<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
Form 10-K/A
(Amendment No. 3)
[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>
<CAPTION>
PART I
<S> <C> <C>
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.......................................... 32
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..................................................... 46
Item 8. Financial Statements and Supplementary Data.................................................................... 47
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.............................................................118
Item 11. Executive Compensation.........................................................................................119
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................125
Item 13. Certain Relationships and Related Transactions.................................................................126
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................127
</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 two
amendments to the Form 10-K with the Securities and Exchange Commission (SEC),
following extensive discussion with the SEC, management determined it was
necessary to revise the financial statement presentation of Battle Mountain's
cash and cash equivalents and its recorded equity in income of Lihir. Cash and
cash equivalents were reclassified to remove gold bullion and bullion
settlements from this line item and include them in accounts receivable to more
appropriately present the nature of these items. Management also determined that
the amounts of its recorded equity in income of Lihir had been incorrectly based
on financial statements of Lihir that were not prepared in accordance with U.S.
generally accepted accounting principles (GAAP), but rather, orginally were
based on International accounting standards. The Company's equity in income of
Lihir has been revised to reflect its equity on a U.S. GAAP basis. Also, a part
of a review of the financial statements of Lihir by the SEC, Lihir's management
determined that its U.S. GAAP reconciliation needed to be revised.
For the purpose of this Form 10-K/A, Battle Mountain Gold has amended and
restated in its entirety the 1999 Form 10-K/A filed on May 15, 2000. In order
to preserve the nature and character of the disclosures as of March 23, 2000,
the date on which the original 1999 Form 10-K was 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.
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.
1
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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 January 1, 1999. 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 January 1, 1999.
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
Company Company
Net/1/ 100%/2/ Net/1/ 100%/3/
Aggregate Operating Data ------------- ------- -------- -------
------------------------
<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 $252 $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
<PAGE>
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 $325. The estimated tonnages and grades in the
data for 1998 and 1999 gold reserves were determined by the Company's Senior
Vice President - Operations and Exploration together with several of our
geologists. The estimation of reserves and future mining operations can be
affected by numerous factors. See "Certain Factors Affecting Reserves, Foreign
Investments and Properties."
3
<PAGE>
PRODUCTION, COSTS AND RESERVES DATA
FOR GOLD
<TABLE>
<CAPTION>
MINE OR PROJECT PRODUCTION AND COST DATA (1)
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Attributable % Gold ounces Percent of Total
of mine recovered total BMG Cash production operating
production Year (000s) production costs ($/oz) costs
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<S> <C> <C> <C> <C> <C> <C>
Golden Giant 100% 1999 356 46 145 215
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1998 366 42 122 192
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Kori Kollo 88% 1999 256 33 190 294
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1998 295 33 165 303
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Holloway 84.65% 1999 91 12 198 331
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1998 80 9 216 332
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Vera/Nancy 50% 1999 67 9 124 168
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1998 47 5 135 168
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Other (2) 1999
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1998 101 11 253 356
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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
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Metal-
Attributable Average Contained lurgical Percent of
% of mine Reserves grade ounces Recovery total BMG
reserves Year (000s tons) (oz/ton) (000s) factor (%) reserves
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Golden Giant 100% 1999 6,157 0.281 1,725 96 17
-------------------------------------------------------------------------------------------------
1998 7,647 0.278 2,130 96 23
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Kori Kollo 88% 1999 28,603 0.046 1,330 63 14
-------------------------------------------------------------------------------------------------
1998 28,849 0.049 1,410 63 16
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Holloway 84.65% 1999 4,040 0.190 765 95 8
-------------------------------------------------------------------------------------------------
1998 4,180 0.197 825 95 9
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Battle Mountain 100% 1999 150,707 0.038 5,680 82 57
Complex (3) -------------------------------------------------------------------------------------------------
1998 81,737 0.043 3,515 85 39
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Vera/Nancy 50% 1999 1,151 0.382 440 96 4
-------------------------------------------------------------------------------------------------
1998 1,021 0.394 400 96 4
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Other (4) 1999
-------------------------------------------------------------------------------------------------
1998 825 9
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Totals 1999 9,940 100
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1998 9,105 100
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</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 the table in 1999 as
Battle Mountain had made the decision to dispose of its investment in
Niugini Mining effective January 1, 1999. Battle Mountain's share of
production from the San Cristobal and Lihir mines was 54,000 ounces in
1999.
(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. Battle Mountain's share of proven and probable reserves
from the Lihir mine totaled 7.7 million tons grading .11 oz/ton or 840,000
ounces at December 31, 1999.
4
<PAGE>
PRODUCTION AND RESERVES DATA
FOR SILVER AND COPPER
<TABLE>
<CAPTION>
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
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Kori Kollo 88% 1999 687
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1998 852
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Vera/Nancy 50% 1999 50
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1998 40
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Other (1) 1999
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1998 117
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Totals (2) 1999 759
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1998 1,035
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</TABLE>
<TABLE>
<CAPTION>
MINE OR PROJECT RESERVES DATA
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Attributable
% of mine Silver contained Copper contained
Reserves Year ounces (000s) pounds (000s)
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<S> <C> <C> <C> <C>
Kori Kollo 88% 1999 6,850 na
-----------------------------------------------------------------------------------
1998 7,555 na
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Battle Mountain 100% 1999 42,723 426,728
Complex (2) ------------------------------------------------------------------------------------
1998 22,605 182,592
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Vera/Nancy 50% 1999 377 na
------------------------------------------------------------------------------------
1998 400 na
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Other (3) 1999
------------------------------------------------------------------------------------
1998 420 na
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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 the table in 1999 as Battle Mountain
had made the decision to dispose of its investment in Niugini Mining
effective January 1, 1999. Battle Mountain's share of production from the
San Cristobal mine was 18,000 ounces in 1999. There was no silver
production from the Lihir mine in 1999.
(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
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Map to be inserted
------------------
6
<PAGE>
Map to be inserted
------------------
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
7
<PAGE>
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.
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
-------
8
<PAGE>
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 (degrees), a dip to the northeast of 60 (degrees) to 70 (degrees)
and an average thickness of about 20 meters. The gold mineralization occurs
along the contact between metasedimentary and felsic metavolcanic rocks. The ore
zone is pyrite-rich and occasionally barite-rich. The main zone is tabular in
nature and is characterized by its regularity and consistent gold values. The
main zone is cut by several diabase dykes. The gold occurs primarily as finely-
disseminated native gold with minor quantities of silver in pyritiferous
schists. The lower zone lies 30 to 80 meters stratigraphically below the main
zone. It is similar to the main zone, is narrower and less continuous, and for
the most part is below the lowest current mining level.
Mining, Processing and Environmental Compliance. The Golden Giant
-----------------------------------------------
reserves are mined using underground mining methods. After being fed to an
underground primary jaw crusher, ore is hoisted to the surface and conveyed to
another crushing facility, a ball mill grinding circuit and finally a cyanide
carbon-in-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
9
<PAGE>
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 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 (degrees) to 70 (degrees) to the
south.
10
<PAGE>
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.
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."
11
<PAGE>
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 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
12
<PAGE>
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."
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
13
<PAGE>
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.
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 January 1,
1999 Battle Mountain had made the decision to dispose of its investment 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
-----------
14
<PAGE>
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. The results of the Company's operations are affected
significantly by the market price of gold. Gold prices are influenced by
numerous factors over which the Company has no control, including expectations
with respect to the rate of inflation, the relative strength of the United
States dollar, interest rates, global or regional political or economic crises,
demand for gold jewelry and industrial products, and sales by holders and
producers of gold in response to these factors. During the third quarter of
1999, Battle Mountain modified its hedging policy. The purpose of this revised
policy is to reduce exposure to fluctuating gold prices. Battle Mountain's
strategy is to balance the assurance of cash flows with exposure to changes in
the gold price. Battle Mountain's hedging policy limits the amount of hedges to
50% of the next five years planned production from operating mines. Prior to
1999 the Company did not engage in any significant gold hedging activities. The
Company does not engage in trading hedging instruments for speculative
purposes.
At year-end 1999, the Company had hedged 450,000 ounces of gold, which is
less than 15% of the next four years production and 5% of gold reserves. These
hedges were at zero out of pocket cost and had no margin requirements. In 1999,
1998 and 1997 no contracts were either physically delivered into or financially
settled as prior to the third quarter of 1999, the Company had no significant
hedging activities.
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
Flat Forwards:
Ounces 25,000 25,000 25,000 25,000 100,000
Average price per ounce $312 $312 $312 $312 $312
Forwards:
Ounces 198,000 - - - 198,000
Average price per ounce $279 - - - $279
</TABLE>
15
<PAGE>
Given higher, lower or current market prices, the Company will realize on
average $312 per ounce on its flat forward contracts. Should the Company
exercise all the puts it will realize on average $293 per ounce. If the
counterparties exercise all the calls, the Company will sell the gold for $349.
The estimated fair values of the purchased put options and written call options
outstanding at December 31, 1999, were $3.2 million and $(3.5) million,
respectively. The written call options and the purchased put options are two
components of an integrated contract. The estimated fair value of the flat
forwards outstanding at December 31, 1999 was $(0.5) million. The estimated
fair value of the forwards outstanding at December 31, 1999 was $(2.8) million.
The following table reflects the estimated fair market value of the existing
contracts at December 31, 1999 given assumed changes in the spot selling
price:
<TABLE>
<CAPTION>
Purchased Puts Written Calls Flat Forwards Forwards
-------------- ------------- ------------- --------
<S> <C> <C> <C>
Spot Price plus 10% $1.6 million $(7.2) million $(3.2) million $(8.6) million
Spot Price less 10% $6.7 million $(1.7) million $ 1.8 million $ 2.3 million
</TABLE>
The forwards are part of the Company's overall financial planning.These
contracts cover gold that was on deposit at a refinery or leased to third
parties. All the contracts mature by March 31, 2000. Battle Mountain, at times,
is a party to lease 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.
The counterparties to hedged agreements may expose Battle Mountain to
certain credit-related losses in the event of nonperformance, 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.
Lihir
Lihir may and has sought to mitigate gold price risk, in part, through
hedging strategies. The policy of Lihir is to seek where appropriate to protect
operating costs and debt servicing through hedging activities. This may include
periodic purchases or sales of put or call options, spot deferred sales, and
forward sales covering a portion of its gold production at fixed future prices.
Lihir intends to regularly evaluate the portion of its production that will be
hedged. Lihir does not engage in speculative transactions and does not intend to
trade hedged positions.
In order to prevent a fall in gold prices from affecting Lihir's ability to
make loan payments, the Loan Agreement requires that Lihir hedge a portion of
its anticipated gold production. It is a condition of borrowings under the Loan
Agreement thereunder that Lihir has entered into hedging transactions which
ensure that for each of the first 20 fiscal quarters of production it will
receive a specified aggregate minimum dollar amount of revenues from sales of
gold during each quarter from a specified maximum amount of the gold produced
during the quarter. The hedging program required under the terms of the loan
agreement was put in place during 1996, primarily in the form of put options. It
also included forward sales with associated call options. The total cost of this
hedging program was $20.5 million, which was paid in 1996.
Lihir may engage in further hedging transactions in addition to those
required under the Loan Agreement up to a combined maximum of 100% of projected
production for each year. For this purpose it is assumed that the spot deferred
forwards will be rolled forward for delivery in the following year with the
agreement of the counterparty to the extent necessary to meet this objective.
The intended effect of hedging transactions would be to lock in a minimum sales
price at the time of the transactions, thereby reducing the impact on Lihir of a
future fall in gold prices. However, no assurances can be given as to whether,
when or at what prices or cost Lihir will be able to enter into hedging
transactions. It should also be noted that the effect of
16
<PAGE>
some hedging transactions will be to eliminate or limit to some extent revenues
Lihir would otherwise receive as a result of rises in the price of gold. A
forward sale, for example, would mean Lihir would not realize any additional
revenues above the gold price specified in the contract. Other hedging
techniques can be used to enable Lihir to share in some portion of rises in gold
prices. Lihir's profitability could be adversely affected if for any reason its
production of gold is unexpectedly interrupted and as a result it is unable to
produce sufficient gold to cover any forward sales commitments it may have made.
At year end 1999 Lihir had hedged 2,285,000 ounces of gold, which represents 81%
of the next five years scheduled production and 20% of reserves. The Company
does not enter into hedging transactions that have provisions for margin
calls.
The following tables summarize the hedging program as at December 31, 1999:
<TABLE>
<CAPTION>
Beyond Total or
2000 2001 2002 2003 2004 2004 Average
---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Written Call Options:
Ounces 128,738 51,375 50,137 - 40,000 160,000 430,250
Average price per ounce $390 $516 $530 - $385 $385 $419
Purchased Put Options:
Ounces 261,213 154,125 150,413 - 40,000 160,000 765,751
Average price per ounce $408 $466 $480 - $335 $335 $415
Purchased Call Options:
Ounces 107,478 102,755 100,273 - - - 310,506
Average price per ounce $521 $535 $549 - - - $535
Fixed Rate Forwards:
Ounces 53,740 51,380 50,136 - - - 155,256
Average price per ounce $453 $466 $480 - - - $466
Spot Deferred Forwards:
Ounces 1,364,326 - - - - - 1,364,326
Average price per ounce $287 - - - - - $287
</TABLE>
For put options bought by Lihir, the option would be exercised when the
prevailing spot price at the exercise date is below the put option strike price.
For call options bought by Lihir, the option would be exercised and the
resulting ounces sold at the prevailing spot price only if the spot price were
to be greater than the call strike price. For call options sold by Lihir, Lihir
will be obliged to deliver gold at the strike price if required to do so by the
counterparty. This is only likely to occur if the spot price is greater than
the call strike price. In the case of Fixed Rate Forwards, Lihir is obliged to
sell the relevant number of ounces at the specified strike price on the value
date, and the Revenue shown above is that which will actually be received. For
spot deferred forwards, the Company has the option to roll the contract forward
to a later delivery, assuming the counterparty allows it, at the price on the
original maturity date of the contract plus future contango with no additional
cash outlay.
Since the end of 1999 approximately 760,000 ounces of spot deferred sales
have been restructured into forward contracts. The profile at the end of 1999,
revised to reflect this change was:
<TABLE>
<CAPTION>
Beyond Total or
2000 2001 2002 2003 2004 2004 Average
---- ---- ---- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Forwards:
Ounces 243,740 351,380 329,611 - - - 924,731
Average price per ounce $321 $320 $343 - - - $328
Spot Deferred Forwards:
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Ounces 594,850 - - - - - 594,850
Average price per ounce $297 - - - - - $ 297
</TABLE>
The written call options are components of integrated contracts in
combination with purchased call options and/or purchased put options. The
estimated fair value of the hedge program at December 31, 1999 was $85.9
million. The following table reflects the estimated fair market value of the
existing contracts at December 31, 1999 given assumed changes in the spot
selling price:
<TABLE>
<CAPTION>
Written Purchased Purchased Fixed Rate Spot Total
Calls Puts Calls Forwards Deferreds -----
<S> <C> <C> <C> <C> <C> <C>
Spot price plus 10% $(10.1)million $58 million $.1 million $25.3 million $(49.7)million $23.6 million
Spot price $(5.9) million $72.5 million $0 $31.4 million $(11) million $87 million
Spot price minus 10% $(3.1) million $88 million $0 $37.4 million $25.8 million $148.1 million
</TABLE>
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 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
18
<PAGE>
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.
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.
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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.
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
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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.
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."
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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.
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
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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."
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
23
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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.
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.
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
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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.
In December 1997, the Contaminated Land Act 1991 (Qld) was integrated into
the Environmental Protection Act 1994 removing previous exemptions for existing
sites not required to be placed on the register. Also late in 1997, the
Environmental Protection Policy for noise and water was introduced. This
development has proved significant in developing operative conditions for new
projects and will potentially lead to a review of existing operating conditions
for current projects.
