UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______
Commission file number 1-8736
HOMESTAKE MINING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 94-2934609
(State of Incorporation) (I.R.S. Employer
Identification No.)
650 California Street
San Francisco, California 94108-2788
(Address of principal executive office) (Zip Code)
(415) 981-8150
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1.00 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Participating
Cumulative Preferred Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
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 voting stock held by non-affiliates of the
registrant was approximately $2,549,000,000 as of March 18, 1996.
The number of shares of common stock outstanding as of March 18, 1996 was
146,489,575.
Documents Incorporated by Reference:
Specified sections of Homestake Mining Company's 1995 Annual Report to
Shareholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-K. Specified sections of the definitive Proxy Statement for
the 1996 Annual Meeting of Shareholders, which will be filed with the Securities
and Exchange Commission within 120 days after December 31, 1995, are
incorporated by reference in Part III of this Form 10-K.
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART I
ITEM - 1 BUSINESS
INTRODUCTION
Homestake is a Delaware corporation organized in 1983 as the parent
holding company to a California corporation organized in 1877. In this report,
the terms "Homestake" and "Company" refer to Homestake Mining Company and its
subsidiaries.
Homestake is engaged in gold mining and related activities, including
exploration, extraction, processing, refining and reclamation. Gold bullion, the
Company's principal product, is produced in the United States, Canada,
Australia, and Chile. Ore and concentrates containing gold and silver from the
Eskay Creek and Snip mines in Canada are sold directly to smelters.
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 U.S. dollar and certain other
currencies, interest rates, global or regional political or economic crises,
demand for gold for jewelry and industrial products, and sales by holders and
producers of gold in response to these factors. The supply of gold consists of a
combination of new mine production and sales from existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions,
and individuals.
The Company's general policy is to sell its production at current
prices and not enter into forward sales, derivatives or other hedging
arrangements which establish a price for the sale of its future gold production.
As a result, the Company's profitability is exposed to fluctuations in the
current price of gold in world markets. However, in certain limited
circumstances, the Company will enter into forward sales commitments for small
portions of its gold production. In 1994, the Company sold for future delivery
183,200 ounces of gold it expected to produce at the Nickel Plate mine during
1995 and 1996. These forward sales represented less than 5% of the gold that
Homestake expected to produce during 1995 and 1996. The purpose of this forward
sales program was to allow for recovery of the Company's remaining investment in
the mine and provide for estimated reclamation costs. During 1995, 113,200
ounces of gold were delivered or financially settled under this program. At
December 31, 1995 forward sales contracts covering 70,000 ounces for delivery in
1996 remained outstanding.
Homestake also owns a 16.7% co-tenancy interest in the Main Pass 299
offshore sulphur mine and oil deposit in the Gulf of Mexico.
Dollar amounts in this report are in U.S. dollars unless otherwise
indicated.
Effective December 31, 1995 Homestake adopted the "Gold Institute
Production Cost Standard" for reporting of per ounce production costs. All cost
per ounce information included in this Form 10-K has been presented on this
basis (See "GLOSSARY" on page 33).
See note 22 to the consolidated financial statements on pages 42 and 43
of the Company's 1995 Annual Report to Shareholders for geographic and segment
information. Such information is hereby incorporated by reference.
2
SIGNIFICANT 1995 AND 1996 DEVELOPMENTS
In late 1995 and early 1996, the Company acquired the 18.5% of
Homestake Gold of Australia Limited ("HGAL") it did not already own. Homestake
offered 0.089 of a Homestake share or A$1.90 in cash for each of the 109,605,000
HGAL shares. Homestake expects to issue a total of 8.5 million common shares and
expend $22.3 million in cash in acquiring the 18.5% of HGAL held by minority
shareholders. See note 3 to the Consolidated Financial Statements on page 34 of
the Annual Report to Shareholders for further details of this transaction.
A positive feasibility study for the Ruby Hill project was completed
during the fourth quarter of 1995. This study indicates that the project will
produce an average of 105,000 ounces of gold per year over its six-year life at
a total cash cost of $140 per ounce. Capital requirements, including the
pre-stripping of the overlying alluvium, are estimated to be $65 million.
Construction of the facilities is anticipated to begin in early 1997 with
initial gold production possible in late 1997.
In December 1995, the Company acquired for $10.4 million, 5.5 million
shares of Orion Resources NL ("Orion"), an Australian public mining company, and
options to acquire an additional 5 million shares of Orion. After further
evaluation of the investment opportunity, Homestake sold these shares and
options in January 1996 for $10.7 million.
In August 1995, an addition to the Fimiston mill at Kalgoorlie, Western
Australia was commissioned. The addition has replaced the capacity of the Oroya
mill, which was dismantled to allow for a planned expansion of the Super Pit,
and increased the milling capacity at the Kalgoorlie operations to 33,500
tons-per-day ("TPD"). The expected lower unit milling costs resulting from the
expansion will allow for further expansion of the of the Super Pit.
In July 1995, the Company acquired for $24.0 million a 10% interest
(fully-diluted) in Navan Resources plc ("Navan"), an Irish public company, and
an option to acquire up to 50% of Navan's wholly-owned subsidiary, Navan
Bulgarian Mining N.V., which owns a 68% interest in Bimak AD ("Bimak"), the
owner of the Chelopech gold/copper processing operations located 45 miles east
of Sofia, Bulgaria. Bimak provides mining supervision and has an exclusive
contract to purchase all of the ore mined from the Chelopech mine. In March
1996, the Company exercised the option and agreed to advance up to $12.0
million, subject to the satisfaction of certain conditions, principally approval
by the Bulgarian government to increase the rate of mining at Chelopech from
500,000 to 750,000 tonnes annually and approval of the roaster project for
arsenic removal. The Company can acquire 50% of Navan's interest in Bimak by
investing an additional $36.0 million, which would be used to fund a portion of
the cost of a proposed expansion to accommodate processing of 1,750,000 tonnes
annually.
In June 1995, Homestake exercised an option to acquire 5% of Zoloto
Mining Ltd. ("Zoloto") for $1.0 million. Zoloto has an exclusive option to
acquire a 75% interest in the two million ounce Pokrovskoye gold deposit located
in the Amur region of eastern Russia by bringing the deposit into production. A
feasibility study completed in March 1996 indicated that the projected economic
returns do not support the cost of the large-scale mining and milling operations
originally contemplated for the Prokrovskoye deposit. Homestake has agreed to
forego its option and to pay for a revised feasibility study focused on a
smaller scale operation. In exchange, Homestake will receive an additional 10%
of Zoloto.
In February 1995, the Company sold its 28% equity interest in the
Torres silver mining complex for $6.0 million. This sale resulted in a pretax
gain of $2.7 million.
3
In January 1995, commercial production began at the new Eskay Creek
mine in British Columbia. During 1995, Eskay Creek sold 104,100 tons of ore
containing 196,500 ounces of gold and 9,945,000 ounces of silver for a total of
approximately 331,300 gold equivalent ounces. Total cash costs, including the
costs of third-party smelters, were $185 per gold equivalent ounce during 1995.
Proven and probable ore reserves totaled 2.1 million contained ounces of gold
and 93.8 million contained ounces of silver at December 31, 1995. A recent
exploration drilling program at Eskay Creek intersected high-grade gold and
silver mineralization which has the potential to add to the known reserves.
Additional exploration drilling is planned in 1996 for this zone. Through its
majority ownership of Prime Resources Group Inc. ("Prime"), the Company has a
50.6% interest in the Eskay Creek mine.
The Company increased its proven and probable gold reserves by 3.5
million contained ounces to 21.5 million contained ounces at December 31, 1995
compared to 18.0 million contained ounces at December 31, 1994. This increase is
net of 1.9 million ounces produced during 1995. Principal increases, net of
production, were 1.9 million ounces at the Kalgoorlie operations (including 1.2
million ounces as a result of acquiring the minority interests in HGAL), 1.0
million ounces at the Homestake mine, 0.6 million ounces at the Round Mountain
mine and 0.7 million ounces at the Ruby Hill project following completion of a
feasibility study covering the West Archimedes orebody.
GLOSSARY OF TERMS
See "GLOSSARY" and "INFORMATION ON RESERVES" on pages 33-34 for
definitions of terms used in the following discussion.
GOLD OPERATIONS
UNITED STATES
Homestake conducts operations at the Homestake mine in the Black Hills
of South Dakota and at the McLaughlin mine in northern California. Homestake
also owns a 25% interest in the Round Mountain mine in central Nevada and owns
or has an interest in three smaller mines in Nevada: the Santa Fe mine (100%),
the Pinson mine (26.3%) and the Marigold mine (33.3%). During 1995, with the
completion of mining, the Santa Fe mine entered the reclamation phase. Homestake
also has a 100% interest in the Ruby Hill project in Nevada. The Company has an
exploration office in Reno, Nevada.
Homestake Mine
The 119-year old Homestake gold mine is located in Lawrence County in
and near Lead, South Dakota. Homestake owns 100% of the operation.
The Homestake mine properties cover approximately 11,700 acres, of
which approximately 8,200 acres are owned in fee and the remainder are held as
unpatented mining claims. All mining is conducted on owned property. Paved
public roads provide access to the operation.
The Homestake mine is comprised of underground and open-pit (the "Open
Cut") mining operations, an ore processing plant, a waste-water treatment plant,
and tailings disposal facilities. The underground mine is serviced by two
5,000-foot vertical shafts from the surface connecting with internal shafts
which provide hoisting and services to the 8,000-foot level. Ore from
underground is hoisted to the surface, crushed and transported to the nearby
processing plant. Open Cut ore is crushed and transported more than a mile to
the processing plant by an enclosed conveyor. The 7,400-TPD capacity processing
4
plant recovers gold through a combination of gravity, carbon-in-pulp ("CIP") and
vat leaching processes. Recycled process water is pumped through a
carbon-in-leach ("CIL") circuit, also contributing to production. The refinery
produces 0.997 fine gold bullion. Process tails are used for underground fill or
are deposited in a tailings impoundment facility three miles from the plant. The
capacity of the tailings impoundment will be adequate through the end of 1996,
at which time a new lift will be required. The first phase of a major tailing
lift expansion will commence in the fourth quarter of 1996. Facilities and
equipment at this operation continue to be upgraded for technological advances
and generally are in good operating condition.
Untreated water for use in the mine's facilities is obtained from local
watersheds under Homestake mine water rights and potable water is purchased from
the Lead/Deadwood sanitation district. Electric power is purchased under
contract from Black Hills Corporation and is supplemented by Homestake-owned
hydroelectric facilities.
The main ventilation raise for the deeper levels of the underground
mine, which collapsed in 1994, was replaced in the first quarter of 1995 with a
14-foot diameter borehole between the 5,900- and 6,800-foot levels of the mine.
This new exhaust raise has increased ventilation and cooling capacity for the
deep mine levels.
Expansion of the Open Cut was completed in 1995.
As mining has progressed into the lower levels of the Homestake mine,
the remaining higher-grade ore deposits have become narrower and less continuous
and more difficult to mine. The operation continues to develop new mining
methods, including narrow vein mining, uphole mining and bench mining which have
allowed profitable recovery of some previously subeconomic material. The new
mining methods have increased productivity. Despite increasingly difficult
orebodies, the operation has maintained its current cost structure and increased
reserves.
During 1995, the operation suffered from reduced mill throughput due to
processing harder than normal ore from the Open Cut. Evaluations were conducted
on the crushing and grinding circuit to improve milling rates. During the last
quarter of 1995, increased underground throughput and modifications to the Open
Cut and underground crushing plants had returned mill throughput to near normal
levels.
During 1995, the operation added nearly one million ounces to its
reserve base, net of 1995 production. This 24% increase primarily is the result
of new mining methods, in-mine exploration, ore reserve definition drilling and
reserve revisions resulting from computer-aided modeling techniques.
Hourly employees at the Homestake mine are represented by the United
Steelworkers of America. In March 1995, a new labor contract was ratified
covering the period through May 1998.
The Homestake mine has received no notices of violation and is under no
regulatory orders of any kind mandating specific environmental expenditures.
During 1995, the mine operated in compliance with environmental permits.
No royalties are payable on production from the Homestake mine. The
State of South Dakota currently imposes a severance tax of 10% of net profits
from the sale of gold produced in the state, plus $4 per ounce of gold sold when
the price of gold is $499 per ounce or less, increasing by $1 per ounce for each
$100 increment or part thereof in excess of $499 per ounce.
5
Geology
The Homestake mine is the largest known iron formation hosted gold
deposit. In its 119-year life, the mine has produced in excess of 38 million
ounces of gold. The Homestake gold deposit is Proterozoic in age (approximately
1.9 billion years). Mineralization is generally stratabound within the Homestake
Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has
been complexly deformed by tight folding, faulting and shearing. Ten
southeast-plunging fold structures, locally called ledges, have produced gold
ore over a vertical extent of more than 8,000 feet.
Year-end Proven and Probable Ore Reserves
1995 1994
------------- -------------
Underground:
Tons of ore (000's) 20,886 15,595
Ounces of gold per ton 0.218 0.228
Contained ounces of gold (000's) 4,551 3,559
Open Cut:
Tons of ore (000's) 5,117 4,787
Ounces of gold per ton 0.111 0.121
Contained ounces of gold (000's) 568 579
Total:
Tons of ore (000's) 26,003 20,382
Ounces of gold per ton 0.197 0.203
Contained ounces of gold (000's) 5,119 4,138
Operating Data
1995 1994
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Production Statistics:
Tons of ore mined (000's):
Underground 1,461 1,331
Open Cut 1,217 1,092
Ore grade mined (oz. gold/ton):
Underground 0.219 0.224
Open Cut 0.093 0.100
Open Cut stripping ratio (waste:ore) 7.3:1 10.1:1
Tons of ore milled (000's) 2,460 2,590
Mill feed ore grade (oz. gold/ton) 0.171 0.160
Mill recovery (%) 96 95
Gold recovered (000 ozs.) 403 394
6
Cost per Ounce of Gold:
Cash operating costs $292 $284
Other cash costs 11 7
Noncash costs 32 31
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Total production costs $335 $322
McLaughlin Mine
The McLaughlin gold mine is located at the junction of Lake, Napa and
Yolo Counties in northern California. The McLaughlin mine has been in operation
since 1985 and is 100% owned by Homestake.
