<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 1-13096
SANTA FE PACIFIC GOLD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 85-0307713
(State of Incorporation) (I.R.S. Employer Identification No.)
6200 UPTOWN BOULEVARD NE, SUITE 400
ALBUQUERQUE, NEW MEXICO 87110
(Address of principal executive offices)
(Zip Code)
(505) 880-5300
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at June 30, 1996
- ---------------------------- -----------------------------------
Common Stock, $.01 par value 131,470,012
<PAGE>
SANTA FE PACIFIC GOLD CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements:
-----------------------------
Consolidated Statement of Operations
for the three-month and six-month periods ended June 30, 1996 and 1995.. 1
Consolidated Balance Sheet
at June 30, 1996 and December 31, 1995.................................. 2
Consolidated Statement of Cash Flows
for the six-month periods ended June 30, 1996 and 1995.................. 3
Notes to Consolidated Financial Information............................. 4
Supplemental Information................................................ 5
Standard Unit Production Cost Information............................... 6
Item 2:
------
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 7
Part II. Other Information
Item 1. Legal Proceedings.............................................. 12
Item 4. Submission of Matters to a Vote of Security Holders............ 14
Item 6. Exhibits and Reports on Form 8-K............................... 15
Signatures....................................................................... 16
Exhibits Index................................................................... E-1
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
SANTA FE PACIFIC GOLD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Gold sales $ 80,208 $ 84,362 $162,127 $168,626
Royalty and other revenue 1,038 1,005 2,426 1,453
-------- -------- -------- --------
Total Operating Revenue 81,246 85,367 164,553 170,079
COSTS AND EXPENSES
Operating expenses 44,243 39,846 87,508 79,447
Depreciation, depletion and amortization 15,971 16,389 32,292 33,166
Exploration and development 7,669 8,216 15,553 13,796
General and administrative 4,011 4,089 8,203 8,273
-------- -------- -------- --------
Total Costs and Expenses 71,894 68,540 143,556 134,682
-------- -------- -------- --------
OPERATING INCOME 9,352 16,827 20,997 35,397
Other Income, Net 1,567 693 2,088 960
Interest Expense, Net 2,688 1,794 6,079 3,420
-------- -------- -------- --------
Income Before Income Taxes 8,231 15,726 17,006 32,937
Income Taxes 2,387 4,480 4,934 9,381
-------- -------- -------- --------
NET INCOME $ 5,844 $ 11,246 $ 12,072 $ 23,556
======== ======== ======== ========
NET INCOME PER SHARE OF COMMON STOCK $ 0.04 $ 0.09 $ 0.09 $ 0.18
======== ======== ======== ========
Weighted Average Number of Common Shares 131,468 131,356 131,462 131,356
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Information
1
<PAGE>
SANTA FE PACIFIC GOLD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 21,938 $ 35,852
Accounts receivable 1,380 839
Inventories 36,567 36,538
Current portion of deferred mining costs 91,274 105,004
Other current assets 5,671 5,470
---------- ----------
Total Current Assets 156,830 183,703
---------- ----------
OTHER ASSETS
Deferred mining costs 133,980 73,988
Other assets 6,193 5,919
---------- ----------
Total Other Assets 140,173 79,907
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 1,106,192 1,001,855
Less accumulated depreciation, depletion and
amortization 275,607 247,297
---------- ----------
Net Property, Plant and Equipment 830,585 754,558
---------- ----------
TOTAL ASSETS $1,127,588 $1,018,168
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 15,495 $ 26,557
Accrued liabilities 28,709 26,453
Current portion of deferred income taxes 23,657 25,193
---------- ----------
Total Current Liabilities 67,861 78,203
LONG-TERM DEBT 309,866 199,861
OTHER LONG-TERM LIABILITIES 67,083 66,496
DEFERRED INCOME TAXES 122,001 118,551
---------- ----------
TOTAL LIABILITIES 566,811 463,111
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value, 500 million
shares authorized; 131.5 million shares issued
and outstanding 1,315 1,314
Paid-in capital 327,082 326,777
Retained income 232,380 226,966
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 560,777 555,057
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,127,588 $1,018,168
========== ==========
</TABLE>
See Notes to Consolidated Financial Information
2
<PAGE>
SANTA FE PACIFIC GOLD CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 12,072 $ 23,556
Adjustments to reconcile net income to
cash flow from operations:
Depreciation, depletion and amortization 33,043 33,553
Deferred income taxes 2,152 2,197
Changes in:
Accounts receivable (541) 137
Inventories (624) (4,128)
Current portion of deferred mining costs 11,586 (6,158)
Other current assets (201) 785
Accounts payable (11,062) (1,325)
Accrued liabilities 2,257 (7,588)
Other, net 953 667
-------- --------
Net Cash Provided By Operating Activities 49,635 41,696
-------- --------
INVESTING ACTIVITIES
Capital expenditures (115,670) (73,251)
Deferred mining costs (52,077) (20,727)
Proceeds from sale of property 1,077 2,770
-------- --------
Net Cash Used For Investing Activities (166,670) (91,208)
-------- --------
FINANCING ACTIVITIES
Proceeds from borrowings 110,000 40,000
Cash dividends paid to shareholders (6,573) (6,568)
Other, net (306) (1,748)
-------- --------
Net Cash Provided By Financing Activities 103,121 31,684
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,914) (17,828)
Cash and Cash Equivalents, Beginning of Period 35,852 34,159
-------- --------
Cash and Cash Equivalents, End of Period $ 21,938 $ 16,331
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized $ 5,108 $ 4,550
Income taxes $ 1,000 $ 6,420
</TABLE>
See Notes to Consolidated Financial Information
3
<PAGE>
SANTA FE PACIFIC GOLD CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(a) The consolidated financial information should be read in conjunction with
the Annual Report on Form 10-K of Santa Fe Pacific Gold Corporation
("Registrant" or "Company") for the year ended December 31, 1995, including
the financial statements and notes included therein.
