The covered officers under the plan would receive the payment
as a result of involuntary termination (other than for "cause") or for
resignation due to "good reason" within a period commencing 120 days prior to
the change-in-control and ending three years after the change-in-control. In
order to be eligible to receive a severance payment under the plan during the
120-day period prior to the change-in-control, Battle Mountain must be
contemplating such change-in-control at the time of the executive officer's
termination of employment. The plan also provides for continuation of group
life, medical and dental insurance benefits (or equivalent thereof) for a
period of 24 months after termination on the same contributory basis as such
benefits are provided to active employees of Battle Mountain. Participation
in this plan is contingent upon receipt by Battle Mountain of a waiver and
release from each executive officer with regard to any other agreements such
officer might have with Battle Mountain in connection with change-in-control
severance payments and benefits.
In addition, under the Amended and Restated 1994 Long-Term Incentive
Plan, outstanding performance units which have not vested would become
immediately payable at the target value of $1.00 per unit pro-rated for the
portion of the performance period up to the date of the change-in-control.
For outstanding performance units that have vested but for which payment has
not been made, payment would be accelerated in the event of a
change-in-control. The vesting of stock options granted to executive officers
under the Amended and Restated 1994 Long-Term Incentive Plan would also
accelerate in the event of a change-in-control.
After a change-in-control, Battle Mountain would be required to
continue making premium payments until the executive officer reaches age 65
under the split-dollar life insurance program. In addition, such executive
officers would become fully vested under the SERP as a result of a
change-in-control.
In connection with the foregoing change-in-control severance plan
and other change-in-control plans, programs and provisions, a
"change-in-control" will occur upon (i) any person except Noranda becoming
the beneficial owner of Company Securities representing 30 percent or more of
the combined voting power of the then outstanding Company Securities; (ii)
the first purchase of Company Securities pursuant to a tender or exchange
offer (other than a tender or exchange offer made by Battle Mountain); (iii)
the approval by the holders of Company Securities of a reorganization,
merger, combination or consolidation, a sale or disposition of all or
substantially all of Battle Mountain's assets or a plan of liquidation or
dissolution of Battle Mountain, unless in each case following the
consummation of such transaction more than 70 percent of the combined voting
power of Company Securities outstanding prior to such consummation will
continue (as Company Securities or as securities of a successor entity) to be
beneficially owned by all or substantially all of the persons who were
beneficial owners immediately prior thereto in substantially the same
proportion; or (iv) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board cease for any reason
to constitute at least a majority thereof, provided that any new director
whose election or nomination for election by the holders of Company
Securities was approved in advance by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period shall be considered as though such person were a director at the
beginning of the period. "Company Securities" shall mean the Common Stock of
Battle Mountain and the Exchangeable Shares of Battle Mountain Canada taken
together.
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<PAGE>
The severance plan and other change-in-control plans, programs and
agreements include provisions for a reduction in payment to avoid payments
that are not deductible to Battle Mountain under Section 280G of the Internal
Revenue Code (the "Code") or are subject to an excise tax under Section 4999
of the Code.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the table below is the total number of shares of Common
Stock beneficially owned as of March 2, 2000, by each of Battle Mountain's
directors and nominees, each of the executive officers named in the Summary
Compensation Table below, holders of more than 5 percent of the shares and
all directors and executive officers as a group. Except as otherwise
indicated, all such shares are owned directly, and the indicated owner has
sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES OF CLASS(+)
----- ------------ ------------
<S> <C> <C>
Ian Atkinson..................................................... 142,316(1) *
Phillips S. Baker, Jr............................................ 92,028(10) *
Ian D. Bayer..................................................... 289,716(2) *
Joseph J. Baylis................................................. 131,269(3) *
Douglas J. Bourne................................................ 154,790(4) *
David L. Bumstead................................................ 65,255,526(6)(7) 28.4%
Delo H. Caspary.................................................. 65,500(5) *
Charles E. Childers.............................................. 21,500(8) *
Karl E. Elers.................................................... 470,053(9) *
David W. Kerr.................................................... 65,257,006(7)(13) 28.4%
John A. Keyes.................................................... 138,041(12) *
Terrence A. Lyons................................................ 10,000(6) *
Mary Mogford..................................................... 15,000(11) *
William A. Wise.................................................. 96,250(6) *
All directors and executive officers as a group
(20 persons).................................................. 66,896,469(14) 29.1%
Noranda Inc...................................................... 65,242,526(15) 28.4%
</TABLE>
- ----------------
(+) Includes Common Stock and Exchangeable Shares (which are convertible
into Common Stock on a one-for-one basis).