The McLaughlin mine properties cover approximately 16,200 acres.
Approximately 15,100 acres are owned and approximately 950 acres are leased. The
Company holds seven unpatented mining claims and six millsite claims covering
the remaining 160 acres. Access to the property is by paved road.
Ore is mined by open-pit methods using a fleet of 85-ton haul trucks
and two hydraulic shovels. Ore is crushed, ground and transported by slurry
pipelines five miles to the processing site. The processing plant consists of
two parallel circuits. The primary circuit utilizes pressure oxidation
(autoclaves) to treat higher-grade sulfide ores, followed by neutralization and
cyanide leaching. The second circuit uses conventional sulfide flotation.
Concentrates produced from flotation are added to the sulfide ores prior to
treatment through the autoclaves. Flotation tailings go directly to cyanide
leach. Conventional CIP cyanidation with pressure stripping and electrowinning
is used to recover gold and silver. Total mill capacity through both circuits is
approximately 6,300 TPD. Tailings are deposited in a tailings impoundment that
will be adequate through 1996, at which time a new lift is scheduled to be added
to the existing dam at an estimated cost of $2.6 million. The new lift will
increase the impoundment's capacity to allow for the treatment of all but the
lowest-grade material in the remaining reserves. A final lift, currently
scheduled to be added in 1999 at an estimated cost of $2.4 million, will be
required to allow for the processing of all remaining reserves. Facilities are
modern and in good operating condition.
The majority of process water is recycled from the tailings pond.
Additional water is obtained from the Company's reservoir in Yolo County, which
has approximately four years of storage capacity. Electric power is purchased
under interruptible tariff from Pacific Gas and Electric Company.
In mid-1996, mining will cease and the pressure oxidation circuit will
be shut down. Gold production levels are expected to decline significantly, with
future production to be derived from the processing of lower-grade stockpiles.
During 1996, modifications will be made to the mill circuits to convert the
sulfide circuit to conventional direct cyanide leach and increase plant capacity
to 6,500 TPD for the processing of stockpiled ore. Processing of the stockpiled
ore is expected to continue for approximately eight years.
During 1995, the mine operated in compliance with its environmental
permits.
McLaughlin mine royalties are equivalent to approximately 2% of
revenues.
7
Geology
The McLaughlin ore body is a structurally-controlled siliceous vein
network, overlain by hot-spring terraces (sinter). The mineralization is the
product of 0.5 to 1.0 million year old geothermal activity, induced by regional
volcanism. Precious metals were transported in hot-spring fluids and
coprecipitated with quartz, chalcedony and opal in open fractures along and
adjacent to a northeast-dipping structure, known as the Stony Creek fault. The
ore body is wedge shaped and extends to depths of over 1,000 feet along a
strike-length of more than a mile.
Year-end Proven and Probable Reserves
1995 1994
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Open Pit:
Tons of ore (000's) 1,411 5,040
Ounces of gold per ton 0.103 0.101
Contained ounces of gold (000's) 145 508
Stockpiled: (1)
Tons of ore (000's) 17,931 17,024
Ounces of gold per ton 0.065 0.068
Contained ounces of gold (000's) 1,170 1,157
Total:
Tons of ore (000's) 19,342 22,064
Ounces of gold per ton 0.068 0.075
Contained ounces of gold (000's) 1,315 1,665
<FN>
(1) The cost of mining substantially all of the lower-grade ore in the
stockpiles has been expensed.
Operating Data
1995 1994
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Production Statistics:
Tons of ore mined (000's) 2,056 2,667
Stripping ratio (waste:ore) 5.9:1 5.6:1
Tons of ore milled (000's) 2,296 2,244
Mill feed ore grade (oz. gold/ton) 0.120 0.126
Mill recovery (%) 88 87
Gold recovered (000 ozs.) 242 250
Cost per Ounce of Gold:
Cash operating costs $234 $241
Other cash costs 8 8
Noncash costs 111 79
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Total production costs $353 $328
8
Round Mountain Mine
The Round Mountain gold mine is an open-pit mine located in Nye County,
Nevada, about 60 miles north of Tonopah. Homestake owns a 25% undivided interest
in the mine. Echo Bay Mines Ltd. owns a 50% undivided interest and is the
operator. The remaining 25% interest is owned by Case, Pomeroy & Company, Inc.
The mine has been in operation since 1977.
The Round Mountain properties cover approximately 28,362 acres of
private property and public domain land, some of which are under patent
application and the remainder of which are subject to unpatented mining claims.
Of the total reserves, 76% are located on the privately-owned land. Paved public
roads provide access to the operations.
Ore from the mine is leached using two methods. The higher-grade ore is
processed on reusable heap-leach pads and the lower-grade ore is leached on a
dedicated pad. During 1995, total ore processed averaged 88,687 TPD. The
reusable heap-leach pads processed 22,490 TPD and the balance was processed on
the dedicated pad. The average ore and waste mining rate was 169,236 TPD. The
reusable pad processing facilities consist of a gyratory crusher, an
intermediate ore storage and reclaim system, secondary and tertiary cone
crushers and screens, and a conveyor system used to transport ore to two asphalt
leach pads. The reusable pads have a total capacity of approximately four
million tons. A separate 16.4 million square foot dedicated heap-leach pad to
process uncrushed run-of-mine ore and to reprocess previously leached material
has a total capacity of 131 million tons. Facilities are in good condition.
Water is supplied from wells on the property and power is purchased
under contract from Sierra Pacific Power Company.
Homestake's share of total 1995 gold production from the Round Mountain
mine was 86,109 ounces compared to 105,877 ounces in 1994. The lower production
is a result of lower ore grades and lower recoveries, partially offset by higher
tonnage placed on both the reusable and dedicated pads during 1995. Additional
solution capacity has been designed and should be operational in early 1996.
Gold production from gravity treatment of high-grade ores amounted to 3,061
ounces (Homestake's share) in 1995 compared to 8,263 in 1994. The operation
expects to recover approximately 2,000 ounces of gold (Homestake's share) from
gravity treatment of high-grade ore in 1996.
Round Mountain ore reserves increased by 2.2 million ounces (100%
basis) in 1995 primarily due to exploration drilling which extended the pit
limits, and the inclusion in reserves of stockpiled material which has
previously been leached, following favorable re-processing tests.
Permitting for the construction of an 8,000-TPD gravity mill to process
higher-grade sulfide ores is proceeding and regulatory approvals are anticipated
by the second quarter of 1996. Final design engineering on the $65 million (100%
basis) project is expected to be completed in time to allow construction to
begin in the summer of 1996. Completion of the mill, which is expected in late
1997, will result in an additional 50,000 - 75,000 ounces (100% basis) of
incremental annual production.
During 1995, the mine operated in compliance with its permits.
All Round Mountain mine production is subject to royalties determined
by a complex royalty formula based on the price of gold. The royalties range
from approximately 3.5% of gold revenues at prices of $320 per ounce of gold or
less to approximately 6.4% of gold revenues at prices of $440 per ounce of gold
or more. During 1995, the royalties averaged 4.9% of revenues.
9
Geology
The Round Mountain ore body straddles the margin of a volcanic caldera
complex. Gold-bearing hydrothermal fluids were transported along major
structural conduits created by the volcano's collapse and associated faulting.
These ascending fluids deposited gold in permeable zones along a broad northwest
trend. Primary gold mineralization at Round Mountain occurs as electrum, a
natural gold/silver alloy, in association with quartz, adularia and pyrite.
Narrow fractures in shear zones host higher-grade mineralization while porous
sites within the volcanic rocks host the disseminated mineralization. Economic
gold mineralization is found in both the volcanic and surrounding sedimentary
rocks as well as overlying alluvial placers. The oblong open-pit mine is well
over a mile at its longest dimension and currently more than 1,000 feet from the
highest working level to the bottom of the pit.
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
-------------- --------------
Tons of ore (000's) 508,820 348,910
Ounces of gold per ton 0.020 0.022
Contained ounces of gold (000's) 10,000 7,799
Operating Data (100% Basis)
1995 1994
-------------- --------------
Production Statistics:
Tons of ore mined (000's) 32,723 26,242
Stripping ratio (waste:ore) 0.8:1 1.2:1
Tons of ore crushed (000's) 7,711 6,629
Tons of ore processed (000's) 31,395 25,965
Weighted average ore grade
placed on pads (oz. gold/ton) 0.018 0.021
Leach recovery - reusable pads (%) 71 79
Gold recovered (000 ozs.) 344 424
Homestake's Cost per Ounce of Gold:
Cash operating costs $231 $153
Other cash costs 23 29
Noncash costs 74 61
-------------- --------------
Total production costs $328 $243
Santa Fe Mine
The Santa Fe gold mine is located in Mineral County, Nevada,
approximately 40 miles east of Hawthorne. Homestake owns 100% of this operation.
The mine commenced operations in 1988.
10
Mining operations at the Santa Fe mine ceased in late 1993 as ore
reserves were depleted. During 1994, production continued with the leaching of
all four crushed and run-of-mine ore heaps. In 1995, the operations entered a
reclamation phase with some gold production derived from rinsing of the heaps, a
process which allows for natural reduction of cyanide levels in the heaps. The
rinsing activities were completed during 1995. Based on current estimates, full
provision for reclamation is included in the December 31, 1995 financial
statements. The mine and its facilities are fully depreciated.
During 1995, the mine operated in compliance with its environmental
permits.
Operating Data
1995 1994
------------- -------------
Production Statistics:
Gold recovered (000 ozs.) 17 22
Cost per Ounce of Gold:
Cash operating costs $118 $163
Other cash costs 21 6
Noncash costs - 170
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Total production costs $139 $339
Marigold Mine
The Marigold gold mine is located approximately 40 miles southeast of
Winnemucca, Nevada. Homestake owns an undivided 33.3% interest in the Marigold
property. Rayrock Mines, Inc. ("Rayrock") owns the remaining interest and is the
operator. The mine has operated since 1989.
The property consists of approximately 3,920 acres of unpatented mining
claims and 14,920 acres held under leases which remain in effect as long as the
mine continues production. Access to the property is via a five-mile long gravel
road.
Mining is conducted by conventional open-pit methods. During 1995, the
mine was converted to a primarily heap-leach operation with intermittent milling
operations. Mill-grade ore will be stockpiled and periodically processed through
the mill to maximize gold recovery. Mine facilities are in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
The 1995 exploration program increased the reserves in the area of the
known deposits.
During 1995, the mine operated in compliance with all its environmental
permits.
Production royalties of 5% of net smelter returns and 3.5% of net
profits were paid to two lease holders.
Homestake's share of production from the Marigold mine was 23,288
ounces of gold in 1995 compared to 28,328 ounces in 1994.
11
Geology
Gold resources at the Marigold mine are hosted largely in the Permian
Antler formation and the underlying Ordovician Valmy formation, and are
associated with broad bands of silicification and local decalcification. Both
stratigraphy and structure control the geometry of the zones. The ore bodies are
sediment-hosted, disseminated deposits of micron-size gold, and are entirely
oxidized.
Homestake has a 33.3% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 14,585 14,070
Ounces of gold per ton 0.036 0.033
Contained ounces of gold (000's) 527 459
Operating Data (100% Basis)
1995 1994
------------- -------------
Production Statistics:
Tons of ore mined 3,412 2,247
Stripping ratio (waste:ore) 2.2:1 3.3:1
Tons of ore milled (000's) 440 678
Ore grade milled (oz. gold/ton) 0.071 0.097
Mill recovery (%) 92 92
Tons of ore leached (000's) 2,969 1,616
Ore grade leached (oz. gold/ton) 0.022 0.018
Gold recovered (000 ozs.) 70 85
Homestake's Cost per Ounce of Gold:
Cash operating costs $225 $198
Other cash costs 29 28
Noncash costs 59 62
------------- -------------
Total production costs $313 $288
Pinson Mine
The Pinson gold mine is located approximately 30 miles northeast of
Winnemucca, Nevada. Homestake owns an undivided 26.3% interest in the Pinson
property. Rayrock owns a 26.5% interest and is the operator. The mine has
operated since 1981.
The Pinson property consists of approximately 22,826 acres of which
11,583 acres are held under leases which remain in effect as long as the mine
continues production. The remaining land is comprised of 7,780 acres of
unpatented mining claims and 3,463 acres of primarily fee lands. Access to the
property is by paved road.
12
Mining is conducted by conventional open-pit methods in several
different areas. Ore is processed by both heap leaching and conventional milling
methods. Total material mined is approximately 30,000 TPD. The 1,500-TPD mill
utilizes both CIP and CIL methods. In 1995, 83% of total gold production was
from ore milled. Low-grade ore is treated by heap leaching. The facilities are
in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
The 1995 exploration program delineated minor ore extensions but did
not identify significant new reserves.
During 1995, the mine operated in compliance with all its environmental
permits.
Production royalties of 2.2% of net smelter returns are payable on the
principal producing areas of the mine. Overall, the underlying property
ownership is complex, requiring special arrangements with respect to the
commingling of ore from various locations.
Homestake's share of production from the Pinson mine was 12,587 ounces
of gold in 1995 compared to 11,817 ounces in 1994.
Geology
The Pinson deposit includes more than six zones of gold mineralization
largely hosted in carbonate rocks and calcareous siltstones of the Ordovician
Conus formation. Ore bodies consist of disseminations of micron-size gold
peripheral to faults in favorable stratigraphy. High-grade stringer zones have
been identified and are the subject of continuing investigation.
Homestake has a 26.3% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 4,074 4,743
Ounces of gold per ton 0.073 0.072
Contained ounces of gold (000's) 297 343
Operating Data (100% Basis)
1995 1994
------------- -------------
Production Statistics:
Tons of ore mined (000's) 1,164 968
Stripping ratio (waste:ore) 6.0:1 6.6:1
Tons of ore milled (000's) 559 562
Ore grade milled (oz. gold/ton) 0.088 0.078
Mill recovery (%) 79 83
Tons of ore leached (000's) 574 379
Ore grade leached (oz. gold/ton) 0.027 0.029
Gold recovered (000 ozs.) 48 45
13
Homestake's Cost per Ounce of Gold:
Cash operating costs $307 $319
Other cash costs 15 13
Noncash costs 51 44
------------- -------------
Total production costs $373 $376
Ruby Hill Project
The Ruby Hill project is located one mile northwest of Eureka, Nevada.