(b) In the opinion of the Company's management, the unaudited consolidated
financial information for the three-month and six-month periods ended June
30, 1996 and 1995, reflects all adjustments necessary for the respective
periods. All such adjustments are of a normal and recurring nature.
(c) The consolidated statement of operations for the three-month and six-month
periods ended June 30, 1996, are not necessarily indicative of the results
of operations to be expected for the full year.
(d) On April 26, 1996, the Company amended its $400.0 million unsecured
revolving credit facility with a group of commercial banks ("Credit
Facility") to extend the term of the Credit Facility to April 26, 2001, and
to lower the minimum required ratio for the operating cash flow to
consolidated debt covenant. The Credit Facility also contains financial
covenants which provide limitations on the incurrence of additional debt
and require the maintenance of a minimum tangible net worth. The Company
currently believes that it will be able to comply with the covenants
contained in the Credit Facility and that its ability to pay dividends will
not be impeded.
At June 30, 1996, the Company had $110.0 million of debt outstanding under
the Credit Facility.
(e) On May 23,1996, the Board of Directors declared a dividend of $0.05 per
share of common stock to shareholders of record as of the close of business
on June 3, 1996, the effect of which resulted in total dividend payments of
$6.6 million on June 28, 1996.
(f) Certain reclassifications have been made to prior year amounts in order to
conform with the current year presentation.
4
<PAGE>
SANTA FE PACIFIC GOLD CORPORATION AND CONSOLIDATED SUBSIDIARIES
SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TWIN CREEKS MINE
Gold production (ounces):
Mill 44,069 42,355 82,974 89,392
Heap leach 56,082 66,553 112,620 138,392
-------- -------- -------- --------
Total gold production 100,151 108,908 195,594 227,784
======== ======== ======== ========
Total tons mined (millions) 35.8 33.6 69.0 59.3
-------- -------- -------- --------
Mill tons processed (thousands) 542 619 1,128 1,236
Average mill grade (ounce/ton) 0.095 0.077 0.087 0.081
Mill recovery 85.4% 88.5% 84.9% 89.1%
-------- -------- -------- --------
Heap leach tons processed (thousands) 5,758 3,965 10,123 6,528
Average heap leach grade (ounce/ton) 0.022 0.021 0.021 0.023
-------- -------- -------- --------
Cash costs of production per ounce (1)(2) $ 193 $ 167 $ 197 $ 164
Noncash costs of production per ounce (2) 75 74 74 73
-------- -------- -------- --------
Total costs of production per ounce $ 268 $ 241 $ 271 $ 237
======== ======== ======== ========
LONE TREE MINE
Gold production (ounces):
Mill 29,146 34,021 66,121 72,208
Heap leach 11,448 24,896 28,982 43,794
-------- -------- -------- --------
Total gold production 40,594 58,917 95,103 116,002
======== ======== ======== ========
Total tons mined (millions) 11.6 9.8 23.6 19.8
-------- -------- -------- --------
Mill tons processed (thousands) 244 260 517 507
Average mill grade (ounce/ton) 0.135 0.143 0.142 0.156
Mill recovery 88.5% 91.4% 90.1% 91.5%
-------- -------- -------- --------
Heap leach tons processed (thousands) 1,403 753 2,467 1,841
Average heap leach grade (ounce/ton) 0.023 0.040 0.023 0.039
-------- -------- -------- --------
Cash costs of production per ounce (1)(2) $ 288 $ 207 $ 252 $ 208
Noncash costs of production per ounce (2) 71 74 69 72
-------- -------- -------- --------
Total costs of production per ounce $ 359 $ 281 $ 321 $ 280
======== ======== ======== ========
MESQUITE MINE
Gold production (ounces) 44,160 46,610 99,047 89,505
======== ======== ======== ========
Total tons mined (millions) 9.8 9.3 19.4 18.6
-------- -------- -------- --------
Heap leach tons processed (thousands) 3,817 3,705 7,875 6,775
Average heap leach grade (ounce/ton) 0.026 0.021 0.025 0.022
-------- -------- -------- --------