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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
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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; 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
27
<PAGE>
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 the 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.
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
28
<PAGE>
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.
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.
29
<PAGE>
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.
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.
Karl E. Elers (61) - Acting Chief Executive Officer
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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.
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.
31
<PAGE>
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."
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
32
<PAGE>
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 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 - - (4) - -
(5) --------- --------- ------- ------- ------
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.
After issuing Battle Mountain's 1999 financial statements and filing two
amendments to the Form 10-K with the Securities and Exchange Commission (SEC),
following extensive discussion with the SEC, management determined it was
necessary to revise the financial statements presentation of Battle Mountain's
cash and cash equivalents and its recorded equity in income of Lihir. Cash and
cash equivalents were reclassified to remove gold bullion and bullion
settlements from this line item and include then in accounts receivables to more
appropriately present the nature of these items. Management also determined that
the amounts of its recorded equity in income of Lihir had been incorrectly based
on financial statements of Lihir that were not prepared in accordance with U.S.
generally accepted accounting principles (GAAP), but rather, originally were
based on International accounting standards. The Company's equity in income of
Lihir has been revised to reflect its equity on a U.S. GAAP basis. Also, a part
of a review of the financial statements of Lihir by the SEC, Lihir's management
determined that its U.S. GAAP reconciliation needed to be revised.
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 $248.1 million, or $1.08 per share, net
loss in 1998 and a $16.9 million, or $.07 per share, net loss in 1997.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1999 totaled $67.5 million
consisting of $ 8.3 million of cash in banks and $59.2 million of short-term
investments. Niugini Mining held $54.7 million of the $67.5 million at December
31, 1999. An additional $40.0 million was held by Battle Mountain Gold Company
for a loan facility and classified as restricted cash. Cash and cash equivalents
totaled $156.9 million at December 31, 1998 consisting of $2.3 million of cash
in banks and $154.6 million of short term investments. Niugini Mining held $49.6
million of the $156.9 million at December 31, 1998.
Operating Activities
Cash flows of $49.3 million, $77.7 million and $55.0 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.
Battle Mountain has 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.
The State of Nevada notified Battle Mountain on May 25, 2000 that it no longer
met the qualifications required to utilize corporate guarantees as a part of the
required financial assurance for current permits. Arrangements have been made
for Newmont Mining Corporation ("Newmont") to provide a guarantee acceptable to
the state for Battle Mountain.
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
36
<PAGE>
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 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. Battle Mountain
and Battle Mountain (Australia) Inc., a wholly owned subsidiary of Battle
Mountain, entered into a $5 million promissory note with a bank on May 10, 2000.
This promissory note required Battle Mountain and its subsidiary to, among other
things, meet certain financial tests including: tangible net worth, debt to
total assets, interest coverage and current ratio. This note was fully drawn by
Battle Mountain at signing. On July 11, 2000, the promissory note was converted
into a $10 million, 364-day revolving credit facility containing substantially
the same terms.
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
37
<PAGE>
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 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) (116.7) (13.1)
------- ------- ------
Loss before income taxes $(112.0) $(226.8) $(16.4)
======= ======= ======
</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.
38
<PAGE>
<TABLE>
<CAPTION>
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>
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.
Aggregate Attributable Production Costs per Ounce of Gold Produced
<TABLE>
<CAPTION>
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>
Reconciliation of Aggregate Attributable Cash Costs per Ounce Produced
to Consolidated Financial Statements
<TABLE>
<CAPTION>
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>
39
<PAGE>
Cash production costs are presented in accordance with guidelines
established by The Gold Institute. Royalties paid to the Bolivian
government for the Kori Kollo mine are treated as income tax for per ounce
cost calculations and are therefore not included in these cost calculations.
Depreciation, depletion and amortization ("DD&A") 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. In the cash flows projections prepared
by management used for the impairment analysis, management assumed a gold price
of $300 per ounce for 2000, $325 per ounce for 2001 and $350 per ounce for each
year thereafter. Estimates for operating costs, capital expenditures and
reclamation and closure costs were made by Battle Mountain management and
engineering personnel based on a detailed analysis of current and historical
costs and cost trends. The projected cash flows were discounted using a
discount rate of 5%.
The $49.9 million write-down of the Kori Kollo mine was applied directly to
the acquisition cost of the mine. The write-down will reduce future DD&A of
the Kori Kollo mine by approximately $57 per ounce assuming no additional
reserves are discovered at the mine. This write-down had no effect on the scope
of the Kori Kollo operation. Of the $10.8 million write-down of the Reona mine,
$7.5 was applied to deferred mining costs and $3.1 million was applied to mine
development costs and machinery and equipment. The write-down will reduce
future DD&A by $104 per ounce. Subsequent to the write-down the Reona property
was placed on care and maintenance.
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.
40
<PAGE>
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 $96.6 million in 1998, compared with equity in losses of $1.0 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.
Minority interest in net loss was $31.7 million in 1999 compared with minority
interest in net income of $1.1 million in 1998 and 1.7 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.
41
<PAGE>
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 income 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.
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 Niugini
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.
42
<PAGE>
Derivative Financial Instruments. During the third quarter of 1999, Battle
Mountain modified its hedging policy. The purpose of this revised policy is to
reduce exposure to fluctuating gold prices. 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 or speculative purposes. Prior to 1999 the Company did not engage in any
significant gold hedging activities.
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
Flat Forwards
Ounces 25,000 25,000 25,000 25,000 100,000
Average price per ounce $312 $312 $312 $312 $312
Forwards:
Ounces 198,000 - - - 198,000
Average price per ource $279 - - - $279
</TABLE>
The counterparties to hedged agreements may expose
Given higher, lower or current Market prices, the Company will realize on
average $312 per ounce on its flat forward contracts. Should the Company
excercise all the puts it will realize on average $293 per ounce. If the
counterparties exercise all the calls, the Company will sell the gold for $349.
The estimated fair values of the purchased put options and written call options
outstanding at December 31, 1999 were $3.2 million and $ (3.5) million,
respectively. The written call options and the purchased put options are two
components of an intergrated contract. The estimated fair value of the flat
forwards outstanding at December 31, 1999 was $(0.5) milion. The estimated fair
value of the forwards outstanding at December 31, 1999 was $ (2.8) million.
These estimated fair values were determined from a third party model.
The forwards are part of the company's overall financial planning. These
contracts cover gold that was on deposit at a refinery or leased to third
parties. All the contracts mature by March 31, 2000. Battle Mountain, at times,
is a party to lease 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.
The counterparties to hedged agreements may expose Battle Mountain to
certain credit-related losses in the event of nonperformance, 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.
43
<PAGE>
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 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
44
<PAGE>
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.
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.
45
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other."
46
<PAGE>
Item 8. Financial Statements and Supplementary Data
----------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
I. Battle Mountain Gold Company
<S> <C>
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
</TABLE>
47
<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(a), 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 described in note 19(b), Battle Mountain revised its December 31, 1999
and 1998 consolidated financial statements to reclassify bullion and bullion
settlements from cash and cash equivalents to accounts receivable and revised
its December 31, 1998 and 1997 financial statements as a result of a change to
its recorded equity in the earnings of a significant investee.
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.
PricewaterhouseCoopers LLP
Houston, Texas
February 18, 2000, except for Note 19(a), as to which the date is May 12, 2000
and Note 19 (b) which the date is November 21, 2000.
48
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31
1999 1998 1997
---- ---- ----
Millions, except per share amounts (as restated) (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 losses and impairment charges of Lihir (Note 4) (80.9) (96.6) (1.0)
Minority interest in net loss (income) 31.7 (1.1) (1.7)
Capitalized interest (Note 4) - - 4.5
Other income, net 0.4 0.5 0.8
------- ------- -------
Loss Before Income Taxes (112.0) (226.8) (16.4)
Income tax benefit (expense) (Note 10) (7.6) (7.8) 17.4
Mining income tax benefit (expense) (Note 10) 0.2 (6.0) (6.7)
------- ------- -------
Loss Before Cumulative Effect of Accounting Change (119.4) (240.6) (5.7)
Cumulative effect of accounting change, net (Note 2) - - (3.7)
------- ------- -------
Net Loss (119.4) (240.6) (9.4)
Preferred dividends (Note 9) 7.5 7.5 7.5
------- ------- -------
Net Loss to Common Shares $(126.9) $(248.1) $(16.9)
======= ======= =======
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.
49
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
Millions except per share amounts 1999 1998
--------------------------------- ---- ----
(as restated) (as restated)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 67.5 $ 156.9
Restricted cash - 7.7
Accounts and notes receivable, net (Note 1) 36.7 55.1
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 income 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 income 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 65.0 107.2
------- -------
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 (327.3) (200.4)
Accumulated other comprehensive loss (21.5) (19.3)
------- -------
Total Shareholders' Equity 118.8 247.8
------- -------
Total Liabilities and Shareholders' Equity $ 568.5 $ 786.6
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings Other Total
Preferred Common Paid-in (Accumulated Comprehensive Shareholders'
Stock Stock Capital Deficit) Income (Loss) Equity
----- ----- -------- ------- ------------ ------------------
Millions
--------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 $110.6 $11.3 $344.2 $ 87.6 $ (15.4) $ 538.3
Net loss - - - (9.4) - (9.4)
Currency translation - - - - (5.6) (5.6)
adjustments -------
Total comprehensive loss (15.0)
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 59.2 (21.0) 505.4
Net loss - - - (240.6) - (240.6)
Currency translation - - - - 1.7 1.7
adjustments -------
Total comprehensive loss (238.9)
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 (200.4) (19.3) 247.8
Net loss - - - (119.4) - (119.4)
Currency translation - - - - (2.2) (2.2)
adjustments -------
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 $(327.3) $(21.5) $ 118.8
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
BATTLE MOUNTAIN GOLD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
Millions 1999 1998 1997
-------- ---- ------ ----
(as restated) (as restated) (as restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(119.4) $(240.6) $ (9.4)
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 income 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 charges of Lihir 80.9 96.6 1.0
Minority interest in net income (loss) (31.7) 1.1 1.7
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) 19.9 16.3 1.4
Decrease in deferred mining costs - 11.2 2.2
Other, net (0.7) 2.7 3.0
------- ------- ------
Net Cash Flows Provided by Operating Activities 49.3 77.7 55.0
------- ------- ------
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) -
Decrease (increase) in other assets 0.6 2.3 (0.6)
Increase in advances to affiliates - (4.7) (3.4)
Other, net (0.7) (1.0) (1.3)
------- ------- ------
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 (89.4) 7.1 84.8
Cash and cash equivalents at beginning of year 156.9 149.8 65.0
------- ------- ------
Cash and Cash Equivalents at End of Year $ 67.5 $ 156.9 149.8
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<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 Income 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.
After issuing Battle Mountain's 1999 financial statements and filing two
amendments to the Form 10-K with the Securities and Exchange Commission (SEC),
following extensive discussion with the SEC, Management determined it was
necessary to revise the financial statement presentation of Battle Mountain's
cash and cash equivalents and its recorded equity in income of Lihir. Cash and
cash equivalents were reclassified to remove gold bullion and bullion
settlements from this line item and include them in accounts receivable to more
appropriately present the nature of these items. Management also determined that
the amounts of its recorded equity in income of Lihir had been incorrectly based
on financial statements of Lihir that were not prepared in accordance with U.S.
generally accepted accounting principles (GAAP), but rather, originally were
based on International accounting standards. The Company's equity in income of
Lihir has been revised to reflect its equity on a U.S. GAAP basis. Also, a part
of a review of the financial statements of Lihir, by the SEC, Lihir's management
determined that its U.S. GAAP reconciliation needed to be revised.
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
53
<PAGE>
of estimates relate to mineral reserves, reclamation and environmental
obligations, postretirement and other employee benefit liabilities, valuation
allowances for deferred tax assets, fair values of financial instruments and
recoverability of long-lived assets. 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.
Revenue Recognition. The Company's revenue recognition policies are common
practice in the mining industry and unlike most other industries. Revenue is
recognized when gold and silver in the form of dore (a combination of gold and
silver) or concentrate is produced at mines whose product has a high gold
content (in excess of 70%) and for which the additional costs of refining and
marketing are minimal (less than 1% of the value). The only condition for
recognition of revenue in this instance is the production of the gold dore or
concentrate. In order to get the product to the dore stage the gold-bearing ore
must be mined, transported to a mill or heap leaching pad where the ore is
ground and/or crushed. The ground and/or crushed ore is then chemically treated
to extract the gold into a solution. This solution is then subjected to various
processes to precipitate a gold-bearing material that can be melted and poured
into a mold. At this point the product is not interchangeable and in salable
form. Approximately 39% of the Company's revenue was recognized when products
were produced for the three years ended December 31, 1999.
The remaining 61% of revenue for the three years ended December 31, 1999
was recognized when gold and silver in the form of dore or concentrate was
shipped from the mine site at mines whose product has a high content of metals
other than gold (e.g. silver and/or copper). Further refining and marketing
costs are minimal (less than 1% of the value). The only conditions for
recognition of revenue in this instance are the shipment of the gold dore or
concentrate and the passing of the risk of loss to a third party. Risk of loss
passes contractually to the transporter when the product is picked up at the
mine and then to the refiner upon receipt at the refinery, however title does
not pass at this time. In the event that a loss occurs to the product prior to
delivery to the final purchaser the amount of the loss would be determined based
on the number of ounces indicated on the bill of lading which is an estimate
based on assays performed at the mine and an agreed to price.
At all of the Company's locations, revenue estimates for essentially all of
the gold produced or shipped are made based on sales prices determined via sales
contracts which are entered into upon production or up to ten days after
production. Revenue estimates are based on spot gold prices for minimal amounts
of gold not covered by sales contracts. Estimated smelter losses and
transportation and refining costs are also included in these revenue estimates.
Net revenues are adjusted in future periods for any difference between the
actual amount received and the estimate. The maximum net revenue adjustment for
any given shipment attributable to quantity alone was plus or minus
approximately 1.6% and the maximum net revenue adjustment for any given shipment
attributable to price was plus or minus approximately 1.7% in 1997, 1998 and
1999. At all locations the risk of loss transfers from the Company at the time
of shipment. The maximum amount of time between initial revenue recognition and
final delivery of the Company's products and transfer of risk of loss to a
purchaser under a firm agreement providing a fixed or determinable price for any
given sale during 1997, 1998 and 1999 was four, five and seven months,
respectively. The amount of time between initial revenue recognition and final
delivery has increased over the past three years for cash management purposes.
The average time between production of dore or concentrate and the completion of
the refining process which produces 99% pure gold and silver is approximately 30
days. The time between the completion of the refining process and delivery to
the final purchaser exceeds 30 days at the Golden Giant mine on a regular basis
for cash management purposes.
Realization of the value of the Company's inventories of gold and silver
for which revenue has been recognized is subject to the risk that the
counterparty (purchaser) will not have the ability to make payment upon final
delivery which would require the Company to sell to another purchaser at a
different price. All purchasers' credit ratings were investment grade and the
Company has never experienced a default on the part of a purchaser. The Company
is also subject to the risk that the refiner will not be able to make delivery
to the customer which can occur if the refiner is unable to complete the
refining process, the product is lost due to theft or bankruptcy or for some
other reason. The Company mitigates this risk by dealing only with reputable
refiners. The Company has never experienced a loss resulting from a refiner's
inability to make delivery. Realization of the value of those inventories
maintained by locations whose functional currency is other than the U.S. dollar
are subject to risks associated with foreign currency exchange rate changes.
At operations on care and maintenance, revenues from gold recoveries are
credited against production costs. During the year ended December 31, 1999, $7.1
million of revenue was credited against production costs for the San Cristobal
and Reona mines because these mines were placed on care and maintenance
effective January 1, 1999. There were no revenues credited against production
costs for the years ended December 31, 1998 and 1997 because no operations were
on care and maintenance during those periods.