Homestake acquired a 100% interest in the property in 1992.
The Ruby Hill property consists of approximately 24,831 acres, of which
23,386 acres are unpatented mining claims and 1,445 acres are patented mining
claims and fee lands.
Exploration activities have resulted in the discovery of several
mineralized zones. A positive feasibility study on the West Archimedes deposit
was completed during the fourth quarter of 1995. This study indicates that the
mine will produce an average of 105,000 ounces of gold per year over its
six-year life at a total cash cost of $140 per ounce. Capital requirements,
including the pre-stripping of the overlying alluvium, are estimated to be $65
million.
The proposed operation will utilize conventional open-pit mining
methods. Low-grade ore will be crushed and heap leached. High-grade ore will be
ground in a ball mill and combined with the crushed low-grade ore in a rotating
agglomeration drum prior to being placed on the leach pad. Preparation of the
Environmental Impact Study by a third-party contractor, selected by the Bureau
of Land Management and Homestake, is well under way. Construction of the
facilities, which is dependent on the receipt of permits, is scheduled to begin
in early 1997 with initial gold production possible in late 1997.
Water is available from on-site wells and power is available from Mount
Wheeler Power Company.
A production royalty of 3% of net smelter returns is payable on
production over 500,000 ounces of gold.
Geology
The West Archimedes gold mineralization is hosted primarily within
brecciated jasperiod and decalcified limestones of the uppermost Goodwin and
Antelope Valley units of the Ordivician Pogonip Group. The micron-size gold is
finely disseminated and the ore body is entirely oxidized. Exploration and
delineation drilling are continuing in the nearby East Archimedes and Achilles
zones.
Year-end Proven and Probable Ore Reserves
1995
-------------
Tons of ore (000's) 7,616
Ounces of gold per ton 0.099
Contained ounces of gold (000's) 755
14
CANADA
Homestake has a 50% interest in the Williams and David Bell mines in
the Hemlo mining district in Ontario and a 25% net profits interest in the
Quarter Claim (adjacent to the David Bell mine). Homestake also owns and
operates the Nickel Plate mine in south central British Columbia and has a 50.6%
interest in Prime. Prime owns the Eskay Creek mine and has a 40% interest in the
Snip mine, both of which are located in northwestern British Columbia.
The Company conducts exploration and investigates mineral acquisition
and development opportunities throughout Canada. Canadian activities are managed
from an office in Vancouver, British Columbia.
Eskay Creek Mine
Prime owns 100% of the Eskay Creek gold/silver mine. Through its
interest in Prime, the Company has a 50.6% interest in the mine. Prime has
contracted with Homestake to provide all necessary professional, managerial, and
administrative services in connection with exploration, development and
operation of the Eskay Creek mine.
The Eskay Creek property consists of five mining leases and various
other mineral and surface rights comprising approximately 3,477 acres located 51
air miles north of Stewart, British Columbia. The leases have remaining terms of
approximately 25 to 29 years, subject to renewal rights. Access from the main
highway to the mine is by 38 miles of single-lane gravel road. Road maintenance
and snow removal are provided under contract by a local company.
The Eskay Creek mine commenced commercial production in January 1995.
The mine is an underground operation accessible through three surface portals.
The mine utilizes a drift-and-fill method with cemented rock backfill. Mining is
conducted by a mining contractor. Ore is crushed and blended in a facility
located at the minesite prior to shipment and sale to third-party smelters for
final processing. There are no tailings produced at the minesite. Mine
waste-rock, which is potentially acid-generating, is disposed of underwater in a
nearby barren lake. Workers are on a two-week work schedule followed by two
weeks off.
Two long-term ore sale contracts with smelters in Japan and Quebec
provide for combined annual sales of 100,000 tons, with options to increase
sales to 130,000 tons, subject to smelter approvals. In addition, a trial
shipment of 2,500 tons was made to a third smelter in late 1995. Ore is trucked
by a contractor 164 miles to Stewart for shipment to Japan and 224 miles to
Kitwanga, British Columbia for shipment to Quebec. A dedicated loading facility
for ships at Stewart handles ore shipments destined for Japan and a loading
facility is utilized at the railhead in Kitwanga for shipments to Quebec. Prime
has a five-year contract with Canadian National Railway to transport ore to
Quebec.
Water is supplied from the Eskay and Argillite creeks and power is
produced by on-site diesel generators.
In 1995, the mine shipped 104,100 tons of ore containing 196,500 ounces
of gold and 9,945,000 ounces of silver for a total of approximately 331,300 gold
equivalent ounces. During the year, mine development work was accelerated to
provide more production stoping areas. With more mining areas
15
available, the mine is better able to optimize ore blending to maximize smelter
returns. The mine produced approximately 300 TPD in 1995. Based on existing
reserves and current production rates, the mine has a projected life of nine
years.
During 1995, exploration drilling at Eskay Creek intersected high-grade
gold and silver mineralization which appears to be a stratigraphic extension to
the northeast end of the main 21B ore zone (See "MINERAL EXPLORATION AND
DEVELOPMENT" on page 31 and 32). Additional exploration drilling for this zone
and in the area surrounding the Eskay Creek mine is planned in 1996.
During 1995, the mine operated in compliance with all its environmental
permits.
The mine is subject to an effective 1% net smelter royalty, with the
exception of a small portion of the ore body, which is subject to a 2% net
smelter royalty.
Geology
The Eskay Creek ore body is a precious metal-enriched volcanogenic
massive sulfide deposit that occurs in association with volcanics of the
Jurassic-aged (141 to 195 million years) Hazelton Group. Eskay Creek
mineralization is generally stratabound and occurs in a contact mudstone and
breccia bounded below a rhyolite flow-dome complex and overlain by volcanic
rocks in the west limb of a north-plunging fold. Sphalerite, pyrite, galena and
tetrahedrite are the most abundant ore minerals. Native gold occurs as mostly
microscopic particles located between sulfide grains or in fractures within
sulfide grains, some of which are locked in pyrite. Gold also occurs in volcanic
rocks beneath the contact mudstone with visible gold, coarse grained sphalerite,
pyrite and galena disseminated in quartz veins or stockwork.
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 1,124 1,190
Ore grade (ounces of gold per ton) 1.875 1.190
Contained ounces of gold (000's) 2,108 2,274
Ore grade (ounces of silver per ton) 83.4 85.5
Contained ounces of silver (000's) 93,752 101,800
Contained ounces of gold equivalents (1)(000's) 3,345 3,568
Operating Data
1995
-------------
Production Statistics:
Tons of ore shipped (000's) 104
Ore grade (ounces of gold per ton) 1.989
Ore grade (ounces of silver per ton) 100.9
Ounces of payable gold (000's) 197
Ounces of payable silver (000's) 9,945
Total ounces of gold equivalent (1)(000's) 331
16
Homestake's Cost per Ounce of Gold Equivalent:
Cash operating costs $182
Other cash costs 3
Noncash costs 45
-------------
Total production costs $230
<FN>
(1) Gold and silver are accounted for as co-products at Eskay Creek. Silver
production is converted into gold equivalent, using the ratio of the gold
market price to the silver market price. The ratio was 73.8 ounces of
silver equals one ounce of gold equivalent for production in the year ended
December 31, 1995 and 75.8 ounces and 78.7 ounces of silver equals one
ounce of gold equivalent at December 31, 1995 and 1994, respectively.
Williams Mine
The Williams gold mine is located in the Hemlo Gold Camp 217 miles east
of Thunder Bay, Ontario, adjacent to the Trans Canada Highway. The mine is
operated by Williams Operating Corporation ("WOC") with its own personnel.
Homestake and Teck Corporation ("Teck") each own a 50% interest in WOC. The mine
commenced operations in 1985.
The property consists of 11 patented mining claims covering
approximately 400 acres and one Crown mining lease. Homestake and Teck are
required to provide funds equally to WOC for all costs incurred to operate the
mine. Homestake and Teck have mutual rights of first refusal over each other's
interest in the Williams mine and shares of WOC.
The Williams mine is an underground operation which is accessible by a
4,300-foot shaft. The mine utilizes the longhole, open-stope mining method with
cemented rock backfill. In addition, 500-600 TPD of lower-grade ore is recovered
from a nearby open pit. Waste rock from the open pit is used for backfill in the
underground operations. The mine has a 7,000-TPD capacity mill which operated at
7,145 TPD during 1995. The Williams and David Bell mines share one tailings
basin facility located approximately two miles from the mill. Cyanidation and
the CIP process are used to recover gold. Water from the tailings basin is
treated during the summer months in an effluent treatment plant prior to
discharge. Both mines recycle mill make-up water from the tailings pond. The
facilities and equipment are modern and in good condition.
Fresh water for the property is supplied from Cedar Creek and power is
purchased from Ontario Hydro via a long-term contract. Propane for heating mine
air and surface facilities is also purchased under long-term contracts.
Following the installation of new crushing and ventilation systems in
1994, mining between the 9,065 and 9,240 levels commenced. The 9,175 and 9,450
levels provided access for exploration drifting and diamond drilling during the
year. Approximately 60% of the ounces mined in 1995 were replaced by additions
to ore reserves, at a lower grade than the ore mined.
The mine will continue to operate at the average ore reserve grade for
the remaining life of the operation.
During 1995, the mine operated in compliance with all its environmental
permits. Progressive reclamation projects are ongoing.
17
The 11 patented mining claims are subject to three net smelter
royalties totaling a net effective rate of 2.08% and the Crown mining lease is
subject to a net smelter royalty of 0.75%.
Homestake's share of production was 202,561 ounces in 1995 compared to
222,660 ounces in 1994.
Geology
The Hemlo Gold Camp occurs within the east-west striking Heron Bay belt
of metamorphosed Archean aged rocks (3.5 billion years). The steeply dipping ore
bodies lie along the contact between overlying metasedimentary rocks and
underlying volcanic rocks. Gold mineralization is hosted primarily by a fine
grained feldspar porphyry unit associated with pyrite, barite and molybdenum.
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 36,765 34,050
Ounces of gold per ton 0.150 0.166
Contained ounces of gold (000's) 5,497 5,669
Operating Data (100% Basis)
1995 1994
------------- -------------
Production Statistics:
Tons of ore milled (000's) 2,608 2,538
Mill feed ore grade (oz. gold/ton) 0.163 0.184
Mill recovery (%) 95 95
Gold recovered (000's ozs.) 405 445
Homestake's Cost per Ounce of Gold:
Cash operating costs $214 $191
Other cash costs 8 12
Noncash costs 38 42
------------- -------------
Total production costs $260 $245
David Bell Mine
The David Bell gold mine is located in the Hemlo Gold Camp. The mine is
operated by the Teck-Corona Operating Corporation ("TCOC") with its own
personnel. Homestake and Teck each own a 50% interest in TCOC. The mine
commenced operations in 1985.
The mine is located on the same ore trend as the Williams mine. The
property consists of approximately 650 acres held under two freehold patents.
Homestake and Teck are required to provide funds equally to TCOC for all costs
incurred to operate the mine. Homestake and Teck have mutual rights of first
refusal over each other's interest in the David Bell mine and shares of TCOC.
18
The David Bell mine is an underground operation which is accessible by
a 3,819-foot shaft. Production is from stopes using longhole mining methods,
with cement, tailings, sand and waste rock utilized as backfill. Mill throughput
was approximately 1,333 TPD in 1995. Cyanidation and the CIP process are used to
recover gold. The facilities and equipment are modern and in good condition.
Water and power supplies are the same as those at the Williams mine.
Treated reclaimed process water is used to service the underground operations.
C-zone development and the construction of the related infrastructure
was completed during 1995 and production commenced in August. The average width
of ore at the David Bell mine is decreasing as mining progresses away from the
central core of the ore body. In an effort to optimize ore extraction and to
minimize development costs, stoping of narrow-width ore by longitudinal longhole
retreat continued during the year. Gold production decreased in 1995 as a result
of lower ore grades and recoveries and reduced mill throughput.
Approximately 66% of the ounces mined in 1995 were replaced through
reserve additions. Homestake and Teck each have a 50% interest in efforts to
explore and develop mineral properties within approximately two miles of the
David Bell property.
The collective bargaining agreement with the United Steel Workers of
America expired in October 1995 and negotiations on a new contract are ongoing.
During 1995, the mine operated in compliance with all its environmental
permits.
The property is subject to a 3% net smelter return royalty.
Homestake's share of production at the David Bell mine was 79,383
ounces in 1995 compared with 96,109 ounces in 1994.
Geology
See "Williams Mine - Geology."
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 5,424 5,463
Ounces of gold per ton 0.309 0.317
Contained ounces of gold (000's) 1,677 1,731
19
Operating Data (100% Basis)
1995 1994
------------- -------------
Production Statistics:
Tons of ore milled (000's) 487 512
Mill feed ore grade (oz. gold/ton) 0.347 0.399
Mill recovery (%) 94 94
Gold recovered (000 ozs.) 159 192
Homestake's Cost per Ounce of Gold:
Cash operating costs $192 $156
Other cash costs 11 11
Noncash costs 48 44
------------- -------------
Total production costs $251 $211
Quarter Claim
The Quarter Claim constitutes approximately one-fourth of a mining
claim, which was originally part of the David Bell property, and was optioned to
and subsequently acquired by Hemlo Gold Mines Inc. ("Hemlo Gold") in 1982. Hemlo
Gold developed a shaft on the Quarter Claim and reserved hoisting and milling
capacity of 500 TPD at its mill to process any ore found on the Quarter Claim.
Homestake has a 25% net profits interest in all ore recovered from the Quarter
Claim. In 1995, the net profits interest agreement was amended. The amended net
profits interest is based on a deemed production rate, deemed production costs
and the market price of gold. The deemed production rate is based upon a minimum
committed throughput of 500 TPD multiplied by: (a) the average ore grade of the
remaining Quarter Claim reserves; (b) a recovery factor and; (c) 95%.
Homestake's share of production at the Quarter Claim was 7,140 ounces
in 1995 compared with 7,745 ounces in 1994.