* Less than 1%
Includes 2,244 Exchangeable Shares held directly through a savings
(1) plan; 3,222 Common Shares held indirectly through a savings plan;
14,800 shares of Common Stock or Exchangeable Shares issuable upon the
exercise of stock options acquired under a Battle Mountain Canada
option plan; and 122,050 shares of Common Stock issuable upon the
exercise of stock options acquired under Battle Mountain's option
plans.
(2) Includes 3,406 of Exchangeable Shares held directly through a savings
plan; 3,460 Common Shares held indirectly though a savings plan;
37,000 shares of Common Stock or Exchangeable Shares issuable upon the
exercise of stock options acquired under a Battle Mountain Canada
option plan; and 245,850 shares of Common Stock issuable upon the
exercise of stock options acquired under Battle Mountain's option
plans.
(3) Includes 2,028 Exchangeable Shares directly owned by Mr. Baylis; 1,324
Exchangeable Shares held directly through a savings plan; 3,287 Common
Shares held indirectly through a savings plan; 12,580 shares of Common
Stock or Exchangeable Shares issuable upon the exercise of stock
options acquired under a Battle Mountain Canada option plan; and
112,050 shares of Common Stock issuable upon the exercise of stock
options acquired under Battle Mountain's option plans.
(4) Includes 133,450 shares of Common Stock directly owned by Mr. Bourne,
750 shares of Common Stock jointly owned by Mr. Bourne and his wife,
and 20,500 shares of Common Stock issuable upon the exercise of stock
options acquired under Battle Mountain's option plans.
(5) Includes 45,000 shares of Common Stock directly owned by Mr. Caspary
and 20,500 shares of Common Stock issuable upon the exercise of stock
options acquired under Battle Mountain's option plans.
(6) Direct holdings consist of shares of Common Stock issuable upon the
exercise of stock options acquired under Battle Mountain's option
plans.
83
<PAGE>
(7) Includes 65,241,526 shares of Exchangeable Shares and 1,000 shares of
Common Stock (or approximately 28% of the shares) beneficially owned by
Noranda Inc. Although the director is an executive officer, director or
both of Noranda and may be deemed to be a beneficial owner of these
shares, the director disclaims such beneficial ownership.
(8) Includes 2,500 Common Shares directly owned by Mr. Childers and 19,000
shares of Common Stock issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
(9) Includes 76,753 Common Shares directly owned by Mr. Elers and 393,300
shares of Common Stock issuable upon the exercise of stock options
acquired under Battle Mountain's option plans.
(10) Includes 7,684 Common Shares owned directly by Mr. Baker; 2,594 Common
Shares held indirectly through a savings plan; and 81,750 shares of
Common Stock issuable upon the exercise of stock options acquired
under Battle Mountain's option plans.
(11) Includes 2,000 of Exchangeable Shares owned directly by Ms. Mogford
and 13,000 shares of Common Stock issuable upon the exercise of stock
options acquired under Battle Mountain's option plans.
(12) Includes 162 Exchangeable Shares held directly through a savings plan;
3,249 Common Shares held indirectly through a savings plan; 12,580
shares of Common Stock or Exchangeable Shares issuable upon the
exercise of stock options acquired under a Battle Mountain Canada
option plan; and 122,050 shares of Common Stock issuable upon the
exercise of stock options acquired under Battle Mountain's option
plans.
(13) Includes 1,480 shares of Exchangeable Shares owned directly by Mr.
Kerr and 13,000 shares of Common Stock issuable upon the exercise of
stock options acquired under Battle Mountain's option plans.