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.
54
<PAGE>
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
because it is readily marketable at quoted market prices and its price is fixed
through forward sales contracts with no further substantial costs of marketing.
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 after proven and probable reserves are established. 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. When such mining
costs are deferred, deferral begins upon the commencement of mining and only
after a proven and probable reserve has been established.
Other property, plant and equipment includes capitalized lease costs and
mine development costs for projects in progress.
Depreciation, depletion and amortization ("DD&A") of mining properties and
related assets is calculated using the units-of-production method based upon
estimated recoverable proven and probable reserves that will be produced prior
to the expiration of existing mining licenses. Assets having an estimated life
less than the estimated life of the associated proven and probable reserves
are depreciated on a straight-line basis over the expected remaining life of the
asset as follows:
<TABLE>
<CAPTION>
<S> <C>
Heavy vehicles 3 to 8 years
Machinery and equipment 3 to 10 years
Light vehicles 3 to 5 years
Computer equipment 3 years
</TABLE>
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. Battle Mountain reviews asset carrying values for impairment by
estimating future undiscounted cash flows to be derived from the assets use at
the lowest level (mining property) at which identifiable cash flows are
generated. Estimated undiscounted future net cash flows from each mine and non-
operating property are calculated from reserves, production (that is estimated
to occur prior to the expiration of existing mining licenses), sales prices
(considering historical and current prices, price trends and related factors),
operating capital and costs and reclamation costs. The amount of impairment loss
recorded is the difference between the fair value and the carrying value of the
impaired asset. Fair value is determined based on the future cash flows from
each mine and non-operating property discounted at a rate commensurate with the
risks.
Battle Mountain's estimates of future cash flows are subject to risks and
uncertainties. It is reasonably possible that changes in estimates could occur
which may affect the expected recoverability of Battle Mountain's investment in
its mineral properties.
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 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.
55
<PAGE>
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 method based upon estimated recoverable production from
proven and probable mineral reserves that will be produced prior to the
expiration of existing mining licenses.
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. Remediation cost estimates
are made under several likely scenarios. The most likely scenario is used for
accrual purposes. The cost estimates are prepared on an undiscounted
basis.
Income and Mining Income 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 income taxes represent taxes levied primarily
by the Canadian province of Ontario on defined profits from mining activities
performed in the province. Since these taxes are based on a percentage of
mining profits they are considered to be an income tax and therefore have been
presented as income taxes in the consolidated statements of operations.
Deferred income taxes have been provided on a portion of the undistributed
earnings of foreign subsidiaries and joint ventures, with the exception of
Niugini Mining, which is in a cumulative loss position. With respect to Battle
Mountain Canada, the Company's policy is to remit earnings to the extent that
funds are not required to meet Battle Mountain Canada's needs. 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.
Battle Mountain pays royalties to the Bolivian government that are based on
the greater of a royalty calculated as a percentage of gold and silver sales or
a complementary tax based on net income. Since the royalty typically exceeds the
complementary tax the amounts incurred are included in production costs in the
statement of operations.
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.
56
<PAGE>
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.
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
57
<PAGE>
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.
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,
58
<PAGE>
$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.
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.
59
<PAGE>
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.
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.
60
<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
61
<PAGE>
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.
Note 10. Income and Mining Income Taxes
------------------------------
Federal and foreign income and mining income tax expense (benefit)
consisted of the following:
<TABLE>
<CAPTION>
Millions 1999 1998 1997
-------- ---- ---- ----
Current
<S> <C> <C> <C>
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 income 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>
<CAPTION>
Millions 1999 1998
-------- ---- ----
Deferred tax assets
<S> <C> <C>
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.
62
<PAGE>
A reconciliation of income tax at the U.S. statutory rate to income tax
expense follows:
<TABLE>
<CAPTION>
Millions 1999 1998 1997
-------- ---- ---- ----
<S> <C> <C> <C>
Income tax benefit based on statutory rate of 35% $(39.2) $(79.4) $ (5.7)
Increases (decreases) resulting from
Foreign withholding tax, net (0.3) (1.0) (5.4)
Canadian mining income 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 (0.6) 1.4
------ ------ ------
Income and mining income 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 a portion of the undistributed earnings of
foreign subsidiaries and joint ventures, with the exception of Niugini Mining,
which is in a cumulative loss position It is not practical to estimate the
amount of taxes that might be payable on the eventual remittance of the
unremitted portion of the earnings.
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.
63
<PAGE>
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.
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>
<CAPTION>
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 - -
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Forfeited (0.3) $ 9.10
----
Outstanding at December 31, 1999 7.3 $ 6.42
====
</TABLE>
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>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Option Price Options Exercise Price Remaining Life Options Exercise Price
------------ ------- -------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 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>
<CAPTION>
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.
Net periodic benefit costs for these plans included the following
components:
65
<PAGE>
<TABLE>
<CAPTION>
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>
<CAPTION>
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 53.3 49.8 - -
year
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.
Weighted average rate assumptions used in determining estimated benefit
obligations were as follows:
<TABLE>
<CAPTION>
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
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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.
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>
<CAPTION>
Golden Kori Battle Vera / Corp &
Total Giant Kollo Holloway Mountain Nancy Other
Millions ---- ----- ----- -------- -------- ----- -----
--------
1999
---
<S> <C> <C> <C> <C> <C> <C> <C>
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 (80.9)
Lihir
Minority interest in net 31.7
losses
Interest & other income 0.2
--------
Loss before income taxes (112.0)
Property, plant & equip., 299.6 88.4 51.1 71.0 52.1 31.4 5.6
net ======== ====== ====== ===== ====== ===== ======
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 (96.6)
Lihir
Interest & other expense (20.1)
--------
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Loss before income taxes (226.8)
========
<S> <C> <C> <C> <C> <C> <C> <C>
Property, plant & equip., 341.9 96.8 70.0 74.7 39.3 22.6 38.5
net ======== ====== ====== ===== ====== ===== ======
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 loss of Lihir (1.0)
Interest & other income (12.1)
--------
Loss before income taxes (16.4)
========
Property, plant & equip., 489.3 120.9 157.7 84.5 37.1 14.2 74.9
net ======== ====== ====== ===== ====== ===== ======
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>
"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
68
<PAGE>
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 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.
69
<PAGE>
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.
Note 15. Derivative Financial Instruments
--------------------------------
Battle Mountain's results of operations are affected significantly by the
market price of gold. During the third quarter of 1999, Battle Mountain modified
its hedging policy. The purpose of this revised policy is to reduce exposure to
fluctuating gold prices. The hedging policy allows the use of various derivative
financial instruments, including forward sales contracts and options.
Battle Mountain does not use derivative financial investments for trading
or speculative purposes. Prior to 1999 the Company did not engage in any
significant gold hedging activities.
Gold contracts outstanding at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Total or
2000 2001 2002 2003 Average
------- ------- ------- ------- -------
Written call options:
<S> <C> <C> <C> <C> <C>
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
Flat Forwards:
Ounces 25,000 25,000 25,000 25,000 100,000
Average price per ounce $312 $312 $312 $312 $312
Forwards:
Ounces 198,000 - - - 198,000
Average price per ounce $279 - - - $279
</TABLE>
Given higher, lower or current market prices, the Company will realize on
average $312 per ounce on its flat forward contracts. Should the Company
exercise all the puts it will realize on average $293 per ounce. If the
counterparties' exercise all calls, the Company will sell the gold for $349 per
ounce.
The forwards are part of the Company's overall financial planning. These
contacts cover gold that was on deposit at a refinery or leased to third
parties. All the contracts mature by March 31, 2000. Battle Mountain, at times,
is a party to lease 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.
70
<PAGE>
The counterparties to hedged agreements may expose Battle Mountain to
certain credit-related losses in the event of nonperformance, generally by the
amount 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.
Note 16. Supplemental Cash Flow Information
----------------------------------
Supplemental cash flow information follows:
<TABLE>
<CAPTION>
Millions 1999 1998 1997
-------- ---- ---- ----
Changes in working capital accounts
<S> <C> <C> <C>
Decrease in accounts receivable $17.5 $ 9.6 $10.7
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
income 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 $19.9 $16.3 $ 1.4
===== ===== =====
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 purchased put options and written call options
outstanding at December 31, 1999, were $3.2 million and $(3.5) million,
respectively. The written call options and the purchased put options are two
components of an integrated contract. The estimated fair value of the flat
forwards outstanding at December 31, 1999 was $(0.5) million. The estimated fair
value of the forwards outstanding at December 31, 1999 was $(2.8) 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
71
<PAGE>
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.
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 $381.9 $500.7
shareholder's equity ====== ======
Years ended December 31
Millions 1999 1998 1997
-------- ------ ------ ------
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 791.9 768.1
------ ------
Total assets $891.0 $892.6
====== ======
Current liabilities $ 78.1 $ 74.1
Non-current liabilities 140.9 277.7
------ ------
Total liabilities 219.0 351.8
Shareholder's equity 672.0 540.8
------ ------
Total liabilities and $891.0 $892.6
shareholder's equity ====== ======
</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 180.3 154.1 43.4
------ ------ -----
Operating income $ 26.3 $ 30.6 $13.6
====== ====== =====
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net income (loss) $ (0.2) $ (5.0) $ 4.6
====== ====== =====
</TABLE>
Note 19. Restatement
-----------
(a) 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.
(b) After issuing Battle Mountain's 1999 financial statements and filing
two amendments to the Form 10-K with the Securities and Exchange Commission
(SEC), following extensive discussion with the SEC, management determined it was
necessary to revise the financial statement presentation of Battle Mountain's
cash and cash equivalents and its recorded equity in income of Lihir. Cash and
cash equivalents were reclassified to remove gold bullion and bullion
settlements from this line item and include them in accounts receivable to more
appropriately present the nature of these items. Management also determined that
the amounts of its recorded equity in income of Lihir had been incorrectly based
on financial statements of Lihir that were not prepared in accordance with U.S.
generally accepted accounting principles (GAAP), but rather, orginally were
based on International accounting standards. The Company's equity in income of
Lihir has been revised to reflect its equity on a U.S. GAAP basis. Also, a part
of a review of the financial statements of Lihir by the SEC, Lihir's management
determined that its U.S. GAAP reconciliation needed to be revised.
The following sets forth the effects of the restatements on Battle
Mountain's accompanying consolidated statement of operations, balance sheet and
statement of cash flows:
73
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT
OF OPERATIONS
Year ended December 31, 1999
----------------------------
As
Millions, except per share amounts As --- As Previously
---------------------------------- Restated (b) Restated(a) Reported
------------ ----------- --------
<S> <C> <C> <C>
Sales $ 228.2 $ 228.2 $ 228.2
------- ------- -------
Costs and Expenses
Production costs 149.7 149.7 151.5
Depreciation, depletion and amortization 64.2 64.2 64.2
Exploration, evaluation and
other lease costs, net 16.7 16.7 16.7
Environmental remediation charge 9.5 9.5 9.5
Asset write-downs 35.9 35.9 35.9
Loss related to assets held for sale - - 46.6
General and administrative expenses 15.2 15.2 14.1
------- ------- -------
Total costs and expenses 291.2 291.2 338.5
------- ------- -------
Operating Loss (63.0) (63.0) (110.3)
Interest expense (15.1) (15.1) (15.1)
Interest income 6.7 6.7 4.1
Foreign currency exchange gain (loss), net 8.2 8.2 8.2
Equity in losses and impairment charges of (80.9) (80.9) -
Lihir
Minority interest in net loss (income) 31.7 31.7 1.5
Other income, net 0.4 0.4 (0.4)
------- ------- -------
Loss Before Income Taxes (112.0) (112.0) (112.0)
Income tax benefit (expense) (7.6) (7.6) (7.6)
Mining income tax benefit (expense) 0.2 0.2 0.2
------- ------- -------
Net Loss (119.4) (119.4) (119.4)
Preferred dividends 7.5 7.5 7.5
------- ------- -------
Net Loss to Common Shares $(126.9) $(126.9) $(126.9)
======= ======= =======
Basic and Diluted Loss per Common Share
Before cumulative effect of
Accounting change $ (0.55) $ (0.55) $ (0.55)
Accounting change - - -
------- ------- -------
Total $ (0.55) $ (0.55) $ (0.55)
======= ======= =======
Dividends per Common Share $ - $ - $ -
Average Common Shares Outstanding for
Basic and Diluted Loss per Share Purposes 229.9 229.9 229.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Year ended December 31, 1998
OF OPERATIONS ----------------------------
As As
Millions, except per share amounts -- --- As Previously
---------------------------------- Restated (b) Restated(a) Reported
---------------- ------------------ ----------------
<S> <C> <C> <C>
Sales $ 276.6 $ 276.6 $ 276.6
------- ------- -------
Costs and Expenses
Production costs 163.3 163.3 163.3
Depreciation, depletion and amortization 79.6 79.6 79.6
Exploration, evaluation and
other lease costs, net 24.8 24.8 24.8
Asset write-downs 104.9 104.9 194.9
General and administrative expenses 14.1 14.1 14.1
------- ------- -------
Total costs and expenses 386.7 386.7 476.7
------- ------- -------
Operating Loss (110.1) (110.1) (200.1)
Interest expense (17.8) (17.8) (17.8)
Interest income 10.7 10.7 10.7
Foreign currency exchange gain (loss), net (12.4) (12.4) (12.4)
Equity in losses and impairment charges of
Lihir (96.6) (97.9) (7.9)
Minority interest in net loss (income) (1.1) (0.5) (0.5)
Other income, net 0.5 0.5 0.5
------- ------- -------
Loss Before Income Taxes (226.8) (227.5) (227.5)
Income tax benefit (expense) (7.8) (7.8) (7.8)
Mining income tax benefit (expense) (6.0) (6.0) (6.0)
------- ------- -------
Net Loss (240.6) (241.3) (241.3)
Preferred dividends 7.5 7.5 7.5
------- ------- -------
Net Loss to Common Shares $(248.1) $(248.8) $(248.8)
======= ======= =======
Basic and Diluted Loss per Common Share
Before cumulative effect of
Accounting change $ (1.08) $ (1.08) $ (1.08)