Geology
See "Williams Mine - Geology."
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 1,113 1,185
Ounces of gold per ton 0.258 0.254
Contained ounces of gold (000's) 287 300
20
Operating Data (100% Basis)
1995 1994
------------- -------------
Production Statistics:
Tons of ore milled (000's) 115 114
Mill feed ore grade (oz. gold/ton) 0.257 0.281
Mill recovery (%) 96 97
Gold recovered (000 ozs.) 29 31
Homestake's Cost per Ounce of Gold:
Cash operating costs $155 $165
Other cash costs 12 12
Noncash costs 1 -
------------- -------------
Total production costs $168 $177
Nickel Plate Mine
The Nickel Plate gold mine, located near Hedley, British Columbia, is
owned 100% by Homestake. The mine was an underground gold mine prior to 1930 and
from 1934 to 1955. Current operations began in 1987.
The property is comprised of 111 Crown-granted claims, six reverted
Crown-granted claims, two mining leases, 26 mineral claims and certain surface
rights, covering approximately 8,077 acres. A 30-mile paved road from Penticton,
British Columbia, provides access to the site.
Mining is carried out by conventional open-pit methods. Ore is
processed in a 4,000-TPD mill. Mill processing comprises crushing, grinding,
cyanidation and Merrill Crowe gold recovery. The Inco sulphur dioxide process is
used to reduce cyanide concentrations in the tailings pond. The facilities and
equipment are modern and in good condition.
The majority of the mine's process water is obtained from the tailings
impoundment basin. Fresh water make-up is supplied from Cahill Creek during
spring run-off and stored in a process water pond. Power is supplied by West
Kootenay Power under an annually renewable contract.
The ore reserve at the Nickel Plate mine will be depleted by the end of
the third quarter of 1996. Reclamation of the property, in accordance with a
plan filed with British Columbia's regulatory agencies, is in process.
During 1995, the mine operated in compliance with all its environmental
permits.
Geology
The Nickel Plate ore body is situated within the rocks of the
Jurassic-aged Hedley Formation consisting of thinly bedded calcareous siltstones
and layered to massive limestone units dipping northwest at 20 to 30 degrees.
The formation is intruded by Early Jurassic, coarse-grained porphyritic diorite.
A large hydrothermal system was associated with the diorite intrusions.
Gold-bearing sulfides (pyrrhotite,
21
pyrite and chalcopyrite) were emplaced during the last phase of this
hydrothermal process. Higher grades are associated with the contacts of the
diorite dikes and sills and the Hedley formation and are confined to the skarn
zone.
Year-end Proven and Probable Ore Reserves
1995 1994
------------- -------------
Tons of ore (000's) 940 2,889
Ounces of gold per ton 0.079 0.077
Contained ounces of gold (000's) 74 223
Operating Data
1995 1994
------------- -------------
Production Statistics:
Tons of ore milled (000's) 1,464 1,438
Mill feed ore grade (oz. gold/ton) 0.077 0.070
Mill recovery (%) 81 81
Gold recovered (000 ozs.) 91 82
Cost per Ounce of Gold:
Cash operating costs $379 $349
Other cash costs - -
Noncash costs 56 54
------------- -------------
Total production costs $435 $403
Snip Mine
The Snip gold mine is located at the junction of Bronson Creek and the
Iskut River, 56 air miles north of Stewart in northwestern British Columbia. The
mine is 40% owned by Prime. Cominco Ltd. ("Cominco") owns the remaining interest
and is the operator. Cominco receives a management fee for its services as
operator equivalent to 5% of cash expenditures made at the property. The mine
commenced operations in 1991.
The property consists of a mining lease issued to Cominco for a term of
30 years, together with three mineral claims also recorded in the name of
Cominco covering approximately 3,637 acres.
The mine is serviced by aircraft which utilize the mine's 4,500-foot
long landing strip. In addition, a hovercraft transports mine concentrates, fuel
and other supplies along the Iskut and Stikine rivers between the mine and
Wrangell, Alaska from late March to early November each year. During the winter
months, access is by aircraft due to ice accumulations on the rivers.
The Snip mine is an underground operation serviced by three adits and a
haulageway at the 400-foot level. Mining is carried out through a combination of
shrinkage, conventional and mechanized cut and fill. Backfill is either
underground waste rock or mill tailings which are pumped to the mine and mixed
with cement. The mill has a capacity of 500 TPD. Approximately 91% of the gold
contained in the ore is recovered. A gravity circuit recovers about 33% of the
gold and the remaining gold is recovered in
22
flotation concentrates containing approximately ten ounces of gold per ton. The
concentrates are sold to a third-party facility located near Stewart for final
gold recovery. Mill tailings are deposited in a pond close to the mine and
reclaimed water is pumped back to the mill for reuse. The facilities and
equipment are modern and in good condition. Workers are on a four-week work
schedule followed by two weeks off.
Water is supplied from Bronson Creek and power is produced on-site by
diesel generators.
Exploration diamond drilling on the Twin West zone completed in 1995
provided sufficient encouragement to proceed with an underground development
program to allow for further exploration drilling in 1996.
During 1995, the mine operated in compliance with all its environmental
permits. There has been controversy regarding the environmental impact of the
mine's hovercraft operations on fish in the Iskut river. Cominco and the Company
have agreed to further studies despite prior investigations indicating little
environmental impact.
Homestake's share of gold production in 1995 was 51,310 ounces compared
to 51,592 ounces in 1994.
Geology
The main ore body at the Snip mine is called the Twin Zone, a 1.5 to 50
feet thick quartz-carbonate-sulfide-filled shear structure within a Triassic
sedimentary unit. Gold primarily occurs as finely disseminated grains along
pyrite grain boundaries. Other sulfides within the Twin Zone include pyrrhotite,
chalcopyrite and sphalerite, with trace arsenopyrite. The vein structure has
been traced over a strike length of 3,300 feet and has a known vertical extent
to 1,650 feet.
Prime has a 40% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------- -------------
Tons of ore (000's) 383 553
Ounces of gold per ton 0.776 0.797
Contained ounces of gold (000's) 297 441
Operating Data (100% Basis)
1995 1994
------------- -------------
Production Statistics:
Tons of ore milled (000's) 187 190
Mill feed ore grade (oz. gold/ton) 0.751 0.743
Mill recovery (%) 91 92
Gold recovered (1) (000 ozs.) 128 129
23
Homestake's Cost per Ounce of Gold:
Cash operating costs $175 $173
Other cash costs - -
Noncash costs 56 59
------------- -------------
Total production costs $231 $232
<FN>
(1) Includes recoverable gold contained in dore and in concentrates.
AUSTRALIA
In late 1995 and early 1996, Homestake acquired the 18.5% of HGAL that
it did not already own (See "SIGNIFICANT 1995 AND 1996 DEVELOPMENTS" on page 3).
HGAL is a gold mining and exploration company whose principal asset is a 50%
ownership in Australia's largest gold mining operation, the consolidated surface
and underground gold operations at Kalgoorlie, Western Australia.
HGAL explores for gold in Australia and has offices in Perth and
Kalgoorlie, Western Australia.
Kalgoorlie Operations
The Kalgoorlie operations are located 340 miles northeast of Perth,
Western Australia on 164 state leases and licenses covering approximately 30,000
acres adjacent to the town of Kalgoorlie. The mineral leases are renewable on an
annual basis for a fee to the state. Homestake acquired its interest in the
original Kalgoorlie Mining Associates joint venture in 1976. Mining operations
in the Kalgoorlie region date back to 1893. Access to the operations is by paved
road.
HGAL owns a 50% interest in three joint ventures in the Kalgoorlie
district: the Fimiston/Paringa Venture ("FPV"), the Mt Percy Venture and the
Kalgoorlie Mining Associates Venture. Gold Mines of Kalgoorlie Limited and its
affiliates ("GMK") own the other 50% interest. HGAL and GMK formed Kalgoorlie
Consolidated Gold Mines Pty Ltd ("KCGM"), a jointly-owned and controlled
company, to manage all the operations on a consolidated basis under the
direction of a management committee.
Mines operated by KCGM include the Super Pit open-pit gold mine and the
Mt. Charlotte underground gold mine. Ore from both of these operations is
treated at the Fimiston mill, the primary milling facility at Kalgoorlie. In
addition, ore also is processed at two smaller facilities, the Mt Percy and
Croesus mills. Sulfide concentrates produced at the Fimiston and Croesus mills
are roasted at the Gidji roaster, located 12 miles north of the main Kalgoorlie
operations, prior to final processing at the Fimiston mill. The facilities and
equipment at the Kalgoorlie operations generally are in good condition.
HGAL pays 50% of the costs and is entitled to receive 50% of the
production from all operations, except for the FPV area of the Super Pit where
HGAL pays 50% of venture costs but may not receive 50% of the production. Under
certain circumstances, GMK is entitled to receive more than 50% of gold
production out of the first 35.8 million tons of ore mined by open-pit methods
from the FPV area of the Super Pit. The disproportionate quantity of gold to be
received by GMK depends upon capital and production costs, gold prices and
levels of production from the FPV area. In 1995, HGAL paid to GMK 12,966 ounces
under the Disproportionate Sharing Arrangement ("DSA") compared to 15,781 ounces
in 1994. Through the end of 1995, approximately 18.7 million tons of ore have
been mined from the FPV
24
area of the Super Pit. See "LEGAL PROCEEDINGS" on page 42 for a description of a
legal action commenced by GMK against Homestake in respect of the calculation of
ounces payable to GMK under the DSA.
Contractors are employed to conduct surface mining operations, ore and
concentrate haulage and some specialized services. Fresh water is supplied under
allocation from the state water system and is piped 350 miles from Perth. Salt
water is taken from bores and underground mines. Power currently is purchased
under a number of agreements with the state power authority. KCGM is negotiating
a new power agreement with Normandy Power, a company associated with GMK.
In 1995, the Gidji roaster performed well within sulphur dioxide
emission limits established by the Western Australian government. Intercept
drainage channels were constructed in 1994 to isolate the Oroya tailings dam
from the nearby salt water drainage channel. The installation of a conveyor to
transport the Mt. Charlotte ore from the mine to the Fimiston mill during 1995
has substantially reduced noise levels and improved air quality. Previously,
this material had been moved to the Fimiston mill by a fleet of trucks. A safety
exclusion zone surrounding the Super Pit was established in 1993. Measures to
reduce noise and dust have resulted in a significant improvement in the
environment of residents living close to the mining operations.
Super Pit mining during 1990-1994 produced approximately 20% more ore
than predicted by the ore reserve model. In June 1995, Super Pit and Mt.
Charlotte ore reserves were revised using computer-aided modeling techniques
which more closely approximate actual mining experience. As a result, year-end
proven and probable ore reserves at Kalgoorlie were expanded by 18%. HGAL's
share of this increase was 830,000 ounces.
No royalties are payable on production.
Super Pit
This large open-pit mine is located along the "Golden Mile" ore bodies
previously mined from underground.
In 1995, 70.4 million tons of material were mined containing 8.7
million tons of ore, compared to 59.7 million tons mined containing 12.4 million
tons in 1994. HGAL's share of Super Pit gold production, net of ounces paid to
GMK under the DSA, was 262,570 ounces in 1995 and 289,625 ounces in 1994. The
1995 results reflect a temporary decline in production while the new Fimiston
mill additions were integrated with the existing complex and several
weather-related power outages during the year which halted operations.
Mt.Charlotte
This underground mine uses bulk mining methods and large conventional
diesel powered loaders and trucks. The main production level is 3,200 feet below
surface. Longhole stoping mining techniques are employed. Ore is crushed
underground with primary crushers before being hoisted to secondary crushers at
the surface.
25
Mill throughput was reduced at Mt Charlotte during 1995 due to
production difficulties following a mass-blast in late 1994 of a stope pillar
which contained 700,000 tons of ore in the lower levels of the mine. Production
problems have now been rectified and the mine has returned to more normal levels
of operation.
In 1995, 1.4 million tons of ore were mined from Mt. Charlotte compared
to 1.7 million tons of ore mined in 1994. HGAL's share of gold production was
47,496 ounces in 1995 and 61,021 ounces in 1994.
Mt Percy
The Mt Percy open cuts were mined to their planned economic depth in
July 1992, at which time mining ceased. Previously stockpiled low-grade Mt Percy
ore is blended with non-refractory ore from the Super Pit and Mt. Charlotte.
HGAL's share of gold production was 1,350 ounces in 1995 and 1,353
ounces in 1994.
Mills
Fimiston - a 28,000-TPD mill with CIP leaching and refractory sulfide
flotation circuits that processes Super Pit and Mt. Charlotte ore. Approximately
$90 million (100% basis) was spent during 1995 and 1994 on an expansion program
at the Fimiston mill, including a 5,000-TPD free-milling sulfide circuit to
treat Mt. Charlotte ore. The increase in capacity has improved the mill's
efficiency and replaced the capacity of the Oroya mill which was dismantled in
1995 to allow for further planned expansion of the Super Pit.
Croesus - a 3,000-TPD mill with CIP and refractory sulfide flotation
circuits that processes ore from the Super Pit.
Mt Percy - a 2,500-TPD mill with a CIP circuit that processes ore from
Mt Percy, the Super Pit and Mt. Charlotte.
Gidji - a roaster complex which comprises two converters and a CIP
circuit to process all sulfide concentrates.
The combined mills processed 10.7 million tons of ore in both 1995 and
1994.
Cash operating costs were higher in 1995 primarily as a result of
temporary declines in production while the new Fimiston mill additions were
integrated with the existing complex and while production was halted due to
power interruptions. The mining rate at the Super Pit is currently increasing as
the expansion of the pit continues at an increased rate. The recent Fimiston
expansion has increased milling capacity and efficiencies and, as a result, unit
operating costs at Kalgoorlie are expected to decline during 1996.
HGAL's share of 1995 gold production from the consolidated Kalgoorlie
operations, net of the ounces paid to GMK under the DSA, was 311,416 ounces
compared to 352,081 ounces in 1994.