(14) Includes 5,812 of Exchangeable Shares held indirectly through a savings
plan; 1,282,300 shares of Common Stock issuable upon the exercise of
stock options acquired under Battle Mountain's option plans; 76,960
shares of Common Stock or Exchangeable Shares issuable upon the
exercise of stock options acquired under a Battle Mountain Canada
option plan and 65,241,526 Exchangeable Shares beneficially owned by
Noranda and 1,000 shares of Common Stock beneficially owned by Noranda.
If the Shares owned by Noranda, as to which beneficial ownership is
disclaimed, were excluded, then the total number of Shares beneficially
owned by the group would be 1,653,943 (or 0.7%).
(15) Consists of Exchangeable Shares and Common Stock. The address of the
holder is BCE Place, 181 Bay Street, Suite 4100, Toronto, Ontario M5J
2T3. These shares are owned directly by Noranda Inc., which has filed a
Schedule 13D with several other reporting persons: Kerr Addison Mines
Limited (its direct and indirect 100 percent subsidiary), Brenda Mines
Ltd., EdperBrascan Corporation, and Partners Limited. All of these
entities have the address shown above, except for Kerr Addison Mines
and Brenda Mines, whose address is One Adelaide Street East, Suite
2700, Toronto, Ontario M5C 2Z6. The Exchangeable Shares vote through
the Voting, Support and Exchange Trust Agreement, dated July 19,1996
(whose Trustee is CIBC Mellon Trust Company, 320 Bay Street, P.O. Box
1, Toronto, Ontario M5H 4A6) covering the one share of Special Voting
Stock, par value $0.10 per share of Battle Mountain that is entitled to
a number of votes at meetings of holders of Common Stock equal to the
number of Exchangeable Shares outstanding as of the Record Date for
each such meeting held by persons other than Battle Mountain and those
subsidiaries of Battle Mountain precluded from voting any Common Stock
under applicable Nevada law.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John A. Keyes, Battle Mountain's President and Chief Operating
Officer, received an interest-free loan on his principal residence from Hemlo
Gold in November 1995. The loan was subsequently replaced with an
interest-free loan with Battle Mountain in November 1996. The largest amount
outstanding under the loan during 1999 was $81,387, and as of February 29,
2000, $68,052 was outstanding.
Noranda beneficially owned approximately 44 percent of Hemlo Gold's
outstanding common stock prior to the consummation of the combination of
Hemlo Gold with Battle Mountain (described in Items 1 and 2 of Part I
hereof). As a result of such combination, Noranda became Battle Mountain's
largest stockholder. As of March 2, 2000, Noranda owned 65,241,526
Exchangeable Shares and 1,000 shares of Common Stock, or approximately 28.4
percent of the aggregate outstanding shares of Common Stock and Exchangeable
Shares.
84
<PAGE>
In connection with the combination of Hemlo Gold with Battle
Mountain (as described in Items 1 and 2 of Part I hereof), Battle Mountain
agreed to provide Noranda and Kerr Addison Mines Limited with registration
rights under U.S. law and secondary cooperation rights under Canadian law
with respect to its Exchangeable Shares and the Common Stock issuable in
exchange therefor. These rights include up to five "demand" and an unlimited
number of "piggyback" registrations. Noranda pays all of its underwriting
discounts and commissions and fees of separate legal counsel. Battle Mountain
pays all other expenses for the first demand registration and for any
piggyback registrations that are not completed, with Noranda paying its pro
rata share of expenses in other cases.
Battle Mountain holds investments in affiliated companies of Noranda
that at December 31, 1999 were carried on Battle Mountain's books at their
cost of $1.6 million. Battle Mountain received dividends on these investments
in the aggregate amount of $229,000 in 1999.
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 46 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:
Two reports on Form 8-K were filed during the fourth quarter
of 1999.
The report on Form 8-K dated October 12, 1999 described (1) an
amendment to the Credit Agreement by and between Battle
Mountain and the Canadian Imperial Bank of Commerce and (2)
the Scheme of Arrangement between Lihir Gold Limited. and
Nuigini Mining Limited.