Cash costs of production per ounce (1)(2) $ 258 $ 206 $ 246 $ 210
Noncash costs of production per ounce (2) 119 109 118 110
-------- -------- -------- --------
Total costs of production per ounce $ 377 $ 315 $ 364 $ 320
======== ======== ======== ========
TOTAL
Ounces of gold produced 184,905 214,435 389,744 433,291
Ounces of gold sold 194,875 209,250 395,200 419,750
Average realized price per ounce $ 412 $ 403 $ 410 $ 402
Average costs of production per ounce:
Cash costs of production per ounce (1)(2) $ 230 $ 187 $ 222 $ 185
Noncash costs of production per ounce (2) 84 81 85 81
-------- -------- -------- --------
Total costs of production per ounce $ 314 $ 268 $ 307 $ 266
======== ======== ======== ========
</TABLE>
(1) Cash costs of production include cash costs of processing, general and
administrative expenses at the mine site (including overhead,
taxes other than income, royalties and credits for silver by-products) and
the applicable portion of deferred mining cash costs that benefit current
production.
(2) Certain reclassifications have been made to prior year amounts for cash
and noncash costs of production per ounce in order to conform with the
current year presentation.
5
<PAGE>
SANTA FE PACIFIC GOLD CORPORATION AND CONSOLIDATED SUBSIDIARIES
STANDARDIZED UNIT PRODUCTION COST INFORMATION (1)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
TWIN CREEKS MINE
Cash costs of production per ounce
components:
Direct mining and processing costs $ 354 $ 289 $ 359 $ 253
Deferred mining adjustment (2) (167) (124) (169) (94)
Other (1) (4) (1) (2)
----- ----- ----- -----
Cash operating costs 186 161 189 157
Production taxes 7 6 8 7
----- ----- ----- -----
Cash costs of production per ounce 193 167 197 164
Depreciation, depletion and amortization 72 73 71 72
Reclamation & mine closure 3 1 3 1
----- ----- ----- -----
Total costs of production per ounce $ 268 $ 241 $ 271 $ 237
===== ===== ===== =====
LONE TREE MINE
Cash costs of production per ounce
components:
Direct mining and processing costs $ 427 $ 221 $ 345 $ 222
Deferred mining adjustment (2) (143) (15) (98) (16)
Other 1 1 2 1
----- ----- ----- -----
Cash operating costs 285 207 249 207
Production taxes 3 - 3 -
----- ----- ----- -----
Cash costs of production per ounce 288 207 252 208
Depreciation, depletion and amortization 69 72 68 70
Reclamation & mine closure 2 2 1 2
----- ----- ----- -----
Total costs of production per ounce $ 359 $ 281 $ 321 $ 280
===== ===== ===== =====
MESQUITE MINE
Cash costs of production per ounce
components:
Direct mining and processing costs $ 248 $ 232 $ 220 $ 244
Deferred mining adjustment (2) 2 (33) 19 (42)
Other 1 - 1 1
----- ----- ----- -----
Cash operating costs 251 199 240 203
Production taxes 7 7 6 7
----- ----- ----- -----
Cash costs of production per ounce 258 206 246 210
Depreciation, depletion and amortization 114 99 114 99
Reclamation & mine closure 5 10 4 11
----- ----- ----- -----
Total costs of production per ounce $ 377 $ 315 $ 364 $ 320
===== ===== ===== =====
TOTAL
Cash costs of production per ounce
components:
Direct mining and processing costs $ 345 $ 258 $ 320 $ 243
Deferred mining adjustment (2) (121) (74) (104) (62)
Other - (2) - (1)
----- ----- ----- -----
Cash operating costs 224 182 216 180
Production taxes 6 5 6 5
----- ----- ----- -----
Cash costs of production per ounce 230 187 222 185
Depreciation, depletion and amortization 81 78 82 78
Reclamation & mine closure 3 3 3 3
----- ----- ----- -----
Total costs of production per ounce $ 314 $ 268 $ 307 $ 266
===== ===== ===== =====
</TABLE>
(1) Represents per ounce production cost information in the format developed by
The Gold Institute. The total costs of production per ounce differs from
operating expenses and depreciation, depletion and amortization on the
Consolidated Statement Of Operations due to differences between ounces sold
and ounces produced during the respective periods.