26
Geology
The ore deposits mined in the Kalgoorlie Goldfields occur within an
intensely mineralized shear zone system in dolerite host rocks, within the
Norseman-Wiluna Greenstone Belt which is part of the Yilgarn Block of Western
Australia. The rocks are of Archaen age. The favorable structural metamorphic
and lithologic setting in conjunction with hydrothermal activity controlled gold
mineralization. During its history of operations since 1893, in excess of 40
million ounces of gold have been produced from the Kalgoorlie properties at
depths of up to 4,000 feet from high-grade lodes and adjacent disseminated
mineralization in the Golden Mile Dolerite, and from the large stockwork
mineralization which characterizes the Mt. Charlotte and Reward (underground)
ore bodies.
HGAL has a 50% share (subject to the DSA discussed above) of the
following amounts (Homestake's ownership interest in HGAL at December 31, 1995
and 1994 was 88.1% and 81.5%, respectively. See "SIGNIFICANT 1995 AND 1996
DEVELOPMENTS" on page 3.):
Year-end Proven and Probable Ore Reserves
(100% Basis)
1995 1994
------------ -------------
Tons of ore (000's) 184,136 158,790
Ounces of gold per ton 0.072 0.073
Contained ounces of gold (000's) 13,180 11,519
Operating Data (100% Basis)
1995 1994
------------ -------------
Production Statistics:
Super Pit:
Tons of ore mined (000's) 8,670 12,372
Stripping ratio 7.1:1 3.8:1
Tons of ore milled (000's) 9,186 8,964
Mill feed ore grade (oz. gold/ton) 0.067 0.077
Mill recovery (%) 88 88
Gold recovered (000s) 551 611
Mt Percy:
Tons of stockpiled ore milled (000's) 125 94
Mill feed ore grade (oz. gold/ton) 0.026 0.029
Mill recovery (%) 85 86
Gold recovered (000's) 3 3
27
Mt. Charlotte:
Tons of ore mined (000's) 1,440 1,680
Tons of ore milled (000's) 1,429 1,682
Mill feed ore grade (oz. gold/ton) 0.076 0.085
Mill recovery (%) 88 87
Gold recovered (000's) 95 122
Combined Production Statistics:
Tons of ore mined (000's) 10,110 14,052
Tons of ore milled (000's) 10,740 10,740
Mill feed ore grade (oz. gold/ton) 0.068 0.078
Mill recovery (%) 88 88
Gold recovered (000 ozs.) 649 736
Homestake's Consolidated Cost Per Ounce of Gold:
Cash operating costs $296 $257
Other cash costs - -
Noncash costs 46 41
------------ -------------
Total production costs $342 $298
CHILE
Homestake leases and operates the El Hueso gold mine and also conducts
exploration throughout Chile. Homestake's office is in Santiago, Chile.
The El Hueso mine is located in the Maricunga District of Chile about
600 miles north of Santiago at an elevation of approximately 12,500 feet. The
property is leased through June 1998 from Codelco, a government agency. The
lease includes rights to use the existing plant. The facilities are in good
condition. Access to the mine is by 14 miles of dirt road.
In February 1995, the El Hueso mine closed as reserves were depleted
and the 6,000-TPD crushing plant was shut down. Leaching of stockpiles will
continue until mid-1996.
Water and power are purchased from Codelco.
Reclamation activities at the El Hueso mine have commenced.
Environmental monitoring carried out during 1995 indicated that all discharges
were in compliance with permit levels.
Additional land has been leased from Codelco through the year 2004.
This additional land is subject to 30% to 50% profit sharing with Codelco on
possible future production. During 1995 and 1994, an exploration program
identified a new gold-bearing deposit, Manto Agua de la Falda, which contains an
ore reserve of 1.0 million tons at a grade of 0.18 ounces of gold per ton. A
preliminary agreement in principle has been reached with Codelco to form a new
company to permit the processing of the Manto Agua de la Falda reserves at the
existing El Hueso plant and to explore for and exploit resources on additional
lands controlled by Codelco. An engineering study is in progress to determine
the most efficient method of processing the ore at the existing El Hueso plant.
28
Geology
The El Hueso property is located within the Potrerillos porphyry copper
district and comprises Mesozoic marine sediments that have been overlain by
Tertiary volcanics and intruded by Tertiary porphyries. Gold mineralization is
thought to be related to the porphyry intrusions and has been previously mined
in both sedimentary and volcanic units which have been complexly folded and
faulted both before and after mineralization. The new deposit, Manto Agua de la
Falda, is hosted in calcareous sediments.
MEXICO
In February 1995, the Company sold its 28% equity interest in Torres
silver mining complex for $6.0 million.
SULPHUR
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulphur
deposit, which at December 31, 1995 contained proven recoverable reserves of
approximately 68 million long tons of sulphur. Freeport McMoRan Resource
Partners, Limited Partnership ("FRP") owns a 58.3% interest in the deposit and
is the operator under a joint operating agreement. IMC Fertilizer Inc. owns the
remaining 25%.
The sulphur deposit is located in the Gulf of Mexico approximately 36
miles east of Venice, Louisiana in waters approximately 210 feet deep. The
deposit is approximately 1,500 feet below the sea floor. The federal sulphur
lease under which the deposit is held requires a royalty of 12.5% of the
wellhead value.
The operating agreement provides that each participant pays its share
of capital and operating costs, and has the right to take its share of
production in kind in proportion to its undivided interest.
The sulphur deposit is being mined using the Frasch process, a method
of extraction which injects steam to liquefy the sulphur, which is then pumped
to surface. Based on current reserve estimates, projected costs and prices,
annual production is expected to average two million long tons over a remaining
reserve life in excess of 30 years.
Fabrication and installation of production facilities began in 1990.
Initial sulphur production commenced in 1992. Initial production was lower than
anticipated because the production of overlying oil and gas reserves slowed the
heating of the sulphur dome to required production temperatures. Full sulphur
production levels of 5,500 TPD were reached in December 1993. Sulphur production
averaged 6,000 TPD during 1995. Homestake's 16.7% share of development
expenditures through 1995 was approximately $123 million.
FRP filters, blends, markets and delivers Homestake's share of sulphur
production under an agreement having an initial term of ten years from
commencement of production in 1992. Homestake can terminate the agreement by
giving FRP two-years notice.
During 1995, the sulphur market continued to strengthen and sulphur
prices averaged $68 per ton during 1995 compared to $53 per ton in 1994, a
significant improvement from a 20-year low which had lowered average realized
prices to approximately $45 per ton at the end of 1993. At current sulphur price
levels of approximately $70 per ton, Homestake expects its sulphur operations to
break even during 1996.
29
During sulphur exploration, oil and gas were discovered overlying the
sulphur deposit. In 1990, the participants acquired the oil and gas rights from
Chevron USA Inc. for a total of $150 million, including reimbursement of certain
costs incurred in partial development of the reserves. Homestake's 16.7% share
of the oil and gas purchase and development costs through 1995 was approximately
$56 million.
The federal oil and gas lease requires a 16.7% royalty payment based on
wellhead value. In addition, Chevron retained the right to share in the proceeds
of future production should the price or volume realized exceed those which were
used by the parties as the basis for determining the purchase price.
Oil and gas production, which peaked during 1992, is expected to
continue to decline over the next few years. Oil production (100% basis) totaled
4.5 million barrels in 1995 compared to 5.2 million barrels in 1994. Homestake's
share of remaining recoverable oil reserves at December 31, 1995 is estimated to
be 1.9 million barrels after adjusting for the federal royalty. The remaining
carrying value of Homestake's investment in the Main Pass 299 oil and gas
property is $8.5 million at December 31, 1995.
Homestake has a 16.7% share of the following amounts:
Year-end Proven and Recoverable Reserves
(100% Basis)
1995 1994
--------- -------------
Tons of sulphur (000's) 68,130 70,321
Barrels of oil (000's) 15,873 15,521
Production Statistics (100% Basis)
1995 1994
--------- -------------
Tons of sulphur (000's) 2,190 2,259
Barrels of oil (000's) 4,535 5,240
Homestake's Per Unit Data
1995 1994
--------- -------------
Average Sales Realizations:
Per ton of Sulphur $68 $53
Per barrel of oil 16 14
Costs
Sulphur cash operating costs per ton $55 $49
Sulphur noncash costs per ton 11 11
--------- -------------
Total production costs $66 $60
Oil cash operating costs per ton $5 $4
Oil noncash costs per barrel 8 6
--------- -------------
Total production costs $13 $10
30
MINERAL EXPLORATION AND DEVELOPMENT
Total exploration expenses, excluding in-mine exploration at
Homestake's operating mines and capitalized costs associated with development
stage projects, amounted to $27.5 million in 1995 and $21.3 million in 1994.
Expenses related to the in-mine exploration at Homestake's operating mines
totaled $7.2 million in 1995 and $8.4 million in 1994. These expenses are
included in the individual mine property operating expenses and cost per ounce
calculations. In addition, $2.2 million of costs associated with development
stage projects were capitalized in 1995.
United States corporate exploration expenses totaled $12.8 million in
1995 and $11.8 million in 1994. Domestic exploration expenses in 1996 are
expected to be approximately $14.5 million.
Exploration at the Ruby Hill Project expanded into several areas
surrounding the West Archimedes deposit during 1995. In the East Archimedes
zone, additional gold mineralization was encountered in association with
siliceous breccias, skarns, and carbonate replacement bodies developed in
Cambrian and Ordovician carbonate lithologies. Gold mineralization was also
encountered in association with silicification and decalcification of Cambrian
carbonate lithologies in the Achilles zone, located several thousand feet west
of the Archimedes zones, and in the Jewel Ridge zone, located several thousand
feet south of the Archimedes zones. Some of this mineralization has been
oxidized. Exploration expenditures totaled approximately $4.2 million during the
year and $3 million of exploration expenditures are planned for 1996.
At the White Pine Project, located approximately 60 miles south of
Elko, Nevada, Homestake has entered into a joint venture agreement with Western
States Minerals Corporation in which Homestake has the right to earn a 60%
interest in the property by spending $4 million prior to June 21, 2000. Several
small deposits of gold mineralization have been previously identified on the
property and are associated with silicification and decalcification of
calcareous shales of Devonian to Mississippian age. In 1995, Homestake began the
exploration of these strata in alluvium covered areas along certain favorable
structures. Expenditures totaled approximately $0.6 million during the year and
$1.2 million of expenditures are planned for 1996.
At the Mountain View Project, located approximately 90 miles north of
Reno, Nevada, Homestake has entered into a joint venture agreement with Canyon
Resources Corporation in which Homestake has the right to earn a 51% interest in
the property by spending $4 million prior to December 31, 1999. Small deposits
of partially oxidized, but locally high-grade, gold mineralization have been
previously identified on the property, where they are hosted by both Miocene
rhyolitic volcanics and pre-Cretaceous metasediments. Mineralization is
associated with brecciation and quartz veining and is accompanied by pyrite and
marcasite. In 1995, Homestake began exploration of the principal trend of
brecciation and veining in alluvium covered areas of the property. Expenditures
totaled approximately $0.7 million during the year and $1.0 million of
expenditures are planned for 1996.
During 1995, an exploration program was conducted at the Homestake
mine's Open Cut. The program consisted of core and reverse circulation drilling
to quantify the remaining reserves in the immediate proximity of the Open Cut.
Exploration expenditures totaled $1.3 million in 1995 and similar expenditures
are planned for 1996.
Through its subsidiaries, Homestake also explores for gold and
evaluates gold acquisition opportunities internationally. International
exploration expenses totaled $14.7 million in 1995 and $9.5 million in 1994.
During 1995, Homestake and Prime entered into a three-year agreement
(51% Homestake and 49% Prime) to jointly fund and participate in a Canadian
exploration program. All of Homestake's Canadian
31
exploration activities, with the exception of the areas surrounding current
operating mines and certain previously active exploration properties, will be
conducted in accordance with this agreement.
In July 1995, Homestake entered into an agreement with Navan, whereby
Homestake can acquire 50% of Navan's interest in the Chelopech gold/copper
operations, located 45 miles east of Sofia, Bulgaria (See "SIGNIFICANT 1995 AND
1996 DEVELOPMENTS" on page 3). Gold mineralization at Chelopech is accompanied
by abundant pyrite and copper sulfides and is currently being mined underground
from pipe-like bodies of silicification and argillization in Cretaceous
volcanics. In 1995, an underground diamond drilling program commenced to explore
for additional mineralization. Expenditures totaled approximately $0.3 million
during the year.
At the El Hueso property in Chile, Homestake has continued its
exploration of the Manto Agua de la Falda zone and has encountered additional
gold mineralization in the nearby Jeronimo zone. Mineralization in the Manto
Agua de la Falda is partially oxidized, while mineralization in the Jeronimo
zone is accompanied by pyrite and other sulfides. Expenditures totaled $1.6
million during the year and $2.5 million of expenditures are planned for 1996.
During 1995, through its acquisition of a 5% interest in Zoloto,
Homestake participated in the funding of a feasibility study at the Pokrovskoye
project in eastern Russia (See "SIGNIFICANT 1995 AND 1996 DEVELOPMENTS" on page
3). Gold mineralization at Pokrovskoye is associated with quartz veining and
silicification in Cretaceous granites and dacitic tuffs and is accompanied by
pyrite, marcasite, and arsenopyrite.
In October 1995, Homestake and Prime entered into agreements to
collectively purchase (51% Homestake and 49% Prime) an approximate 6% interest
in Teuton Resources Corp. ("Teuton") and an approximate 7% interest in Minvita
Enterprises Ltd. ("Minvita") for a total of $2 million. Teuton and Minvita will
spend a minimum of 90% of the $2 million on exploration and development of their
jointly owned property in northwestern British Columbia, Canada. As part of
these agreements, Homestake and Prime also have been granted rights of first
refusal on the property and any financings related to the exploration and
development of the property. To date, several zones of structurally-controlled
gold mineralization have been identified on the property by trenching and
limited diamond drilling.
At Eskay Creek, computer-aided modeling of the deposit led to the
identification and drill testing of the NEX zone, an apparent stratigraphic
extension to the northeast end of the main 21B Eskay Creek ore zone. High-grade
mineralization comparable to the 21B zone was encountered in both the NEX zone
and the overlying Hangingwall zone. The two zones, which are well located for
access from current underground workings, contain an estimated geological
resource of 227,000 tons at a grade of 0.88 ounces of gold and 56 ounces of
silver per ton. The 1996 surface exploration budget for Eskay Creek and the
surrounding area has been increased to $1.3 million from $0.4 million spent in
1995.