The report on Form 8-K dated November 1, 1999 was submitted as
Battle Mountain's third quarter earnings release.
85
<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/ John A. Keyes
--------------------------------------
President and Chief Operating Officer
Date: May 15, 2000
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John A. Keyes his attorney-in-fact for
him or her in any and all capacities, to execute 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) (Acting) Principal Executive Officer
/s/ Karl E. Elers Acting Chief Executive May 15, 2000
- ----------------------------------------- Officer and Chairman
Karl E. Elers of the Board
(b) Principal Financial Officer
/s/ Phillips S. Baker, Jr. Vice President May 15, 2000
- ----------------------------------------- and Chief Financial
Phillips S. Baker, Jr. Officer
(c) Principal Accounting Officer
/s/ Jeffrey L. Powers Vice President and Controller May 15, 2000
- ----------------------------------------- (Chief Accounting Officer)
Jeffrey L. Powers
86
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
(d) Other Directors
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
Ian D. Bayer
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
Douglas J. Bourne
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
David L. Bumstead
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
Delo H. Caspary
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
Charles E. Childers
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
David W. Kerr
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
Terrence A. Lyons
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
Mary Mogford
/s/ John A. Keyes* Director May 15, 2000
- -----------------------------------------
William A. Wise
*Attorney-in-fact
</TABLE>
87
<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; File No. 1-9666).
*2(b) -- Combination Agreement effective as of March 11, 1996 by and
between the Company and Hemlo Gold Mines Inc. (Annex C to
Exhibit 20(a), Joint Management Information Circular and Proxy
Statement, to the Company's Current Report on Form 8-K dated
June 11, 1996; File No. 1-9666).
*3(a) -- Restated Articles of Incorporation of the Company, as amended
and restated through July 19, 1996 (Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996; File No. 1-9666).
*3(b) -- Certificate of Resolution Establishing Designation,
Preferences and Rights of $3.25 Convertible Preferred Stock
(Exhibit 4(b) to the Company's Current Report on Form 8-K
dated July 19, 1996; File No. 1-9666).
*3(c) -- Certificate of Amendment of Certificate of Resolution
Establishing Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (Exhibit 4(c) to the
Company's Current Report on Form 8-K dated July 19, 1996; File
No. 1-9666).
*3(d) -- Bylaws of the Company, as amended through March 21, 1997
(Exhibit 3(d) to the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1996; File No. 1-9666).
*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; File No.
1-9666).
*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 (Exhibit 4(a)(2) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998; File
No. 1-9666).
*4(b) -- Voting, Support and Exchange Trust Agreement dated as of July
19, 1996 between the Company, Hemlo Gold Mines Inc. and 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; File No. 1-9666).
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; File No. 1-9666).
*4(d) -- Fiscal and Paying Agency Agreement, dated as of January 4,
1990, between the Company and Citibank, N.A., Fiscal Agent
(Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989; File No. 1-9666).
+*10(a)(1) -- Battle Mountain Gold Company 2000 Deferred Income Stock Option
Plan. (Exhibit 10(a)(1) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999:
File No. 1-9666).
+*10(b)(1) -- 1985 Stock Option Plan of the Company, as amended and restated
effective April 7, 1993 (Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993; File No. 1-9666).
+*10(b)(2) -- First Amendment to 1985 Stock Option Plan of the Company,
effective May 12, 1995 (Exhibit 10(b)(1) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995; File No. 1-9666).
+o*10(c)(1) -- Specimen of Waiver and Release Agreements dated July 19, 1999
between the Company and certain executive officers regarding
certain benefits payable in the event of a change in control
of the Company. (Exhibit 10(c)(1) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999:
File No. 1-9666).
+*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 -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; File No. 1-9666).
+*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; File No. 1-9666).
+*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).
*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; File
No. 1-9666).
*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; File No. 1-9666).
E-2
<PAGE>
+*10(f)(3) -- Second Amendment to Battle Mountain Gold Company's
Non-Qualified Stock Option Plan for Outside Directors
effective December 2, 1997.(Exhibit 10(f)(3) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999:
File No. 1-9666).