Accounting change - - -
------- ------- -------
Total $ (1.08) $ (1.08) $ (1.08)
======= ======= =======
Dividends per Common Share $ .05 $ .05 $ .05
Average Common Shares Outstanding for
Basic and Diluted Loss per Share Purposes 229.8 229.8 229.8
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Year ended December 31, 1997
OF OPERATIONS ----------------------------
As As
Millions, except per share amounts -- --- As Previously
---------------------------------- Restated (b) Restated(a) Reported
---------------- ------------------ ----------------
Sales $344.9 $344.9 $344.9
------ ------ ------
Costs and Expenses
<S> <C> <C> <C>
Production costs 234.3 234.3 234.3
Depreciation, depletion and amortization 72.8 72.8 72.8
Exploration, evaluation and
other lease costs, net 24.8 24.8 24.8
Merger expenses 2.7 2.7 2.7
General and administrative expenses 13.6 13.6 13.6
------ ------ ------
Total costs and expenses 348.2 348.2 348.2
------ ------ ------
Operating Loss (3.3) (3.3) (3.3)
Interest expense (13.9) (13.9) (13.9)
Interest income 6.0 6.0 6.0
Foreign currency exchange gain(loss), net (7.8) (7.8) (7.8)
Equity in losses(income) and impairment
charges of Lihir (1.0) .2 .2
Minority interest in net loss (income) (1.7) (2.3) (2.3)
Capitalized interest 4.5 4.5 4.5
Other income, net 0.8 0.8 0.8
------ ------ ------
Loss Before Income Taxes (16.4) (15.8) (15.8)
Income tax benefit (expense) 17.4 17.4 17.4
Mining income tax benefit (expense) (6.7) (6.7) (6.7)
------ ------ ------
Loss Before Cumulative Effect of Accounting
Change (5.7) (5.1) (5.1)
Cumulative effect of Accounting Change (3.7) (3.7) (3.7)
------ ------ ------
Net Loss (9.4) (8.8) (8.8)
Preferred dividends 7.5 7.5 7.5
------ ------ ------
Net Loss to Common Shares $(16.9) $(16.3) $(16.3)
====== ====== ======
Basic and Diluted Loss per Common Share
Before cumulative effect of
Accounting change $ (.05) $ (.05) $ (.05)
Accounting change (.02) (.02) (.02)
------ ------ ------
Total $ (.07) $ (.07) $ (.07)
====== ====== ======
Dividends per Common Share $ .05 $ .05 $ .05
Average Common Shares Outstanding for
Basic and Diluted Loss per Share Purposes 229.7 229.7 229.7
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Year ended December 31, 1999
OF OPERATIONS ----------------------------
As As
Millions -- --- As Previously
-------- - Restated (b) Restated(a) Reported
---------------- ------------- --------
ASSETS
Current assets
<S> <C> <C> <C>
Cash and cash equivalents $ 67.5 $ 91.0 $ 36.3
Accounts and notes receivable, net 36.7 13.2 12.9
Product inventories 8.7 8.7 8.6
Materials and supplies, net 22.4 22.4 22.3
Assets held for sale - - 61.7
Other current assets 7.9 7.9 7.9
------- ------- -------
Total current assets 143.2 143.2 149.7
Investments 79.0 79.0 10.6
Restricted cash 40.0 40.0 40.0
Property, plant and equipment, net 299.6 299.6 299.6
Other assets 6.7 6.7 6.7
------- ------- -------
Total Assets $ 568.5 $ 568.5 $ 506.6
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2.6 $ 2.6 $ 2.6
Debt due upon disposal of Lihir 30.0 30.0 30.0
Accounts payable 16.0 16.0 15.9
Income and Mining Income Taxes payable 16.7 16.7 16.6
Interest payable 6.4 6.4 6.4
Salaries, wages and benefits payable 6.1 6.1 5.4
Other current liabilities 11.1 11.1 9.2
------- ------- -------
Total current liabilities 88.9 88.9 86.1
Long-term debt 176.8 176.8 176.8
Deferred income and Mining Income Taxes 64.5 64.5 64.5
Deferred mine reclamation and closure costs 29.5 29.5 29.5
Other liabilities 25.0 25.0 25.0
------- ------- -------
Total Liabilities 384.7 384.7 381.9
------- ------- -------
Minority interest 65.0 65.1 6.0
------- ------- -------
Commitments and contingencies - - -
Shareholders' equity
Convertible preferred stock 110.6 110.6 110.6
Common stock, $.10 par value: 13.2 13.2 13.2
Additional paid-in capital 343.8 343.8 343.8
Accumulated deficit (327.3) (327.4) (327.4)
Accumulated other comprehensive loss (21.5) (21.5) (21.5)
------- ------- -------
Total Shareholders' Equity 118.8 118.7 118.7
------- ------- -------
Total Liabilities and Shareholders' Equity $ 568.5 $ 568.5 $ 506.6
======= ======= =======
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET December 31, 1998
-----------------
As Previously
Millions As Restated(b) As Restated (a) Reported
-------- ------------- ------------- --------
ASSETS
Current assets
<S> <C> <C> <C>
Cash and cash equivalents $ 156.9 $ 197.2 $ 147.6
Restricted cash 7.7 7.7 7.7
Accounts and notes receivable, net 55.1 14.8 13.8
Product inventories 8.9 8.9 8.9
Materials and supplies, net 23.6 23.6 23.4
Assets held for sale - - 108.3
Other current assets 2.7 2.7 2.7
------- ------- -------
Total current assets 254.9 254.9 312.4
Investments 168.7 168.7 19.4
Restricted cash 0.7 0.7 -
Property, plant and equipment, net 341.9 341.9 341.9
Other assets 20.4 20.4 20.4
------- ------- -------
Total Assets $ 786.6 $ 786.6 $ 694.1
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 14.9 $ 14.9 $ 14.9
Current maturities of long-term debt 37.5 37.5 37.0
Debt due upon disposal of Lihir - - -
Accounts payable 14.5 14.5 14.3
Income and Mining Income Taxes payable 23.9 23.9 23.9
Interest payable 1.5 1.5 1.5
Salaries, wages and benefits payable 3.7 3.7 3.1
Other current liabilities 9.7 9.7 8.3
------- ------- -------
Total current liabilities 105.7 105.7 103.0
Long-term debt 203.6 203.6 203.6
Deferred income and Mining Income Taxes 72.0 72.0 72.0
Deferred mine reclamation and closure costs 25.3 25.3 25.3
Other liabilities 25.0 25.0 24.8
------- ------- -------
Total Liabilities 431.6 431.6 428.7
------- ------- -------
Minority interest 107.2 107.3 17.7
------- ------- -------
Commitments and contingencies - - -
Shareholders' equity
Convertible preferred stock 110.6 110.6 110.6
Common stock, $.10 par value: 12.9 12.9 12.9
Additional paid-in capital 344.0 344.0 344.0
Accumulated deficit (200.4) (200.5) (200.5)
Accumulated other comprehensive loss (19.3) (19.3) (19.3)
------- ------- -------
Total Shareholders' Equity 247.8 247.7 247.7
------- ------- -------
Total Liabilities and Shareholders' Equity $ 786.6 $ 786.6 $ 694.1
======= ======= =======
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 1999
----------------------------
As
Previously
As Restated (b) As Restated (a) Reported
Millions ---------------- ---------------- ----------------
--------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(119.4) $(119.4) $(119.4)
Adjustments to reconcile net loss to net cash flows
From operating activities:
Depreciation, depletion and amortization 64.2 64.2 64.2
Environmental remediation charges 9.5 9.5 9.5
Asset write-downs 35.9 35.9 35.9
Loss related to assets held for sale - - 46.6
Deferred income and Mining Income Taxes 2.1 2.1 2.1
Foreign currency exchange loss (gain), net (8.2) (8.2) (8.2)
Equity in losses and impairment charges of Lihir 80.9 80.9 -
Minority interest in net income (loss) (31.7) (31.7) (1.5)
Increase (decrease) in accrued reclamation costs (3.2) (3.2) (2.5)
Change in working capital accounts, net 19.9 3.1 2.1
Other, net (0.7) (0.7) (0.7)
------- ------- -------
Net Cash Flows Provided by Operating Activities 49.3 32.5 28.1
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (49.3) (49.3) (49.3)
Crown Butte liquidating dividend
to minority shareholders (11.0) (11.0) (11.0)
Proceeds from sales of assets 11.9 11.9 11.9
Decrease (increase) in other assets 0.6 0.6 0.6
Other, net (0.7) (0.7) (0.7)
------- ------- -------
Net Cash Flows Used in Investing Activities (48.5) (48.5) (48.5)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayments (31.2) (31.2) (31.2)
Increase (decrease) in short-term borrowings (14.9) (14.9) (14.9)
Cash dividend payments (7.5) (7.5) (7.5)
Decrease (increase) in restricted cash (31.0) (31.0) (31.7)
Other, net 0.2 0.2 0.2
------- ------- -------
Net Cash Flows Used in Financing Activities (84.4) (84.4) (85.1)
------- ------- -------
Effect of Exchange Rate Changes on Cash (5.8) (5.8) (5.8)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (89.4) (106.2) (111.3)
Cash and cash equivalents at beginning of year 156.9 197.2 147.6
------- ------- -------
Cash and Cash Equivalents at End of Year $ 67.5 $ 91.0 $ 36.3
======= ======= =======
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 1998
----------------------------
As
Previously
As Restated (b) As Restated (a) Reported
Millions ---------------- ---------------- ----------------
--------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(240.6) $(241.3) $(241.3)
Adjustments to reconcile net loss to net cash flows
From operating activities:
Depreciation, depletion and amortization 79.6 79.6 79.6
Asset write-downs 104.9 104.9 194.9
Deferred income and mining income taxes (7.1) (7.1) (7.1)
Foreign currency exchange loss (gain), net 12.4 12.4 12.4
Equity in losses and impairment charges of Lihir 96.6 97.9 7.9
Minority interest in net income (loss) 1.1 0.5 0.5
Increase (decrease) in accrued reclamation costs 0.6 0.6 0.6
Change in working capital accounts, net 16.3 21.4 21.4
Decrease in deferred mining costs 11.2 11.2 11.2
Other, net 2.7 13.9 13.9
------- ------- -------
Net Cash Flows Provided by Operating Activities 77.7 82.8 82.8
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (46.5) (46.5) (46.5)
Proceeds from sales of assets 2.0 2.0 2.0
New World settlement, net 34.9 34.9 34.9
Investment in Lihir Gold Limited (11.5) (11.5) (11.5)
Effects on cash of deconsolidation of Niugini Mining - - (49.6)
Decrease (increase) in other assets 2.3 2.3 2.3
Increase in advances to affiliate (4.7) (4.7) (4.7)
Other, net (1.0) (1.0) (1.0)
------- ------- -------
Net Cash Flows Used in Investing Activities (24.5) (24.5) (74.1)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt repayments (44.3) (44.3) (44.3)
Increase (decrease) in short-term borrowings 9.9 9.9 9.9
Cash dividend payments (19.0) (19.0) (19.0)
Decrease (increase) in restricted cash 10.2 10.2 10.2
Other, net (0.5) (0.5) (0.5)
------- ------- -------
Net Cash Flows Used in Financing Activities (43.7) (43.7) (43.7)
------- ------- -------
Effect of Exchange Rate Changes on Cash (2.4) (2.4) (2.4)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 7.1 12.2 (37.4)
Cash and cash equivalents at beginning of year 149.8 185.0 185.0
------- ------- -------
Cash and Cash Equivalents at End of Year $ 156.9 $ 197.2 $ 147.6
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 1997
----------------------------
As
Previously
As Restated (b) As Restated (a) Reported
Millions ---------------- ---------------- ----------------
--------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9.4) $ (8.8) $ (8.8)
Adjustments to reconcile net loss to net cash flows
From operating activities:
Depreciation, depletion and amortization 72.8 72.8 72.8
Deferred income and mining income taxes (33.8) (33.8) (33.8)
Foreign currency exchange loss (gain), net 7.8 7.8 7.8
Equity in income of Lihir 1.0 (.2) (.2)
Minority interest in net income (loss) 1.7 2.3 2.3
Cumulative effect of accounting change 3.7 3.7 3.7
Increase (decrease) in accrued reclamation costs 4.6 4.6 4.6
Change in working capital accounts, net 1.4 7.6 7.6
Decrease in deferred mining costs 2.2 2.2 2.2
Other, net 3.0 3.0 3.0
------ ------ ------
Net Cash Flows Provided by Operating Activities 55.0 61.2 61.2
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (62.4) (62.4) (62.4)
Proceeds from sales of assets 4.7 4.7 4.7
Decrease (increase) in other assets (0.6) (0.6) (0.6)
Increase in advances to affiliates (3.4) (3.4) (3.4)
Other, net (1.3) (1.3) (1.3)
------ ------ ------
Net Cash Flows Used in Investing Activities (63.0) (63.0) (63.0)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from borrowings 156.7 156.7 156.7
Debt repayments (24.5) (24.5) (24.5)
Increase (decrease) in short-term borrowings (16.9) (16.9) (16.9)
Cash dividend payments (18.9) (18.9) (18.9)
Decrease (increase) in restricted cash (3.3) (3.3) (3.3)
Other, net 0.7 0.7 0.7
------ ------ ------
Net Cash Flows Used in Financing Activities 93.8 93.8 93.8
------ ------ ------
Effect of Exchange Rate Changes on Cash (1.0) (1.0) (1.0)
------ ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents 84.8 91.0 91.0
Cash and cash equivalents at beginning of year 65.0 94.0 94.0
------ ------ ------
Cash and Cash Equivalents at End of Year $149.8 $185.0 $185.0
====== ====== ======
</TABLE>
81
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
Foreign Equity in
Currency Income
Opearating Exchange (Loss) and Basic and Dividends per Share
Millions except Income Gain Impairment Diluted Loss -------------------
Per share amounts Sales (Loss) (Loss) of Lihir Net Loss per Share Common Preferred
----------------------------- ------- ---- ---- -------- -------- --------- ------ --------
1999 (as restated)(b)
---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)(b)
-----------------------------
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 (92.1) (222.0) (.98) - 0.8125
------ ------- ------ ------ ------- ------ -------
Total year $276.6 $(110.1) $(12.4) $(96.6) $(240.6) (1.08) $0.050 $3.2500
====== ======= ====== ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Foreign Equity in
Currency Income
Opearating Exchange (Loss) and Basic and Dividends per Share
Millions except Income Gain Impairment Diluted Loss -------------------
Per share amounts Sales (Loss) (Loss) of Lihir Net Loss per Share Common Preferred
----------------------------- ------- ---- ---- -------- -------- --------- ------ --------
1999 (as restated)(a)
---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)(a)
--------------------
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>
82
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
Gain (Loss) Foreign Basic and
on Assets Operating Currency Diluted
Millions except Held for Income Exchange Gain Net Loss Dividends per Share
per share amounts Sales Sale (Loss) (Loss) Loss Per Share Common Preferred
----------------- ---- ---- ------ ------ ---- --------- ------ ---------
1999 (as previously
-------------------
reported)
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
II. LIHIR GOLD LIMITED
<TABLE>
<S> <C>
Report of the independent accountants 85
Profit and loss accounts for the years ended December 31, 1999, 1998 and 1997......... 86
Balance sheets as at December 31, 1999, 1998 and 1997................................. 87
Statements of changes in equity for the years ended December 31, 1999, 1998 and 1997.. 88
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997......... 89
Notes to the financial statements..................................................... 90
</TABLE>
84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF LIHIR GOLD LIMITED
In our opinion, the accompanying balance sheets and the related profit and loss
accounts, statements of changes in equity and cash flows present fairly, in all
material respects, the financial position of Lihir Gold Limited at December 31,
1999, 1998 and 1997, and the results of its operations and its cash flows for
the years then ended, in conformity with International Accounting Standards.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States and International
Standards on Auditing. Those standards 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.
International Accounting Standards vary in certain significant respects from
accounting principles generally accepted in the United States. The application
of the latter would have affected the determination of operating profit after
income tax for the years ended December 31, 1999, 1998 and 1997, and the
determination of shareholders' equity and financial position at December 31,
1999, 1998 and 1997, to the extent summarised in Note 28 to the financial
statements.
/s/ PricewaterhouseCoopers
--------------------------
PricewaterhouseCoopers
Port Moresby, Papua New Guinea
12 May, 2000
85
<PAGE>
LIHIR GOLD LIMITED
PROFIT AND LOSS ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
NOTE 1999 1998 1997
US$ 000 US$ 000 US$ 000
<S> <C> <C> <C> <C>
Sales Revenue 206,574 184,718 56,966
-----------------------------------------------------------------
Costs and expenses
Mining expenses (70,703) (62,261) (15,562)
Processing costs (37,594) (30,339) (5,609)
Power generation costs (13,570) (11,097) (3,264)
Impairment of low grade stockpile inventory - (9,370) -
Refining, royalty and management fees 5 (8,046) (7,548) (2,042)
Deferred costs transferred to inventories 25,593 15,258 11,588
Depreciation and amortisation 5 (54,153) (46,123) (8,918)
General and administrative costs 5 (32,351) (19,726) (8,427)
-----------------------------------------------------------------
Total costs and expenses (190,824) (171,206) (32,234)
PROFIT FROM OPERATING ACTIVITIES 15,750 13,512 24,732
Interest income 3,202 3,654 633
Finance costs (29,322) (32,624) (7,226)
-----------------------------------------------------------------
PROFIT/(LOSS) BEFORE INCOME TAX 5 (10,370) (15,458) 18,139
Income tax benefit/(expense) 14 2,989 5,186 (6,338)
-----------------------------------------------------------------
NET PROFIT/(LOSS) FOR THE YEAR (7,381) (10,272) 11,801
Accumulated profits at the beginning of the year 1,529 11,801 -
-----------------------------------------------------------------
Total available for appropriation (5,852) 1,529 11,801
-----------------------------------------------------------------
ACCUMULATED PROFITS/(LOSSES) AT THE END OF THE
YEAR (5,852) 1,529 11,801
-----------------------------------------------------------------
Earnings per share (US$ per share)
- Basic and diluted 26 (0.01) (0.01) 0.01
</TABLE>
The accompanying notes form part of these financial statements.
86
<PAGE>
LIHIR GOLD LIMITED
BALANCE SHEETS AS AT DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
NOTE US$ 000 US$ 000 US$ 000
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 6 46,875 82,459 30,640
Inventories 8 31,883 22,054 21,953
Receivables 9 9,832 3,739 3,313
Prepayments 4,824 3,410 2,969
Deferred mining costs 1,298 8,376 3,049
Other financial assets 10 4,424 4,469 3,246
--------------------------------------------
Total current assets 99,136 124,507 65,170
NON-CURRENT ASSETS
Inventories 8 16,228 6,804 4,262
Receivables 5 5 5
Prepayments - - 413
Deferred mining costs 40,962 20,494 9,443
Mine properties 11 862,593 882,983 889,049
Deferred tax asset 8,417 1,153 64
Other financial assets 10 8,345 12,781 17,250
--------------------------------------------
Total Non-current assets 936,550 924,220 920,486
--------------------------------------------
TOTAL ASSETS 1,035,686 1,048,727 985,656
============================================
LIABLITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 12 26,300 27,442 19,459
Provisions 13 5,234 1,508 579
Borrowings 22 43,009 44,430 26,623
Deferred hedging income 23 3,592 684 -
Retentions - - 421
--------------------------------------------
Total current liabilities 78,135 74,064 47,082
NON-CURRENT LIABILITIES
Provisions 13 8,418 8,719 262
Borrowings 22 115,552 273,869 299,328
Deferred hedging income 23 14,406 684 -
Deferred tax liability 5,802 1,549 5,869
--------------------------------------------
Total non-current liabilities 144,178 284,821 305,459
--------------------------------------------
TOTAL LIABILITIES 222,313 358,885 352,541
--------------------------------------------
SHAREHOLDERS' EQUITY
1,083,205,726 fully paid issued ordinary shares 18 819,225 688,313 621,314
Accumulated profits/(losses) (5,852) 1,529 11,801
--------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 813,373 689,842 633,115
--------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,035,686 1,048,727 985,656
============================================
COMMITMENTS 20
CONTINGENT LIABILITIES 21
</TABLE>
The accompanying notes form part of these financial statements.
87
<PAGE>
LIHIR GOLD LIMITED
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
SHARE RETAINED
CAPITAL EARNINGS TOTAL
NOTE US$ 000 US$ 000 US$ 000
<S> <C> <C> <C>
Balance at 1 January 1997 621,314 - 621,314
----------------------------------------------
Net profit/(loss) for the year - 11,801 11,801
----------------------------------------------
Balance at December 31, 1997 621,314 11,801 633,115
----------------------------------------------
Net profit/(loss) for the year - (10,272) (10,272)
Issue of share capital 66,999 - 66,999
----------------------------------------------
Balance at December 31, 1998 18 688,313 1,529 689,842
----------------------------------------------
Net profit/(loss) for the year - (7,381) (7,381)
Issue of share capital 130,912 - 130,912
----------------------------------------------
Balance at December 31, 1999 18 819,225 (5,852) 813,373
----------------------------------------------
</TABLE>
The accompanying notes form part of these financial statements.
88
<PAGE>
LIHIR GOLD LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
US$ 000 US$ 000 US$ 000
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Receipts from operating activities 206,574 184,718 56,966
Payments arising from operating activities (172,184) (132,049) (50,466)
--------------------------------------------
34,390 52,669 6,500
Interest income 3,202 3,654 633
Interest paid to third parties (29,322) (32,624) (6,135)
Income taxes paid - - -
--------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 8,270 23,699 998
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property plant and equipment (33,378) (32,518) (263,612)
Interest paid and capitalised on qualifying assets - - (12,275)
Proceeds from sale of fixed assets 28 - -
--------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (33,350) (32,518) (275,887)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings - 4,900 261,527
Restructure of hedge book 20,586 - -
Repayment of term debt (162,002) (11,262) -
Proceeds from issue of shares 130,912 67,000 -
--------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (10,504) 60,638 261,527
--------------------------------------------
--------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (35,584) 51,819 (13,362)
--------------------------------------------
Cash and cash equivalent balance at beginning of year 82,459 30,640 44,002
Cash and cash equivalent balance at end of year 46,875 82,459 30,640
--------------------------------------------
(35,584) 51,819 (13,362)
--------------------------------------------
</TABLE>
The accompanying notes form part of these financial statements.
89
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are presented in accordance with the Papua New Guinea
Companies Act 1997, and comply with applicable financial reporting standards and
other mandatory professional reporting requirements approved for use in Papua
New Guinea by the Accounting Standards Board (ASB). The ASB has adopted
International Accounting Standards and Interpretations issued by the Standing
Interpretations Committee as the applicable financial reporting framework.
The financial statements have also been prepared on the basis of historical
costs and do not take into account changing money values. Cost is based on the
fair values of the consideration given in exchange for assets. The accounting
policies have been consistently applied, unless otherwise stated.
The following is a summary of the significant accounting policies adopted by the
Company in the preparation of the financial statements.
(a) EXPLORATION AND EVALUATION EXPENDITURE
Exploration and evaluation expenditure is accumulated separately for each
area of interest. Exploration expenditure is fully written off in the
financial year in which it is incurred, unless recoupment from revenue to
be derived from the relevant area of interest or mineral resource, or from
the sale of that area of interest, is reasonably assured.
Evaluation expenditure is capitalised, to the extent to which its
recoupment out of revenue to be derived from the relevant area of
interest/mineral resource, or from sale of that area of interest, is
reasonably assured.
Exploration or evaluation expenditure written off, or provided against, is
reinstated when recoupment out of revenue to be derived from the relevant
area of interest or mineral resource, or from sale of that area of
interest, is reasonably assured. For the periods presented, exploration or
evaluation expenditure written off have not been re-instated.
(b) DEVELOPMENT PROPERTIES
A property is classified as a development property when a mine plan has
been prepared, proved and probable resources have been established, and the
Company has decided to commercially develop the property. Development
expenditure is accumulated separately for each area of interest in which
economically recoverable mineral reserves have been identified and are
reasonably assured.
Once a development decision has been taken, all past and future exploration
and evaluation expenditure in respect of the area of interest is aggregated
with the costs of development and classified under non-current assets as
"Development Properties".
All expenditure incurred prior to the commencement of commercial levels of
production from each development property is carried forward to the extent
to which recoupment out of revenue to be derived from the sale of
production from the relevant development property, or from sale of that
property, is reasonably assured.
During the three years ended December 31, 1999, the Company has had no
properties in the development stage. No exploration, evaluation or
development expenditures are currently being incurred or capitalised.
90
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
No amortisation is provided in respect of development properties until they
are reclassified as "Mine Properties", following the commencement of
commercial production.
(c) MINE PROPERTIES
Mine properties represent the accumulation of all exploration, evaluation,
and development expenditure incurred by or on behalf of the Company in
relation to areas of interest in which mining of a mineral resource has
commenced.
When future economic benefits are established by further development
expenditure in respect of a mine property after the commencement of
production, such expenditure is carried forward as part of the cost of that
mine property. Otherwise such expenditure is classified as part of the
cost of production.
Amortisation of costs is provided on the unit-of-production method,
separate calculations being made for each mineral resource. The unit-of-
production basis results in an amortisation charge proportional to the
depletion of estimated recoverable gold ounces contained in proved and
probable ore reserves.
Where a change in estimated recoverable gold ounces containing proved and
probable ore reserves is made, depreciation and amortisation of mine
properties is accounted for in the current accounting period.
(d) CAPITALISATION OF FINANCING COSTS
Interest and other financing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset are
capitalised as part of the cost of that asset. To the extent that funds are
borrowed specifically for the purpose of obtaining a qualifying asset, the
amount of borrowing costs eligible for capitalisation on that asset is
determined as the actual borrowing costs incurred on that borrowing during
the period. Capitalisation of borrowing costs ceases when substantially all
the activities necessary to prepare the qualifying asset for its intended
use or sale are complete. Interest earned on the temporary investment of
borrowed funds and funds received in connection with the sale of equity
securities prior to the expenditure being made is deducted from interest
paid on the borrowed funds in arriving at the amounts so capitalised.
Prior to the commencement of commercial production in 1997, the amount of
interest costs eligible for capitalisation was based on the actual interest
costs incurred because the borrowings were incurred to fund development of
the mine property. Capitalisation of borrowing costs ceased following the
commissioning of the assets upon commencement of commercial production.
These are amortised using the unit-of-production method based on
recoverable gold ounces. For the years ended December 31, 1999, 1998 and
1997, interest costs of $ Nil million, $Nil million and $12.275 million,
respectively, were capitalised.
(e) MINE BUILDINGS, MACHINERY AND EQUIPMENT
The cost of each item of buildings, machinery and equipment is depreciated
over its expected useful life. For the majority of assets this is
accomplished using the unit-of-production method based on recoverable gold
ounces, although some assets are depreciated using a percentage based on
time. Each item's economic life has due regard to both physical life
limitations and to present assessments of economically recoverable reserves
of the mine property (where appropriate) and to possible future variations
in those assessments. Estimates of remaining useful lives are made on a
regular basis for all assets, with annual reassessments for major items.
91
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
The total net carrying values of mine building, machinery and equipment at
each mine property are reviewed regularly and, to the extent to which these
values exceed their recoverable amounts, that excess is fully provided
against in the financial year in which this is determined.
Major spares purchased specifically for particular plant are included in
the cost of plant and are depreciated over the expected useful life of the
item of plant.
Approximately 99% of all fixed assets are depreciated according to the
units-of-use method, using recoverable ounces of gold as the determinant.
These assets have a remaining useful life of approximately 21 years. Those
assets depreciated on a straight line basis are done so predominantly over
a life of 5 years.
FIXED ASSET CLASSIFICATION PERCENTAGE PERCENTAGE
DEPRECIATED DEPRECIATED
AS AS STRAIGHT LINE
UNITS-OF-USE
Deferred Expenditure 100% -
Exploration 100% -
Land & Buildings 100% -
Plant & Equipment 98% 2%
Grand Total 99% 1%
The classification of "Land and Buildings" does not include freehold land
as depreciable assets. The Company does not own any freehold land, and
only occupies land by leasehold tenure. All lease costs are expensed as
incurred.
(f) REMAINING MINE LIVES
In estimating the remaining life of the mine at each mine property for the
purpose of amortisation and depreciation calculations, due regard is given,
not only to the amount of remaining recoverable gold ounces, but also to
limitations which could arise from the potential for changes in technology,
demand, product substitution and other issues which are inherently
difficult to estimate over a lengthy time frame.
(g) IMPAIRMENT OF ASSETS
The Company has adopted IAS 36 "Impairment of Assets" in fiscal 1998.
Impairments of assets are recognised whenever the carrying amount of an
asset exceeds its recoverable amount. The recoverable amount is measured as
the higher of net selling price and value in use. Value in use for
individual assets is calculated by discounting future cash flows using a
risk adjusted pre-tax discount rate. As there were no impairment losses in
the year ended 31 December 1998, no transitional adjustments were
necessary.
(h) RESTORATION, REHABILITATION AND ENVIRONMENTAL EXPENDITURE
In accordance with IAS 37 "Provisions, Contingent Liabilities and
Contingent Assets", a provision is raised for anticipated expenditure to be
made on restoration and rehabilitation to be undertaken after mine closure.
These costs may include the costs of dismantling and demolition of
infrastructure or decommissioning, the removal of residual material and the
remediation of disturbed areas. The provision is only raised in respect of
damage incurred up to balance date. The amount of any provision recognised
is the full amount that has been estimated based on
92
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
current costs to be required to settle present obligations, discounted
using a pre-tax risk-free interest rate of 2.5%. Estimates of future costs
are reassessed annually.
A corresponding asset, which represents future economic benefits, is raised
and subsequently amortised using the units of production method.
The Company's restoration, rehabilitation and environmental expenditure
policy identifies the environmental, social and engineering issues to be
considered and the procedures to be followed when providing for costs
associated with the site closure. Site rehabilitation and closure involves
the dismantling and demolition of infrastructure not intended for
subsequent community use, the removal of residual materials and the
remediation of disturbed areas. Community requirements and long term land
use objectives are also taken into account.
The adoption of IAS 37 has not resulted in a material adjustment and
therefore the comparatives and opening retained earnings have not been
restated.
(i) INVENTORIES
Inventories of ore and metal are physically measured or estimated and
valued at the lower of cost and net realisable value.
Cost comprises direct material, direct labour and transportation
expenditure in getting such inventories to their existing location and
condition, together with an appropriate portion of fixed and variable
overhead expenditure and depreciation and amortisation, based on weighted
average costs incurred during the period in which such inventories are
produced. Net realisable value is the amount estimated to be obtained from
sale of the item of inventory in the normal course of business, less any
anticipated costs to be incurred prior to its sale.
Inventories of consumable supplies and spare parts expected to be used in
production are valued at the lower of weighted average cost, which
includes the cost of purchase as well as transportation and statutory
charges, and net realisable value.
(j) DEFERRED MINING COSTS
Direct expenditure on mining is brought to account for each phase of the
mine's development based on the estimated ratio of waste to ore for that
phase. During the mining period the actual ratio of waste to ore removed
for each phase varies from year to year. In periods where more than the
average amount of waste is removed the surplus is transferred to the
deferred mining cost account. It is subsequently expensed during periods
where the waste to ore ratio is less than the average. The average amount
of waste to be removed is assessed according to each mining phase, and not
over the entire life of the mine. The current portion of the deferred
mining costs represent the unamortised costs that are expected to be
recouped within 12 months as mining is completed for that phase.
(k) REVENUE RECOGNITION
Sales are recognised as revenue only when there has been a passing of risk
to the customer, and:
n the product is in a form suitable for delivery and no further
processing is required by, or on behalf of, the Company;
93
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
n the quantity and quality (grade) of the product can be determined with
reasonable accuracy;
n the product has been despatched to the customer and is no longer under
the physical control of the Company (or property in the product has
earlier passed to the customer);
n the selling price can be measured reliably;
n it is probable that the economic benefits associated with the
transaction will flow to the Company; and
n the costs incurred or to be incurred in respect of the transaction can
be measured reliably.
Sales revenue represents the gross proceeds receivable from the customer.
Revenue received from sale/disposal of product, materials or services
during the exploration, expenditure or development phases of operations is
offset against expenditure in respect of the area of interest/mineral
resource concerned.
(l) GOLD HEDGING
Hedging is undertaken to ensure a minimum level of income, and not for
speculative purposes. Any costs incurred in purchasing options, forward
contracts and other derivative instruments are capitalised, and charged to
profit when the position expires, either through delivery of the underlying
gold or through the passage of time.
Where a hedged transaction is terminated prior to its maturity date and the
underlying sale is still expected to occur, it is the Company's policy to
defer any gains and losses that arise from the early termination, and to
bring them to account over the periods when the hedged transaction was
expected to take place.
All unrealised gains and losses are brought to account upon expiry, and not
progressively through time. The Company does not trade derivative
financial instruments.
(m) EMPLOYEE ENTITLEMENTS
(i) Wages and Salaries
A liability for wages and salaries is recognised, and measured as
the amount unpaid at balance date at current pay rates in respect
of employees' services up to that date.
(ii) Annual and Long Service Leave & Other Accrued Benefits
A liability for annual and long service leave is recognised and
measured with reference to existing entitlements and salary and
measured as the amount unpaid at balance date at current pay
rates in respect of employees services up to that date.
94
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
(n) FOREIGN CURRENCY TRANSLATION
As the Company's turnover is denominated in US dollars and the majority of
its fixed asset purchases and costs are in US dollars or currencies related
to US dollars, the Company's Directors have adopted the US dollar as the
Company's functional and management reporting currency.
Foreign currency transactions (other than US dollars) are initially
translated into US currency at the rate of exchange at the date of the
transaction. At the date of the balance sheet, amounts payable and
receivable in foreign currencies are translated to US dollars at rates of
exchange current at that date. Resulting exchange differences are brought
to account in determining the profit or loss for the year.
The Company's Kina figures are translated from US Dollars at the rate
prevailing at December 31, 1999 of PGK 1.00 = USD 0.375 (1998: PGK 1.00 =
USD 0.475). Movements in the share capital account are accounted for as a
capital reserve.
(o) INCOME TAX
Tax effect accounting procedures are followed using the liability method
for all temporary differences arising between the tax bases of assets and
liabilities and their carrying values for financial reporting purposes.
Income tax on temporary differences is set aside to the deferred tax
liability and deferred tax asset accounts at current rates. Deferred tax
assets relating to deductible temporary differences and tax losses is only
carried forward as an asset to the extent that it is probable that future
taxable profit will be available against which the deductible temporary
differences and tax losses can be utilised.
(p) LEASES
Lease payments for operating leases, where substantially all the risks and
benefits remain with the lessor, are charged as expenses in the periods in
which they are incurred.
(q) CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows and balance sheet, cash
includes:
(i) cash on hand and at call deposits with banks or financial institution,
net of bank overdrafts; and
(ii) investments in money market instruments with less than 90 days to
maturity from the date of acquisition.
(r) COMPARATIVE FIGURES
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
(s) ROUNDING OF AMOUNTS
The financial statements and directors' report have been rounded to the
nearest thousand dollars.
95
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
(t) SIGNIFICANT RISKS AND UNCERTAINIES
The reserve estimates presented are estimates based on a gold price of $350
per ounce for the cut off grade of 2.2g Au/t using the end 1998 mine life
cost estimates and within a mine pit designed at $350 per ounce. As of
December 31, 1999 the Company's estimated proved and probable reserves
stood at 11.2 million contained ounces. The Company believes that $350 per
ounce is the appropriate long-term gold price to estimate the value of
these reserves. If the long-term gold price were to fall to $300 per
ounce, the Company's proved and probable reserves would be reduced to 9.9
million ounces.
The Lihir operation is also subject to the provisions of the PNG Mining Act
1992 which governs the granting of mining rights and the conditions upon
which those rights may be terminated. In particular, the Company is party
to a mining development contract, dated March 17, 1995 (the "Mining
Development Contract"), with the PNG Government which sets forth the terms
upon which the Company may exercise its rights under the Special Mining
Lease which governs the Lihir operation. Under certain limited
circumstances, the PNG Government may terminate the Mining Development
Contract and therefore, the Special Mining Lease. Any such termination
would prohibit the continued operation of the Lihir operation.
(u) USE OF ESTIMATES
The preparation of financial statements in accordance with International
Accounting Standards requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. The most significant estimates and assumptions relate
to the long-term gold price, mineral reserves and remaining mine lives,
provision for restoration and rehabilitation obligations, valuation
allowance for deferred tax assets, recoverability of long-lived assets
(including ore stock piles) and depreciation. Actual results could differ
from those estimates and may affect amounts reported in future periods.
Management believes that the estimates are reasonable.
(v) RECENTLY ISSUED ACCOUNTING STANDARDS
IAS 10 (revised) - Events After the Balance Sheet Date: This standard will
be operative for periods beginning on or after 1 January 2000 and will be
adopted by the Company from the operative date. The standard will impact
on the treatment of events depending on whether the occurrence of such
events provide additional evidence of conditions which existed at the
balance sheet date or not. Material events for which conditions existed at
the balance sheet date will be required to be adjusted. The nature and
estimated financial effect of all other material events which occur after
the balance sheet date will be required to be disclosed.
IAS 22 - Business Combinations: This standard will apply to accounting for
business combinations. It is operative for periods beginning on or after 1
July 1999 and will be adopted by the Company from 1 January 2000 to account
for its acquisition of Niugini Mining Limited which occurred in February
2000. In adopting this standard, the Niugini Mining Limited acquisition
will be accounted for using the purchase accounting method. IAS 22 was
revised to be consistent with IAS 36 Impairment of Assets, IAS 37
Provisions, Contingent Liabilities and Contingent Assets and IAS 38
Intangible Assets. The major change is that negative goodwill is
recognised on the balance sheet in certain circumstances and there is now a
rebuttable presumption that the useful life of goodwill will not exceed
twenty years from initial recognition and it will be amortised on a
systematic basis over its useful life.
96
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
IAS 39 - Financial Instruments: Recognition and Measurement: This standard
establishes accounting and reporting standards for derivative instruments
and hedging activity. IAS 39 is effective for all periods beginning after 1
January 2001. IAS 39 requires recognition of all financial instruments on
the balance sheet as either assets or liabilities and measurement at fair
value. Changes in the financial instrument's fair value will be recognised
in earnings unless specific hedge accounting criteria are met. Gains and
losses on hedging instruments must be recorded in the statement of
recognised gains and losses/ other comprehensive income and recycled to the
income statement. The Company plans to adopt the statement on January 1,
2001. The Company envisages that the main impact on its financial
statements upon adoption of this standard, will be the first time
recognition in the balance sheet of its derivative financial instruments at
their fair values. "
NOTE 2: SPECIAL MINING LEASE
The Special Mining Lease was issued on 17 March, 1995 and has a term of 40
years. Under the Mining Act it may be renewed for subsequent 20 year periods at
the discretion of the PNG Government.
NOTE 3: REQUIREMENTS REGARDING CASH RESERVES
The Papua New Guinea Central Banking (Foreign Exchange and Gold) Regulations
generally require PNG companies to hold all cash reserves in Kina. Prior
approval of the Bank of Papua New Guinea is required to convert funds from Kina
into other currencies.
Under the Mining Development Contract, however, the Company has permission to
retain funds in foreign currencies to meet its obligations.
NOTE 4: DIVIDEND RESTRICTIONS
The Loan Agreement permits the payment of dividends only on the quarterly
payment dates and only if certain conditions are met, including a condition that
after payment of such dividends and all other payments required under the Loan
Agreement the company has a specified minimum cash balance in an offshore
account and a Debt Cover ratio (as defined in the Loan Agreement) of not less
than 1.25:1.
97
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 5: OPERATING PROFIT
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
Operating loss before taxation has been determined after crediting /
(charging):
Refining, royalty and management fees
Refining costs (661) (525) (162)
Royalties on sales (4,074) (3,792) (1,077)
Management fees (3,311) (3,231) (803)
---------------------------------------------------
(8,046) (7,548) (2,042)
Depreciation and amortisation
Amortisation of hedging gains 3,956 - -
Amortisation of hedging costs (4,481) (3,246) -
Depreciation and amortisation costs on mine properties (53,129) (43,051) (8,918)
Other (499) 174 -
---------------------------------------------------
(54,153) (46,123) (8,918)
General and administrative costs
Net foreign exchange gains/(losses) (589) 2,096 30
Provisions for employee benefits (2,225) (2,614) (207)
Provision for stores stock obsolescence (1,000) - -
Provision for doubtful debts (195) - -
Donations and community assistance (235) (60) (3)
Staff costs (14,879) (13,450) (3,862)
Operating lease rentals (902) (1,368) (290)
Other costs (12,326) (4,330) (4,095)
---------------------------------------------------
(32,351) (19,726) (8,427)
</TABLE>
NOTE 6: CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
Cash at bank and on hand 20,537 39,245 5,364
Short term deposits with financial institutions 26,338 43,214 25,276
---------------------------------------------------
46,875 82,459 30,640
---------------------------------------------------
</TABLE>
98
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 7: STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
Reconciliation of cash flow from operating activities to operating
profit after tax
Operating profit/(loss) after tax (7,381) (10,272) 11,801
Depreciation and amortisation 54,153 46,123 8,918
Loss on disposal of assets 243 170 (17)
Impairment of low grade stockpiles - 9,370 -
(Increase)/Decrease in debtors (7,507) (454) (4,665)
(Increase)/Decrease in inventories (19,253) (12,013) (11,442)
(Increase)/Decrease in future income tax benefit (7,264) (1,089) (64)
(Increase)/Decrease in other assets (13,390) (16,378) (9,642)
(Decrease)/Increase in creditors 1,112 7,983 548
(Decrease)/Increase in deferred tax 4,253 (4,320) 5,869
(Decrease)/Increase in rehabilitation 1,079 600 -
(Decrease)/Increase in other provisions 2,225 3,979 (308)
---------------------------------------------------
Net cash flow from operating activities 8,270 23,699 998
--------------------------------------------------------
</TABLE>
NOTE 8: INVENTORIES
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
CURRENT
Stores 26,167 18,117 14,354
Less: Provision for obsolescence 1,000 - -
---------------------------------------------------
25,167 18,117 14,354
Production work in progress 1,658 1,556 4,811
Finished goods 1,979 1,053 -
Ore stockpiles 3,079 1,328 2,788
---------------------------------------------------
Total current inventories 31,883 22,054 21,953
NON-CURRENT
Ore stockpiles 16,228 6,804 4,262
---------------------------------------------------
Total inventories 48,111 28,858 26,215
---------------------------------------------------
</TABLE>
Current stockpiled ore mainly relates to Run-Of-Mine ("ROM") stockpile and
crushed ore stocks ready for processing into finished goods in the current
period. These are valued at cost which includes mining costs, costs of
conversion (crushing and conveying costs) and an allocation of fixed and
variable production overheads based on their contained gold. Non-current
stockpiles are expected to be processed over the remaining life of mine
commencing in 2011. Finished goods at December 31, 1999 included 9,597 ounces of
gold ore on hand in the bullion room on site. The cost of finished goods
inventory is stated at the lower or cost or net realizable value.
99
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 9: RECEIVABLES
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
CURRENT
Insurance claims receivable - - 805
Other amounts receivable from:
- third parties 10,027 3,739 2,508
Less: Provision for doubtful debts 195 - -
---------------------------------------------------
9,832 3,739 3,313
---------------------------------------------------
</TABLE>
NOTE 10: OTHER FINANCIAL ASSETS
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
CURRENT
Hedging costs 4,424 4,469 3,246
NON-CURRENT
Hedging costs 8,345 12,781 17,250
---------------------------------------------------
Total Other Financial Assets 12,769 17,250 20,469
---------------------------------------------------
</TABLE>
NOTE 11: MINE PROPERTIES
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
PLANT AND EQUIPMENT
Cost brought forward 416,458 412,024 -
Transfers from capital works in progress 44,037 4,562 412,225
Transfer to other mine properties (1,831) (26) -
Acquisitions and disposals (499) (102) (201)
Cost carried forward 458,165 416,458 412,024
Depreciation brought forward (25,647) (4,549) -
Charge for the year (26,483) (21,107) (4,566)
Transfer to other mine properties 756 - -
Disposals 228 9 17
---------------------------------------------------
Depreciation carried forward (51,146) (25,647) (4,549)
---------------------------------------------------
Net book value 407,019 390,811 407,475
-----------------------------------------------------
</TABLE>
100
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
LAND AND BUILDINGS
Cost brought forward 71,596 71,496 -
Transfers from capital works in progress 5,274 74 71,496
Transfers from other mine properties - 26 -
---------------------------------------------------
Cost carried forward 76,870 71,596 71,496
Depreciation brought forward (3,906) (643) -
Charge for the year (4,038) (3,262) (643)
Transfers from other mine properties (1) (1) -
---------------------------------------------------
Depreciation carried forward (7,945) (3,906) (643)
---------------------------------------------------
Net book value 68,925 67,690 70,853
-----------------------------------------------------
CAPITALISED EXPLORATION
Cost brought forward 146,374 146,374 -
Transfers from capital works in progress - - 146,374
Acquisitions and disposals - - -
---------------------------------------------------
Cost carried forward 146,374 146,374 146,374
Depreciation brought forward (7,998) (1,317) -
Charge for the year (8,053) (6,681) (1,317)
Disposals - - -
---------------------------------------------------
Depreciation carried forward (16,051) (7,998) (1,317)
---------------------------------------------------
Net book value 130,323 138,376 145,057
-----------------------------------------------------
DEFERRED EXPENDITURE
Cost brought forward 263,285 264,484 -
Transfers from capital works in progress 523 443 264,484
Transfer from other mine properties 1,831 - -
Acquisitions and disposals - (1,642) -
---------------------------------------------------
Cost carried forward 265,639 263,285 264,484
Depreciation brought forward (14,393) (2,392) -
Charge for the year (14,555) (12,001) (2,392)
Transfers from other mine properties (755) - -
---------------------------------------------------
Depreciation carried forward (29,703) (14,393) (2,392)
---------------------------------------------------
Net book value 235,936 248,892 262,092
-----------------------------------------------------
</TABLE>
101
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
SUBTOTAL
Cost brought forward 897,713 894,378 -
Transfers from capital works in progress 49,834 5,079 894,579
Acquisitions and disposals (499) (1,744) (201)
---------------------------------------------------
Cost carried forward 947,048 897,713 894,378
Depreciation brought forward (51,944) (8,901) -
Charge for the year (53,129) (43,051) (8,918)
Disposals 228 8 17
-----------------------------------------------------
Depreciation carried forward (104,845) (51,944) (8,901)
-----------------------------------------------------
Net book value 842,203 845,769 885,477
-----------------------------------------------------
CAPITAL WORKS IN PROGRESS
Cost brought forward 30,939 3,572 670,412
Acquisitions and disposals 33,378 32,446 227,739
Transfers to mine properties (49,834) (5,079) (894,579)
Costs carried forward 14,483 30,939 3,572
REHABILITATION
Cost brought forward 6,775 - -
Acquisitions and disposals 121 6,775 -
-----------------------------------------------------
Cost carried forward 6,896 6,775 -
Amortisation brought forward (500) - -
Charge for the year (489) (500) -
Disposals - - -
-----------------------------------------------------
Amortisation carried forward (989) (500) -
-----------------------------------------------------
-----------------------------------------------------
Net book value 5,907 6,275 -
-----------------------------------------------------
-----------------------------------------------------
TOTAL MINE PROPERTIES 862,593 882,983 889,049
-----------------------------------------------------
</TABLE>
NOTE 12: ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
CURRENT
Trade creditors and accruals 23,898 24,056 17,510
Amounts payable to related bodies 2,402 3,386 1,949
---------------------------------------------------
26,300 27,442 19,459
---------------------------------------------------
</TABLE>
102
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 13: PROVISIONS
US$ 000
1999 1998 1997
CURRENT
Employee provisions - current 5,234 1,508 579
NON CURRENT
Employee provisions - non current 443 1,944 262
Rehabilitation provision 7,975 6,775 -
-------------------------------------------
8,418 8,719 262
-------------------------------------------
Total provisions 13,652 10,227 841
-------------------------------------------
Employee entitlements include provisions for annual leave, superannuation and
service bonus.
Current employee provisions relate to the following short-term benefits which
are payable within 12 months:
US$ `000
------------------
Annual leave 594
Rio Superannuation 1,458
Service bonus 3,182
------------------
Total 5,234
------------------
The Rio Superannuation are contributions which are due and payable by the
Company to an independent superannuation fund.
The service bonus is a Company scheme whereby employees contribute 10% of their
gross fortnight/monthly salary to the Company and are entitled to receive back
their contributions plus a further 10% from the Company to be paid out in March
2000.
All non-current employee provisions relate to long-service leave entitlements
and are determined in accordance with the requirements for other long-term
employee benefits.
103
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 14: INCOME TAX
INCOME TAX (BENEFIT)/EXPENSE HAS BEEN CALCULATED AS FOLLOWS:
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
PROFIT/(LOSS) FOR THE YEAR (10,370) (15,458) 18,139
Prima facie income tax credit on operating loss at 35% (3,629) (5,410) 6,348
Tax effect of exempt and non-deductible items
- non-deductible entertainment 1 5 -
- non-deductible superannuation 174 180 -
- non-deductible rehabilitation 384 13 -
- exempt interest income - (59) (10)
-----------------------------------------------------
INCOME TAX ADJUSTED FOR PERMANENT DIFFERENCES (3,070) (5,271) 6,338
Under provision in previous years 81 85 -
-----------------------------------------------------
INCOME TAX (BENEFIT)/EXPENSE ATTRIBUTABLE TO OPERATING PROFIT (2,989) (5,186) 6,338
-----------------------------------------------------
DEFERRED TAX PROVISION
Balance carried forward (5,802) (1,549) (5,869)
This balance comprises the tax effects of:
Depreciation (4,693) (666) (5,033)
Prepayments (710) (883) (836)
Other (399) - -
-----------------------------------------------------
(5,802) (1,549) (5,869)
-----------------------------------------------------
FUTURE INCOME TAX BENEFIT
Balance carried forward 8,417 1,153 64
This balance comprises the tax effects of:
Provisions 2,097 890 39
Deferred hedging income 6,299 - -
Other 21 263 25
-----------------------------------------------------
8,417 1,153 64
-----------------------------------------------------
</TABLE>
104
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 15: REMUNERATION AND RETIREMENT BENEFITS
(a) Directors' remuneration, including the value of benefits received during
the year:
US$ 000
1999 1998 1997
Baker, Phillips - - -
Baylis, Joseph - - -
Garnaut, Ross 68 71 69
Leslie, Jonathan - - -
Ives, Glenn (Retired 20/01/00) - - -
Louden, Geoff - - -
Merton, Michael 423 445 -
O'Reilly, John - 383 354
Siaguru, Anthony 27 28 23
Soipang, Mark 3 2 4
Taylor, Meg (Retired 30/06/99) 17 25 24
Telfer, Ian (Retired 02/03/00) - - -
Vickerman, Andrew - 52 253
In addition, during the year the Company paid a premium of US$113,000 for
Directors and Officers Liability Insurance.
105
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
(b) The number of employees, not including directors, whose remuneration and
benefits exceeded K100,000 fall into the following bands:
NUMBER OF EMPLOYEES
1999 1998 1997
US$
$37,501 - $41,250 9 2 7
$41,251 - $45,000 8 2 4
$45,001 - $48,750 5 3 18
$48,751 - $52,500 3 5 6
$52,501 - $56,250 4 18 9
$56,251 - $60,000 4 7 4
$60,001 - $63,750 3 7 6
$63,751 - $67,500 3 5 -
$67,501 - $71,250 3 6 -
$71,251 - $75,000 1 2 4
$75,001 - $78,750 2 2 -
$78,751 - $82,500 6 - 1
$82,501 - $86,250 - 2 -
$86,251 - $90,000 1 1 1
$90,001 - $93,750 6 - -
$93,751 - $97,500 9 - -
$97,501 - $101,250 4 2 -
$101,251 - $105,000 3 - -
$105,001 - $108,750 5 - -
$108,750 - $112,500 3 - 1
$112,501 - $116,250 2 1 -
$116,251 - $120,000 3 - -
$120,001 - $123,750 3 - -
$123,751 - $127,500 1 - -
$131,251 - $135,000 1 - -
$135,001 - $138,750 1 - -
$153,750 - $157,500 1 - -
$172,501 - $176,250 2 - -
$183,751 - $187,500 1 - -
$202,501 - $206,250 1 - -
NOTE 16: RETIREMENT BENEFITS
Senior employees of the Company participate in a retirement benefit plan, and
contributions are made to the plan by the Company based on a fixed percentage of
the employee's base salary. Employer contributions during the year were
$497,000 (1998 $515,000).
The Company also participates in the National Provident Fund of Papua New Guinea
in respect of its Papua New Guinean employees. Employer contributions during
the year amounted to $393,000 (1998 $216,000).
For both funds the Company has a defined contribution obligation.
106
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
IAS 19 "Employee Benefits" was adopted on 1 January, 2000. The transitional
effect of this standard was immaterial. No adjustments were required.
NOTE 17: AUDITORS' REMUNERATION
<TABLE>
<CAPTION>
Fees received by the Company's auditors for: 1999 1998 1997
<S> <C> <C> <C>
- auditing the accounts 85 85 110
- other services 54 70 51
NOTE 18: SHARE CAPITAL
US$ 000
1999 1998 1997
(a) Issued and paid up capital
Opening balance 688,313 621,314 621,314
Shares issued 130,912 66,999 -
---------------------------------------------------
Closing balance 819,225 688,313 621,314
---------------------------------------------------
No. of shares 000
1999 1998 1997
(b) Issued and paid up capital
Opening balance 941,919 900,000 900,000
Shares issued 141,287 41,919 -
---------------------------------------------------
Closing balance 1,083,206 941,919 900,000
---------------------------------------------------
</TABLE>
All shares in the Company are ordinary shares, all being of the same class,
having equal participation and voting rights. In accordance with the Papua New
Guinea Companies Act, there is no requirement for the company to have authorised
capital, or a par value for issued shares.
In 1995 the Company granted to Sponsors, options on 7,200,000 shares at a price
15% above the final institutional price of US$1.19 in consideration for their
agreement to underwrite the over-allotment options under the Company's Global
Offering. Of these, 2.6 million options lapsed in February 2000 as a result of
the merger with Niugini Mining Limited, and the remainder expire in August 2000.
In October 1999 the Company granted 12,531,170 options to Mineral Resources
Lihir Limited, exercisable in whole or part at any time up to and including 31
January 2000 at market price less a discount of 13.17%. The options were not
exercised and lapsed on 31/1/2000.
NOTE 19: RESERVES
In accordance with the Papua New Guinea Companies Act (as amended in 1997) (the
"Act") share premium reserves that existed prior the provisions in the amended
Act, must now form part of the Company's paid-up capital and must not be treated
as a separate reserve. Prior to the operation of the amended Act,
share premium reserve amounted to
107
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
US$553,228,530. This balance applies to all periods presented as there have been
no movements in the share premium reserve, other than the transfer in 1998 to
paid-up capital. There were no other reserve balances included in paid-up
capital.
NOTE 20: CAPITAL AND LEASING COMMITMENTS
(a) Operating Lease Commitments
<TABLE>
<CAPTION>
US$ 000
Non-cancellable operating leases contracted for but
not capitalised in the accounts 1999 1998 1997
Payable
<S> <C> <C> <C>
- not later than one year 472 534 426
- later than one year but not later than 2 years 351 472 296
- later than two years but not later than 5 years 115 466 374
---------------------------------------------------
938 1,472 1,096
---------------------------------------------------
</TABLE>
(b) Capital Expenditure Commitments
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
Capital expenditure commitments contracted for:
Capital expenditure projects 17,900 48,074 9,212
Payable
- not later than one year 17,900 48,074 9,212
</TABLE>
None of these leases contain contingent rent payments, purchase options,
escalation formulae, or any restrictions on the Company's ability to pay
dividends, engage in further leasing activity, or assume additional debt.
NOTE 21: CONTINGENT LIABILITIES
Guarantees
As part of the Company's support of Lihirian owned businesses, the Company has
provided a number of guarantees to various financiers in favour of Lihirian
companies. These guarantees total approximately US$5 million.
The Company has also arranged the supply of various bank guarantees to companies
with which the Company conducts business. The Company would be obliged to meet
any amounts called under these guarantees, which total approximately US$10
million.
Claims
There are no outstanding claims against the company.
108
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 22: FINANCE FACILITIES
The Company's loan facilities are all denominated in United States dollars. The
major facilities are summarised as follows:
(a) PROJECT FINANCING FACILITY
The Limited Recourse Project Financing Facility is syndicated between 26
banks, and is scheduled to be repaid by June 2003. Interest payments under
the facility are based on LIBOR plus a margin which varies over time.
Mandatory prepayments are required under the Loan Agreement under certain
conditions. The Company has provided a range of covenants and warranties in
relation to the facility, as follows:
Covenants of the Company
The Company has agreed that during the term of the Loan Agreement it will,
among other things: (a) not engage in any business other than the Lihir
operation or any business related to other exploration licenses granted by
the PNG government (such other businesses to be funded through shareholder
equity, proceeds from subordinated debt or funds from the Expansion
Account); (b) with certain exceptions, not sell, lease or otherwise dispose
of any of the Lihir operation assets except for the production of the Lihir
operation; (c) construct and operate the Lihir operation substantially in
accordance with the Approved Proposal for Development and good
international mining practice; (d) use its best efforts to procure
Completion by December 31, 1999; (e) not incur indebtedness for borrowed
money in addition to the Loan except certain subordinated loans and certain
permitted senior unsecured working capital facilities; (f) incur no liens
or encumbrances upon any Lihir operation assets, except permitted
encumbrances; (g) use the Loan proceeds solely for purposes of the Lihir
operation; (h) enter into hedging agreements as required by the Loan
Agreement to protect itself and the Banks against fluctuations in the price
of gold; (i) not terminate the Management Agreement or appoint a successor
Manager not wholly owned and controlled by Rio Tinto, or amend the
Management Agreement in any material respect adverse to the Banks or the
Company; and (j) indemnify the Banks against certain liabilities they may
incur arising out of use or disposal by the Company of hazardous substances
or failure by the Company to comply with PNG environmental laws.
The Loan Agreement specifies a number of "Events of Default". These events
are generally conditions that may adversely affect the ability of the
company to meet its obligations under the Loan Agreement and may comprise
of factors which are controlled or uncontrolled by the Company. Where
default has occurred, the agent for the Banks may take control of the Kina
and non-Kina accounts of the Company and apply it in accordance with the
Loan Agreement, but in a manner that does not prevent the Company from
remedying the Default. At 31 December 1999, there was no default under the
Loan Agreement.
During the year the Company made a voluntary pre-payment of USD115,500,000.
(b) LOAN FACILITY EUROPEAN INVESTMENT BANK ("EIB")/ MINERAL RESOURCES
DEVELOPMENT COMPANY LTD ("MRDC")
The Company entered into an Agreement with EIB and MRDC whereby the
European Investment Bank has loaned funds to MRDC who then on lent those
funds to the Company. The amount of the loan was US$26.5 million when
drawn down. The funds are provided to MRDC at a concessionary rate of
interest. The interest rate payable by the Company is 8.42%. The loan
principal is repayable in 16 semi-annual instalments commencing four years
after loan signature. The payment of interest under the loan has been
deferred during the construction and early
109
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
operating period, and will begin when permitted under the Limited Recourse
Financing Facility. The loan is unsecured.
The following table details the profile of debt repayments:
Repayment Maturity Limited Recourse EIB Facility Total
Facility ($ 000) ($ 000)
($ 000)
-------------------------------------------------------------------------------
Less Than One Year 36,182 6,827 43,009
-------------------------------------------------------------------------------
36,182 3,773 39,955
Between one and two years
-------------------------------------------------------------------------------
Between two and three years 36,182 3,773 39,955
-------------------------------------------------------------------------------
In excess of three years 18,091 17,551 35,642
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total 126,637 31,924 158,561
-------------------------------------------------------------------------------
Interest accrued at December 31, 1999 was $1,431,000 (1998: $3,413,000), and is
included in Accounts Payable. Principal repayments due in less than one year
and accrued interest are included in Current Liabilities in the Balance Sheet.
NOTE 23: HEDGING INSTRUMENTS
The Company has entered into a series of agreements with financial institutions
in relation to future sales of gold. The purpose of these transactions is to
protect the level of income in future years, and it is not Company policy to
engage in speculative hedging activities. The following tables summarise the
hedging program as at December 31, 1999:
<TABLE>
<CAPTION>
Forward Sales Put Options Spot Deferred Sales Total
----------------------------------------------------------------------------------------------
Maturity Ounces Committed Ounces Minimum Ounces Minimum Ounces Minimum
Price Price Price Price
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-3 months 13,868 447.81 66,603 405.47 1,364,326 286.98 1,444,797 293.98
----------------------------------------------------------------------------------------------
3-6 months 13,880 451.19 66,640 407.60 - - 80,520 415.11
----------------------------------------------------------------------------------------------
6-9 months 12,996 454.41 63,985 407.75 - - 76,981 415.63
----------------------------------------------------------------------------------------------
9-12 months 12,996 457.87 63,985 409.86 - - 76,981 417.97
----------------------------------------------------------------------------------------------
2001 51,380 466.23 154,125 466.23 - - 205,505 466.23
----------------------------------------------------------------------------------------------
2002 50,136 480.33 150,413 480.33 - - 200,549 480.33
----------------------------------------------------------------------------------------------
2003 - - - - - - - -
----------------------------------------------------------------------------------------------
2004 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2005 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2006 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2007 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2008 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
Total 155,256 466.10 765,751 414.74 1,364,326 286.98 2,285,333 341.96
---------------===============================================================================
</TABLE>
Forward sales are transactions against which the Company will be obliged to
deliver when they fall due. The price therefore represents a fixed and
guaranteed amount of revenue. Put options are transactions that will occur at
the discretion of the
110
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
Company. Should the spot price exceed the strike price of the option at the
date on which the option expires, the Company will allow the option to expire
and will sell the equivalent amount of gold on the spot market. Conversely, if
the strike price is higher than the spot price on that date, the option will be
exercised. Spot deferred sales are transactions into which the Company has
entered, but which do not have a fixed delivery date. The strike price
eventually received will depend on the contango applied during the intervening
time.
The Company does not enter into hedging transactions that have provisions for
margin calls. Structures that have a term of greater than 3 years have a right
to break clause in the agreements, which gives either party the right to close
out the transaction at the 3 year point. This would entail a settlement in cash
for the market value of the transaction at that point in time.
Since the end of 1999 approximately 760,000 spot deferred sales have been
restructured into forward contracts. The profile at the end of 1999, revised to
reflect this change was:
<TABLE>
<CAPTION>
Forward Sales Put Options Spot Deferred Sales Total
----------------------------------------------------------------------------------------------
Maturity Ounces Committed Ounces Minimum Ounces Minimum Ounces Minimum
Price Price Price Price
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0-3 months 28,868 359.04 66,603 405.47 594,850 296.54 690,321 309.66
----------------------------------------------------------------------------------------------
3-6 months 63,880 317.41 66,640 407.60 - - 130,520 363.46
----------------------------------------------------------------------------------------------
6-9 months 72,996 313.45 63,985 407.75 - - 136,981 357.50
----------------------------------------------------------------------------------------------
9-12 months 77,996 317.26 63,985 409.86 - - 141,981 358.99
----------------------------------------------------------------------------------------------
2001 351,380 319.99 154,125 466.23 - - 505,505 364.58
----------------------------------------------------------------------------------------------
2002 329,611 342.90 150,413 480.33 - - 480,024 385.96
----------------------------------------------------------------------------------------------
2003 - - - - - - - -
----------------------------------------------------------------------------------------------
2004 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2005 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2006 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2007 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
2008 - - 40,000 335.00 - - 40,000 335.00
----------------------------------------------------------------------------------------------
Total 924,731 328.45 765,751 414.74 594,850 296.54 2,285,333 349.06
---------------===============================================================================
</TABLE>
The minimum total revenue generated from these programs will be US$797 million.