During 1995, Homestake continued work on the El Foco project, a 119,628
acre property situated south of the confluence of the Chicanan and Cuyuni rivers
in Bolivar State, Venezuela. Homestake has entered into three contracts with
Corporacian Venezolana de Guayana, a Venezuelan government agency, under which
the Company can earn a 90% interest in the property by completing exploration
over a four-year period. During 1995, Homestake completed 500 miles of line
cutting, collected 10,000 soil samples, conducted surface geologic mapping and a
ground magnetic survey, and drilled 1,500 auger holes. Seven gold-in-soil
anomalies were identified over a 7 mile by 4 mile area. These anomalies will be
tested by diamond drilling in 1996 when the required permits are received.
Exploration expenditures on this property totaled $2 million in 1995 and
expenditures of $1.3 million are planned for 1996.
32
GLOSSARY AND INFORMATION ON RESERVES
GLOSSARY
The following terms used in the preceding discussion mean:
"Cash operating costs" are costs directly related to the physical
activities of producing gold (includes mining, processing and other plant costs,
deferred mining adjustments, third-party refining and smelting costs, marketing
expenses, on-site general and administrative costs, in-mine exploration
expenditures that are related to production and other direct costs, but excludes
depreciation, depletion and amortization, corporate general and administrative
expense, mineral exploration expense, royalties, federal and state income and
production taxes, Canadian mining taxes, financing costs and accruals for final
reclamation).
"Other cash costs" are costs that are not related to, but may result
from, gold production activities (includes royalties and federal and state
production taxes, but excludes Canadian mining taxes).
"Total cash costs" are the sum of cash operating costs and other cash
costs.
"Noncash costs" are costs that are typically accounted for ratably over
the life of an operation (includes depreciation, depletion and amortization of
capital assets, accruals for the costs of final reclamation and long-term
monitoring and care that are usually incurred at the end of mine life, and the
amortization of the economic cost of property acquisitions, but excludes
amortization of deferred tax purchase adjustments relating to property
acquisitions established in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes.")
"Total production costs" is the sum of cash operating costs, other cash
costs and noncash costs.
"In-situ deposit" refers to reserves still in the ground. This does not
include previously mined stockpiled reserves that are being stored for future
processing.
"Mineral deposit" and/or "Mineralized Material" is a mineralized body
which has been delineated by appropriate drilling and/or underground sampling.
Under United States Securities and Exchange Commission standards, a mineral
deposit does not qualify as a reserve unless the recoveries from the deposit are
expected to be sufficient to recover total cash and noncash costs for the mine
and related facilities.
"Run-of-mine ore" is mined ore which has not been subjected to any
pretreatment, such as washing, sorting or crushing, prior to processing.
"Stripping ratio" is the ratio of the number of tons of waste to the
number of tons of ore extracted at an open-pit mine.
"Tonnage" and "grade" refer, respectively, to the quantity of reserves
and the amount of gold (or other products) contained in such reserves and
include estimates for mining dilution but not for other processing losses.
33
"Tons" means short tons (2,000 pounds) unless otherwise specified.
"Adit" or "Portal" is a tunnel driven into a mountainside providing
access to an ore deposit.
INFORMATION ON RESERVES
Gold
The proven and probable gold ore reserves stated in this report reflect
estimated quantities and grades of gold in in-situ deposits and in stockpiles of
mined material that Homestake believes can be recovered and sold at prices
sufficient to recover the estimated future cash cost of production and remaining
investment. The estimates of cash costs of production are based on current and
projected costs. Estimated mining dilution has been factored into the reserve
calculation. The Company used a spot price of $375 per ounce of gold in its
mine-by-mine evaluation of mining properties and investments at December 31,
1995.
Silver
The proven and probable silver ore reserves have been calculated on the
same basis as gold ore reserves.
Sulphur
Homestake's proved sulphur reserves represent the quantity of sulphur
in the Main Pass 299 deposit for which geological, engineering and marketing
data give reasonable assurance of recovery and sale under projected economic and
operating conditions at prices sufficient to cover the estimated future cash
costs of production and the remaining investment.
Oil
Homestake's proved oil reserves at Main Pass 299 are the estimated
quantity of crude oil and condensate which geological and engineering data give
reasonable assurance of recovery and sale under projected operating conditions
at prices sufficient to cover the estimated future cash costs of production and
the remaining investment. The estimate is based on limited reservoir and
engineering data.
Estimation of Reserves
Gold reserves are estimated for each of the properties operated by
Homestake based upon factors relevant to each deposit. Gold ore reserves for
those properties not operated by Homestake are based on reserve information
provided to Homestake by the operator. Homestake has reviewed but has not
independently confirmed the information provided by these operators.
The sulphur and oil reserves at Main Pass 299 are based on information
provided by the operator. Homestake reviewed the initial reserve data with
independent consultants. Homestake has reviewed subsequent adjustments to these
reserves but has not independently confirmed the reserve adjustments provided by
the operator.
34
Other Information
Ore reserves are reported as general indicators of the life of mineral
deposits. Changes in reserves generally reflect (i) efforts to develop
additional reserves; (ii) depletion of existing reserves through production;
(iii) actual mining experience; and (iv) price forecasts. Grades of ore actually
processed from time to time may be different from stated reserve grades because
of geologic variation in different areas mined, mining dilution, losses in
processing and other factors. Recovery rates vary with the metallurgical
characteristics and grade of ore processed.
Neither reserves nor projections of future operations should be
interpreted as assurances of the economic life of mineral deposits or of the
profitability of future operations.
ENVIRONMENTAL MATTERS
General
Homestake has made significant capital expenditures to minimize the
effects of its operations on the environment. Capital expenditures primarily are
for the purchase or development of environmental monitoring equipment and
containment of waste. In 1995, these expenditures totaled approximately $4
million compared to $6 million in 1994. Homestake estimates that during 1996,
capital expenditures for such purposes will be approximately $3 million and that
during the five years ending December 31, 2000, such capital expenditures will
be approximately $35 million.
Homestake also incurs significant operating costs in order to protect
the environment. Operating costs include current reclamation costs, accruals for
future reclamation expenditures, and air, water and other environmental
monitoring costs. Such additional costs totaled approximately $15 million in
1995, compared with approximately $16 million in 1994, not including related
depreciation expense of $5 million and $6 million, respectively. Homestake
estimates that environmental and related operating and depreciation costs in
1996 will approximate the 1995 amounts. The above amounts exclude expenditures
related to the Company's discontinued uranium operations.
Under applicable law and the terms of permits under which Homestake
operates, Homestake is required to reclaim land disturbed by its operations.
Homestake charges reclamation costs incurred in connection with its exploration
activities as expenses in the year in which incurred. For mining operations,
Homestake makes periodic accruals for costs of reclamation. In the mining
industry, most reclamation work takes place generally after mining and related
operations terminate. However, Homestake has adopted a policy of conducting
reclamation during operations where practical. As a result, an increasing amount
of reclamation is being conducted simultaneously with mining. At December 31,
1995 and 1994, Homestake had accrued a total of $56.4 million and $49.2 million,
respectively, for future reclamation and related costs.
Homestake's operations are conducted under permits issued by regulatory
agencies. Many permits require periodic renewal or review of their conditions.
Homestake cannot predict whether it will be able to renew such permits or
whether material changes in permit conditions will be imposed.
35
RCRA
The United States Environmental Protection Agency ("EPA"), has not yet
issued final regulations for management of mining wastes under the Resource
Conservation and Recovery Act ("RCRA"). The ultimate effects and costs of
compliance with RCRA cannot be estimated at this time.
CERCLA
The United States Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), requires the EPA to list known or
threatened releases of hazardous substances, pollutants or contaminants. In
1983, the EPA began publishing the National Priorities List ("NPL"). The listing
of a site does not constitute a determination that any remedial action is
required, nor that any person is liable for any remedial action or environmental
damage. CERCLA imposes heavy liabilities on any person who is responsible for an
actual or threatened release of any hazardous substance, including liability for
oversight costs incurred by the EPA. Congressional hearings for CERCLA
reauthorization occurred in 1994 and 1995. CERCLA reauthorization was not
enacted in 1995, but is expected to occur in 1996.
Whitewood Creek
Deposits of mine rock tailings on lands along an 18-mile stretch of
Whitewood Creek in western South Dakota constitute a site on the NPL. The EPA
asserts that discharges of tailings by mining companies, including Homestake,
beginning in the nineteenth century, have contaminated the soil and stream bed.
In August 1990, Homestake signed a consent decree with the EPA in
United States of America v. Homestake Mining Company of California, (U.S.
District Court, W.D., S.D., Civil Action 90-5101). The consent decree required
Homestake to carry out remedial work at Homestake's expense and to reimburse the
EPA for oversight costs. The decree also provided for the three counties in
which the property is located to enact institutional controls which would limit
the future use of the properties included within the area of the site. Remedial
field work was completed in 1993. Institutional control ordinances prepared with
the assistance of the Company have been adopted in all three of the affected
counties. The Record of Decision also requires the Company to continue to
perform long-term monitoring of the site. The consent decree was terminated by
the Court on January 10, 1996. Homestake has requested deletion of the site from
the NPL and the EPA published a notice in the Federal Register on November 30,
1995 stating its intent to delete this site from the NPL. The Company expects
the site to be deleted in 1996. The Company has paid all oversight costs billed
to date.
In connection with the program to implement institutional controls, the
Company decided to offer to purchase all properties along Whitewood Creek that
were affected by the institutional controls. Approximately $1.3 million has been
spent to acquire property at the site from 9 landowners. Negotiations are
continuing to acquire more of the site. The Company estimates that the total
cost for purchasing all of the affected property would be approximately $3
million. These costs are expensed as and when incurred.
In 1983, the State of South Dakota filed claims against Homestake for
natural resources damages resulting from the release of tailings into the
Whitewood Creek site. The State has taken no action to pursue the claims.
36
Grants Tailings
Homestake's closed uranium mill site near Grants, New Mexico is listed
on the NPL. The EPA asserted that leachate from the tailings contaminated a
shallow aquifer used by adjacent residential subdivisions. Homestake paid the
cost of extending the municipal water supply to the affected homes. Homestake
also has operated a water injection and collection system that has significantly
improved the quality of the aquifer. The estimated costs of continued
remediation are included in the accrued reclamation liability. Homestake has
settled with the EPA concerning its oversight costs for this site and no
additional oversight costs are accruing. The consent decree has been terminated.
Under Nuclear Regulatory Commission ("NRC") regulations, the
decommissioning of the uranium mill tailings facilities is in accordance with
the provisions of the facility's license. The facility license sets the closure
of the two tailings impoundments as 1996 and 2001, subject to extension under
certain circumstances. No difficulties are anticipated in obtaining an
extension. The NRC and EPA signed a Memorandum of Understanding in 1993 which
has established the NRC as the oversight and enforcement agency for
decommissioning and reclamation of the site. Mill decommissioning was completed
in 1994 and reclamation of the Grants large tailings site is scheduled for
completion in 1997. During 1995, the Company incurred approximately $14.5
million of reclamation expenditures at the Grant's facility and an additional
$3.5 million is planned to be expended during 1996.
Title X of the Energy Policy Act of 1992 (the "Act") authorized
appropriations of $270.0 million to cover the Federal Government's share of
certain costs of reclamation, decommissioning and remedial action for by-product
material (primarily tailings) generated by certain licensees as an incident of
uranium sales to the Federal Government. Reimbursement is subject to compliance
with regulations of the Department of Energy ("DOE"), which were issued in 1994.
Pursuant to the Act, the DOE is responsible for 51.2% of the past and future
costs of reclaiming the Grants site in accordance with Nuclear Regulatory
Commission license requirements. The Company's balance sheet at December 31,
1995 includes a receivable of $18.7 million for the DOE's share of reclamation
expenditures made by the Company through 1995. The Company believes that its
share of the estimated remaining cost of reclaiming the Grants facility, net of
estimated proceeds from the ultimate disposals of related assets, is fully
provided in the financial statements at December 31, 1995.
In 1983, the State of New Mexico filed claims against Homestake for
natural resource damages resulting from the Grants site. The State has taken no
action to pursue the claims.
Lead
Prior to May 1986, Homestake Lead Company of Missouri ("HLCM"), a
wholly-owned subsidiary of the Company, was a joint venturer and partner with
subsidiaries of AMAX, Inc. ("AMAX") in the production of lead metal and lead
concentrates in Missouri. In May 1986, HLCM acquired AMAX's interest in the
Missouri facilities and operations and agreed to assume certain limited
liabilities of AMAX in connection with the Missouri facilities. In November
1986, HLCM entered into a partnership, The Doe Run Company ("Doe Run"), with
subsidiaries of Fluor Corporation ("Fluor"), under which HLCM and the Fluor
subsidiaries combined their existing United States lead businesses. Under the
Doe Run partnership agreement, HLCM contributed to Doe Run certain liabilities
of HLCM arising out of the lead business, including most obligations HLCM had to
AMAX arising in connection with HLCM's acquisition of AMAX's interest in the
Missouri facilities.
37
In May 1990, HLCM sold its interest in Doe Run to Fluor under an
agreement which provided that Fluor would indemnify HLCM against all liabilities
assumed by Doe Run to the extent that Doe Run was unable to discharge those
liabilities.
In June 1991, HLCM and AMAX were notified of a potential claim by the
Jackson County, Mississippi Port Authority for contamination of soil and water
alleged to have resulted from storage and shipment of lead dross at the Port of
Pascagoula prior to the formation of Doe Run; since that time, a number of other
lead producers and former lead producers have also been so notified. In July
1991, HLCM tendered the claim to Fluor and Doe Run. They rejected the tender and
HLCM filed suit in the Superior Court of Orange County, California for breach of
contract and declaratory relief (Superior Court, Dept. 20, No. 673777).
Subsequent to the filing of that action, HLCM tendered two additional potential
claims arising out of the pre-1986 lead business to Fluor and Doe Run. Doe
Run and Fluor rejected both tenders.