(2) Current mining costs which benefit future production.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, uncertainty as to the
Company's future profitability; future market prices for gold; competition in
the Company's line of business; the Company's ability to successfully operate
its mining projects and the risks associated with such projects, including,
without limitation, uncertainty as to whether permits necessary to operate such
projects will be obtained or maintained; the costs and progress of construction,
the costs and availability of necessary supplies, equipment and materials; the
functioning of facilities; the performance of personnel; and factors beyond the
control of the Company.
Recent Developments and Outlook
Expansion and Development Projects
Twin Creeks Mine. In late 1994, the Company commenced implementation of a
project to expand the operations at the Twin Creeks Mine to include mining and
processing of refractory sulfide ores ("Twin Creeks Sulfide Project"). The cost
of the Twin Creeks Sulfide Project is estimated at approximately $250 million
which will be spent over a four-year period, and as of June 30, 1996, $132.3
million had been spent. Plans include a multi-phase project with two
autoclaves. Phase I is ahead of schedule and is approximately 80% complete.
Start-up of the oxide portion of the mill circuit is scheduled for the fourth
quarter of 1996.
Delivery of the first 4,000 ton-per-day autoclave was made in May 1996 and
sulfide production from the Phase I autoclave circuit is expected in the first
quarter of 1997. Phase II start-up of the second 4,000 ton-per-day autoclave is
expected in the first quarter of 1998, a year ahead of the original project
schedule. These expectations assume timely approval of the required plan of
operations and completion of the related Environmental Impact Statement ("EIS").
The Company was notified in the second quarter of 1996 that its patent on
the proprietary process for processing the refractory carbonaceous ore in the
sulfide expansion was approved by the United States Patent Office.
Lone Tree Mine. During 1995, the Company began engineering and design work
on a flotation mill for the processing of lower-grade refractory ores at the
Lone Tree Mine ("Lone Tree Floatation Project"). The gold recovery rates for
such ores using heap-leaching techniques were estimated at approximately 25%.
The Company has developed a proprietary flotation technique which is expected to
improve recovery rates of the lower-grade refractory ores to 80%-90%.
Construction of the flotation mill, which began in the first quarter of 1996,
continued with concrete foundations being poured for flotation, thickener,
grinding mill and carbon-in-pulp areas. The mill is expected to begin production
by
7
<PAGE>
the second quarter of 1997, and is expected to produce approximately 50,000
ounces of gold in 1997 and 85,000 to 90,000 ounces of gold per year thereafter
until 2009.
Trenton Canyon Project. In May 1995, the Company commenced development of
the Trenton Canyon Project, which has proven and probable reserves of 590,000
contained ounces of gold. Construction commenced in the fourth quarter of 1995,
and initial gold production is expected in the first quarter of 1997. Permits
have been received for two of the three deposits, and construction continues on
schedule.
Approximately 57% of the reserves at the Trenton Canyon Project are located
on federal land administered by the United States Bureau of Land Management
("BLM"). BLM approval is required for construction and mining activities on
that portion of the Trenton Canyon Project. BLM approval is contingent upon
completion of an EIS which is anticipated sometime in 1998. No assurance can be
given that required approval from the BLM for that portion of reserves located
on federal land will be obtained as anticipated or with conditions acceptable to
the Company.
Mule Canyon Project. In July 1995, the Company announced its decision to
proceed with construction of the Mule Canyon Project. In November 1995, the
Company announced a reconfiguration of processing options which significantly
reduced the anticipated capital expenditures for the project. The Mule Canyon
Project has proven and probable reserves of 1.0 million contained ounces of
gold.
Approximately 84% of the reserves at the Mule Canyon Project are located on
federal land administered by the BLM. BLM approval is required for construction
and mining activities on that portion of the Mule Canyon Project. BLM approval
is contingent upon completion of an EIS. Review of the EIS by the BLM was
completed in the first quarter of 1996, and the draft EIS was printed and
distributed for comment during the second quarter of 1996. In April 1996, the
BLM issued approval to Lander County which allowed construction of the access
road and other infrastructure work to commence. Approval of the Plan of
Operations from the BLM is expected in the fourth quarter of 1996. There can be
no assurance, however, that the remaining approvals will be obtained as
anticipated or with conditions acceptable to the Company.
Rosebud, Nevada. During the second quarter of 1996, Santa Fe Pacific Gold
and Hecla Mining Company ("Hecla") signed a Letter of Intent to form a 50/50
joint venture, subject to due diligence and Board of Directors approval, to
develop the Rosebud Project, 50 miles west of Winnemucca, Nevada. The project
is an underground mineable, high-grade oxide gold deposit for which Hecla has
reported reserves of 540,000 ounces of gold (1.2 million tons at 0.45 ounce of
gold per ton of ore) and 2.75 ounces of silver per ton.
The project is expected to produce approximately 100,000 ounces of gold
annually, with initial production starting in mid 1997, with cash costs of $160
to $180 per ounce. The Company's share of annual production is expected to be
approximately 50,000 ounces of gold. Capital for the project is expected to be
$20 to $25 million. Under the terms of the agreement, the Company will fund
project development costs of $12.5 million as well as spend an additional $3.0
million to modify its own processing facilities. The Company will also
contribute an exploration property near Rosebud and will fund the first $1.0
million in exploration expenditures and 67% of future exploration expenditures.
8
<PAGE>
The Company and Hecla are continuing due diligence efforts and legal
documentation to finalize the joint venture agreement.
Gurupi, Brazil. The Company entered into a joint venture with TVX Gold Inc
("TVX") which allows the Company to earn a 50% interest in the Gurupi Project,
in Maranhao, Brazil, by spending $3.8 million on land and exploration. The
Company has satisfied the exploration obligation, and TVX is now funding 50% of
the exploration expenditures on this project. The earn-in expenditures for land
are not yet completed. The joint venture recently acquired rights to explore
for and develop gold deposits on approximately 340,000 acres of land controlled
by RTZ Mineracao Limitada and Odebrecht Mineracao Limitada. This land is
adjacent to and on trend with acreage controlled by the joint venture.
Western Africa. The Company signed a joint venture with IMAR-B, a local
Burkina Faso company, to explore approximately 124,000 acres of a government
license in the Poni Region of Burkina Faso in Western Africa. The Company must
spend $3 million over five years to earn a 78% interest. The Company is also
exploring other properties in Burkina Faso and Ghana.
Results of Operations
Second Quarter of 1996 Compared to Second Quarter of 1995
Net income was $5.8 million ($0.04 per share) for the second quarter of
1996 compared to $11.2 million ($0.09 per share) for the second quarter of 1995.
Operating income for the second quarter of 1996 was $9.4 million, a decrease of
$7.4 million from the $16.8 million of operating income in the second quarter of
1995. The decrease was primarily attributable to a decline in operating income
from gold operations of $8.1 million, offset by a decrease in exploration and
development expenditures and general and administrative expenditures of $0.6
million and $0.1 million, respectively.
Operating revenue for the second quarter of 1996 was $81.2 million, a
decrease of $4.1 million from the $85.3 million of operating revenue in the
comparable quarter of the prior year. Lower sales volumes caused $5.8 million
of the decrease, which was partially offset by a $1.7 million increase in
revenue resulting from an increase in the average realized gold price per ounce.
Gold sales totaled 194,875 ounces during the second quarter of 1996, 14,375
ounces less than the 209,250 ounces sold during the second quarter of 1995. The
decrease was primarily a result of lower production caused by a combination of
factors, the most significant of which include the mining of lower-grade ore and
the resulting lower gold recoveries at the Lone Tree Mine as well as the impact
on production of mining higher sulfide content ore at both the Lone Tree Mine
and Twin Creeks Mine. The Company's average realized gold prices per ounce for
the second quarter of 1996 and 1995 were $412 and $403, respectively.
Total costs and expenses in the second quarter of 1996 increased to $71.9
million from $68.5 million in the second quarter of 1995. Operating expenses
for the second quarter of 1996 increased from the comparable quarter in 1995 by
$4.4 million and depreciation, depletion and amortization decreased by $0.4
million. The increase in operating expenses was primarily attributable to the
increase in the mining ratio at the Mesquite Mine which resulted in the
acceleration of the charge out of deferred mining costs, as well as higher
expenses at the Lone Tree Mine due to an increased use of reagents that resulted
from a higher sulfide content ore being placed on the heap leach pads. Average
cash costs of production in the second quarter of 1996 were $230 per ounce
compared to $187 for the second
9
<PAGE>
quarter of 1995. Average noncash costs of production (depreciation, depletion
and amortization) increased from $81 per ounce to $84 per ounce for the second
quarter of 1995 and 1996, respectively.
Exploration and development expenses for the second quarter of 1996 totaled
$7.7 million compared with $8.2 million in the second quarter of 1995. Domestic
exploration spending decreased by $0.3 million, foreign exploration spending
decreased by $0.5 million, and development spending increased $0.3 million.
Foreign exploration accounted for approximately 55% of total exploration and
development spending for the second quarter of 1996 which is comparable to that
of the second quarter of 1995.
In the second quarter of 1996, general and administrative expenses were
$0.1 million less than those of the second quarter of 1995. Other Income, Net,
increased to $1.6 million from $0.7 million in the comparable quarter of 1995 as
a result of gains recorded on the sale of property and other asset dispositions
as well as an increase in interest income from cash and short-term investment
balances. Interest Expense, Net, increased to $2.7 million from $1.8 million in
the comparable quarter of 1995, principally due to the interest associated with
the $200.0 million of 8.375% senior debentures issued in July 1995, partially
offset by an increase in capitalized interest in 1996 compared to the second
quarter of 1995.
The Company's effective tax rate in the second quarter of 1996 was
comparable with the effective tax rate in same period in 1995.
First Six Months of 1996 Compared to First Six Months of 1995
Net income was $12.1 million ($0.09 per share) for the first six months of
1996 compared to $23.6 million ($0.18 per share) for the first six months of
1995. Operating income for the first six months of 1996 was $21.0 million, a
decrease of $14.4 million from the $35.4 million of operating income in the
comparable period of 1995. The decrease was primarily attributable to a decline
in operating income from gold operations of $13.7 million and a $1.7 million
increase in exploration and development expenditures, offset by an increase in
royalty and other revenue of $1.0 million.
Operating revenue for the first six months of 1996 was $164.6 million, a
decrease of $5.5 million from the $170.1 million of operating revenue in the
comparable quarter of the prior year. Lower sales volumes caused $9.9 million
of the decrease, but were partially offset by higher royalty and other revenue
of $1.0 million and a $3.4 million increase in revenue resulting from an
increase in the average realized gold price per ounce. Gold sales totaled
395,200 ounces during the first six months of 1996, 24,550 ounces less than the
419,750 ounces sold during the same period in 1995. The decrease was primarily
a result of lower production caused by the mining of lower-grade ore and the
resulting lower gold recoveries at the Lone Tree Mine as well as the impact on
production of mining higher sulfide content ore at both the Lone Tree Mine and
Twin Creeks Mine. The Company's average realized gold prices per ounce for the
first six months of 1996 and 1995 were $410 and $402, respectively.
Total costs and expenses in the first six months of 1996 increased to
$143.6 million from $134.7 million in the comparable period of 1995. Operating
expenses for the first six months of 1996 increased from the comparable period
in 1995 by $8.1 million and depreciation, depletion and amortization decreased
by $0.9 million. The increase in operating expenses was primarily attributable
to the increase in the mining ratio at the Mesquite Mine which resulted in the
acceleration of the charge out of deferred
10
<PAGE>
mining costs, as well as higher expenses at the Lone Tree Mine due to an
increased use of reagents that resulted from a higher sulfide content ore being
placed on the heap leach pads. Average cash costs of production in the first six
months of 1996 were $222 per ounce compared to $185 for the comparable period in
1995. Average noncash costs of production (depreciation, depletion and
amortization) increased from $81 per ounce to $85 per ounce for the first six
months of 1995 and 1996, respectively.
Exploration and development expenses for the first six months of 1996
totaled $15.5 million compared with $13.8 million in the same period in 1995.
Domestic exploration spending increased by $0.3 million, foreign exploration
spending increased by $0.9 million, and development spending increased to $0.5
million. Foreign exploration accounted for approximately 53% of total
exploration and development spending for the first six months of both 1996 and
1995.
In the first six months of 1996, general and administrative expenses were
consistent with those of the same period in 1995. Other Income, Net, increased
to $2.1 million from $1.0 million in the comparable period of 1995 as a result
of gains recorded on the sale of property and other asset dispositions as well
as an increase in interest income from cash and short-term investment balances.
Interest Expense, Net, increased to $6.1 million from $3.4 million in the
comparable period of 1995, principally due to the interest associated with the
$200.0 million of 8.375% senior debentures issued in July 1995, offset somewhat
by an increase in capitalized interest in 1996 compared to the same period of
1995.
The Company's effective tax rate in the first six months of 1996 was
comparable with the effective tax rate in same period in 1995.
Financial Condition
Liquidity and Capital Resources
For the six months ended June 30, 1996, the Company's cash flow provided by
operating activities was $49.6 million. Cash flow was also provided through the
sale of property and from borrowing proceeds of $1.1 million and $110.0 million,
respectively. These cash flows and $13.9 million of existing cash balances were
used for capital expenditures of $115.7 million, deferred mining costs of $52.1
million, cash dividends of $6.6 million and other miscellaneous items of $0.2
million.
Capital expenditures for the six months ended June 30, 1996, included $12.9
million, $7.2 million and $2.7 million for the ongoing capital requirements and
development drilling at the Twin Creeks Mine, the Lone Tree Mine and the
Mesquite Mine, respectively; $70.6 million for the Twin Creeks Sulfide Project;
$6.0 million for the Lone Tree Flotation Project; $2.9 million for other
corporate capital requirements, primarily related to management information
systems; and $4.6 million and $4.0 million for the development of the Trenton
Canyon Project and the Mule Canyon Project, respectively. Ongoing capital
requirements at existing mines included facility expansions as well as mining
and support equipment additions and replacements. Interest capitalized during
the first six months of 1996 was $4.8 million and related to capital facilities
being constructed at the Twin Creeks Mine and the Lone Tree Mine as well as the
Trenton Canyon Project and the Mule Canyon Project.
At June 30, 1996, the Company had forward contracts on a spot deferred
basis totaling 2,086,019 ounces of gold at a weighted average price of $411 per
ounce. The Company also had outstanding
11
<PAGE>
written call options on 335,000 ounces for 1996 and 400,000 ounces for 1997 at
weighted average prices of $425 and $464 per ounce, respectively, as well as
outstanding purchased put options on 450,000 ounces for 1996 and 1,200,000
ounces for 1997 at a weighted average price of $375 per ounce. The call options
for 1996 expire at rates of between 50,000 and 60,000 ounces per month, and the
put options for 1996 expire at a rate of 75,000 ounces per month. The call
options and put options for 1997 expire at rates of 33,333 and 100,000 ounces
per month, respectively.
As a result of increased indebtedness related to additional borrowings
under the Credit Facility, the Company's debt-to-total-capitalization ratio was
35.6% at June 30, 1996, compared to 26.5% at December 31, 1995. The Company's
current ratio (the ratio of current assets to current liabilities) was 2.3:1 at
June 30, 1996, which is comparable to that at December 31, 1995. Book value per
share increased from $4.22 at December 31, 1995, to $4.27 at June 30, 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Mining Claim Patent Litigation
On July 19, 1994, the Company filed two separate actions in the United
States District Court for the District of Nevada against the United States
Department of the Interior ("Interior") and the Secretary of the Interior
("Secretary") in connection with the issuance to the Company of first-half final
certificates and patents under the General Mining Law of 1872 ("Mining Law") for
unpatented mining claims held by the Company.
The two suits, Santa Fe Pacific Gold Corporation and Hospah Coal Company v.
Bruce Babbitt, the United States Department of the Interior and the United
States Bureau of Land Management, Case No. CV-N-94-476-HDM, and Santa Fe Pacific
Gold Corporation v. Bruce Babbitt, the United States Department of the Interior,
and the United States Bureau of Land Management, Case No. CV-N-94-477-ECR, seek
the issuance of first-half final certificates for patent applications for which
Interior and the Secretary had not issued first-half final certificates and the
completion of the patenting process on unpatented mining claims for which a
first-half final certificate had been issued involving unpatented mining claims
held by the Company at the Twin Creeks Mine, the Lone Tree Mine, and the Mule
Canyon Project. Even though the Mining Law confers upon the Company the full
right to possess and mine gold and other locatable minerals from an unpatented
mining claim, the Mining Law also entitles a mining claimant to purchase
ownership of the fee title to the unpatented mining claim from the United States
government, and it is the right to acquire fee title by patent that the Company
seeks to enforce in these lawsuits.
The actions are equitable in nature and necessary, in the Company's
opinion, to cause the issuance of first-half final certificates and patents for
unpatented mining claims in a period of time consistent with historical practice
under the Mining Law. The Company believes the Secretary and Interior have
departed from historical practice in delaying the processing of the Company's
patent applications.
The Secretary and Interior filed answers in these actions generally denying
that the Company is entitled to the relief sought. The Secretary and Interior
have not raised substantive defenses in any of the actions.
12
<PAGE>
On a motion for summary judgment by the Company in one of the Nevada
actions, the judge denied the motion without prejudice and allowed the company
to proceed with discovery. However, the judge indicated that he would reconsider
the Company's motion for summary judgment if first-half final certificates were
not issued by April 1, 1995. Subsequently, the first-half final certificates
involved in the case were issued. Nevertheless, Interior and the Secretary have
moved to dismiss the Company's action on the basis of the holding of another
judge in the United States District Court for the District of Nevada. On March
18, 1996, the District Court judge denied the Secretary's and Interior's motion.
The Company has been granted permission to file another motion for summary
judgment in its favor and that motion is still pending.
The second action has been transferred to the judge hearing, but has not
been consolidated with, the action described above. The Secretary and Interior
have resisted disclosing information and allowing depositions of certain
government witnesses. The Company has made two motions to compel disclosure of
this information, both of which have been granted by the magistrate judge. The
Secretary and Interior are now appealing those decisions to the District Court
judge. Once these motions are finally resolved, discovery can be completed and a
trial date will be set.
On May 13, 1996, the Secretary issued patents to the Company for the mining
claims covered by two of the thirteen patent applications at the Twin Creeks
Mine which were the subjects of the two lawsuits and thereby conveyed title to
approximately 373 acres. On June 3, 1996, the Secretary issued patents to the
Company for the mining claims covered by another of the thirteen patent
applications at the Twin Creeks Mine which were the subjects of the two lawsuits
and thereby conveyed title to approximately 331 acres. The remaining ten patent
applications at the Twin Creeks Mine encompass approximately 356 acres of
unpatented lode mining claims and approximately 1,193 acres of unpatented mill
site claims.
Other Legal Proceedings
The Company is not a party to any other litigation or administrative
proceeding that the Company believes would have a material adverse effect on its
results of operations or financial condition and is not aware of any threat of
such litigation or proceeding.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the May 23, 1996 annual meeting of stockholders, the Registrant's
stockholders voted on the following matters (131,467,612 shares of common stock
were outstanding and entitled to vote as of March 25, 1996 record date):
1. Election of Three Directors
The stockholders elected the three nominees as directors for three-year
terms by the following vote:
<TABLE>
<CAPTION>
Nominees Elected For Against Withheld Abstentions
------------------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C>
David H. Batchelder 104,179,318 - 1,441,390 -
Robert D. Krebs 103,195,029 - 2,425,679 -
Richard J. Stoehr 104,238,076 - 1,382,632 -
</TABLE>
Directors Whose Term of Office Continues
----------------------------------------
James T. Curry
Donald W. Gentry
Patrick M. James
George B. Munroe
Jean Head Sisco
Peter Steen
2. Approval of the Directors' Stock Compensation Plan
The stockholders approved the Directors' Stock Compensation Plan ("Plan")
under which each Director who is an Eligible Director in any given Quarter
shall be granted a Stock Award for that Quarter. Each Director shall be the
full owner of shares of Stock granted as a Stock award from and after the
Award Date and shall have all the rights of a stockholder including, but
not limited to, the right to vote such shares and the right to receive all
dividends paid on such shares. No more than 1,200 shares of Stock may be
awarded to a Director under the Plan for any Plan year. The Plan will
terminate on March 31, 2001, and the number of shares of Stock which may be
issued as Awards under the Plan shall not exceed 200,000 shares in the
aggregate.
As Chairman of the Executive and Policy Committee, Peter Steen has received
under the plan an option to acquire 50,000 shares of Common Stock at a
price of $15.375 per share, which is equal to the average of the high and
low prices of a share of Common Stock on the New York Stock Exchange on
March 1, 1996. The option may be exercised as to 25,000 shares on or after
March 1, 1997, if Mr. Steen continues as an Eligible Director until that
date; may be exercised as to the remaining 25,000 shares on or after March
1, 1998, if Mr. Steen continues as an Eligible Director until that date;
and is otherwise subject to the Plan.
The final vote on the Plan was:
<TABLE>
<CAPTION>
For Against Withheld Abstentions
---------- --------- -------- -----------
<S> <C> <C> <C>
98,462,524 5,837,767 1,320,417 -
</TABLE>
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See attached Exhibit Index on page E-1.
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SANTA FE PACIFIC GOLD CORPORATION
(Registrant)
/s/ David A. Smith
------------------------------------------
David A. Smith
Vice President and Chief Financial Officer
(principal financial officer)
/s/ Linda K. Wheeler
------------------------------------------
Linda K. Wheeler
Controller
(principal accounting officer)
Albuquerque, New Mexico
August 13, 1996
16
<PAGE>
EXHIBITS INDEX
27.1 Financial Data Schedule for the six-month period ended June 30, 1996.
E-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,938
<SECURITIES> 0
<RECEIVABLES> 1,380
<ALLOWANCES> 0
<INVENTORY> 36,567
<CURRENT-ASSETS> 156,830
<PP&E> 1,106,192
<DEPRECIATION> 275,607
<TOTAL-ASSETS> 1,127,588
<CURRENT-LIABILITIES> 67,861
<BONDS> 309,866
<COMMON> 1,315
0
0
<OTHER-SE> 559,462
<TOTAL-LIABILITY-AND-EQUITY> 1,127,588
<SALES> 162,127
<TOTAL-REVENUES> 164,553
<CGS> 119,800
<TOTAL-COSTS> 143,556
<OTHER-EXPENSES> 23,756
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,079
<INCOME-PRETAX> 17,006
<INCOME-TAX> 4,934
<INCOME-CONTINUING> 12,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,072
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0
</TABLE>