Revenue generated from the same number of ounces at the prevailing spot price at
December 31, 1999 of US$290.25 per ounce would be US$663 million. Unrealised
gains in the value of the hedge book have not been brought to account in the
profit for the year.
On December 31, 1999 the estimated fair value of the total hedge program as
determined by an independent organisation was US$85.9 million. The fair value
of commodity contracts is estimated based on quotes from the market makers of
these instruments and represents the estimated amounts that the Company would
expect to receive or pay to terminate the agreements at the reporting date.
Fair value of put options is an estimate based on relevant market information
such as: volatility of similar options, futures prices and the contracted strike
price.
All counterparties to these transactions are recognised financial institutions
with a minimum credit rating of Aa3. The Company's risk in the event of any of
the counterparties defaulting on their contractual obligations is limited to any
revenue that may be foregone in the case where the defaulted contract's strike
price exceeds the prevailing spot price at the value date. The Company does not
expect any counterparty to fail to meet its obligations under any program.
111
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
The maximum credit risk at any point in time will be the difference between the
agreed strike price in the contract, and the prevailing spot price. At the
ruling spot price on the 31 December 1999 of $290.25 this would have amounted to
$118.2 million on an undiscounted basis, based on the assumption that all
counterparties failed to meet their obligations. The transactions are spread
between five major bullion trading banks, and there is no significant
concentration of risk amongst those parties.
The accounting treatment of any option premiums or other costs incurred to enter
into hedging structures is to defer the full amount, and then to subsequently
charge to Profit and Loss at each value date the cost of those options or other
committed sales that expire on that date. The amount deferred and carried in
the Balance Sheet was $13 million. The Company has adopted the principles of
the Australian Urgent Issues Group Consensus (UIG) 18, whereby any gains and
losses arising from the early closure of hedge structures are deferred, and only
transferred to the Profit and Loss account when the underlying transaction
actually takes place. Total income deferred amounted to $18 million.
The Company does not use financial instruments to hedge future interest rates or
foreign exchange transactions.
At the end of 1999 the Company had 11.2 million ounces of proved and probable
reserves and 2.285 million ounces of gold sales that were either committed as
forward sales, or were subject to put option contracts. Therefore, reserves
either committed for sale or subject to options represent 20.4% of total
reserves.
NOTE 24: SEGMENT REPORTING
The Company produces gold in Papua New Guinea.
NOTE 25: RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
Lihir Management Company Pty Ltd (LMC), a wholly owned subsidiary of Rio Tinto
Plc, manages the Company pursuant to a Management Agreement dated 17 March
1995. LMC receives a management fee for according to the terms of this
agreement.
There are two directors who are on the Board of the Company and LMC.
<TABLE>
<CAPTION>
US$ 000
RELATED COMPANIES 1999 1998 1997
<S> <C> <C> <C>
The Rio Tinto Group supplies labour on a secondment basis and
bears expenses on behalf of the Company which are subsequently
recharged to the Company 810 2,196 1,943
LMC Management fee 3,311 3,231 2,815
</TABLE>
112
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 26: EARNINGS PER SHARE
The number of ordinary shares has been based on the weighted average number of
ordinary shares on issue during the year. The diluted earnings per share takes
account of the future exercise of the options.
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
Net profit/(loss) attributable to ordinary shareholders (7,381) (10,272) 11,801
Weighted average number of ordinary shares (in thousands) 974,821 924,642 900,000
Basic EPS (US$ per share) (0.01) (0.01) 0.01
Conversion of options into ordinary shares (in thousands) 19,731 7,200 7,200
Diluted number of ordinary shares (in thousands) 977,759 931,842 907,200
Diluted EPS (US$ per share) (0.01) (0.01) 0.01
</TABLE>
NOTE 27: POST BALANCE DATE EVENT
MERGER WITH NIUGINI MINING LIMITED
On October 6, 1999 the Company announced its agreement with Niugini Mining
Limited, subject to various conditions, to merge by Scheme of Arrangement under
Papua New Guinea Law. The basis of the merger was set out in the notice of
special meeting forwarded to shareholders on November 27, 1999. Shareholders on
December 15, 1999 approved the required resolutions to progress the merger.
Niugini Mining shareholders also approved the required resolutions in early
January 2000 and final approval from the National Court of Papua New Guinea was
obtained by Niugini Mining on February 1, 2000. The merger was effective on
February 2, 2000 with the transfer of all Niugini Mining shares to the Company
and the issue by the Company of new ordinary shares to Niugini Mining
shareholders taking place on February 14, 2000.
The total number of shares issued to Niugini Mining shareholders was one Lihir
share for each share in the Company held by Niugini Mining, plus shares in the
Company equal in value to Niugini Mining Limited's net assets. The price of the
Company's shares for this purpose was A$1.45, which was the price at which the
institutional placement on October 7, 1999 was made. Niugini Mining's net
assets were US$54.6 million which, based on the applicable exchange rate of
A$/US$ 0.6371, resulted in 59,128,489 million Lihir shares being issued. With
the one for one consideration for Niugini Mining's holding of 161,527,405 shares
in the Company, the total number of shares issued to Niugini Mining shareholders
was 220,655,894 shares.
As a result of the merger, Niugini Mining became a subsidiary of the Company on
14 February 2000. Niugini Mining continues to hold 161,527,405 ordinary shares
in the company and ways of cancelling these shares as soon as possible are being
examined.
The acquisition of Niugini Mining Limited will be accounted for in the 31
December 2000 IAS financial statements as an acquisition. For US GAAP, the
transaction will be accounted for as a purchase.
113
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NOTE 28: RECONCILIATION TO US GAAP
The basis of preparation of these financial statements is set out in Note 1.
These accounting policies vary in certain important respects from the accounting
principles generally accepted in the United States ("US GAAP"). The material
differences affecting the profit and loss account and shareholders' equity
between generally accepted accounting principles followed by the Company and
those generally accepted in the US are summarised below.
(i) Rehabilitation, restoration and environmental provisions: Under IAS, site
closure, removal and rehabilitation costs are accounted for using the full
liability method under which the liability is recognised at the present value of
the expected cash outflows when the obligation is incurred with a corresponding
asset that is capitalised as a mine property. For the purposes of US GAAP, the
total (undiscounted) liability is accrued incrementally over the life of the
mine. Also, under IAS, the Company records an asset for these costs under the
full liability method. Under US GAAP, no asset would be recorded under the
incremental method.
(ii) Mine properties: The following items that were capitalised as mine
properties for IAS are expensed for US GAAP purposes:
(a) Exploration and evaluation: The Company's management determined that a
commercial mineral deposit existed in 1992. For IAS purposes, the Company
capitalised exploration and evaluation costs incurred prior to the
determination of commercial feasibility as part of mine properties. Under
US GAAP, such costs were expensed as incurred.
(b) General and administrative costs: For IAS purposes, the Company
capitalised general and administrative costs incurred during the
development stage as a part of mine properties. Such costs are expensed as
incurred for US GAAP purposes. Since the Company ceased to be a
development stage enterprise in October 1997, general and administrative
costs incurred between the determination of commercial feasibility and that
date (including $12.6 million in 1997) were capitalised as part of mine
properties.
(c) Interest capitalization: Under IAS, only interest directly attributable
to acquiring a qualifying asset is capitalized whereas under US GAAP, the
amount of interest capitalized is based on an available interest concept,
which results in additional interest being capitalized under US GAAP.
(iii) Depreciation of mine properties: Depreciation expense under US GAAP is
lower than that under IAS due to the difference in the basis for mine properties
under the two bases of accounting.
(iv) Share options: The Company granted stock options in December 1999 to a
shareholder, Mineral Resources Lihir Limited. IAS does not require the
recognition of the fair value of stock options in the financial statements.
Under US GAAP, the options would be valued at their fair value and would be
accounted for as a dividend reducing retained earnings and a corresponding
increase in paid up capital. As a result, the grant of options would have no
net effect on shareholders' equity under US GAAP. The fair value of the options
at the date of grant was estimated to be US$1,694,289. The Black-Scholes model
was used to estimate the fair value of the options utilising the following
assumptions: risk-free interest rate of 6 per cent; dividends yield of nil per
cent; expected stock market price volatility factor of 80 per cent; and an
expected life of the options of 1.5 months. There is no income tax effect on
the fair value of the options.
(v) Impairment: Due to the weakness of the spot gold price over the past two
years, the mine properties were evaluated for impairment under IAS and US GAAP.
Under IAS 36, the impairment test for determining the recoverable amount of non-
114
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
current assets is the higher of net selling price and value in use. At December
31, 1999, the Company has applied a net selling price test based on the current
share price of Lihir Gold and on this basis no write-down was deemed necessary.
Under US GAAP, the mine property assets were evaluated for impairment on an
undiscounted basis and, because the sum of expected (undiscounted) future cash
flows exceeded the asset's carrying amount, no impairment loss was recognized.
(vi) Restatement: Previously, the Company did not account for differences
between US GAAP and IAS in the treatment of rehabilitation, restoration and
environmental provisions and interest capitalization, as described in items (i)
and (ii)(c), respectively, of this note. The Company has restated the
reconciliation of shareholders' equity and net income (loss) under IAS to US
GAAP, as of and for the years ended December 31, 1999 and 1998, to reflect these
differences. Net income (loss) under US GAAP was increased by $1,691 from the
previously reported amount of ($1,453) to $238 in fiscal 1999 and was increased
by $345 from the previously reported amount of ($5,361) to ($5,016) in fiscal
1998. Shareholders' equity was increased by $2,036 from the previously reported
amount of $669,979 to $672,015 in fiscal 1999 and was increased by $345 from the
previously reported amount of $540,520 to $540,865 in fiscal 1998.
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY IN ACCORDANCE WITH IAS GAAP 813,373 689,842 633,115
Adjusted as follows:
Rehabilitation, restoration and environmental (i) -
n Provisions 6,438 6,096 -
n Capitalized rehabilitation costs (See Note 11) (5,907) (6,275) -
Mine properties (ii) (157,990) (159,191) (159,600)
Depreciation of mine properties (iii) 19,161 9,351 1,494
Deferred tax effect of US GAAP differences (3,060) 1,042 3,873
--------------------------------
ACCUMULATED ADJUSTMENTS UNDER US GAAP (141,358) (148,977) (154,233)
--------------------------------
SHAREHOLDERS' EQUITY UNDER US GAAP 672,015 540,865 478,882
================================
US$ 000
1999 1998 1997
NET INCOME/(LOSS) IN ACCORDANCE WITH IAS GAAP (7,381) (10,272) 11,801
Adjusted as follows:
Rehabilitation, restoration and environmental provisions (i) 710 (179) -
Mine properties (ii) 1,202 409 (12,559)
Depreciation of mine properties (iii) 9,809 7,857 1,494
Income tax expense (4,102) (2,831) 3,873
--------------------------------
NET INCOME/(LOSS) UNDER US GAAP 238 (5,016) 4,609
================================
</TABLE>
115
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN EQUITY UNDER US GAAP
<TABLE>
<CAPTION>
US$ 000
1999 1998 1997
<S> <C> <C> <C>
Retained Earnings/(Accumulated Losses)
Balance at 1 January (147,448) (142,432) (147,041)
Net income/(loss) 238 (5,016) 4,609
Dividend - stock options (1,694) - -
--------------------------------
Balance at 31 December (148,904) (147,448) (142,432)
Paid up capital
Balance at 1 January 688,313 621,314 621,314
Shares issued 130,912 66,999 -
Additional paid up capital - stock options 1,694 - -
--------------------------------
Balance at 31 December 820,919 688,313 621,314
--------------------------------
672,015 540,865 478,882
================================
There were no items of other comprehensive income for the periods presented.
US$ 000
EPS UNDER US GAAP 1999 1998 1997
Net Earnings 238 (5,016) 4,609
Net Earnings Per Common Share - Basic (US$ per share) (0.000) (0.005) 0.005
Net Earnings Per Common Share - Diluted (US$ per share) (0.000) (0.005) 0.005
</TABLE>
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
In loss making periods basic and diluted earnings per share are identical.
Diluted earnings per share also give effect to the impact common stock options
would have on the average common shares outstanding if converted at the
beginning of the year. Stock options are anti-dilutive and therefore were not
included in the calculation of basic and diluted loss per share in 1998 and
1999.
The numerator in calculating both basic and diluted earnings per share for each
year is the reported net income determined above for US GAAP purposes. The
denominator is based on the following weighted average number of common shares:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
<S> <C> <C> <C>
Basic 974,821 924,642 900,000
Diluted 974,821 924,642 907,200
</TABLE>
Recently issued accounting standards
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and hedging activity. SFAS No.
133 is
116
<PAGE>
LIHIR GOLD LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
effective for all periods in fiscal years beginning after June 15, 2000. SFAS
No. 133 requires recognition of all derivative instruments on the balance sheet
as either assets or liabilities and measurement at fair market value. Changes in
the derivative's fair value will be recognised in earnings unless specific hedge
accounting criteria are met. Gains and losses on derivative hedging instruments
must be recorded in either other comprehensive income or current earnings,
depending on the nature of the instrument. The Company plans to adopt the
statement on January 1, 2001.
117
<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 asa 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.
118
<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
119
<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.
120
<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 (retired 1997 353,884 123,859 -- -- 97,000 -- 47,104
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 Exploration 1997 212,330 59,452 -- -- 45,600 -- 21,723
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 Chief 1998 140,538 35,976 63,933 -- 43,500 -- 3,646
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.
121
<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> <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>
Shares Number of Securities Underlying Value of Unexercised
Acquired Unexercised Options Held at In-the-Money Options at
on Value December 31, 1999 December 31, 1999 (1)
------------------------------ ------------------------------
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).
122
<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.
123
<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.
124
<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%
(1) Includes 2,244 Exchangeable Shares held directly through a savings 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.
125
<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.
126
<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 47 of this Annual Report on Form 10-K/A.
(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.
127
<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
-----------------
John A. Keyes
President and Chief Operating Officer
Date: November 22, 2000
128
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Document
----------- --------
*2(a) -- Plan of Arrangement of Hemlo Gold Mines Inc. under Section 182 of
the Business Corporations Act (Ontario) (Annex D to Exhibit
20(a), Joint Management Information Circular and Proxy Statement,
to the Company's Current Report on Form 8-K dated June 11, 1996;
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).
*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).
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<PAGE>
*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).
+.*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(c)(3) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and John A. Keyes.
10(c)(4) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and Ian Atkinson.
10(c)(5) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and Joseph P. Baylis.
10(c)(6) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and Greg V. Etter.
10(c)(7) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and Jeffrey L. Powers.
10(c)(8) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and Stanford M. Haley.
10(c)(9) -- Employment Termination and Non-Competition Agreement dated as of
July 20, 2000 between the Company and Thomas P. Bausch.
+*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).
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<PAGE>
+*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).
+*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).
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<PAGE>
+*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).
+*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).
+.*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).
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<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(a) -- Consent of PricewaterhouseCoopers LLP (Battle Mountain Gold
Company).
23(b) -- Consent of PricewaterhouseCoopers (Lihir Gold Limited).
=27 -- Financial Data Schedule.
------------------------
* Incorporated by reference as indicated.
= Previously filed.
+ Represent management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Annual Report by Item 601(10)(iii)
of Regulation S-K.
. Pursuant to Instruction 2 accompanying paragraph (a) and the Instruction
accompanying paragraph (b)(10)(iii)(B)(6) of Item 601 of Regulation S-K,
the registrant has not filed each executive officer's individual agreement
with the Company as an exhibit hereto. The registrant has agreements
substantially identical to Exhibit 10(l) above with each of Messrs. Bayer,
Atkinson, Baylis and Keyes.
E-5