During the pendency of the action, Fluor and Doe Run joined AMAX in the
litigation. AMAX took the position that HLCM was obligated to indemnify AMAX for
off-site environmental liability associated with lead dross and smelter
by-products, but not for off-site environmental liability associated with lead
metal or lead concentrates. AMAX also took the position that the transfer to Doe
Run of obligations owed by HLCM to AMAX arising in connection with HLCM's
acquisition of AMAX's interest in the Missouri facilities was not binding on
AMAX and did not relieve HLCM of its obligations to AMAX.
In settlement of the matter in respect of AMAX, HLCM agreed to
indemnify AMAX in respect of future off-site environmental liability arising in
respect of lead dross and other smelter by-products. AMAX has acknowledged that
it is responsible for its proportionate share of off-site environmental
liability associated with lead metal and lead concentrates, and AMAX has
acknowledged the effectiveness of HLCM's transfer to Doe Run of obligations HLCM
had to AMAX arising in connection with HLCM's acquisition of AMAX's interest in
the Missouri facilities. HLCM and Fluor also agreed to dismiss Fluor out of the
litigation on the basis of a stipulation by Fluor acknowledging its
responsibility with respect to obligations of Doe Run to HLCM should Doe Run be
unable to satisfy its obligations.
In December 1993, trial was held with respect to HLCM's claims against
Doe Run and in January 1994, the court ruled against HLCM and in favor of Doe
Run. That ruling is being appealed.
Homestake and other companies are working with the Port of Pascagoula
to address the potential lead contamination situated on certain property held by
the Port Authority. The Port of Pascagoula is taking primary responsibility for
conducting an investigation of the site, but the Port also has made claims for
reimbursement against customers whose material was stored at and shipped through
the site. As a result of subsequent investigations conducted by the Company and
others, the Company believes that most of the material at the Pascagoula site,
and the material primarily responsible for any contamination, is lead
concentrate. Based on a review of shipping records to date, less than half of
the lead concentrate shipped through the Port of Pascagoula was produced and
sold for the account of the Company. The State of Mississippi Department of
Environmental Quality is, through regulatory oversight, reviewing the
investigation efforts and remediation plans that are being developed by the Port
Authority.
38
Foreign Operations
Homestake believes that its foreign operations comply with applicable
laws, regulations and permit conditions and has no knowledge of any significant
environmental liability or contingent liability resulting from its foreign
operations. Homestake expects that environmental constraints in foreign
countries will become increasingly strict.
CUSTOMERS
Sales of $102 million, $101 million, $92 million and $91 million to
four customers in 1995 were in excess of 10% of Homestake's consolidated
revenues. Homestake believes that the loss of any of these customers would not
have a material adverse impact on Homestake because of the active worldwide
market for gold.
CREDIT FACILITIES
See note 14 to the consolidated financial statements on page 38 of the
1995 Annual Report to Shareholders for details of the Company's credit
facilities. Such information is hereby incorporated by reference.
EMPLOYEES
The number of full-time employees at December 31, 1995 of Homestake and
its subsidiaries was:
Homestake mine (1) 967
McLaughlin mine 346
Nickel Plate mine 131
Eskay Creek mine 72
El Hueso mine (1) 23
United States corporate staff and other 76
Canada exploration and corporate staff 27
HGAL exploration and corporate staff 20
United States exploration 26
Santa Fe mine 7
Uranium 8
Chile exploration and corporate staff 31
-----------
Total 1,734
39
The number of full-time employees at December 31, 1995 in jointly-owned
operations in which Homestake participates was:
Kalgoorlie Consolidated Gold Mines Pty Ltd (1) 992
Williams Operating Corporation 604
Round Mountain mine 550
Teck-Corona Operating Corporation (1) 232
Rayrock managed operations (Marigold and
Pinson mines) 198
Snip mine 142
Main Pass 299 187
-----------
Total 2,905
<FN>
(1) Operations where a portion of the employees are represented by a
labor union.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages at December 31, 1995,
their business experience and principal occupations during the past five years
and their business backgrounds are:
Harry M. Conger - Chairman of the Board and Chief Executive Officer
since 1982, age 65. He has been Chief Executive Officer since December 1978 and
was President from 1977 to 1986. He is a mining engineer with over 40 years of
professional experience.
Jack E. Thompson - President and Chief Operating Officer since August
1994, age 45. From August 1994 to June 1995, he was also Chairman of Prime. He
was Executive Vice President, Canada of the Company and President of Prime from
1992 through August 1994. He also was President of North American Metals Corp.
from 1988 until 1993. He is a mining engineer with over 25 years of experience
in mining and mine management.
Gene G. Elam - Vice President, Finance and Chief Financial Officer
since September 1990, age 56. Before joining Homestake, he was Senior Vice
President, Administrative Services of Pacific Gas and Electric Company from
April 1989 through August 1990 and was Vice President and Controller from
January 1987 through March 1989. He was President and Chief Executive Officer of
The Pacific Lumber Company from 1982 to 1986, President in 1980 and 1981, and
Chief Financial Officer from 1972 until 1980. He is a certified public
accountant with over 34 years of experience in accounting and finance.
Lee A. Graber - Vice President, Corporate Development since 1983, age
47. From 1980 to 1983, he was Manager, Corporate Development and Planning. He
has over 25 years of experience in finance and corporate development.
Wayne Kirk - Vice President, General Counsel and Secretary since
September 1992, age 52. He was a partner in Thelen, Marrin, Johnson & Bridges
from 1976 to 1992. He has practiced law for more than 26 years.
40
Gillyeard J. Leathley - Vice President, Operations since May 1995, age
58. He joined Homestake in 1992 as Vice President, Canadian Operations. Prior to
joining Homestake, he was Senior Vice President, Operations for International
Corona Corporation from 1986 to September 1992. He has over 38 years of
experience in mining and mine management.
William F. Lindqvist - Vice President, Exploration since August 1995,
age 53. He rejoined Homestake from Newcrest Mining Company, where he was
Executive General Manager, Exploration. He was Vice President, Exploration at
Homestake from 1990 through 1992. He is a geologist with more than 25 years of
professional experience.
Ronald D. Parker - Vice President Canada and President, Homestake
Canada Inc. since August 1994, age 45. He also has been President and Chief
Executive Officer of Prime since August 1994. He was the Resident General
Manager of the McLaughlin mine from 1988 until August 1994. He is an engineer
with over 24 years of experience in mining and mine management.
Richard A. Tastula - Vice President, Australia since August 1995, age
52. He has been Managing Director of Homestake Gold of Australia Limited since
1993, and was Director of Operations from 1991 to 1993. For 18 years prior to
that time, he held various positions with Western Mining Corporation, Limited.
He has over 30 years of experience in mining and mine management.
David W. Peat - Vice President and Controller since December 1995, age
43. He was Controller of the Company from 1992 through November 1995. Prior to
joining Homestake in 1992, he was Vice President, Controller for International
Corona Corporation. He is a chartered accountant with over 19 years of
accounting and finance experience.
Jan P. Berger - Treasurer since August 1992, age 40. He has been with
Homestake since 1989, first as senior analyst in the finance group and from 1991
to 1992 was Manager, Internal Audit. Prior to joining Homestake, he was an
analyst for Bechtel Financing Services Inc. Before Bechtel, he worked as an
engineering and exploration geologist in the consulting and petroleum
industries. He has over 14 years of experience in exploration and finance.
No officer is related to any other officer by blood, marriage or
adoption.
Officers are elected to serve until the next annual meeting of the
Board of Directors at which officers are elected or until their successors are
chosen.
No arrangement or understanding exists between any officer and any
other person under which any officer was elected.
ITEM 2 - PROPERTIES
See Item 1 - Business.
41
ITEM 3 - LEGAL PROCEEDINGS
Certain environmental proceedings in which the Company is or may become
a party are discussed on pages 35 through 39 under the caption "ENVIRONMENTAL
MATTERS."
HGAL and Gold Mines of Kalgoorlie Limited and its affiliates ("GMK")
each own a 50% interest in the Kalgoorlie operations in Western Australia. Under
certain circumstances, GMK is entitled to more than 50% of the gold production
sourced from a specific area of the Kalgoorlie operations. The entitlement in
excess of 50%, which is called the "disproportionate share," is calculated by a
formula linked to gold prices, production costs and capital costs. HGAL and GMK
disagree in respect to the interpretation and application of the formula for
calculating the disproportionate share, principally relating to the treatment of
certain capital costs.
On October 20, 1995 HGAL was served a writ of summons and a statement
of claim by GMK, North Kalgurli Mines Pty Ltd, et al v. Homestake Gold of
Australia Limited, et al, Supreme Court of Western Australia, Civ. No 2037 of
1995. GMK claims a number of declarations relating to the correct interpretation
and application of the formula which calculates the disproportionate share. The
statement of claim also alleges that HGAL has received to date a greater
quantity of gold production than it is entitled to pursuant to the
Disproportionate Sharing Arrangement and that HGAL should account to GMK in
respect of the same. The quantity claimed is 8,313 ounces of gold having a value
of approximately $3.2 million. GMK also seeks damages from HGAL in respect of
damage it claims to have suffered because of the application of the formula
which calculates the disproportionate share. Kalgoorlie Consolidated Gold Mines
Pty Ltd, the manager of the Joint Venture, has been joined as the second
defendant to the action. HGAL is of the view that it will successfully defend
these proceedings.
The Company and its subsidiaries are defendants in various other legal
actions in the ordinary course of business. In the opinion of management, such
matters will be resolved without material affect on the Company's financial
condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
a. The common stock of Homestake Mining Company is registered and traded
principally on the New York Stock Exchange under the symbol "HM". It is
also listed and traded on the Australian Stock Exchange and in
Switzerland on the Basel, Geneva and Zurich stock exchanges under the
same symbol.
b. The number of holders of common stock of record as of March 18, 1996
was 23,530.
42
c. Information about the range of sales prices for the common stock and
the frequency and amount of dividends declared during the past two
years appears in the tables on page 45 in the Registrant's 1995 Annual
Report to Shareholders. The tables setting forth sales prices and
dividends are hereby incorporated by reference. Information about
certain restrictive covenants under the Company's line of credit
appears on page 38 in Note 14 entitled "Long-term Debt" in the Notes to
Consolidated Financial Statements in the Company's 1995 Annual Report
to Shareholders. Such information is hereby incorporated by reference.
d. Reference is hereby made to the Note 18 entitled "Shareholders' Equity"
on page 40 in the Notes to Consolidated Financial Statements in the
Company's 1995 Annual Report to Shareholders. Such information is
hereby incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
A summary of selected consolidated financial data of the Company and
its subsidiaries for the eight-year period ended December 31, 1995 appears on
pages 46 and 47 in the 1995 Annual Report to Shareholders. The summary of
selected consolidated financial data is hereby incorporated by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations covering the three-year period ended December 31, 1995 appears on
pages 22 through 27 in the 1995 Annual Report to Shareholders and is hereby
incorporated by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1995 Annual Report to Shareholders includes the Company's
consolidated balance sheets as of December 31, 1995 and 1994 and related
statements of consolidated income, consolidated shareholders' equity and
consolidated cash flows for each of the three years in the period ended December
31, 1995 and the independent auditors' report thereon, and certain supplementary
financial information. The following are hereby incorporated by reference from
the 1995 Annual Report to Shareholders at the pages indicated:
Statements of Consolidated Income (page 28)
Consolidated Balance Sheets (page 29)
Statements of Consolidated Shareholders' Equity (page 30)
Statements of Consolidated Cash Flows (page 31)
Notes to Consolidated Financial Statements (pages 32-43)
Report of Independent Auditors (page 44)
Quarterly Selected Data (page 45)
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
43
PART III
ITEMS 10, 11, 12 AND 13
In accordance with General Instruction G(3), Items 10, 11, 12 and 13
(with the exception of certain information pertaining to executive officers,
which is included in Part I hereof) have been omitted from this report since a
definitive proxy statement is being filed with the Securities and Exchange
Commission and furnished to shareholders pursuant to Regulation 14A.
The information contained in the proxy statement relating to directors,
executive compensation, security ownership and certain relationships (other than
the performance graph and Compensation Committee report contained therein) is
hereby incorporated by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORMS 8-K
(a) 1. Financial Statements:
Refer to Part II, Item 8.
2. Financial Statement Schedules:
Schedules for the years ended December 31, 1995, 1994, and
1993 -
II Valuation and Qualifying Accounts
Report of Independent Auditors
Schedules not listed are omitted because they are not required
or because the required information is included elsewhere in
this report.
3. Exhibits
2.1 Plan of acquisition and offer to purchase the 18.5% of
Homestake Gold of Australia Limited held by minority
shareholders (incorporated by reference to the Registrant's
Registration Statement No. 33-62667 on Form S-4, as amended by
Post-Effective Amendment No. 1 filed on October 19, 1995
("Offer Document") and Supplements to Offer Document dated
December 1, 1995, December 13, 1995, January 12, 1996, and
January 25, 1996).
3.1 Restated Certificate of Incorporation of Homestake Mining
Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4 filed on June
10, 1992 (the "1992 S-4 Registration Statement")).
3.2 Amendment to Restated Certificate of Incorporation of
Homestake Mining Company dated June 3, 1991 (incorporated by
reference to Exhibit 3.2 to the 1992 S-4 Registration
Statement).
44
3.3 Certificate of Correction of the Restated Certificate of
Incorporation of Homestake Mining Company dated February 10,
1992 (incorporated by reference to Exhibit 3.3 to the 1992 S-4
Registration Statement).
3.4 Bylaws (as amended through May 9, 1993) of Homestake Mining
Company (incorporated by reference to Exhibit 3.4 to the
Registrant's Form 10-Q for the quarter ended March 31, 1995).
3.5 Rights Agreement dated October 16, 1987 (incorporated by
reference to Exhibit 10 to the Registrant's Report on Form 8-A
dated October 16, 1987).
4.1 Indenture dated as of January 23, 1993 between Homestake
Mining Company, Issuer and The Chase Manhattan Bank, N.A.,
Trustee, with respect to U.S. $150,000,000 principal amount of
5 1/2% Convertible Subordinated Notes due January 23, 2000
(incorporated by reference to Exhibit 4.2 to the Registrant's
Form 8-K Report dated as of June 23, 1993).