+*10(f)(4) -- Third Amendment to Battle Mountain Gold Company's
Non-Qualified Stock Option Plan for Outside Directors
effective February 2, 1999. (Exhibit 10(f)(4) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999:
File No. 1-9666).
*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; File
No. 1-9666).
+*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; File No.
1-9666).
+*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; File No. 1-9666).
+*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; File No. 1-9666).
+*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; File No. 1-9666).
+*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; File No. 1-9666).
+*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; File No. 1-9666).
+*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; File No. 1-9666).
+*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; File No. 1-9666).
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; File No. 1-9666).
+*10(j)(1) -- Battle Mountain Gold Company Supplemental Executive Retirement
Plan As Amended and Restated December 2, 1997 (Exhibit
10(j)(1) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998; File No. 1-9666).
+o*10(j)(2) -- Specimen of the Company's Supplemental Executive Retirement
Plan Agreement (Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995;
File No. 1-9666).
*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; File No. 1-9666).
+*10(l) -- Agreement for Consulting Services effective as of May 1, 1999
between the Company and Karl E. Elers, and a letter extending
the term of the agreement. (Exhibit 10(L) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999:
File No. 1-9666).
*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; File No. 1-9666).
*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; File No. 1-9666).
*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; File No.
1-9666).
*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; File No. 1-9666).
*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; File No. 1-9666).
E-4
<PAGE>
*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; File No.
1-9666).
*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; File No. 1-9666).
*10(p)(1) -- Credit Agreement, including pertinent supporting exhibits
thereof, dated October 1, 1999, between Canadian Imperial Bank
of Commerce and Battle Mountain Canada Ltd. (Exhibit 10 to the
Company's Current Report on Form 8-K dated October 11, 1999).
*11 -- Computation of Earnings Per Common Share. (Exhibit 11 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999; File No. 1-9666).
*21 -- Subsidiaries of the Company. (Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999; File No. 1-9666).
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.
o Pursuant to Instruction 2 accompanying paragraph (a) and the Instruction
accompanying paragraph (b)(10)(iii)(B)(6) of Item 601 of Regulation S-K, the
registrant has not filed each executive officer's individual agreement with
the Company as an exhibit hereto. The registrant has agreements
substantially identical to Exhibit 10(l) above with each of Messrs. Bayer,
Atkinson, Baylis and Keyes.
E-5
<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 and 333-88317)
of Battle Mountain Gold Company of our report dated February 18, 2000, except
as to the restatement described in Note 19, which is as of May 12, 2000,
appearing on page 47 of this Form 10-K/A.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Houston, Texas
May 15, 2000
<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/A FOR THE YEAR ENDED DECEMBER
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999<F1> DEC-31-1998<F1>
<CASH> 91,000 204,900
<SECURITIES> 0 0
<RECEIVABLES> 13,200 14,800
<ALLOWANCES> 1,100 0
<INVENTORY> 31,100 32,500
<CURRENT-ASSETS> 143,200 254,900
<PP&E> 903,400 908,800
<DEPRECIATION> 603,800 566,900
<TOTAL-ASSETS> 568,500 786,600
<CURRENT-LIABILITIES> 88,900 105,700
<BONDS> 176,800 203,600
0 0
110,600 110,600
<COMMON> 13,200 12,900
<OTHER-SE> (5,100) 124,200
<TOTAL-LIABILITY-AND-EQUITY> 568,500 786,600
<SALES> 228,200 276,600
<TOTAL-REVENUES> 228,200 276,600
<CGS> 213,900 242,900
<TOTAL-COSTS> 213,900 242,900
<OTHER-EXPENSES> 16,700 24,800
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,100 17,800
<INCOME-PRETAX> (112,000) (227,500)
<INCOME-TAX> 7,400 13,800
<INCOME-CONTINUING> (119,400) (241,300)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (126,900) (248,800)
<EPS-BASIC> (0.55) (1.08)
<EPS-DILUTED> (0.55) (1.08)
<FN>
<F1>AS RESTATED
</FN>
</TABLE>