10.1 Agreement dated July 4, 1995 between Noranda Exploration
Company Limited, Teck Corporation and International Corona
Resources Limited (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant), relating to development of the Quarter Claim
mine.
* 10.2 Form of Change of Control Severance Plan of Registrant.
* 10.3 Deferred Compensation Plan of Homestake Mining Company
effective October 1, 1995.
* 10.4 Amended and Restated Executive Supplemental Retirement Plan of
Homestake Mining Company effective August 1, 1995.
* 10.5 Supplemental Retirement Plan of Homestake Mining Company,
amended and restated effective as of January 1, 1990
(including November 29, 1990 modification).
* 10.6 Master Trust under the Homestake Mining Company Deferred
Compensation Plans as of December 5, 1995.
10.7 Amended and restated credit agreement dated as of September
30, 1994 between the Registrant, the Lenders, Bank of Nova
Scotia and Canadian Imperial Bank of Commerce as managing
agents and Canadian Imperial Bank of Commerce as
administrative agent (incorporated by reference to Exhibit
10.1 to the Registrant's Form 8-K dated March 20, 1995).
* 10.8 Retirement plan for outside directors of the Registrant dated
as of July 21, 1994 (incorporated by reference to Exhibit 10.2
to the Registrant's Form 8-K dated March 20, 1995).
10.9 Lease agreement dated June 17, 1988 between the Registrant's
wholly-owned subsidiary, Minera Homestake Chile, S.A. and
CODELCO-Chile (incorporated by reference to Exhibit 10(f) to
the Registrant's Form 10-K for the year ended December 31,
1989).
10.10 Amendment dated September 4, 1991 to the lease agreement dated
June 17, 1988 between the Registrant's wholly-owned
subsidiary, Minera Homestake Chile, S.A. and CODELCO-Chile
(incorporated by reference to Exhibit 10(a) to the
Registrant's Form 10-K for the year ended December 31, 1989).
10.11 Agreement dated October 9, 1991 between the Registrant and
Chevron Minerals Ltd. (incorporated by reference to Exhibit
10(b) to the Registrant's Form 10-K for the year ended
December 31, 1991).
10.12 Guarantee dated December 18, 1991 between the Registrant and
Chevron Minerals Ltd. (incorporated by reference to Exhibit
10(c) to the Registrant's Form 10-K for the year ended
December 31, 1991).
10.13 Agreement dated May 4, 1990 for the sale of the Registrant's
42.5% partnership interest in The Doe Run Company
(incorporated by reference to Exhibit 28(a) to the
Registrant's Form 8-K dated May 18, 1990).
45
10.14 Purchase and sale agreement dated January 15, 1989 between the
Registrant's subsidiary, Homestake Gold of Australia Limited,
and North Kalgoorlie Mines Limited (and Group Companies) and
Kalgoorlie Lake View Pty. Ltd. (incorporated by reference to
Exhibit 10(g) to the Registrant's Form 10-K for the year ended
December 31, 1989).
10.15 Joint Operating Agreement dated May 1, 1988 between
Freeport-McMoRan Resources Partners, IMC Fertilizer, Inc. and
Felmont Oil Corporation (a subsidiary of Registrant, now named
Homestake Sulphur Company) relating to the Main Pass Block 299
sulphur project (incorporated by reference to Exhibit 10.16 to
the Registrant's Form 10-K for the year ended December 31,
1992).
10.16 Amendment No. 1 dated July 1, 1993 to Joint Operating
Agreement between Freeport McMoRan Resources Partners, IMC
Fertilizer, Inc. and Homestake Sulphur Company (incorporated
by reference to Exhibit 10.8 to the Registrant's Form 10-K for
the year ended December 31, 1993).
10.17 Amendment No. 2 dated November 30, 1993 to Joint Operating
Agreement between Freeport McMoRan Resources Partners, IMC
Fertilizer, Inc. and Homestake Sulphur Company (incorporated
by reference to Exhibit 10.9 to the Registrant's Form 10-K for
the year ended December 31, 1993).
10.18 Amended and Restated Project Agreement (David Bell Mine) dated
as of April 1, 1986 among Teck Corporation, International
Corona Resources Ltd. (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant), Teck-Hemlo Inc., Corona-Hemlo Inc. (a subsidiary
of International Corona Corporation, now Homestake Canada Inc.
and a subsidiary of Registrant) (incorporated by reference to
Exhibit 10.17 to the Registrant's Form 10-K for the year ended
December 31, 1992).
10.19 Amended and Restated Operating Agreement (David Bell Mine)
among Teck Corporation, International Corona Resources Ltd. (a
subsidiary of International Corona Corporation, now Homestake
Canada Inc. and a subsidiary of Registrant), Teck Mining Group
Limited, Teck-Corona Operating Corporation, Teck-Hemlo Inc.
and Corona-Hemlo Inc. (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant) (incorporated by reference to Exhibit 10.18 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.20 Project Agreement (Williams Mine) dated August 11, 1989 among
Teck Corporation, Corona Corporation (now Homestake Canada
Inc. and a subsidiary of Registrant) and Williams Operating
Corporation (incorporated by reference to Exhibit 10.19 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.21 Operating Agreement (Williams Mine) dated August 11, 1989
among Teck Corporation, Corona Corporation (now Homestake
Canada Inc. and a subsidiary of Registrant), Teck Mining Group
Limited and Williams Operating Corporation (incorporated by
reference to Exhibit 10.20 to the Registrant's Form 10-K for
the year ended December 31, 1992).
10.22 Shareholders' Agreement dated August 11, 1989 among Corona
Corporation (now Homestake Canada Inc. and a subsidiary of
Registrant), Teck Corporation and Williams Operating
Corporation (incorporated by reference to Exhibit 10.21 to the
Registrant's Form 10-K for the year ended December 31, 1992).
* 10.23 Agreement dated July 16, 1982, as amended November 3, 1987 and
February 23, 1990, between the Registrant and H. M. Conger
(incorporated by reference to Exhibit 10(a) to the
Registrant's Form 10-K for the year ended December 31, 1989).
46
* 10.24 Share Incentive Plan effective July 1, 1988 of International
Corona Corporation (now Homestake Canada Inc. and subsidiary
of Registrant), as amended October 22, 1991 (incorporated by
reference to Exhibit 10.32 to the Registrant's Form 10-K for
the year ended December 31, 1992).
10.25 Shareholder Agreement dated January 1, 1989 among Homestake
Mining Company, Case, Pomeroy & Company, Inc. and Hadley Case
(incorporated by reference to Exhibit 10(a) to the
Registrant's Form 10-K for the year ended December 31, 1988).
10.26 Amendment dated March 27, 1992 to Shareholder Agreement dated
January 1, 1989 among Homestake Mining Company, Case, Pomeroy
& Company, Inc., and Hadley Case (incorporated by reference to
Exhibit 10.14 to the 1992 S-4 Registration Statement).
* 10.27 Consulting Agreement dated July 24, 1992, between Stuart T.
Peeler and the Registrant (incorporated by reference to
Exhibit 10.36 to the Registrant's Form 10-K for the year ended
December 31, 1992).
* 10.28 Consulting agreement dated March 1, 1993 between William A.
Humphrey and the Registrant (incorporated by reference to
Exhibit 10.27 to the Registrant's Form 10-K for the year ended
December 31, 1993).
* 10.29 Employees Non-Qualified Stock Option Plan--1978 (incorporated
by reference to Exhibit 10(a) to the Registrant's Form 10-K
for the year ended December 31, 1984, Commission File Number
1-1235 and to Post Effective Amendment No. 3 to the
Registrant's Registration Statement on Form S-8 dated March
11, 1988).
* 10.30 1981 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10(b) to the Registrant's Form 10-K for the year ended
December 31, 1984, Commission File Number 1-1235 and to Post
Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-8 dated March 11, 1988).
* 10.31 Long Term Incentive Plan of 1983 of Homestake Mining Company
(incorporated by reference to Exhibit 10(g) to the
Registrant's Registration Statement on Form S-14 dated May 16,
1984).
* 10.32 Employees' Stock Option and Share Rights Plan--1988
(incorporated by reference to Exhibit 10(n) to the
Registrant's Form 10-K for the year ended December 31, 1987).
11 Computation of Earnings Per Share.
13 Specified sections of the 1995 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
27 Financial Data Schedule.
* Compensatory plan or management contract.
(b) Reports Filed on Form 8-K
Six reports on Form 8-K were filed during the fourth quarter of 1995
and in the 1996 period through March 21, 1996.
1) The report on Form 8-K dated November 29, 1995 announced that
the Company extended until December 22, 1995 its offer to
acquire the shares of HGAL that Homestake did not own already.
47
2) The report on Form 8-K dated December 13, 1995 was submitted
in order to file two documents as follows: (i) Supplement #2
to Offer Document related to the Company's offer to acquire
the 18.5% of HGAL that it did not own already and (ii) consent
of opinion of independent accountants related to report on
financial forecast included in Supplement #2 to Offer
Document. Supplement #2 to Offer Document includes updated and
revised Pro Forma Condensed Consolidated Financial Statements.
3) The report on Form 8-K dated December 21, 1995 announced that
the Company extended until January 12, 1996 its offer to
acquire the shares of HGAL that Homestake did not own already.
4) The report on Form 8-K dated January 12, 1996 announced that
the Company extended until January 25, 1996 its offer to
acquire the shares of HGAL that Homestake did not own already.
5) The report on Form 8-K dated January 25, 1996 announced that
the Company extended until February 9, 1996 its offer to
acquire the shares of HGAL that Homestake did not own already.
6) The report on Form 8-K dated January 31, 1996 announced that
the Company's offer to acquire the shares of HGAL that
Homestake did not own already would close on February 9, 1996,
and that the Company then owned 98.3% of the shares of HGAL
and would proceed with compulsory acquisition of any remaining
shares after the closing date.
48
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.
HOMESTAKE MINING COMPANY
Date March 21, 1996 By: /s/ H. M. Conger
--------------- -----------------
H. M. Conger
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ G. G. Elam Vice President,Finance March 21, 1996
- -------------- and Chief Financial Officer
G. G. Elam (Principal Financial Officer)
/s/ D. W. Peat Vice President and Controller March 21, 1996
- -------------- (Principal Accounting Officer)
D. W. Peat
(Signatures continued on following page.)
49
Signature Capacity Date
- --------- -------- ----
/s/ Harry M. Conger Chairman of the Board, March 21, 1996
- ------------------- Chief Executive Officer and Director
Harry M. Conger
/s/ Jack E. Thompson President, Chief Operating March 21, 1996
- -------------------- Officer and Director
Jack E. Thompson
/s/ M. Norman Anderson Director March 21, 1996
- ----------------------
M. Norman Anderson
/s/ Robert H. Clark, Jr. Director March 21, 1996
- ------------------------
Robert H. Clark, Jr.
/s/ G. Robert Durham Director March 21, 1996
- --------------------
G. Robert Durham
/s/ Douglas W. Fuerstenau Director March 21, 1996
- -------------------------
Douglas W. Fuerstenau
/s/ Henry G. Grundstedt Director March 21, 1996
- -----------------------
Henry G. Grundstedt
/s/ William A. Humphrey Director March 21, 1996
- -----------------------
William A. Humphrey
/s/ Robert K. Jaedicke Director March 21, 1996
- ----------------------
Robert K. Jaedicke
/s/ John Neerhout, Jr. Director March 21, 1996
- ----------------------
John Neerhout, Jr.
/s/ Stuart T. Peeler Director March 21, 1996
- --------------------
Stuart T. Peeler
/s/ Carol A. Rae Director March 21, 1996
- ----------------
Carol A. Rae
/s/ Berne A. Schepman Director March 21, 1996
- ---------------------
Berne A. Schepman
50
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT BALANCE
BEGINNING AT END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSET VALUATION ALLOWANCES (1)
Year ended December 31, 1995 $ 49,839 $ 11,034 $ 1,262 (2) $ 59,611
Year ended December 31, 1994 $ 52,066 $ 10,210 $ 12,437 (3) $ 49,839
Year ended December 31, 1993 $ 0 $ 52,066 (4) $ 0 $ 52,066
<FN>
(1) For further information see Note 7, Income Taxes, in the Notes to the
Consolidated Financial Statements included in the 1995 Annual Report to
Shareholders.
(2) Deductions in 1995 relate to the realization of certain United States
deferred tax assets.
(3) Deductions in 1994 relate to the reversals of Canadian and Australian
tax loss carry-forwards.
(4) Additions in 1993 relate to the implementation of SFAS 109, "Accounting
for Income Taxes."
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
Homestake Mining Company
We have audited the consolidated financial statements of Homestake Mining
Company and subsidiaries as of December 31, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995, which financial statements
are included on pages 28 through 43 of the 1995 Annual Report to Shareholders of
Homestake Mining Company and incorporated by reference herein. We have also
audited the financial statement schedules listed in Item 14(a)(2) of this Form
10-K. These financial statements and financial statement schedules are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Homestake Mining
Company and subsidiaries as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
February 9, 1996
EXHIBIT INDEX
Exhibit Method of Filing
- ------- ----------------
10.1 Agreement dated July 4, 1995 between Noranda Exploration
Company Limited, Teck Corporation and International Corona
Resources Limited (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant), relating to development of the Quarter Claim
mine. Filed herewith electronically
10.2 Change of Control Severance Plan of Registrant. Filed herewith electronically
10.3 Deferred Compensation Plan of Homestake Mining Company
effective October 1, 1995. Filed herewith electronically
10.4 Amended and Restated Executive Supplemental Retirement
Plan of Homestake Mining Company effective August 1, 1995. Filed herewith electronically
10.5 Supplemental Retirement Plan of Homestake
Mining Company, amended and restated effective as of
January 1, 1990 (including November 29, 1990 modification). Filed herewith electronically
10.6 Master Trust under the Homestake Mining Company
Deferred Compensation Plans as of December 5, 1995. Filed herewith electronically
11 Computation of Earnings Per Share Filed herewith electronically
13 1995 Annual Report to Shareholders Filed herewith electronically
21 List of Subsidiaries Filed herewith electronicallY
23 Consent of Coopers & Lybrand L.L.P.,
Independent Auditors Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically