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
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file 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 http://www.homestake.com
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on 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:
5 1/2% Convertible Subordinated Notes Due June 23, 2000
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 $1,412,000,000 as of March 6, 2000.
The number of shares of common stock outstanding as of March 6, 2000 was
260,475,201.*
* Includes 6,646,998 Homestake Canada Inc. exchangeable shares that may be
exchanged at any time for Homestake common stock on a one-to-one basis.
Documents Incorporated by Reference:
Specified sections of Homestake Mining Company's 1999 Annual Report to
Shareholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-K. The definitive Proxy Statement for the 2000 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1999, is incorporated by reference
in Part III of this Form 10-K.
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART I
ITEM - 1 BUSINESS
INTRODUCTION
Homestake Mining Company ("Homestake" or "the Company") is a Delaware
corporation incorporated in 1983 as the parent holding company of Homestake
Mining Company of California ("Homestake California"), which has been engaged in
the gold mining business since 1877. Homestake California was founded to
develop the Homestake mine discovered in the Black Hills of the Dakota Territory
in 1876. Homestake is one of the largest North American-based gold mining
companies with current annual production of approximately 2.4 million gold
equivalent ounces and reserves of approximately 18.8 million gold ounces and 110
million silver ounces at December 31, 1999. Homestake's operations include
mineral exploration, extraction, processing, refining and reclamation. Gold
bullion is Homestake's principal product. Ore and concentrates containing gold
and silver from the Eskay Creek mine are sold directly to smelters. Homestake
has significant operations in the United States, Canada and Australia.
Homestake also has operations in Chile. Homestake is engaged in active
exploration projects in the United States, Canada, Australia, Argentina, Chile
and the Andean region of South America.
In 1975, Homestake made its initial investment in the Kalgoorlie gold
district of Western Australia (known as the Golden Mile) when Homestake Gold of
Australia Limited ("HGAL") acquired a 48% interest in the Kalgoorlie Mining
Associates ("KMA") partnership. In 1987, Homestake sold 20% of its shares of
HGAL to the public. In 1989, HGAL increased its interest in KMA to 50% and
acquired a 50% interest in adjacent joint ventures and properties. In late 1995
and early 1996, Homestake acquired the HGAL shares held by the public.
In 1992, Homestake acquired International Corona Corporation, a large
Canadian gold producer, subsequently renamed Homestake Canada Inc. ("HCI"). As a
result of that transaction, Homestake acquired its 50% interests in the Williams
and David Bell mines and also acquired interests in Prime Resources Group Inc.
("Prime") and Stikine Resources Limited ("Stikine"), the then owners of the
Eskay Creek property. Prime and Stikine were subsequently combined and, through
HCI, Homestake owned 50.6% of Prime. In 1998, Homestake acquired the 49.4% of
the Prime shares held by the public and Prime was amalgamated with HCI.
In 1998, Homestake acquired Plutonic Resources Limited ("Plutonic"),
subsequently renamed Homestake Mining Company (Australia) Limited, the third
largest Australian gold mining company. As a result of that transaction,
Homestake acquired five operating mines in Western Australia and a large number
of exploration tenement holdings, principally in Western Australia.
In April 1999, Homestake acquired Argentina Gold Corporation ("Argentina
Gold") (see "Significant 1999 and 2000 Developments" below).
2
SIGNIFICANT 1999 AND 2000 DEVELOPMENTS
In January 1999, Homestake announced that due to continuing low gold prices
and ongoing production shortfalls, the Pinson mine would be shut down.
Homestake and its joint-venture partner Barrick Gold Corporation ("Barrick") are
continuing exploration activities within the Pinson minesite and adjoining area.
On April 29, 1999, Homestake completed the acquisition of Argentina Gold
Corp., a publicly-traded Canadian gold exploration company. Homestake issued
20.9 million common shares to acquire all of the shares of Argentina Gold not
owned by Homestake. The transaction has been accounted for as a pooling of
interests and accordingly, Homestake's consolidated financial statements include
Argentina Gold for all periods presented. Argentina Gold's principal asset is
its 60% interest in the Veladero property located in northwest Argentina along
the El Indio gold belt.
In July 1999, the Company closed out US dollar denominated forward sales
contracts covering 245,000 ounces of gold maturing in the years 2001, 2002 and
2003. The pretax gain of $35 million realized as a result of this transaction
has been deferred and will be recorded in income as the originally designated
production is sold.
In September 1999, Homestake settled natural resource damage claims
relating to tailings material discharged into Whitewood Creek in South Dakota
prior to 1997. Under the terms of the settlement, Homestake agreed to pay $5
million in cash, purchase for $300,000 up to 3,300 acres of land owned by the
United States Bureau of Land Management, donate 400 acres of Black Hills land
and relinquish certain water rights upon closure of the Homestake mine. The cost
of this settlement was recorded in 1998.
During the third quarter of 1999, Homestake and Normandy Mining Limited
began transitioning from contractor mining to owner mining at the Super Pit
operations at Kalgoorlie. Homestake's share of equipment purchases (financed
under capital leases) for the mining fleet totaled $23 million in 1999 and an
additional $5.1 million is expected to be expended in 2000. Homestake expects
Super Pit cash operating costs to be significantly reduced after the transition
is complete in early 2000.
In the fall of 1999, Homestake exercised its right under the sulfur joint
operating agreement to not take and not pay for its share of the sulfur
production in the year 2000. In December 1999, the operator, Freeport-McMoRan
Sulphur LLC ("FMS") denied that Homestake had the right to make the election and
that Homestake had made the election on a timely basis. Homestake filed suit in
Delaware seeking a declaratory judgement affirming that it had the right to make
the election and that it had made the election on a timely basis. Subsequently,
FMS has refused to pay to Homestake amounts due to it, including amounts due
under the oil and gas operating agreement, contending that it has a right to
offset those amounts against amounts it claims to be due under the sulfur
operating agreement. Homestake has amended its complaint in Delaware seeking
damages against FMS for failing to pay the amounts due. FMS has filed its
answer disputing Homestake's contention and also seeking declaratory relief and
damages.
In January 2000, FMS announced that it had reduced its proved sulfur
reserves at year end 1999 to 13.7 million long tons, compared to 52.4 million
long tons at December 31, 1998. In its announcement, FMS stated that "Although
our estimate of physically producible sulfur has not changed, we have reduced
our estimates of commercially recoverable reserves primarily based on our
expectations of decreased production rates at the mine, partially offset by
anticipated decreases in costs. These factors have also caused us to reduce the
expected useful life of the
3
mine from 30 years to 10 years, which will result in an increase in abandonment
and reclamation accruals by approximately $3.0 million per year. The price of
sulfur is a critical factor in the determination of commercially recoverable
reserves. A future increase in sulfur prices could result in a restoration of
the reserves being reduced at year-end 1999." Based on the foregoing
announcement, Homestake has reduced its share of reserves at the mine to 2.3
million tons as of December 31, 1999.
In December 1999, the Australian Government enacted certain significant
changes to the structure of taxation in Australia. These changes, which include
reduced corporate tax rates and alterations to the rules that govern the
determination of taxable income, resulted in a tax benefit of $1.8 million in
the 1999 fourth quarter. This benefit reflects a reduction in the Company's net
Australian deferred tax liabilities.
During 1999, the Company recorded write-downs and unusual charges amounting
to $20.4 million, including $10 million to write-off an exploration property,
$1.7 million to write-down the carrying value of certain redundant equipment at
the Kalgoorlie operations, $5.2 million to increase the estimated reclamation
liability for certain non-operating properties in Western Australia, and $3.5
million to write-down an investment in an exploration joint venture in Eastern
Europe.
On March 7, 2000, the Company announced that the mineralized material at
its 60%-owned Veladero project in northwestern Argentina had increased to 220.6
million tons at an average grade of 0.035 ounces of gold and 0.668 ounces of
silver per ton. The increase is based on information compiled from 87
additional holes drilled from June 1999 in the Amable and Filo Federico
deposits, as well as step-out holes drilled north and east of Amable and
southeast of Filo Federico.
GLOSSARY OF TERMS
See "GLOSSARY AND INFORMATION ON RESERVES" beginning on page 40 for
definitions of terms used in the following discussion.
GOLD OPERATIONS
The following tables present a statistical summary of the Company's gold
operations for 1999 and 1998.
4
PRODUCTION
----------------------------------------------------------------------------
Homestake's 100 % Basis Homestake's Cash
Share % Tons Grade Share/2/ of Cost
Processed (Ounces Production Production per Ton
Mine Year (000's) per ton) Recovery % (Ounces) (Ounces) (Dollars)
- ---------------------------------------------------------------------------------------------------------------------------
United States
Homestake 100% 1999 1,249 0.171 100% 212,700 212,700 44.48
1998 2,075 0.141 95% 277,401 277,401 33.42
- -------------------------------------------------------------------------------------------------------------------------
Ruby Hill 100% 1999 1,222 0.115 88% 123,791 123,791 12.26
1998 1,324 0.098 90% 116,500 116,500 11.42
- -------------------------------------------------------------------------------------------------------------------------
McLaughlin 100% 1999 2,834 0.070 61% 121,487 121,487 11.76
1998 2,839 0.077 58% 128,680 128,680 10.32
- -------------------------------------------------------------------------------------------------------------------------
Round Mountain 25% 1999 52,908 0.017 541,808 135,452 2.11
1998 46,510 0.016 510,502 127,625 2.53
- -------------------------------------------------------------------------------------------------------------------------
Marigold 33% 1999 3,549 0.026 74,220 24,740 4.47
1998 3,215 0.027 71,936 23,979 5.26
- -------------------------------------------------------------------------------------------------------------------------
Total United States/6/ 1999 624,158
1998 691,472
- -------------------------------------------------------------------------------------------------------------------------
Canada
Eskay Creek/3,4/ 100% 1999 193 3.138 95% 558,413 558,413 199.83
1998 162 3.195 95% 504,780 277,724 218.45
- -------------------------------------------------------------------------------------------------------------------------
Hemlo District
Williams 50% 1999 2,681 0.166 95% 423,645 211,823 31.80
1998 2,720 0.152 95% 390,440 195,220 31.25
- -------------------------------------------------------------------------------------------------------------------------
David Bell/5/ 50% 1999 489 0.346 95% 210,423 93,380 63.74
1998 469 0.355 96% 204,996 91,167 67.97
- -------------------------------------------------------------------------------------------------------------------------
Hemlo District Total 1999 3,170 0.194 634,068 305,203
1998 3,189 0.182 595,436 286.387
- -------------------------------------------------------------------------------------------------------------------------
Total Canada/7/ 1999 905,899
1998 616,998
- -------------------------------------------------------------------------------------------------------------------------
Australia
Kalgoorlie 50% 1999 11,670 0.070 88% 720,121 360,061 14.54
1998 12,472 0.071 89% 780,372 390,186 14.46
- -------------------------------------------------------------------------------------------------------------------------
Yilgarn District
Plutonic 100% 1999 3,344 0.082 86% 236,453 236,453 10.94
1998 3,249 0.089 89% 255,456 255,456 17.37
- -------------------------------------------------------------------------------------------------------------------------
Darlot 100% 1999 760 0.156 96% 113,140 113,140 29.95
1998 738 0.111 95% 77,502 77,502 26.23
- -------------------------------------------------------------------------------------------------------------------------
Lawlers 100% 1999 669 0.166 95% 104,317 104,317 29.93
1998 630 0.208 96% 126,403 126,403 36.27
- -------------------------------------------------------------------------------------------------------------------------
Yilgarn District Total 100% 1999 4,773 0.106 453,910 453,910
1998 4,617 0.109 459,361 459,361
- -------------------------------------------------------------------------------------------------------------------------
Total Australia/8/ 1999 835,494
1998 925,700
- -------------------------------------------------------------------------------------------------------------------------
Chile
Agua de la Falda 51% 1999 318 0.239 63% 47,860 24,409 28.80
1998 309 0.216 72% 47,292 24,119 30.76
- -------------------------------------------------------------------------------------------------------------------------
Jeronimo 51% 1999
1998
- -------------------------------------------------------------------------------------------------------------------------
Argentina
Veladero 60% 1999
1998
- -------------------------------------------------------------------------------------------------------------------------
Totals
1999 2,389,960
1998 2,258,289
- -------------------------------------------------------------------------------------------------------------------------
Eskay Creek - Silver
100% 1999
1998
- -------------------------------------------------------------------------------------------------------------------------
Veladero - Silver
60% 1999
1998
- -------------------------------------------------------------------------------------------------------------------------
------------------------------
Total Total
Cash Production
Cost Costs
per Ounce/1/ per Ounce/1/
(Dollars) (Dollars)
- -----------------------------------------------------------------------------
United States
Homestake 100% 1999 $261 $278
1998 249 295
- -----------------------------------------------------------------------------
Ruby Hill 100% 1999 104 240
1998 122 241
- -----------------------------------------------------------------------------
McLaughlin 100% 1999 223 337
1998 219 346
- -----------------------------------------------------------------------------
Round Mountain 25% 1999 198 268
1998 220 276
- -----------------------------------------------------------------------------
Marigold 33% 1999 207 248
1998 235 265
- -----------------------------------------------------------------------------
Total United States/6/ 1999 207 278
1998 221 295
- -----------------------------------------------------------------------------
Canada
Eskay Creek/3,4/ 100% 1999 131 202
1998 133 169
- -----------------------------------------------------------------------------
Hemlo District
Williams 50% 1999 201 235
1998 217 254
- -----------------------------------------------------------------------------
David Bell5 50% 1999 187 222
1998 195 231
- -----------------------------------------------------------------------------
Hemlo District Total 1999 197 231
1998 210 247
- -----------------------------------------------------------------------------
Total Canada/7/ 1999 157 212
1998 166 214
- -----------------------------------------------------------------------------
Australia
Kalgoorlie 50% 1999 235 276
1998 229 278
- -----------------------------------------------------------------------------
Yilgarn District
Plutonic 100% 1999 221 262
1998 226 292
- -----------------------------------------------------------------------------
Darlot 100% 1999 198 236
1998 250 282
- -----------------------------------------------------------------------------
Lawlers 100% 1999 189 214
1998 181 206
- -----------------------------------------------------------------------------
Yilgarn District Total 100% 1999 208 244
1998 218 266
- -----------------------------------------------------------------------------
Total Australia/8/ 1999 219 257
1998 224 271
- -----------------------------------------------------------------------------
Chile
Agua de la Falda 51% 1999 189 278
1998 198 287
- -----------------------------------------------------------------------------
Jeronimo 51% 1999
1998
- -----------------------------------------------------------------------------
Argentina
Veladero 60% 1999
1998
- -----------------------------------------------------------------------------
Totals
1999 192 246
1998 209 265
- -----------------------------------------------------------------------------
Eskay Creek - Silver
100% 1999
1998
- -----------------------------------------------------------------------------
Veladero - Silver
60% 1999
1998
- -----------------------------------------------------------------------------
5
RESERVES/(a)/ MINERALIZED/(b)/
MATERIAL
- ------------------------------------------------------------------------------------------------------------------------------------
Homestake's
100 % Basis Share of 100 % Basis
Grade Contained Contained Grade
Tons (Ounces Ounces Ounces Tons (Ounces
(000's) per ton) (000's) (000's) (000's) per ton)
- ------------------------------------------------------------------------------------------------------------------------------------
United States
Homestake 100% 1999 7,911 0.228 1,802 1,802 14,229 0.250
1998 11,118 0.216 2,401 2,401 12,113 0.259
- ------------------------------------------------------------------------------------------------------------------------------------
Ruby Hill 100% 1999 3,773 0.110 417 417 7,325 0.072
1998 5,082 0.109 553 553 7,325 0.072
- ------------------------------------------------------------------------------------------------------------------------------------
McLaughlin 100% 1999 7,825 0.056 438 438 -- --
1998 10,934 0.057 626 626 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Round Mountain 25% 1999 320,062 0.018 5,875 1,469 126,244 0.016
1998 358,597 0.018 6,375 1,594 108,285 0.018
- ------------------------------------------------------------------------------------------------------------------------------------
Marigold 33% 1999 19,090 0.032 613 204 -- --
1998 19,120 0.033 639 213 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total United States/6/ 1999 4,330
1998 5,387
- ------------------------------------------------------------------------------------------------------------------------------------
Canada
Eskay Creek 3,4 100% 1999 1,610 1.496 2,409 2,409 499 0.435
1998 1,552 1.683 2,611 2,611 467 0.448
- ------------------------------------------------------------------------------------------------------------------------------------
Hemlo District
Williams 50% 1999 27,992 0.144 4,028 2,014 8,171 0.118
1998 29,952 0.148 4,431 2,216 8,154 0.118
- ------------------------------------------------------------------------------------------------------------------------------------
David Bell/5/ 50% 1999 4,657 0.316 1,472 711 645 0.109
1998 5,013 0.298 1,495 711 645 0.109
- ------------------------------------------------------------------------------------------------------------------------------------
Hemlo District Total 1999 32,649 5,500 2,725 8,816 0.117
1998 34,965 5,926 2,927 8,799 0.117
- ------------------------------------------------------------------------------------------------------------------------------------
Total Canada/7/ 1999 5,134
1998 5,582
- ------------------------------------------------------------------------------------------------------------------------------------
Australia
Kalgoorlie 50% 1999 203,046 0.067 13,530 6,765 208,250 0.076
1998 170,600 0.067 11,440 5,720 240,210 0.075
- ------------------------------------------------------------------------------------------------------------------------------------
Yilgarn District
Plutonic 100% 1999 7,985 0.107 854 854 18,720 0.177
1998 9,281 0.073 677 677 23,188 0.181
- ------------------------------------------------------------------------------------------------------------------------------------
Darlot 100% 1999 8,660 0.148 1,280 1,280 3,424 0.112
1998 9,022 0.154 1,393 1,393 4,090 0.130
- ------------------------------------------------------------------------------------------------------------------------------------
Lawlers 100% 1999 2,331 0.152 355 355 3,530 0.124
1998 1,020 0.117 119 119 3,705 0.145
- ------------------------------------------------------------------------------------------------------------------------------------
Yilgarn District Total 100% 1999 18,976 0.131 2,489 2,489 25,674 0.161
1998 19,323 0.113 2,189 2,189 30,983 0.170
- ------------------------------------------------------------------------------------------------------------------------------------
Total Australia/8/ 1999 9,254
1998 7,928
- ------------------------------------------------------------------------------------------------------------------------------------
Chile
Agua de la Falda 51% 1999 525 0.180 95 48 145 0.151
1998 670 0.185 124 63 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Jeronimo 51% 1999 16,595 0.169
1998 16,595 0.169
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina
Veladero 60% 1999 147,500 0.038
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Totals
1999 18,765
1998 18,960
- ------------------------------------------------------------------------------------------------------------------------------------
Eskay Creek - Silver
100% 1999 1,610 68.300 110,000 110,000 499 12.100
1998 1,552 72.700 112,816 112,816 467 11.700
- ------------------------------------------------------------------------------------------------------------------------------------
Veladero - Silver
60% 1999 147,500 0.680
1998
- ------------------------------------------------------------------------------------------------------------------------------------
Notes:
/1/ Homestake reports per ounce production costs in accordance with the "Gold
Institute Production Cost Standard."
/2/ Homestake's share of production is shown net of minority interests.
/3/ The Eskay Creek mine was owned 100% by Prime Resources Group Inc.
("Prime"). On December 3, 1998 Homestake acquired the 49.4% of Prime which
it did not already own and subsequently, Prime was amalgamated with
Homestake Canada Inc. The production amounts shown are Homestake's share
excluding the minority interests' share of production. Production amounts
include ounces payable in ore and concentrates sold to smelters.
/4/ 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. For the years ended December 31,
1999 and 1998, the ratio was 52.7 and 52.6 ounces of silver equals one
ounce of gold, respectively. Reserves and mineralized material relate to
gold only. Silver reserves and mineralized material are shown at the bottom
of the chart.
/5/ The 100% production and Homestake's share of gold production amounts
include 45,325 ounces and 11,331 ounces, respectively, from the Quarter
Claim in both 1999 and 1998. Reserves include a 25% net profits interest in
the Quarter Claim.
/6/ Includes 5,988 ounces and 17,287 ounces of gold produced at the Pinson
mine in Nevada during 1999 and 1998, respectively.
/7/ Includes 42,283 ounces and 52,887 ounces of gold produced at the Snip mine
in British Columbia, Canada during 1999 and 1998, respectively, and 44,000
ounces of gold contained in reserves at the Snip mine for the year ended
December 31, 1998.
/8/ Includes 21,523 ounces and 23,803 ounces of gold produced at the Peak
Hill mine in Western Australia during 1999 and 1998, respectively, 52,350
ounces of gold produced at the Mt. Morgans mine in Western Australia during
1998, 19,000 ounces of gold contained in reserves at the Peak Hill mine for
the year ended December 31, 1998.
Definitions:
/a/ A proven and probable reserve is that part of a mineral deposit which could
be extracted or produced economically and legally at the time of the
reserve determination.
/b/ Mineralized material is gold-bearing material that has been physically
delineated by one or more of a number of methods including drilling,
underground work, surface trenching and other types of sampling. This
material has been found to contain a sufficient amount of mineralization of
an average grade of metal or metals to have economic potential that
warrants further exploration evaluation. While this material is not
currently or may never be classified as reserves, it is reported as
mineralized material only if the potential exists for reclassification into
the reserves category. This material has established geologic continuity,
but cannot be classified in the reserves category until final technical,
economic and legal factors have been determined and the project containing
the material has been approved for development.
6
UNITED STATES
Homestake conducts operations at the Homestake mine in the Black Hills of
South Dakota, at the Ruby Hill mine in north central Nevada, and at the
McLaughlin mine in northern California. In addition, Homestake owns a 25%
interest in the Round Mountain mine and a 33.3% interest in the Marigold mine,
each of which is located in central Nevada. The Company's principal exploration
office is in Reno, Nevada.
Homestake Mine
- --------------
The Homestake gold mine is located in Lawrence County in and near Lead,
South Dakota. The mine has been in operation since 1876. Homestake owns 100%
of the operation. Paved public roads provide access to 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.
The Homestake mine is comprised of underground mining operations, an ore
processing plant, a wastewater treatment plant, and tailings disposal
facilities. Open-pit (the "Open Cut") mining was completed in September 1998
and the processing of Open Cut stockpiles was completed during the fourth
quarter of 1999.
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. The 7,400 tons-per-day ("TPD")
capacity processing plant recovers gold through a combination of gravity,
carbon-in-pulp ("CIP") and vat leaching processes. Recycled process water is
pumped through a series of carbon columns to recover residual gold in solution.
Recovered gold is smelted onsite into dore and shipped to an outside refinery
for processing into bullion. Process tails are used for underground fill or are
deposited in a tailings impoundment facility three miles from the plant.
As underground mining has progressed into the lower levels of the Homestake
mine, the remaining higher-grade ore deposits have become narrower, less
continuous and more difficult to mine, resulting in higher costs. To reduce
operating costs, in 1998 the Company completed a restructuring of the
underground operations that included a workforce reduction of 450 employees,
closing parts of the mine and concentrating on substantially fewer production
levels. In 1999, the Company completed additional optimization studies focused
on reducing continuing infrastructure and other operating costs. As a result,
an updated mine plan reflecting a gradual retreat of underground mining to
levels above the 4,850-foot level was developed. The current long-term mine
plan contemplates annual gold production of 170,000 to 200,000 ounces of gold.
Capital expenditures during 2000 are expected to total $7.6 million.
Capital expenditures during 1999 totaled $11.2 million, including $4.5 million
for the purchase of new mobile equipment for the underground mining operations.
The remaining capital primarily was for completion of a tailings dam lift and
electrical upgrades. The final phase of a major tailings dam lift expansion,
completed in the fourth quarter of 1999, will provide tailings storage capacity
sufficient to hold projected mining activity for approximately 5 years.
Facilities and equipment at this operation generally are in good operating
condition, but the basic mine and major facilities have been in service for many
years and are less efficient than mines and facilities developed more recently.
7
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. Approximately 70% of electric power
consumption is purchased under contract from Black Hills Corporation and the
remainder is provided by Homestake-owned hydroelectric facilities.
Hourly employees at the Homestake mine are represented by the United Steel
Workers of America. The current five-year contract expires in May 2003.
During 1999, a Homestake employee responsible for certain environmental
monitoring and reporting failed to conduct required sampling and failed to file
reports, or filed reports with incorrect information. The employee was
suspended and later terminated after the Company discovered the matter. The
Company believes that the failure involved only sampling and reporting and that
there were no resulting permit exceedences. The Company is cooperating with
Federal and State environmental authorities in investigation of the matter.
With this exception, the Company believes that during 1999, it operated in
compliance with its environmental permits.
No royalties are payable on production from the Homestake mine. The state
of South Dakota 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.
Geology
The Homestake mine is the largest known iron formation hosted gold deposit.
In its 124-year life, the mine has produced in excess of 40 million ounces of
gold. The Homestake gold deposit is Proterozoic in age (approximately 1.9
billion years). Mineralization generally is stratabound within the Homestake
Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has
been intensely 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
1999 1998
----- ------
Underground:
Tons of ore (000) 7,911 10,528
Ounces of gold per ton 0.228 0.224
Contained ounces of gold (000) 1,802 2,360
Open Cut:
Tons of ore (000) - 590
Ounces of gold per ton - 0.070
Contained ounces of gold (000) - 41
Total:
Tons of ore (000) 7,911 11,118
Ounces of gold per ton 0.228 0.216
Contained ounces of gold (000) 1,802 2,401
8
Operating Data
1999 1998
---- ----
Production Statistics:
Tons of ore mined (000):
Underground 821 495
Open Cut - 691
Ore grade mined (oz. gold/ton):
Underground 0.226 0.221
Open Cut - 0.124
Open Cut stripping ratio (waste:ore) - 1.5:1
Tons of ore milled (000) 1,249 2,075
Mill feed ore grade (oz. gold/ton) 0.171 0.141
Mill recovery (%) 93 95
Gold recovered (000 ozs.) 213 277
Cost per Ounce of Gold Produced:
Cash operating costs $256 $244
Other cash costs 5 5
Noncash costs 17 46
------ -----
Total production costs $278 $295
In addition to depletion from mining during 1999, proven and probable ore
reserves at the Homestake mine were reduced by 1.9 million tons containing an
estimated 386,000 ounces of gold. The reduction reflects the removal of certain
remote ore blocks and is consistent with the updated mining plan.
Ruby Hill Mine
- --------------
The Ruby Hill mine is located one mile northwest of Eureka, Nevada. The
Ruby Hill mine commenced operations on January 1, 1998 and is 100% owned by
Homestake. Access to the property is by a 1.2-mile gravel road from U.S.
Highway 50.
The Ruby Hill properties consist of approximately 24,831 acres, of which
23,386 acres are unpatented mining claims and 1,445 acres are privately owned.
The operation utilizes conventional open-pit mining methods and heap
leaching. High-grade ore is ground in a 900 TPD ball mill, leached and
filtered, and then combined with crushed low-grade ore in a rotating
agglomeration drum prior to being placed on an impermeable leach pad. Leaching
occurs year round by applying a dilute cyanide solution to the ore to dissolve
gold. The gold laden solution is collected and pumped to recovery plants where
gold is recovered from solution through a carbon circuit. The recovered gold is
smelted onsite into dore and shipped to an outside refinery for processing into
bullion.
Water is obtained from on-site wells and power is purchased from Mount
Wheeler Power Company.
During 1999, the mine operated in compliance with all of its environmental
permits.
A production royalty of 3% of net smelter returns is payable on cumulative
life-of-mine production over 500,000 ounces of gold.
9
Geology
The West Archimedes gold mineralization is hosted primarily within
brecciated jasperoid and decalcified limestones of the uppermost Goodwin and
Antelope Valley units of the Ordovician Pogonip Group. The micron-size gold is
finely disseminated and the orebody is entirely oxidized. Exploration and
delineation drilling are continuing on several surface targets within the Ruby
Hill claim block.
Year-end Proven and Probable Ore Reserves
1999 1998
----- -----
Tons of ore (000) 3,773 5,082
Ounces of gold per ton 0.110 0.109
Contained ounces of gold (000) 417 553
Operating Data
1999 1998
----- -----
Production Statistics:
Tons of ore mined (000) 1,078 1,153
Stripping ratio (waste:ore) 7.1:1 7.5:1
Tons of ore leached (000) 1,222 1,324
Ore grade leached (oz. gold/ton) 0.115 0.098
Recovery (%) 88 90
Gold recovered (000 ozs.) 124 117
Cost per Ounce of Gold Produced:
Cash operating costs $ 97 $115
Other cash costs 7 7
Noncash costs 136 119
---- ----
Total production costs $240 $241
McLaughlin Mine
- ---------------
The McLaughlin gold mine is located at the junction of Lake, Napa and Yolo
Counties in northern California. The McLaughlin mine commenced operation in
1985 and is 100% owned by Homestake. Access to the property is by paved road.
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 property.
Mining was completed in June 1996 and ore now is sourced exclusively from
lower-grade stockpiles, which were built up over the life of the mine. The
autoclave and flotation circuits were decommissioned following the completion of
processing of high-grade ores. Ore currently is processed through an 8,000 TPD
ball mill, and pumped through a five mile slurry pipeline to the process plant
consisting of a direct-cyanidation circuit utilizing cyanide leaching followed
by CIP circuits, pressure stripping and electrowinning. Recovered gold is
smelted onsite into dore and shipped to an outside refinery for processing into
bullion. Process tails are deposited in a tailings impoundment facility
adjacent to the process plant. The remaining capacity of the tailings
impoundment is adequate to allow for the treatment of all stockpiled ore.
Facilities are modern and in good operating condition.
10
Gold production is expected to continue through approximately 2002 although
at lower production levels and higher cash costs per ounce as the known higher-
grade portions of the remaining stockpiles were depleted in late 1999.
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-Energy Services.
During 1999, there was one tailings spill and one temporary lapse in
routine air quality monitoring resulting from fire damage to a monitoring
station. Both incidents were reported and no environmental impact resulted. No
enforcement or regulatory actions are expected for either incident. Other than
these issues, the mine operated in compliance with all permits in 1999.
McLaughlin mine royalties are equivalent to approximately 2% of revenues.
Year-end Proven and Probable Ore Reserves
1999 1998
----- ------
Stockpiled:
Tons of ore (000) 7,825 10,934
Ounces of gold per ton 0.056 0.057
Contained ounces of gold (000) 438 626
Operating Data
1999 1998
----- -----
Production Statistics:
Tons of ore milled (000) 2,834 2,839
Mill feed ore grade (oz. gold/ton) 0.070 0.077
Mill recovery (%) 61 58
Gold recovered (000 ozs.) 121 129
Cost per Ounce of Gold Produced:
Cash operating costs $217 $213
Other cash costs 6 6
Noncash costs 114 127
---- ----
Total production costs $337 $346
Round Mountain Mine
- -------------------
The Round Mountain gold mine is an open-pit mining operation located 60
miles north of Tonopah in Nye County, Nevada. Homestake owns a 25% interest in
the mine. Echo Bay Mines Ltd. owns a 50% 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 property position consists of contiguous patented and
unpatented mining claims covering approximately 27,500 acres. Patents have been
filed for additional lode claims to cover all the current reserves in the
ultimate pit. The issuance of the remaining patents is pending government
review.
11
The operation uses conventional open-pit mining methods and recovers gold
using four independent processing operations. These include crushed ore
leaching (reusable pad), run-of-mine ore leaching (dedicated pad), milling of
higher-grade nonoxidized ore, and the gravity concentration circuit.
Oxide ore above a cut-off grade of 0.018 ounce per ton is crushed to less
than 3/4 inches at a rate of up to 30,000 tons per day and conveyed to two
parallel 1.5 million square foot asphalt reusable leach pads. This ore is
leached with a weak cyanide solution for approximately 100 days, rinsed, removed
and placed on the dedicated leach pad and releached. In 1999, 16,000 TPD
(18,950 TPD in 1998) were processed on the reusable heap leach pad. Reusable pad
volumes vary with ore release, which is determined by the phases of the pit
being mined.
Lower grade oxide ore (above a cut-off grade of 0.006 ounce per ton) and
ore removed from the reusable leach pad are transported directly to a dedicated
run-of-mine leach pad at a rate which averaged 120,000 TPD in 1999 (101,900 TPD
in 1998). Ore is placed in 50-foot thick layers for leaching. After completion
of an initial leaching cycle of approximately 100 days, additional layers of ore
are placed until the heap reaches an ultimate height of 300 feet. The dedicated
leach pad is constructed in phases, as capacity is needed. The existing
dedicated leach pad covers approximately 16.4 million square feet and has a
capacity of approximately 131 million tons of ore. Current mining rates consume
nearly three to four million square feet of dedicated leach pad per year.
Construction of an 8,000 TPD mill to treat higher-grade nonoxide ore was
completed in 1997. The mill recovers more than 87% of the gold contained in
nonoxidized ores above a cut-off grade of 0.018 ounces per ton using gravity
concentration and cyanide leaching.
The 500 TPD gravity concentration recovery circuit is used to process very
high-grade ore containing coarse gold from several small, high-grade veins
within the Round Mountain orebody. Gravity circuit tails are sent to the mill
for further processing and disposal.
Recovered gold is smelted onsite into dore and shipped to outside
refineries for processing into bullion.
Water is supplied from joint venture-owned wells on the property and from
water reclaimed from tailings dams. Power is purchased under contract from
Sierra Pacific Power Company.
During 1999, there were five minor spills, two of hydrocarbons, two of
process solution, and one minor sodium cyanide spill. All were reported and
properly cleaned up and no enforcement or regulatory actions are expected.
Other than this, the mine was in compliance with its permits in 1999.
All Round Mountain mine production is subject to a royalty determined by a
complex 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 to
approximately 6.4% of gold revenues at prices of $440 per ounce of gold or more.
During 1999, the royalties averaged 3.5 % of revenues.
Geology
The Round Mountain orebody 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. Primarily gold mineralization at Round Mountain occurs as
12
electrum, a natural gold/silver alloy, in association with quartz, adularia and
pyrite. Narrow fractures in shear zones host a 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 overlaying alluvial placers. The oblong open-pit
mine is over a mile at its longest dimension and currently more than 1,200 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)
1999 1998
------- -------
Tons of ore (000) 320,062 358,597
Ounces of gold per ton 0.018 0.018
Contained ounces of gold (000) 5,875 6,375
Operating Data (100% Basis)
1999 1998
------- -------
Production Statistics:
Tons of ore mined (000) 32,925 22,920
Stripping ratio (waste:ore) 1.4:1 2.1:1
Tons of ore leached:
Reusable pads (000) 5,741 6,842
Dedicated pad (000) 44,167 36,783
Weighted average ore grade
placed on the pads (oz. gold/ton) 0.017 0.016
Leach recovery - reusable pads (%) 73 71
Tons of ore milled (000) 2,999 2,885
Ore grade milled (oz. gold/ton) 0.067 0.045
Mill recovery (%) 87 78
Gold recovered (000 ozs.) 542 511
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $188 $207
Other cash costs 10 13
Noncash costs 70 56
------ ------
Total production costs $268 $276
13
Marigold Mine
- -------------
The Marigold gold mine is located in Humboldt County approximately 40 miles
southeast of Winnemucca, Nevada. Homestake owns a 33.3% interest in the
Marigold partnership. Glamis Gold Ltd. owns the remaining interest and is the
operator. The mine has operated since 1989. Access to the property is via a
five-mile long gravel road.
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.
Ore is mined using conventional open-pit methods and, through April 1999,
was processed by either heap leaching or milling. Higher-grade ore was
stockpiled and batch processed through a 1,250 TPD mill to maximize gold
recovery. During 1999 the operation completed a study and determined the amount
and quality of the available mill feed ore, in conjunction with low current
market prices, would not justify further batch milling. Consequently, all
production is now from heap leaching. The mill facilities have been placed on
care and maintenance. Leaching occurs throughout the year by applying a weak
cyanide solution to the ore to dissolve gold. Gold laden solution is collected
and pumped to a recovery plant where gold is recovered from solution through a
carbon circuit. Recovered gold is smelted onsite into dore and shipped to an
outside refinery for processing into bullion. Mine facilities are in good
condition.
During 1998, a pipeline was installed to supply water to the Marigold mine
at no cost from a nearby pit-dewatering operation. Backup water is supplied
from on-site wells. Power is purchased from Sierra Pacific Power Company.
During 1999 the mine operated in compliance with all its environmental
permits.
Production royalties are paid to two leaseholders in amounts of 7% of net
smelter returns and 3.5% of net profits, respectively.
Geology
Gold mineralization at the Marigold mine is hosted largely in the Permian
Antler Formation and the Ordovician Valmy Formation and is associated with broad
bands of silicification and local decalcification. Both stratigraphy and
structure control the geometry of the mineralized zones. The orebodies 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)
1999 1998
------ ------
Tons of ore (000) 19,090 19,120
Ounces of gold per ton 0.032 0.033
Contained ounces of gold (000) 613 639
14
Operating Data (100% Basis)
1999 1998
------ ------
Production Statistics:
Tons of ore mined (000) 3,491 3,191
Stripping ratio (waste:ore) 2.4:1 2.4:1
Tons of ore milled (000) 147 368
Ore grade milled (oz. gold/ton) 0.081 0.086
Mill recovery (%) 94 96
Tons of ore leached (000) 3,402 2,834
Ore grade leached (oz. gold/ton) 0.024 0.019
Gold recovered (000 ozs.) 74 72
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $188 $214
Other cash costs 19 21
Noncash costs 41 30
----- -----
Total production costs $248 $265
Pinson Mine
- -----------
The Pinson property is located in Humboldt County approximately 30 miles
northeast of Winnemucca, Nevada. Homestake has a 50% interest in the Pinson
Partnership and is the operator. Barrick Gold Corporation ("Barrick") owns the
remaining interest. The mine began operation in 1981.
The Pinson properties consist of approximately 36,615 acres of which 11,511
acres are held under leases. The remaining land is comprised of 21,800 acres of
unpatented mining claims and 3,303 acres of primarily fee lands. Access to the
property is by paved and gravel roads.
In January 1999, due to continuing low gold prices and ongoing production
shortfalls, the mine was shut down. In October 1999 the operation ceased adding
additional cyanide to heap leach pads. Reclamation activities commenced and are
still in process.
In 1999, there were six spills, five of process fluid and one hydrocarbon
spill. All spills were properly reported and cleaned up. No enforcement or
regulatory actions are expected. Other than this, the mine operated in
compliance with its permits for 1999.
Production royalties averaging 3.5% of net smelter returns currently are
payable on the principal producing areas of the property. Overall, the
underlying property ownership is complex, requiring special arrangements with
respect to the commingling of ore from various locations.
During 1999, Homestake and Barrick spent a total of $3.1 million to explore
for high-grade mineralized zones at depth at Pinson. This exploration program
is expected to continue during 2000 at a similar expenditure level.
15
Geology
The Pinson deposit includes more than six zones of mineralization largely
hosted in carbonate rocks and calcareous siltstones of the Ordovician Comus
Formation. Orebodies 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 investigations.
Homestake has a 50% share of the following amounts:
Operating Data (100% Basis)
1999 1998
----- -----
Production Statistics:
Tons of ore mined (000) 132 1,705
Stripping ratio (waste:ore) 3.0:1 5.3:1
Tons of ore milled (000) - 76
Ore grade milled (oz. gold/ton) - 0.072
Mill recovery (%) - 83
Tons of ore leached (000) 132 1,628
Ore grade leached (oz. gold/ton) 0.031 0.037
Gold recovered (000 ozs.) 12 35
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $234 $436
Other cash costs 8 10
Noncash costs - 39
----- -----
Total production costs $242 $485
CANADA
Homestake conducts operations at the Eskay Creek mine in northwestern
British Columbia and has a 50% interest in the Hemlo operations in the Hemlo
Gold Camp in Ontario and a 25% net profits interest in the adjacent Quarter
Claim. Homestake also operated the recently-closed Snip mine in northwestern
British Columbia.
Homestake 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
- ----------------
Homestake owns 100% of the Eskay Creek gold/silver mine, located in
northwestern British Columbia approximately 50 air miles north of Stewart,
British Columbia. Access is by 38 miles of privately owned single-lane gravel
road. A local company provides road maintenance and snow removal services under
contract. The Eskay Creek mine commenced operations in 1995.
The Eskay Creek property consists of five mining leases, 12 mineral claims
and various other mineral and surface rights comprising approximately 4,630
acres. The leases have remaining terms of approximately 21 to 25 years, subject
to renewal rights.
16
The mine is an underground operation accessible through three surface
portals. Mining is conducted by a mining contractor using equipment owned by
Homestake. The mine utilizes a drift-and-fill mining method with cemented rock
backfill. Higher-grade ore is crushed and blended in a facility, located at the
minesite, prior to shipment and sale to third party smelters. Some high-grade
and lower-grade ore is sent to the 250 TPD onsite gravity and flotation mill for
further processing and concentration. Concentrates produced by the mill are
shipped and sold to third-party smelters and refineries. Mine waste rock and
tailings from the mill are disposed of underwater in a nearby barren lake. The
mine facilities and equipment are modern and in good condition. Eskay Creek
personnel work rotations of two-weeks-on and two-weeks-off.
Two long-term ore sale contracts with smelters in Japan and Quebec provide
for combined ore sales of 99,200 tons annually, with options to increase sales
to 132,300 tons, subject to mutual agreement with the smelters. Ore and
concentrates are trucked by a contractor 164 miles to Stewart for shipment to
Japan or 224 miles to Kitwanga, British Columbia for shipment to Quebec. A
contract loading facility for ships at Stewart handles ore shipments destined
for Japan and a company-owned loading facility is utilized at the railhead in
Kitwanga for shipments of ore and concentrates to Quebec.
Water is supplied from the Eskay and Argillite Creeks and power is produced
onsite by diesel generators.
During 1999, there were four occasions when water permit levels were
exceeded. In all cases the cause was identified and the problem corrected. All
incidents were reported to appropriate authorities. No enforcement or
regulatory actions are expected. Otherwise the mine operated in compliance with
its permit requirements in 1999.
The mine is subject to a 1% net smelter royalty, with the exception of a
small portion of the orebody, which is subject to a 2% net smelter royalty.
There are aboriginal claims relating to areas of British Columbia and other
parts of Canada, including a claim by the Tahltan Nation to the area which
includes the Eskay Creek mine. The nature and extent and validity of such
claims have not been determined. The mine has entered into several service
contracts with the Tahltan Nation Development Corporation, and approximately 35%
of the employees at the mine are members of the Tahltan Nation. Homestake
believes that its relations with aboriginal groups, including the Tahltan
Nation, are excellent. Homestake does not believe that aboriginal claims at
Eskay Creek will have any material adverse effect. However, future exploration
for and development of new mines in Canada could be slowed and could be
adversely affected, depending on future legal developments in this area. The
extent of any such effect, if any, is not known. (See "RISK FACTORS" beginning
on page 48.)
Geology
The Eskay Creek orebody 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 generally
is stratabound and occurs in a contact mudstone and breccia bounded below by 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. Gold occurs as mostly microscopic particles located
between sulfide grains, in fractures within sulfide grains, or locked in pyrite.
Gold also occurs in volcanic rocks beneath the contact mudstone, along with
coarse-grained sphalerite, pyrite and galena in quartz veins or stockworks.
17
Year-end Proven and Probable Ore Reserves
1999 1998
-------- -------
Tons of ore (000) 1,610 1,552
Ore grade (ozs. gold/ton) 1.496 1.683
Contained ounces of gold (000) 2,409 2,611
Ore grade (ozs. silver/ton) 68.3 72.7
Contained ounces of silver (000) 110,000 112,816
Operating Data
1999 1998
-------- -------
Production Statistics:
Tons of ore shipped (000) 114 101
Direct ore sales grade (ozs. gold/ton) 2.24 2.24
Direct ore sales grade (ozs. silver/ton) 95.4 90.7
Tons milled (000) 79 61
Mill grade (ozs. gold/ton) 1.10 1.24
Mill grade (ozs. silver/ton) 38.6 36.4
Mill recovery - gold % 94 92
Mill recovery - silver % 95 95
Gold production (000 ozs.) 309 282
Silver production (000 ozs.) 13,145 11,723
Total gold equivalent ounces /1/ (000 ozs.) 558 505
Cost per Ounce of Gold Equivalent Produced:
Cash operating costs/2/ $129 $130
Other cash costs 2 3
Noncash costs/3/ 71 36
----- -----
Total production costs $202 $169
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 average
gold market price to the average silver market price. The ratio was 52.7
ounces and 52.6 ounces of silver equals one ounce of gold equivalent for
production calculations for the years ended December 31, 1999 and 1998,
respectively.
2. For comparison purposes, cash operating costs per ounce include estimated
third-party costs incurred by smelter owners and others to produce marketable
gold and silver.
3. In 1999, higher noncash costs per ounce reflect amortization of the purchase
price allocation following the December 1998 acquisition of the Prime
minority interests.
Hemlo Operations
- ----------------
The Hemlo operations, comprised of the Williams and David Bell mines, are
located in the Hemlo Gold Camp 217 miles east of Thunder Bay, Ontario, adjacent
to the TransCanada Highway. Williams Operating Corporation ("WOC") operates the
Williams mine and the Teck-Corona Operating Corporation ("TCOC") operates the
David Bell mine, each with its own personnel. Homestake and Teck Corporation
("Teck") each own a 50% interest in the mines and in WOC and TCOC. Operations
commenced in 1985.
18
The Hemlo properties consist of 13 freehold patents and one Crown mining
lease covering approximately 1,020 acres. Homestake and Teck provide funds
equally for all costs incurred to operate the mines and have mutual rights of
first refusal over each other's interests in the mines and operating companies.
The Williams mine is an underground operation accessible by a 4,300-foot
shaft. The mine utilizes the longhole, open-stope mining method with cemented
and uncemented rock backfill. In addition, up to 1,400 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 David Bell mine also is an underground operation, which is accessible
by a 3,819-foot shaft. Production is from stopes using longhole and Alimak
mining methods. Cement, tailings, sand and waste rock are utilized as backfill.
The average width of ore at the David Bell mine is decreasing as mining
progresses away from the central core of the orebody. Ore from the David Bell
mine is hauled by truck to the Williams mill.
Since June 1999, ore from both of these operations is treated at the
Williams mill. Although the rated capacity of the mill is 7,000 TPD, the mill
has been operating at over 8,000 TPD during the fourth quarter of 1999. In
addition, permit modifications to allow processing of up to 10,000 TPD are in
process. Tailings are deposited in a basin facility located approximately two
miles from the mill. Cyanidation and the CIP process are used to recover gold.
Recovered gold is smelted onsite into dore and shipped to an outside refinery
for processing into bullion. Water from the tailings basin is treated in an
effluent treatment plant prior to discharge. Mill make-up water is recycled
from the tailings pond. The facilities and equipment are modern and in good
condition.
Through May 1999, ore from the David Bell mine was processed in the 1,100
TPD David Bell mill. The decision to close the David Bell mill resulted from a
detailed engineering study indicating that closure of the mill would result in
significant cost savings without reducing Hemlo operations production levels.
A rock burst of magnitude 2.9 on the Richter scale occurred at the Williams
mine in March 1999. In response, additional precautions, including
implementation of an extensive seismic monitoring system, have been undertaken.
Ground conditions will require monitoring over the remaining mine life.
Fresh water for the property is supplied from Cedar Creek and power is
purchased under long-term contract from Ontario Hydro. Propane for heating mine
air and surface facilities also is purchased under contract.
The hourly work force at David Bell is represented by the United Steel
Workers of America. A new three-year contract was signed in April 1999.
During 1999, there were 11 spills, five hydrocarbons, one lime and five of
mine/process water, all of which were reported. There was no environmental
impact from the spills and no enforcement or regulatory actions are expected.
Otherwise the mine operated in compliance with its permits in 1999.
The mining claims at the Williams mine 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%. The mining claims at the David Bell
mine are subject to 3% net smelter royalty.
19
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
orebodies lie along the contact between overlying metasedimentary rocks and
underlying volcanic rocks. Gold mineralization is hosted primarily by a fine-
grained feldspar porphyry unit and is associated with pyrite, barite and
molybdenite.
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1999 1998
--------- --------
Tons of ore (000) 32,267 34,400
Ounces of gold per ton 0.1674 0.1680
Contained ounces of gold (000) 5,401 5,780
Operating Data (100% Basis)
1999 1998
--------- --------
Production Statistics:
Williams:
Tons of ore milled (000) 2,681 2,720
Mill feed ore grade (oz. gold/ton) 0.166 0.152
Mill recovery (%) 95 95
Gold recovered (000 ozs.) 424 390
David Bell:
Tons of ore milled (000) 489 469
Mill feed ore grade (oz. gold/ton) 0.346 0.355
Mill recovery (%) 94 96
Gold recovered (000 ozs.) 164 160
Combined Production Statistics:
Tons of ore milled (000) 3,170 3,189
Mill feed ore grade (oz. gold/ton) 0.194 0.182
Mill recovery (%) 95 95
Gold recovered (000 ozs.) 588 550
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $192 $205
Other cash costs 6 7
Noncash costs 35 38
------ -----
Total production costs $233 $250
20
Quarter Claim
- -------------
The Quarter Claim constitutes approximately one-fourth of a mining claim,
originally part of the David Bell property, which was optioned to and
subsequently acquired by Battle Mountain Gold Company ("Battle Mountain") in
1982. Battle Mountain 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. The net profits interest is based on a deemed
production rate, deemed production costs and the market price of gold. Until
deemed cumulative production from January 1, 1995 is equal to 95% of the
estimated reserves as of January 1, 1995, the deemed production rate is based
upon committed throughput of 500 TPD multiplied by (a) the average ore grade of
the January 1, 1995 reserves, and (b) a recovery factor. Thereafter,
Homestake's interest is reduced to a 20% net profits interest calculated on
actual production.
Geology
See "Hemlo Operations- Geology."
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1999 1998
------- -------
Tons of ore (000) 382 565
Ounces of gold per ton 0.259 0.258
Contained ounces of gold (000) 99 146
Operating Data (100% Basis)
1999 1998
------- -------
Production Statistics:
Tons of ore milled (000) 183 183
Mill feed ore grade (oz. gold/ton) 0.257 0.257
Mill recovery (%) 96 96
Gold recovered (000 ozs.) 45 45
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $156 $157
Other cash costs 8 8
Noncash costs 2 2
------- -------
Total production costs $166 $167
Snip Mine
- ---------
The 100%-owned Snip gold mine was located at the junction of Bronson Creek
and the Iskut River, 56 air miles north of Stewart in northwestern British
Columbia. The mine commenced operations in 1991. All mining and milling
activities were completed during the second quarter of 1999 with the depletion
of minable reserves. Reclamation commenced immediately and was completed early
in the fourth quarter of 1999. Follow up inspections of the site are planned
for the spring of 2000.
21
There was one hydrocarbon spill during 1999, which was properly reported
and cleaned up. In addition, a number of total suspended solids permit
exceedences occurred during the reclamation of the tailings pond as a result of
high rainfall during reclamation operations. These were reported to the
regulatory authorities and no enforcement or regulatory actions are expected.
Other than this, the mine operated in compliance with its permits in 1999.
Year-end Proven and Probable Ore Reserves
1999 1998
-------- --------
Tons of ore (000) - 66
Ounces of gold per ton - 0.662
Contained ounces of gold (000) - 44
Operating Data
1999 1998
------- --------
Production Statistics:
Tons of ore milled (000) 71 160
Mill feed ore grade (oz. gold/ton) 0.665 0.693
Mill recovery (%) 92 92
Gold recovered (000 ozs.) 42 99
Cost per Ounce of Gold Produced:
Cash operating costs $208 $205
Noncash costs - 142
------- --------
Total production costs $208 $347
AUSTRALIA
Homestake owns 50% of the surface and underground operations at Kalgoorlie,
Australia's largest gold mining operation, and conducts gold mining operations
at the Plutonic, Darlot and Lawlers mines. Homestake has five closed properties
currently undergoing reclamation. These properties are the Bellevue, the
Paddy's Flat, the Marymia, the Mt Morgans and the Peak Hill mines (a 66 2/3%
Homestake-owned property that completed operations in November 1999). All of
these mines are located in Western Australia.
Homestake explores for gold throughout Australia, principally in Western
Australia. Australian activities are managed from an office in Perth, Western
Australia.
On July 1, 1998, a gold royalty became payable to the State of Western
Australia at a rate of 1.25% on the realized value of gold produced, increasing
to 2.5% on July 1, 2000. The realized value is based on the spot price of gold.
During the period July 1, 2000 through June 30, 2005 the royalty rate will be
reduced to 1.25% during calendar quarters when the spot gold price is less than
A$450 per ounce.
Kalgoorlie Operations
- ---------------------
The Kalgoorlie operations are located adjacent to the town of Kalgoorlie
approximately 340 miles northeast of Perth, Western Australia. Homestake owns a
50% interest in the Kalgoorlie operations. Subsidiaries of Normandy Mining
Limited ("Normandy") own the other 50% interest. Homestake and Normandy jointly
own and control Kalgoorlie Consolidated Gold Mines Pty Ltd ("KCGM"), which
manages the operations under the direction of a joint management committee.
22
Homestake acquired its interest in the original KMA joint venture in 1975.
Mining operations in the Kalgoorlie region date back to 1893. Access to the
operations is by paved road.
The Kalgoorlie properties consist of 164 state leases and licenses covering
approximately 30,000 acres. The mineral leases were granted for a term of 21
years on conditions covering rental, royalties, expenditure conditions and
reporting. They are renewable in the final year.
The Kalgoorlie operations are comprised of two mines, the Super Pit open-
pit mine and the Mt Charlotte underground mine. Ore from both of these
operations is treated at the Fimiston mill. Sulfide concentrates produced at
the Fimiston mill are roasted and leached at the Gidji roaster, located 12 miles
north of the main Kalgoorlie operations. Gold-laden carbon from the Gidji
roaster is sent to the Fimiston mill for processing. Dore produced onsite is
shipped to offsite refiners for refinement into gold bullion. The facilities
and equipment at the Kalgoorlie operations are in good condition.
The Super Pit mine is located along the "Golden Mile" orebodies previously
mined from underground. Until recently, contractors had been employed to
conduct the open-pit mining operations, ore and concentrate haulage and some
specialized services. In the 1999 third quarter, Homestake and Normandy began
progressively transferring mining operations from the open-pit mining contractor
to owner mining. Owner mining is by conventional open-pit mining methods with
an equipment fleet comprised of three 44-cubic yard hydraulic shovels and twenty
240-ton haul trucks. Homestake's share of the total cost of the conversion
project, including the mining fleet acquisition is estimated to be approximately
$28 million. Homestake's portion of the fleet cost is financed by capital
leases. Once the conversion to owner mining is completed in the first quarter
of 2000, Homestake expects Super Pit cash operating costs to be significantly
reduced.
The Mt Charlotte mine uses bulk mining methods and large conventional
diesel powered loaders and trucks. Ore is hauled to surface using a 1.6-mile
decline at the northern end of the Super Pit and is trucked to the Fimiston
mill. The current mine plan extends to August 2000, but performance of the mine
will be monitored to determine whether the operation will continue until that
date.
The Fimiston mill is a 35,000-TPD mill with CIP leaching and refractory
sulfide flotation circuits. The mill processed 11.7 million tons of ore in 1999
and 12.5 million tons in 1998. In June 1998, cracks were discovered in the
girth gear of the Fimiston SAG mill. Temporary repairs were made and the SAG
mill was limited to 90% of rated power from July 1998 until May 1999 when a
permanent replacement gear was installed. Underwriters of KCGM's property and
business interruption insurance policies have acknowledged liability and the
extent of recovery is being determined. During 1999, the Company received
insurance proceeds of $4.8 million.
The Gidji roaster complex, which comprises two roasters and a CIP circuit,
processes all sulfide concentrates produced at the Fimiston mill. The Gidji
roaster processed 0.2 million tons of concentrate in 1999 compared to 0.3
million tons in 1998.
Fresh water is supplied under allocation from the state water system and is
piped 340 miles from Perth. Remaining process water requirements are satisfied
using salt water taken from wells and the underground mine. Power is provided
under a power supply agreement with Normandy Power Pty Ltd, a company associated
with Normandy.
During 1999, the Kalgoorlie operations operated in compliance with all
environmental permits and regulations.
23
With the exception of the royalty payable to the State of Western Australia
there are no royalties currently payable on production from the Kalgoorlie
mines.
There are a number of native title claims relating to the area of the
Kalgoorlie operations, but the validity of those claims has not been determined.
See "Risk Factors."
Geology
The ore deposits mined in the Kalgoorlie gold fields 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 48
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 zones,
which characterize the Mt Charlotte and Reward (underground) orebodies.
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1999 1998
------- --------
Tons of ore (000) 203,046 170,600
Ounces of gold per ton 0.067 0.067
Contained ounces of gold (000) 13,530 11,440
Operating Data (100% Basis)
1999 1998
------- --------
Production Statistics:
Super Pit:
Tons of ore mined (000) 10,391 10,791
Stripping ratio (waste:ore) 5.7:1 5.6:1
Tons of ore milled (000) 9,958 10,697
Mill feed ore grade (oz. gold/ton) 0.068 0.069
Mill recovery (%) 88 88
Gold recovered (000 ozs.) 590 651
Mt Charlotte:
Tons of ore mined (000) 1,686 1,916
Tons of ore milled (000) 1,711 1,775
Mill feed ore grade (oz. gold/ton) 0.081 0.081
Mill recovery (%) 91 91
Gold recovered (000 ozs.) 130 130
Combined Production Statistics:
Tons of ore mined (000) 12,077 12,707
Tons of ore milled (000) 11,669 12,472
Mill feed ore grade (oz. gold/ton) 0.070 0.071
Mill recovery (%) 88 89
Gold recovered (000 ozs.) 720 780
24
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $231 * $228
Other cash costs 4 1
Noncash costs 41 49
---- ----
Total production costs $276 $278
* Reflects credit for insurance proceeds of $4.8 million.
Plutonic Mine
- -------------
The Plutonic mine is located 110 miles northeast of Meekatharra, Western
Australia, approximately 8 miles from the Great Northern Highway. Homestake
owns 100% of the Plutonic mine. The mine commenced production in August 1990.
The Plutonic properties, including the adjoining Marymia property,
encompass an area of approximately 322,000 acres, consisting of 109 mining
leases, three prospecting licenses, eight exploration licenses and three
miscellaneous licenses. Homestake also holds the pastoral lease on which the
mine is located.
The Plutonic mine consists of both open-pit and underground operations.
Underground operations are the primary source of ore although open-pit mining of
several smaller pits continues. Ore mined from the underground and the open-pits
is being supplemented with ore from stockpiles. Approximately 126 staff
employees and 229 contractor personnel work on two-weeks-on and one-week-off
rotations on a fly-in fly-out basis.
The Plutonic mine mineralization consists of multiple discrete lodes.
Extensive mineralized material has been defined by wide-spaced surface drilling
but detailed drilling from underground development openings is required for
conversion of the mineralized material to reserves. Definition drilling
continues in several areas of the mine to define reserves and facilitate mine
planning.
Initial underground development commenced early in 1995. Capital
expenditures of approximately $10 million and $13 million were incurred during
1999 and 1998, respectively, primarily for underground mine development. The
underground mine consists of three main working areas accessed by three separate
declines, extending to a depth of 1,400 feet below surface. Mining methods vary
depending on the particular working area and include development, uphole
retreat, open stoping and flat dip room and pillar mining. Mining is performed
by contractors using mechanized trackless systems with technical supervision and
control provided by Homestake employees. Ore is hauled to the surface by 45-ton
trucks. Underground ore production during 1999 and 1998 was 826,000 tons and
668,000 tons, respectively.
Open-pit mining using selective mining techniques is performed by a mining
contractor. The contractor uses a 110-ton excavator and a fleet of 95-ton
trucks.
The mill has the capacity to treat approximately 2 million tons of sulfide
ore and 1.3 million tons of oxide ore per year in separate oxide and sulfide
circuits. Both circuits utilize crushing, grinding and cyanidation in carbon-
in-leach tanks. Recovered gold is smelted onsite into dore and shipped to an
outside refinery for processing into bullion. The sulfide circuit's gold
recovery ranges from 83% to 96% depending on the ore source and mineralogy, and
the oxide circuit's gold recovery is approximately 96%. All plant and equipment
is modern and in good condition.
25
Potable quality process water is sourced from two well fields with most
coming from wells located approximately 7.5 miles from the mine. An onsite gas-
fired power station with a rated station capacity of 19MW was commissioned in
1997. Purchased gas is provided via a 12.5-mile line from the Gold Fields Gas
Transmission pipeline.
During 1999 the mine operated in compliance with all of its environmental
permits and all regulations.
With the exception of the royalty payable to the State of Western
Australia, the underground operations are not subject to any royalties.
However, 16 mining leases which contain a relatively small proportion of the
mine's overall reserves and mineralized material, are subject to a royalty based
on tonnage and grade.
Geology
Gold lodes predominantly occur within mafic volcanics in an Archean
sequence of ultramafic volcanics, mafic volcanics and sediments. The sequence
in the immediate mine area consists of upper and lower ultramafic volcanic units
separated by a dominantly mafic volcanic unit. Gold mineralization occurs
within multiple, sub-parallel, northwest striking lodes, which generally dip in
a northeast direction. The lodes are hosted mainly by the mafic volcanic unit.
Lodes range from three to thirty-five feet thick and display good continuity
often for several hundred feet. Gold is associated with sulphides, particularly
arsenopyrite and pyrrhotite.
Year-end Proven and Probable Ore Reserves
1999 1998
-------- ---------
Tons of ore (000) 7,985 9,281
Ounces of gold per ton 0.107 0.073
Contained ounces of gold (000) 854 677
Operating Data
1999 1998
----- -----
Production Statistics:
Tons of ore mined (000) 1,278 1,887
Ore grade mined (oz. gold/ton) 0.159 0.113
Tons of ore milled (000) 3,344 3,249
Mill feed ore grade (oz. gold/ton) 0.082 0.089
Mill recovery (%) 86 89
Gold recovered (000 ozs.) 236 255
Cost per Ounce of Gold Produced:
Cash operating costs $216 $224
Other cash costs 5 2
Noncash costs 41 66
----- -----
Total production costs $262 $292
26
Darlot Mine
- -----------
The Darlot mine is located 70 miles north of Leonora, Western Australia.
Homestake's property covers an extensive gold field discovered more than 100
years ago. Modern mining commenced in 1988. The mine is now an entirely
underground operation. Homestake owns 100% of the Darlot mine.
The Darlot properties encompass an area of approximately 34,200 acres,
consisting of 16 mining leases, 32 prospecting licenses and one exploration
license. The Darlot and Centenary orebodies are contained on a mining lease
located on a pastoral lease. The mining lease was granted in 1988 for 21 years
and is renewable.
The Darlot mine consists of two separate orebodies, the Darlot orebody,
where mining was completed in 1999, and the Centenary orebody discovered in 1996
approximately three-quarters of a mile from the Darlot deposit. The Darlot mine
is a fly-in fly-out operation with approximately 62 staff employees and 115
contractor personnel working two-weeks-on and one-week-off rotations.
Access to the Centenary orebody is through an extension of the Darlot
decline, which intersects the Centenary orebody approximately 1,100 feet below
surface. A raise bored shaft provides ventilation and emergency egress for the
mine. Work on a second decline for access to and ventilation of the deeper lode
structures was completed in January 2000. Sub-level stoping of the thick
central section of the Centenary orebody began in 1998. This central section of
the orebody contributed most of the mill feed for the operation in 1999.
Backfilling will be required to achieve full extraction of the central section
of the orebody. Construction of a cemented aggregate backfill plant was
completed in December 1999 at a cost of $2.2 million. The thinner extremities
of the orebody currently are being developed and will be suitable for sub-level
open stoping or room and pillar stoping.
The treatment plant consists of a three-stage crushing circuit, primary and
secondary ball mills, CIP leaching, adsorption and gold recovery circuits. The
crushing plant is owned and operated by a contractor. Coarse gold, which
represents approximately 25% of total production, is recovered in a gravity
circuit. Recovered gold is smelted onsite into dore and shipped to an outside
refinery for processing into bullion. The mill was upgraded during 1999 to
improve the efficiency of processing the higher-grade Centenary ore. Ore
capacity is approximately 700,000 tons per annum. The treatment plant is in
good condition.
Two new generators were commissioned in early 1998, which together with
other Homestake-owned facilities provide power to the site.
Water is obtained from wells five miles from the treatment plant.
During 1999, the mine operated in compliance with all of its environmental
permits and regulations.
With the exception of the royalty payable to the State of Western
Australia, the Darlot mine is not subject to any royalties.
27
Geology
Darlot is situated within an Archean sequence of mostly intrusive and
extrusive mafic rocks, and occurs within a corridor of north-northwest trending
structures. The Centenary orebody is a large, structurally controlled, quartz
vein hosted gold deposit. The lode, which extends for more than three-quarters
of a mile, varies from 15 feet to more than 160 feet in thickness. The full
extent of the lode is not yet known.
Year-end Proven and Probable Ore Reserves
1999 1998
------- -------
Tons of ore (000) 8,660 9,022
Ounces of gold per ton 0.148 0.154
Contained ounces of gold (000) 1,280 1,393
Operating Data
1999 1998
------- -------
Production Statistics:
Tons of ore mined (000) 733 795
Ore grade mined (oz. gold/ton) 0.161 0.100
Tons of ore milled (000) 760 738
Mill feed ore grade (oz. gold/ton) 0.156 0.111
Mill recovery (%) 96 95
Gold recovered (000 ozs.) 113 78
Cost per Ounce of Gold Produced:
Cash operating costs $195 $248
Other cash costs 3 2
Noncash costs 38 32
------ ------
Total production costs $236 $282
Lawlers Mine
- ------------
The Lawlers mine is located 75 miles northwest of Leonora, Western
Australia. Homestake owns 100% of the 100-year-old mine, which was reopened in
1986.
The Lawlers mine properties consist of two groups of contiguous tenements
consisting of three exploration licenses, 89 prospecting licenses and 13 mining
leases totaling approximately 68,800 acres. Mining leases vary in date of grant
and expiry. One mining lease, from which production currently is derived, was
granted by the Western Australian Government after January 1, 1994. See "Risk
Factors - Risk of Native Title Claims."
The Lawlers mine consists of both open-pit and underground mining
operations. The mine is a fly-in fly-out operation with approximately 49 staff
employees and 111 contractor personnel working on two-weeks-on and one-week-off
rotations. During 1999, production principally was derived from the New Holland
and Genesis underground operations. Mining is conducted by a contractor using
room-and-pillar underground mining methods.
28
The Lawlers treatment plant is capable of treating between 550,000 and
770,000 tons per annum of oxide, transition and primary ore, depending on the
blend. Three-stage crushing is followed by single-stage milling through two
parallel ball mills. The grinding circuit includes a gravity circuit to recover
coarse gold. Approximately 50% to 60% of the operation's total gold production
is recovered in the gravity circuit. The grinding circuit slurry is transferred
to a conventional CIP circuit. Recovered gold is smelted onsite into dore and
shipped to an outside refinery for processing into bullion. The treatment plant
was upgraded during 1999 to improve the efficiency of processing the higher-
grade underground ore.
Power is supplied by contract diesel generators. Good quality process
water is obtained from wells 10 miles northeast of the plant.
In October 1998, Homestake announced the results of a continuing
exploration program along the Glasgow Lass Trend, which includes the New
Holland, Genesis and Hidden Secret pits. The drilling results verify continuity
of mineralization along the Glasgow Lass Trend and indicate the potential for an
expansion of reserves and mineralized material in the vicinity of the Lawlers
mine.
During 1999, the mine submitted an annual environmental report late to a
government agency. Other than this, the mine operated in compliance with its
permits in 1999.
With the exception of the royalty payable to the State of Western
Australia, the Lawlers mine is not subject to any royalties.
Geology
Gold ore is derived from two distinct geological domains, a western
sedimentary domain (New Holland) and an eastern mafic/ultramafic volcanic domain
(Fairyland). The western area deposits are high-grade ladder quartz veins
within sandstone units enclosed in finer grained sediments. Exploration
involves deep, close-spaced drilling to locate high-grade, shallow plunging ore
shoots within the favorable rock unit. The eastern domain is part of the
nickeliferous Agnew-Mt Keith-Yakabindie-Honeymoon Well sequence, which hosts
major nickel deposits north of Lawlers.
Year-end Proven and Probable Ore Reserves
1999 1998
---------------- ---------------
Tons of ore (000) 2,331 1,020
Ounces of gold per ton 0.152 0.117
Contained ounces of gold (000) 355 119
Operating Data
1999 1998
---------------- ---------------
Production Statistics:
Tons of ore mined (000) 354 788
Ore grade mined (oz. gold/ton) 0.169 0.131
Open pit stripping ratio (waste:ore) - 7.5:1
Tons of ore milled (000) 669 630
Mill feed ore grade (oz. gold/ton) 0.166 0.208
Mill recovery (%) 95 96
Gold recovered (000 ozs.) 104 126
29
Cost per Ounce of Gold Produced:
Cash operating costs $186 $179
Other cash costs 3 2
Noncash costs 25 25
------- -------
Total production costs $214 $206
Mt Morgans
- ----------
The Mt Morgans property is located 30 miles west of Laverton, Western
Australia and is now owned 100% by Homestake. The Mt Morgans gold field has
been operated intermittently since 1896.
The Mt Morgans properties consist of six exploration licenses, 117
prospecting licenses and 27 mining leases totaling approximately 113,700 acres.
The principal mining leases were all granted prior to January 1, 1994.
The Mt Morgans mine completed mining and processing operations in 1998.
The treatment plant has been decommissioned and selected elements have been
sold. A comprehensive clean-up of the plant and camp area was initiated in May
1999 and is scheduled to be completed by April 2000. Reclamation earthworks
commenced in November 1999 and are scheduled to be completed by April 2000.
A contaminated groundwater plume from the tailing storage facility exists.
Monitoring bores contain the plume and are returning the water to compliance
levels by pumping the contaminated water back into the tailings facility.
Except for the foregoing, the property operated in compliance with all of its
permits and all regulations during 1999.
In 1998, mineralized material totaling 510,000 ounces was identified at the
Just-In-Case project near the southern boundary of the Mt Morgans mine property.
This resource is an extension of the adjacent Wallaby deposit controlled by the
Granny Smith joint venture. Active exploration continues on the property, and
recent exploration results in the Just-In-Case target area continue to be very
promising.
Peak Hill Mine
- --------------
The recently closed Peak Hill mine is located 80 miles north of
Meekatharra, Western Australia. Homestake owns a 66.67% interest in the Peak
Hill joint venture. North Limited owns the remaining interest and will continue
to be the operator of the Peak Hill mine during the decomissioning and
rehabilitation period.
The Peak Hill properties consist of two exploration licenses, 41
prospecting licenses and 18 mining leases totaling approximately 44,200 acres.
Homestake has extensive non-joint venture exploration interests in the region
surrounding the Peak Hill mine. In total, Homestake has thirteen projects in
the Peak Hill District, including eight joint ventures, totaling approximately
101 tenements on 137,000 acres.
Processing of stockpiled ore was completed in November 1999. Final
reclamation has commenced and is expected to continue through the end of 2000.
The plant, which is being offered for sale as a complete package, has a
capacity of 660,000 tons of soft oxide ore per year. It consists of a SAG/ball
mill grinding circuit with a conventional CIP and pressure Zadra elution
circuit.
30
A contaminated groundwater plume from the tailing storage facility exists.
Contaminated water is collected and pumped back to the tailings facility to
improve water quality. With the exception of the foregoing, the mine operated
in compliance with all of its environmental permits and all regulations.
Geology
Gold mineralization occurs as multiple lodes within altered Proterozoic
mafic volcanics. Weathering extends to 100 meters beneath a well-developed
laterite profile.
Homestake has a 66.67% share of the following amounts:
Year-end Proven and Probable Ore Reserves
1999 1998
-------- ---------
Tons of ore (000) - 605
Ounces of gold per ton - 0.046
Contained ounces of gold (000) - 28
Operating Data
1999 1998
------- --------
Production Statistics:
Tons of ore milled (000) 649 702
Mill feed ore grade (oz. gold/ton) 0.050 0.052
Mill recovery (%) 98 97
Gold recovered (000 ozs.) 32 36
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $ 180 $ 279
Other cash costs 3 1
Noncash costs 9 27
------ ------
Total production costs $ 192 $ 307
Bellevue
- ---------
The Bellevue property is located 110 miles north of Leonora and 75 miles
south of Wiluna, Western Australia. The property is 100% owned by Homestake.
The area has been mined since 1896. Operations at Bellevue ceased in April
1997.
The Bellevue tenements comprise nine mining leases, eight prospecting
licenses and two exploration licenses. Four mining leases were granted prior to
January 1, 1994.
The treatment plant, mine camp and all other infrastructure was disposed of
in 1999. All open-pit dumps have been contoured and the No. 1 tailings storage
facility has been capped. The treatment plant, mine camp and all other
infrastructure was disposed of in 1999. Final reclamation earthworks, including
capping of the partially filled No. 3 tailings storage facility is scheduled to
be completed by April 2000.
The Bellevue property is prospective for both gold and nickel
mineralization. Lachlan has acquired the rights to nongold mineralization on 23
of the Bellevue tenements subject to a 25% net profits interest to Homestake.
31
Meekatharra
- -------------
Operations at Meekatharra's Paddys Flat mining camp ceased in October 1995
after 100 years of intermittent gold production. Historic and recent production
totaled nearly two million ounces of gold with a further one million ounces
remaining in mineralized material. Although the tenements have been extensively
explored, the potential exists for further discoveries of small to medium size
shallower deposits and larger deeper deposits amenable to underground mining.
Drilling of deeper targets will commence shortly.
All access to open pits has been blocked and all rock waste dumps have been
reclaimed. Capping of the tailings storage facility was completed in May 1999
and the treatment plant, mine camp and all other infrastructure have been
disposed. Final reclamation earthworks are scheduled to be complete by March
2000.
Lachlan Resources NL
- --------------------
Homestake holds an 81.2% interest in Lachlan, a publicly traded Australian
company. Lachlan has interests in and is exploring a number of base metal
properties in Australia. Homestake manages Lachlan's business.
CHILE
Homestake has a 51% interest in the Agua de la Falda mine in northern
Chile. Homestake also conducts exploration programs throughout Chile. Chilean
activities are managed from an office in Santiago.
Agua de la Falda
- ----------------
In July 1996, Homestake and Corporacion Nacional del Cobre Chile
("Codelco"), a state-owned mining company in Chile, formed a new company, Agua
de la Falda S.A. ("ADLF"), to explore near Homestake's former El Hueso mine in
northern Chile. Homestake and Codelco contributed property interests in the
area to the new company. In addition, Codelco contributed the existing El Hueso
plant, which had been under lease to Homestake. ADLF now holds mining properties
covering approximately 25,780 hectares in the Maricunga District of Chile about
600 miles north of Santiago at an elevation of approximately 12,500 feet.
Access to the property is by 14 miles of dirt road. Included within those
properties is the Agua de la Falda mine, which was developed in late 1996 to
mine the oxide reserves discovered by Homestake on the property, and the
Jeronimo deposit also discovered by Homestake. Homestake owns 51% of ADLF and
Codelco owns the remaining 49% interest.
In October of 1999, Homestake and Codelco agreed to consolidate their
interests in the region around the Agua de la Falda and Jeronimo deposits.
Homestake committed to contribute $7 million, as well as the Buitre and Gaucho
exploration claims. Codelco contributed the San Antonio Oro, Cerro Coya and
Pedernales mining claims. Through this transaction the ADLF consolidated land
position increased approximately eight-fold to 25,780 hectares of highly
prospective ground. Both Homestake's and Codelco's respective ADLF percentage
ownership remained unchanged.
The ADLF mine utilizes room-and-pillar underground mining and is accessed
from surface by two portals. The El Hueso plant facility is used to heap leach
the Agua de la Falda ore using the
32
Merrill Crowe process to recover the gold from solution. Water and power are
purchased from Codelco.
Drilling and metallurgical testing continues on the much larger Jeronimo
deposit, where to date approximately 16.6 million tons of unoxidized mineralized
material (100% basis), at an average grade of 0.169 ounces per ton, have been
outlined. A decline has been completed to access the deeper, sulfide material.
Metallurgical testwork is underway to develop an economic treatment method.
No royalties are payable on the production from the current Agua de la
Falda reserves. However, any ores extracted from the northern area of the
property are subject to a royalty payment to Codelco of 1.5% of net smelter
returns on production of over one million ounces. Additionally, ADLF will pay
to Codelco a net smelter royalty on production from Cerro Coya amounting to 1.5%
on the first million ounces of gold and gold equivalent and 2.2% thereafter.
ADLF has made a $1 million advance royalty payment to Codelco and an additional
$1 million advance royalty payment is due in 2000 with respect to the Cerro Coya
claims.
Geology
The Agua de La Falda 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
has been mined historically in sediments and volcanics but the Agua de la Falda
and Jeronimo deposits are hosted largely by a single, permeable, gently dipping
carbonate unit.
Homestake has a 51% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
1999 1998
---------- ---------
Tons of ore (000) 525 670
Ounces of gold per ton 0.180 0.185
Contained ounces of gold (000) 94 124
Operating Data (100% Basis)
1999 1998
------ --------
Production Statistics:
Tons of ore leached (000) 318 309
Ore grade (oz. gold/ton) 0.239 0.216
Recovery (%) 63 72
Gold recovered (000 ozs.) 48 47
Homestake's Cost per Ounce of Gold Produced:
Cash operating costs $ 189 $ 198
Noncash costs 89 89
------ -----
Total production costs $ 278 $ 287
33
ARGENTINA
On April 29, 1999, Homestake acquired Argentina Gold Corp. ("Argentina
Gold"), a publicly-traded Canadian gold exploration company. Homestake issued
20.9 million common shares to acquire all of Argentina Gold. The transaction
has been accounted for as a pooling of interests and accordingly, Homestake's
consolidated financial statements include Argentina Gold for all periods
presented.
Argentina Gold's principal asset is its 60% interest in the Veladero
property located in northwest Argentina along the El Indio gold belt. Barrick
Gold Corporation owns the remaining 40% interest in the project.
In October 1999, Homestake commenced an extensive exploration program on
the Veladero property. This program, scheduled to run through April 2000, will
include 140,000 feet of drilling, a broad range of metallurgical testing and
preliminary engineering and infrastructure assessment. The initial phase of the
program, which included 36,000 feet of drilling completed by December 31, 1999,
is focused on increasing the confidence level in the previously identified
resources at both the Amable and Filo Federico deposits.
Mineralized material at December 31, 1999 includes 147.5 million tons of
material at an average grade of 0.038 ounces of gold and 0.680 ounces of silver
per ton related to the Veladero property.
In addition to the Veladero property, Argentina Gold holds the prospective
Del Carmen project and the Rio Frio, Santa Rosa and Vicuna Pampa prospects.
Argentina Gold's land package covers more than 80% of the El Indio gold belt in
Argentina.
On March 7, 2000, the Company announced that the mineralized material at
its 60%-owned Veladero project in northwestern Argentina had increased to 220.6
million tons at an average grade of 0.035 ounces of gold and 0.668 ounces of
silver per ton. The increase is based on information compiled from 87
additional holes drilled from June 1999 in the Amable and Filo Federico
deposits, as well as step-out holes drilled north and east of Amable and
southeast of Filo Federico.
BULGARIA
In 1999, Homestake terminated its 32% interest in the Bulgarian exploration
project of Navan Resources Plc ("Navan") and transferred its interest to Navan.
SULFUR
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulfur
deposit. Freeport-McMoRan Sulphur LLC ("FMS") owns the remaining 83.3% and is
the operator under a joint operating agreement. The sulfur deposit is located
in the Gulf of Mexico approximately 32 miles east of Venice, Louisiana, in water
approximately 210 feet deep. The deposit is approximately 1,500 feet below the
sea floor. A royalty of 12.5% of the wellhead value is payable under the terms
of the federal sulfur leases.
The sulfur deposit is being mined using the Frasch process, a method of
extraction which injects high-temperature sea water to liquefy the sulfur, which
is then pumped to surface. Initial sulfur production commenced in 1992 and full
sulfur production levels of 5,500 TPD were reached in December 1993. Sulfur
production averaged 4,400 TPD during 1999, compared to 3,800 TPD in
34
1998 and 5,200 TPD in 1997. In 1999 and 1998, sulfur production was reduced in
response to a weakening sulfur market. Production was further hindered in 1998
following a weather-related shutdown that resulted in the need to redrill nine
wells after operations resumed.
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.
FMS filters, blends, markets and delivers Homestake's share of sulfur
production under a marketing agreement having an initial term of ten years from
commencement of production in 1992. Homestake can terminate the agreement by
giving a minimum of one calendar year notice and Homestake and FMS can terminate
the agreement with three years minimum notice on the 10th, 15th and 20th
anniversaries of the "Commencement Date" as defined in the agreement.
Homestake's realized sales price for sulfur under this agreement is a blend of
various market prices, including the Tampa market, and is net of a 2.625%
marketing fee and certain other charges principally relating to the use of FMS
facilities.
In 1997, due to the prolonged period of low sulfur prices, Homestake wrote-
off its entire carrying-value of the sulfur assets.
During sulfur exploration, oil and gas reserves were discovered overlying
the sulfur deposit. In 1990, the participants acquired the oil and gas rights
from Chevron USA Inc.
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.
As part of a Production Handling Agreement entered into in 1998 by the operator
with Chevron, Chevron will take over the oil platforms when Main Pass 299 oil
production ceases. Oil and gas production, which peaked during 1992, is
expected to continue to decline over the next few years. The carrying value of
Homestake's investment in the Main Pass 299 oil and gas property was fully
depreciated at December 31, 1999.
In the fall of 1999, Homestake exercised its right under the sulfur joint
operating agreement to not take and not pay for its share of the sulfur
production in the year 2000. In December 1999, FMS denied that Homestake had
the right to make the election and that Homestake had made the election on a
timely basis. Homestake filled suit in Delaware seeking a declaratory judgement
affirming that it had the right to make the election and that it had made the
election on a timely basis. Subsequently, FMS has refused to pay to Homestake
amounts due to it, including amounts due under the oil and gas operating
agreement, contending that it has a right to offset those amounts against
amounts it claims to be due under the sulfur operating agreement. Homestake has
amended its complaint in Delaware seeking damages against FMS for failing to pay
the amounts due. FMS has filed its answer disputing Homestake's contention and
also seeking declaratory relief and damages.
In January 2000, FMS announced that it had reduced its proven sulfur
reserves at year end 1999 to 13.7 million long tons, compared to 52.4 million
long tons at December 31, 1998. In its announcement, FMS stated that "Although
our estimate of physically producible sulfur has not changed, we have reduced
our estimates of commercially recoverable reserves primarily based on our
expectations of decreased production rates at the mine, partially offset by
anticipated decreases in costs. These factors have also caused us to reduce the
remaining expected useful life of the mine from 30 years to 10 years, which will
result in an increase in abandonment and reclamation accruals by approximately
$3.0 million per year. The price of sulfur is a critical factor in the
determination
35
of commercially recoverable reserves. A future increase in sulfur prices could
result in a restoration of the reserves being reduced at year-end 1999."
Based on the foregoing announcement, Homestake has reduced its share of
reserves at the mine to 2.3 million tons (net of federal royalty) as of December
31, 1999. Homestake's total estimated reclamation liability with the respect to
its 16.7% of the sulfur interest is $9.5 million, of which $1.7 million was
accrued at December 31, 1999.
Homestake has a 16.7% share of the following amounts:
Year-end Proven and Recoverable Reserves
(100% Basis)
1999 1998
-------- --------
Tons of sulfur (000) 16,400 62,908
Barrels of oil (000) 7,682 5,421
Production Statistics (100% Basis)
1999 1998
-------- --------
Tons of sulfur (000) 1,601 1,378
Barrels of oil (000) 2,017 2,428
Homestake's Per Unit Data
1999 1998
------- --------
Average Sales Realization:
Per ton of sulfur $61 $59
Per barrel of oil 16 11
Production Costs:
Sulfur cash operating costs per ton $77 $78
Sulfur noncash costs per ton 1 1
------- --------
Total production costs $78 $79
Oil cash operating costs per barrel $12 $8
Oil noncash costs per barrel - 7
------- --------
Total production costs $12 $15
MINERAL EXPLORATION AND DEVELOPMENT
Total exploration expenses, including exploration activities in and around
Homestake's mines, were $39.5 million in 1999 and $59.9 million in 1998. The
1999 expenditures include $2.6 million of exploration expenses incurred on the
Veladero joint venture property in Argentina prior to Homestake's acquisition of
Argentina Gold and $1.1 million for metallurgical studies on the Jeronimo
deposit at the Agua de la Falda property in northern Chile. Expenses related to
in-mine definition drilling at Homestake's operating mines are included in the
individual mine operating expenses and cost per ounce calculations.
36
Of the $39.5 million spent on exploration in 1999, approximately 24% was
spent in North America, 40% in Australia, 34% in the Andes of South America and
2% in other international areas. In 2000, the projected exploration budget is
$27.2 million, of which 29% is expected to be spent in North America, 50% in
Australia and 21% in the Andes.
Reduced exploration spending reflects general gold industry trends and an
increased exploration focus attributable to the acquisitions of Plutonic and the
Prime minority interests in 1998, and Argentina Gold in 1999. Homestake has
withdrawn from northern Latin America and Eastern Europe to concentrate its
exploration resources on existing major projects and on the extensive land
packages in prime gold belts that came with these acquisitions.
North America
- -------------
Homestake's North American exploration expenditures include $3.1 million
and $5.0 million in Canada and $16.6 million and $11.8 million in the United
States during 1999 and 1998, respectively. Exploration in Canada primarily was
around the Eskay Creek mine while exploration spending in the United States was
focused around Homestake's existing operations, in northern Nevada and, to a
lesser extent, in the emerging Tintina gold belt in Alaska.
Exploration spending at the Eskay Creek mine totaled $2.3 million and $3.5
million in 1999 and 1998, respectively. The 1999 program outlined additional
reserves and resources, primarily in the 21C zone. Drilling north of the mine
encountered a new basin of thick, gold-bearing mudstone located in the same
stratigraphic position as the sediments hosting the main 21B deposit. Further
exploration of this basin will be the first priority in 2000. The 2000
exploration budget for Eskay Creek is $2.0 million.
At the Ruby Hill property, exploration spending was $1.6 million and $2
million in 1999 and 1998, respectively. The 1999 program included drill testing
of seven oxide targets, which unfortunately contained only sub-economic gold
grades, and two deep step-out holes, which extended the known Ruby Deeps sulfide
gold mineralization north for an additional 2000 feet. Planned expenditures of
$1.0 million in 2000 will provide drill testing for oxide ore beneath shallow
gravels north of the Archimedes pit, further step-out drilling of the Ruby Deeps
and evaluation of possible new targets on other properties.
In 1999 and 1998 expenditures at the 50% owned Pinson project, managed by
Homestake, were $1.5 million and $1.6 million respectively (Homestake's share).
Exploration spending of $1.0 million (Homestake's share) has been planned for
2000. Drilling in 1999 extended the deep, structurally controlled gold
mineralization associated with the CX Pit to the north and south. The
mineralized system now exhibits a strike length in excess of 5000 feet and
remains open to the south. In addition, 10 holes were drilled in the pediment
beneath gravels east of the mine to explore for large gold systems similar to
the Twin Creeks and Turquoise Ridge orebodies located to the north. To date,
only weak mineralization has been encountered but the bedrock geology is
favorable. Several large remaining areas will be drilled in 2000 with the help
of geophysics for targeting altered areas.
Exploration within the Homestake mine totaled $0.7 million in 1999 and $1.8
million in 1998. Drilling continued to be concentrated above the 4850 level with
two targets yielding ore grade intercepts that justify follow-up development
work. In 2000, drilling above the 4850 level will intensify as part of the
Company's long-term strategy to increase production from the upper levels of the
mine.
37
Exploration expenditures at the 25% owned Round Mountain mine were $0.2
million and $0.3 million in 1999 and 1998 (Homestake's share), respectively.
In 1999, pediment targets to the north of the existing operation were drilled
with no success. In 2000, the budget is $0.3 million (Homestake's share).
At the 33% owned Marigold mine, exploration costs were $0.5 million and
$0.4 million in 1999 and 1998, respectively (Homestake's share). A similar
spending level is planned for 2000. Drilling in 1999 discovered further leach
grade mineralization that resulted in small additions to the Terry Zone reserve
and should result in additions in 2000 as well. A deep hole west of the mine
area entered weakly mineralized but favorable Antler Formation sediments at a
depth of 1640 feet and broad stratigraphic drilling of this rock unit elsewhere
on the mine property will be a major focus of drilling in 2000.
The Mud Springs, Layton Springs and Bonita Canyon projects were abandoned
in 1999 after unfavorable drilling results.
Australia
- ---------
Exploration expenditures in Australia of $15.9 million in 1999 and $23.3
million in 1998 represent 40% and 39% of Homestake's total exploration spending
for these years. Exploration spending during 1999 was focused around existing
operations and on prospective targets in different regions. The Company expects
to allocate 50%, or $13.7 million, of its 2000 exploration budget to Australian
properties.
On the Mt Morgans tenements, exploration spending was $1.5 million in 1999
and $2.6 million in 1998. Planned spending in 2000 is $1.1 million. New
mineralization of similar style to, but weaker than the Just-In-Case deposit was
discovered in the Lake Well trend to the northeast and additional drilling is
planned in 2000. Geochemical drilling elsewhere on the tenement block has
defined at least three additional targets for bedrock testing.
At the Lawlers mine property, exploration spending in 1999 and 1998
amounted to $2.1 million and $1.9 million, respectively, and $1.7 million is
budgeted in 2000. Ore grade gold intercepts were found in a multitude of
exploration holes along the Glasgow Lass Trend, including a deep hole drilled to
a depth of one kilometer beneath the New Holland South mine workings.
Systematic follow-up drilling is planned north and south of the old Glasgow Lass
pit in 2000 in an attempt to identify an additional development site. Several
other targets are being prepared for early stage tests on the western and
eastern sides of the Lawlers property.
Further north at the large Plutonic/Marymia tenement package, exploration
spending was $3.3 million and $1.9 million in 1999 and 1998, respectively.
Spending in 2000 is budgeted at levels similar to 1999. Exploration activities
in 1999 included detailed compilation and analysis of the voluminous amount of
data from previous years, out of which several long-term target areas were
defined. Drilling during 1999 in the Plutonic mine region extended the area of
accessible rock sequences similar to those which host the Plutonic mine, and in
some places identified gold mineralization of sufficient interest to warrant
follow-up drilling. A drill intensive year is planned for 2000.
Exploration at the Darlot mine property was $2.0 million in 1999 and $2.2
million in 1998 and, $1.6 million is planned for 2000. The 1999 program
discovered additional ore grade gold mineralization down dip from the Centenary
deposit, but hosted in a lower unit of magnetic dolerite. Follow-up surface and
underground drilling is in progress and it appears that sufficient
38
material may exist to justify access from the existing Centenary underground
entryways. Several other targets near the mine and elsewhere on the Darlot
tenements will be tested in 2000.
Homestake allocated $0.9 million and $1 million, in 1999 and 1998,
respectively, for its 50% share of exploration at the Kalgoorlie operations, and
$0.7 million is budgeted for 2000. Although several ore grade intersections
were generated during the year on the fringes of the main productive area,
follow-up drilling to date has not defined any areas of economic interest. A
tenement rationalization program is underway in an effort to highlight the best
prospects for drilling in 2000.
In eastern Australia, Homestake controls three significant projects, two in
Queensland and one in New South Wales.
Two drilling programs at Agate Creek along with intensive field
investigations cost $0.5 million in 1999 ($1.4 million in 1998) and at least as
much spending is anticipated for 2000. At the Sherwood prospect, several holes
returned thick intersections of potentially open pitable gold grades starting at
or near surface, and preliminary holes at two other targets contained sufficient
gold mineralization to warrant offset drilling. Drilling sufficient to
establish whether mineralization is of economic interest is scheduled for 2000.
At the Twin Hills project, the Company spent $1.2 million in 1999 ($0.8
million in 1998) and has budgeted up to $0.7 million for 2000. Although several
drilling programs were completed in 1999 the existing sub-economic resource has
not changed. The future direction of the project is under review.
Near the end of 1999, the partners at the Junction Reefs property
(Homestake 54.5%, Climax 45.5%) decided to seek a third partner to fund an
intensive drilling program designed to continue to search for a Ridgeway style
orebody along a belt of anomalous gold copper mineralization that can be
correlated with the prolific Cadia mineral trend to the northwest. Homestake
spent $0.3 million on the project in 1999 ($0.8 million in 1998). Homestake's
share of expenditures are expected to be minimal in 2000.
During 1999, drilling was conducted on all three of the major projects
owned by Lachlan. The most significant result was the extension of the
disseminated sulfide nickel mineralization at the northern end of the Mount
Goode property in Western Australia. A new induced polarization geophysical
survey has generated additional anomalies in the vicinity that are expected to
be drill tested during 2000. During 1999, Lachlan spent $0.5 million net of
joint venture contributions, and a similar level of expenditure is planned in
2000.
Andes Region
- ------------
During 1999 and for the next several years, exploration programs in the
region will be focused on Homestake's holdings in Chile and Argentina, and on
the search for new opportunities in Peru.
The Company currently has three major exploration projects in the Andes:
the Agua de La Falda project in northern Chile owned jointly with Codelco
(Homestake 51%, Codelco 49%), and the 100% owned Rio Frio and Del Carmen
projects in northwestern Argentina. In addition, Homestake has two resource
development projects, Veladero (Homestake 60%, Barrick 40%) in northwestern
Argentina and Jeronimo (Homestake 51%, Codelco 49%) in northern Chile. Combined
exploration expenditures in 1999, which include Homestake's share of the
drilling at Veladero prior to the acquisition of Argentina Gold and
metallurgical testwork at Jeronimo, were
39
$10 million. The exploration budget for 2000, excluding resource development, is
$5.8 million. In addition, approximately $12.5 million of resource development
expenditures on Veladero and Jeronimo are planned in 2000.
Exploration expenditures at the 51% owned Agua de la Falda property in
Chile were $2.4 million in 1999 ($2.1 million in 1998) and $1.9 million is
planned in 2000 (100% basis). Metallurgical investigations on the Jeronimo
deposit in 1999 expended a further $1.1 million. During 1999, the joint venture
land position was expanded nearly eightfold. This provides access to an entire
mineral district that only has been intermittently explored for gold in recent
times. Although the Jeronimo deposit is still open, future extension drilling
has been deferred pending the outcome of metallurgical work and recent drilling
has been concentrated on outlying targets. New unoxidized gold mineralization
was discovered at Jeronimo Norte and in a previously untested horizon at depth
below the existing underground mine workings. The significance of this
mineralization is not yet known. Two oxide gold targets tested with preliminary
drilling are planned for follow-up drilling early in 2000.
In Argentina, Homestake spent $0.8, $0.7, and $0.8 million in 1999 on its
100% owned Rio Frio, Del Carmen and Patagonia projects, respectively, and $1.6,
$0.5, and $0.1 million respectively, is budgeted for the same projects in 2000.
At Rio Frio, which comprises claims covering multiple centers of
hydrothermal alteration along the East Indio Belt, field evaluation programs
were initiated along with the drill testing of two targets. Preliminary holes
at the Guanaco Zonzo target contain silver mineralization of considerable
interest. It is anticipated that several more targets will be generated and
drill tested during 2000.
Further south at the Del Carmen project, one target was drilled near year
end and field crews are evaluating several other areas containing surface
mineralization. Additional drilling is budgeted for 2000.
A first pass evaluation was completed on all of the priority areas on the
Patagonia holdings in southern Argentina and trenching was conducted at the
Breccia Ridge prospect that exhibited elevated gold values on surface. A
geophysical survey currently is being conducted at the Breccia Ridge prospect
and at adjacent areas showing anomalous gold values in an attempt to define
large areas of silicification for possible drilling in 2000.
Other International
- -------------------
During 1999, Homestake withdrew from exploration in Eastern Europe and
Brazil. For the next few years Homestake plans to mount vigorous exploration
programs on its holdings in the regions discussed above.
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, and include 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 drilling
expenditures that are related to production, and other direct costs, but exclude
depreciation,
40
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, and include 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 typically accounted for ratably over the life of an
operation and include 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. It 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" as these deferred tax purchase adjustments do not
involve any economic resources of the Company.
"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 gold-bearing material
that has been physically delineated by one or more of a number of methods
including drilling, underground work, surface trenching and other types of
sampling. This material has been found to contain a sufficient amount of
mineralization to have economic potential warranting further exploration
evaluation. While this material is not currently or may never be classified as
reserves, it is reported as mineralized material only if the potential exists
for reclassification into the reserves category. This material has established
geologic continuity, but cannot be classified in the reserves category until
final technical, economic and legal factors have been determined and the project
containing the material has been approved for development. 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 that 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
mineralized material and the amount of gold (or other products) contained
therein and include, in the case of reserves, estimates for mining dilution but
not for other processing losses.
"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.
41
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 costs 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 calculations. Homestake used gold prices of $325 per ounce in
calculating reserves at December 31, 1999 and 1998.
Silver
- ------
The proven and probable silver ore reserves have been calculated on the
same basis as gold ore reserves, except that silver reserves at December 31,
1999 and 1998 are based on an assumed price of $5.25 and $5.00 per ounce,
respectively.
Sulfur
- ------
Homestake's proven sulfur reserves represent the quantity of sulfur 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.
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 and silver 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 sulfur and oil reserves at Main Pass 299 are based on information
provided by the operator. Homestake reviewed the initial reserve data with
independent consultants.
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; (iv) continued testing and development of
additional information; and (v) price and operating cost 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 and other characteristics and grade of ore processed. Actual
quality and other
42
characteristics of ore deposits, gold and silver prices, and costs of production
will vary from the assumptions used to develop reserve estimates. Such
differences may be material.
OVERVIEW OF AUSTRALIAN, CANADIAN AND
UNITED STATES REGULATION OF MINING RIGHTS
Australia
- ---------
The mining of hard rock minerals in Australia is regulated by State or
Territory legislation and regulation which is administered by a responsible
government department within each jurisdiction. Each State and Territory has
its own separate mining regime and there is little uniformity of legislation and
regulations on an Australia-wide basis. As a general rule, the Crown is vested
with ownership of minerals. Private ownership can, however, occur occasionally.
Rights to explore, mine and produce minerals can be obtained from the State or
Territory government.
In general, exploration is authorized by statutory title with specific
rights and fees varying between jurisdictions. Such titles are usually granted
for relatively short periods and, in some cases, only upon approval by the
relevant government department of a program of work and expenditure or subject
to minimum expenditure commitments.
Titles which allow mining may be granted, usually with priority given to
the holder of the underlying exploration title for that land, upon application
to the government department in the jurisdiction where the deposit is located.
In respect of most minerals, royalties are payable to the government of the
jurisdiction where production occurs.
A special regime applies in most jurisdictions in respect of mining on
private land. This usually obliges the title holder to pay compensation to the
landowner for losses arising from the exercise of rights to enter, explore or
mine the land.
See "Risks of Native Title Claims - Australia" included in the Risk Factors
section included elsewhere in Part I of this Report.
Canada
- ------
Mining rights in Canada are within the authority of the individual
provinces. Although there are some variations among the provinces with regard
to specific features, the general requirements are similar. The ownership of
and the granting of rights to exploit minerals generally remains with the
provincial government. Persons seeking to exploit most minerals (including gold
and silver) may stake claims on government property open to exploitation. An
initial fee is payable on staking of a mining claim. There are annual minimum
work requirements although cash may be paid in lieu of minimum work requirements
in most provinces. The development of a mine requires that mining claims be
converted to mining leases. Mining leases are granted for a specific term of
years (up to 21 years in Ontario and up to 30 years in British Columbia), with
the right of renewal. There are generally limited annual rental or royalty
payments. There may be overlapping use rights on the same property, such as
mining and forestry, in which case the terms on which multiple uses take place
will generally be negotiated between the parties and will be specified in the
mining lease.
In some areas there are mineral rights that are privately owned, the rights
having been previously alienated by governmental action. In the case of
privately held mineral rights, the owner is free to negotiate terms on which
mining may take place. If the surface and minerals are held by different
persons, negotiations between the surface and mineral rights holder will be
required if the
43
matter is not governed by preexisting agreements. In some jurisdictions
disagreements over rights of surface use may be resolved by a government agency
having authority to determine use and compensation.
See "Risks of Native Title Claims - Canada" included in the Risk Factors
section included elsewhere in Part I of this Report.
United States
- -------------
Title to and right to mine hard rock minerals in the United States is
governed by the law of each state, except as to public lands of the United
States federal government that are open to exploration, which are governed by
the Mining Law of 1872, as amended.
In general, real property law in the United States is based on the English
common law of real property. In general, under the law of each state in the
United States, title to minerals and the right to mine is vested in the surface
owner, unless separately alienated. The surface owner can transfer all or part
of the mineral rights separate from the surface, or can transfer the surface and
retain ownership of mineral rights. Mineral rights may be further alienated,
may be leased and subleased, and also may be subdivided among more than one
owner, including alienation with the disposing party retaining the right to
receive royalties or other payments.
If the surface and the mineral rights are held by different persons, state
laws vary as to priority and other rights as between the parties. Transfer
documents by which the surface and mineral rights were separated may govern. In
the absence of agreement or provision in title documentation, in some states,
mineral right holders have priority of use and occupancy but must compensate the
surface holder for injury to the surface estate. In some states, the mineral
right holders have priority of use and no compensation obligation. A few states
have private condemnation statutes, which permit holders of mineral rights to
exercise the power of eminent domain to secure access to minerals and to provide
a portion of the surface for use in the conduct of mining.
Mineral rights holders have no royalty or payment obligation in respect of
minerals to a government entity unless the government entity happens to hold
title to or a royalty or payment interest in the mineral rights in the same way
as a private owner. However, some states have enacted severance taxes
applicable to production of minerals from property within the jurisdiction.
Under the United States Mining Law of 1872, United States citizens
(including corporations incorporated in the United States) may stake mining
claims upon United States federal government property open to exploration
("unpatented mining claims"). An initial fee is payable on staking and annual
maintenance fees are also payable. Under current law, persons staking such
unpatented mining claims, upon the making and documenting of a discovery of most
minerals (including gold and silver) in commercial quantities, are entitled to
mine for the mineral without payment of royalties or other fees (other than the
annual claim maintenance fee). In addition, the holder of an unpatented mining
claim who has made a commercial discovery is entitled to secure title to the
mineral and surface estates of the property subject to the mining claim
("patented mining claim") at nominal cost. Only certain federal public lands,
principally in the Western United States, are open to exploration. A patented
mining claim gives the holder the full fee interest in the property. Holders of
unpatented and patented mining claims may sell or lease claims in the same way
as fee property.
44
ENVIRONMENTAL MATTERS
General
- -------
Homestake has a policy of conducting extensive environmental audits of its
operations in order to minimize the impact of its operations on the environment
and to monitor compliance with applicable environmental laws and regulations. A
committee of the Homestake Board oversees the establishment and implementation
of environmental policy. Environmental audits are conducted on a regular basis
with the objective of auditing each operation at least once every three years.
Homestake makes 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
tailings and waste rock. In 1999, these expenditures totaled approximately $3.5
million compared to $3 million in 1998. Homestake estimates that during 2000
capital expenditures for such purposes will be approximately $2 million and that
during the five years ending December 31, 2004, such capital expenditures will
be approximately $10 million.
Homestake also incurs operating costs to minimize the effects of its
operations on the environment, including current reclamation costs, costs for
environmental monitoring and studies to identify and quantify environmental
impacts, if any, and accruals for remediation and future reclamation
expenditures. Such expenses totaled approximately $28 million in 1999, compared
with approximately $55 million in 1998. Homestake estimates that environmental
and related operating costs in 2000 will be approximately $20 million. 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. In
the mining industry, most reclamation work takes place after mining and related
operations terminate. Homestake has adopted a policy of conducting reclamation
concurrently with mining operations where practical. As a result, an increasing
amount of reclamation is being conducted simultaneously with mining. At
December 31, 1999 and 1998, Homestake had accrued $137 million and $131 million,
respectively, for future reclamation and related costs. With respect to
nonoperating properties, Homestake believes that it has fully provided for all
remediation liabilities and for estimated reclamation and site restoration
costs. Homestake's provisions are evaluated regularly and adjusted when
necessary. At September 30, 1999, Homestake recorded an additional provision
for estimated environmental and reclamation costs for historical operations at
properties acquired in the 1998 acquisition of Plutonic in the amount of $5.2
million. Homestake charges reclamation costs incurred in connection with its
exploration activities as expenses in the year in which incurred. For mining
operations, Homestake provides for final reclamation on a units-of-production
basis over the individual operating mine lives.
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.
45
RCRA
- ----
The United States Environmental Protection Agency ("EPA") has not yet
issued final regulations for management of mining wastes under the United States
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") imposes heavy liabilities on any person who is
responsible for an actual or threatened release of any substance classified as
hazardous, including liability for oversight costs incurred by the EPA.
Whitewood Creek
- ---------------
Deposits of tailings along an 18-mile stretch of Whitewood Creek formerly
constituted a site on the National Priorities List ("NPL"). The site was
deleted from the NPL in 1996. Mining companies operating in the Black Hills of
South Dakota, including Homestake, placed mine tailings in Whitewood Creek
beginning in the nineteenth century. Some tailings placed in Whitewood Creek
eventually flowed into the downstream receiving waters. Homestake ceased the
placement of mine tailings onto Whitewood Creek in 1977 and for more than 21
years the Homestake mine has impounded all mine tailings that are not
redeposited in the mine.
In 1977, the State of South Dakota, the United States government and the
Cheyenne River Sioux Tribe (the "Federal Trustees") filed an action against
Homestake, alleging that Homestake's disposal of mine tailings in Whitewood
Creek resulted in injuries to natural resources in Whitewood Creek and
downstream receiving waters. In its answers, Homestake denied that there has
been any continuing damage to natural resources or nuisance as a result of the
placement of tailings in Whitewood Creek. Homestake also counterclaimed against
the State of South Dakota and the Federal Trustees seeking cost recoupment,
contribution and indemnity. In September 1999, Homestake, the State of South
Dakota and the Federal Trustees reached full and complete settlement of the
natural resource damage claims and counterclaims. Homestake will pay a total of
$4 million to be used for natural resource restoration in four equal annual
installments, the first of which was made in October 1999. In addition,
Homestake will purchase for $300,000 up to 3,300 acres of land owned by the U.S.
Bureau of Land Management and pay the United States Government $500,000 as
reimbursement of costs incurred by the Government for natural resource damage
assessment. The Cheyenne River Sioux Tribe will receive $500,000 in cash
compensation for future environmental monitoring uses, and 400 acres of Black
Hills land owned by Homestake. Homestake will modify its diversion of water on
Spearfish Creek for three months each year, to permit instream flow to increase
by up to 20 cubic feet per second ("cfs"). Upon closure of the Homestake mine,
Homestake will relinquish the year-round right to diversion of that same 20 cfs
of flow. The cost of this settlement was recorded in 1998.
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 some of the residents in adjacent residential
subdivisions. Homestake paid the cost of extending the municipal water supply
to the subdivisions. Homestake also has operated a water injection and
collection system since 1976 that has significantly improved the quality of the
aquifer. The estimated costs of
46
continued remediation are included in the accrued reclamation liability.
Homestake has settled with the EPA concerning its oversight costs for this site.
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 2004 and 2013, subject to extension under
certain circumstances. 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 final closure of the Grants large tailings site is scheduled for
completion in 2003. During 1999, Homestake incurred approximately $4 million of
reclamation expenditures at the Grants facility and approximately $3 million is
planned to be expended during 2000.
Title X of the Energy Policy Act of 1992 (the "Energy Policy Act") and
subsequent amendments to the Energy Policy Act authorized appropriations of $335
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 Energy
Policy Act, the DOE is responsible for 51.2% of the past and future costs of
reclaiming the Grants site in accordance with NRC license requirements. Through
December 31, 1999 Homestake had received $27.2 million from the DOE and the
balance sheet at December 31, 1999 includes an additional receivable of $8.1
million for the DOE's share of reclamation expenditures made by Homestake
through 1999.
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 Homestake, 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 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 May 1986. Since that
time, a number of other lead producers and former lead producers have also been
so notified. The Port of Pascagoula is taking primary responsibility for
conducting an investigation of the site, but the Port of Pascagoula 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
Homestake and others, Homestake believes that most of the material at the
Pascagoula site, as well as 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 Homestake. The State of
Mississippi Department of Environmental Quality is reviewing the investigation
efforts and remediation plans that are being developed by the Port Authority.
Based on information currently available, Homestake believes the remediation
costs should not exceed $1 million. Homestake's position is that the Port
Authority is primarily responsible for the cost of remediation as owner of the
property and as lessor with the ability to control the activities of the
stevedoring company, and also because the Port Authority contributed to the
contamination by moving stored material from a storage building and depositing
it on the
47
ground. Homestake believes that any future costs it may incur in connection with
this matter will not be material.
Foreign Operations
- ------------------
Except for the instances described above in respect of the individual
properties, 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.
RISK FACTORS
The following risk factors should be considered in conjunction with the
other information included in "Cautionary Statements."
Risks Inherent in Gold Exploration, Development and Production
The business of gold exploration, development and production by its nature
involves significant risks. Among other things, the business depends on
successful location of reserves and skillful management. Gold exploration is
highly speculative in nature, involves many risks and frequently is non-
productive. Once mineralization is discovered and determined to be economically
recoverable, it usually takes a number of years from the initial phase of
exploration until production commences, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish reserves through drilling, to determine means of production and
metallurgical processes to extract the metal from ore and, in the case of new
properties, to construct mining and processing facilities.
Mining is subject to a variety of risks and hazards, including rock falls
and slides, cave-ins, flooding and other weather conditions, and other acts of
God. Homestake maintains and intends to continue to maintain, property and
liability insurance consistent with industry practice, but such insurance
contains exclusions and limitations on coverage. For example, coverage for
environmental liability generally is limited and may be totally unavailable.
There can be no assurance that insurance will continue to be available at
economically acceptable premiums. Production costs also can be affected by
unforeseen changes in ore grades and recoveries, permitting requirements,
environmental factors, work interruptions, operating circumstances, unexpected
changes in the quantity or quality of reserves, unstable or unexpected ground
conditions, and technical issues.
Most of Homestake's gold production and significant exploration activities
take place in the United States, Australia and Canada, all of which historically
have experienced relatively low levels of political and economic risk.
Homestake also produces gold in Chile and conducts exploration activities in
Argentina, Chile and the Andean region of South America. These regions
generally have higher levels of political and economic risk than the United
States, Australia and Canada, including greater potential for government
instability, uncertainty of laws and legal enforcement and compliance, defects
in or uncertainty as to title to mining property, expropriation of property,
restrictions on production, export controls, currency non-convertibility,
fluctuations in currency exchange rates, inflation and other general economic
and political uncertainties.
48
Risks of Gold and Silver Price Fluctuations and Hedging Activities
The results of Homestake's operations are significantly affected by the
market price of gold and, to a lesser extent, the market price of silver. The
markets for gold and silver are worldwide markets. Gold and silver prices are
subject to volatile price movements over short periods of time and are
influenced by numerous factors over which Homestake has no control, including
expectations with respect to the rate of inflation, the relative strength of the
United States dollar and certain other currencies, interest rates, global or
regional political or economic crises, demand for jewelry and industrial
products containing gold and silver, speculation, and sales by central banks and
other holders and producers of gold and silver in response to these factors.
The following table shows the reported annual high, low, average and end of
the period afternoon fixing prices of gold per ounce and silver per ounce in US
dollars on the London Bullion Market.
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Gold
High.......................... $ 326 $ 313 $ 367 $ 416 $ 397
Low........................... 253 273 283 367 372
Average....................... 279 294 331 388 384
Period End.................... 290 287 290 369 387
Silver
High.......................... $5.71 $7.81 $6.27 $5.83 $6.04
Low........................... 4.88 4.69 4.22 4.71 4.41
Average....................... 5.22 5.54 5.17 5.19 5.19
Period End.................... 5.33 5.01 5.95 4.73 5.11
The supply of gold and silver includes a combination of new mine
production, recycling of industrial products containing gold and silver, and
sales from existing stocks of bullion and fabricated gold and silver held by
governments, public and private financial institutions, and individuals.
In general, hedging enables a gold and silver producer to fix a future
price for hedged gold and silver that generally is higher than the then current
spot price. However, to the extent that sales of future production are hedged,
the ability to realize future increases in prices may be reduced subject to the
producer's ability to extend the expiry dates of the hedge contracts.
Homestake has adopted a precious metals hedging policy under which
Homestake, in appropriate circumstances, may enter into forward-sales
transactions for up to 30% of its gold and silver production in each of the
subsequent ten years (five years for silver) at prices in excess of certain
targeted prices. Homestake may also use, in appropriate circumstances,
combinations of put and call option contracts, which provide an effective price
floor for sales. To the extent Homestake has not hedged its production in
forward-sales transactions or established price floors, its profitability is
fully exposed to fluctuations in the current price of gold and silver in world
markets.
Homestake's results also are affected to a lesser degree by the market
prices for sulfur and for crude oil. Sulfur prices are affected principally by
the demand for fertilizer and the availability of by-product sulfur recovered
during the refining and processing of oil and natural gas. Crude oil
49
prices are affected principally by supply and demand for gasoline and fuel oil
as well as global or regional political or economic crises.
Risks Associated with Reserve Realization
Gold and silver reserves reported by Homestake reflect estimated quantities
and grades of gold and silver in deposits and in stockpiles of mined material
that Homestake believes can be mined, processed and sold at prices sufficient to
recover the estimated future cash costs of production, remaining investment and
anticipated additional capital expenditures. Reserves are estimates based upon
drilling results, past experience with mining properties, experience of the
person making the reserve estimates and many other factors. Reserve estimation
is an interpretive process based upon available data. Further, reserves are
valued based on estimates of future costs and future prices. Homestake's gold
reserves at December 31, 1999 and 1998 are based on an assumed price of $325 per
ounce. Silver reserves at December 31, 1999 and 1998 at the Eskay Creek mine
are based on assumed silver prices of $5.25 per ounce and $5 per ounce,
respectively.
Actual quality and other characteristics of ore deposits and gold and
silver prices will differ from the assumptions used to develop reserves. Such
differences may be significant.
Sulfur and oil reserve realization is subject to similar risks. In the
third quarter of 1997, Homestake wrote off its entire sulfur mine investment in
light of the continued depressed world market for sulfur.
Risks of Government Regulation of Mining
Homestake's mining operations are subject to extensive regulation governing
development, production, labor standards, occupational health, waste disposal,
use of toxic substances, environmental regulations, mine safety and other
matters. Some jurisdictions also require or may in the future require the
payment of royalties. Changes in regulations can have material impacts on
anticipated levels of production, costs and profitability. It is possible that
exploration, development or operation of a mine may be delayed or terminated as
a result of the inability to obtain all required permits and government
approvals on an economic basis, or the imposition of royalty payments or other
government regulations.
The United States Mining Law of 1872 (the "Mining Law") has been the
subject of substantial debate and proposals for change for several years. While
changes in the Mining Law may occur, Homestake cannot predict when or if changes
will occur, or the extent to which any new legislation will exempt or otherwise
"grandfather" existing mining operations, unpatented mining claims on which
commercial discoveries have been made or unpatented mining claims for which the
patenting process is partially complete. Under current law, persons staking
unpatented mining claims on United States federal government property open to
exploration (unpatented mining claims), upon the making and documenting of a
discovery of most minerals (including gold and silver) in commercial quantities,
are entitled to mine the property without payment of royalties and to secure
title to the property (patented mining claims) at nominal cost. Under proposals
made in recent years to amend the Mining Law, the United States government would
be entitled to receive royalties based on either the gross or net value of
production from government-owned property. This would have only minimal impact
on Homestake's current operations, as substantially all of Homestake's current
operations in the United States, other than its operations at Ruby Hill, are
conducted on privately held land. It is possible that Homestake may be required
to pay royalties on production from the Ruby Hill operation, which would
increase the production cost over current estimates, but the amount of the
increase, if any, is not predictable. Expansion at Homestake's Round Mountain
mine also may occur on government-owned property, as to which royalties
50
similarly might be payable. Should the Mining Law be so amended, it could reduce
the amount of future exploration and development activity conducted by Homestake
on federal government-owned property in the United States.
Risks of Currency Fluctuations
Gold and silver are sold throughout the world principally based on the US
dollar price, but operating expenses of gold and silver mining companies
generally are incurred in local currencies. Homestake's operations principally
are based in the United States, Canada and Australia. Homestake engages in
currency hedging in Canadian and Australian dollars to protect against
significant currency fluctuations relative to the US dollar.
Risks of Native Title Claims
Australia
The decision of the High Court of Australia in 1992 in Mabo and Others v
Queensland (No. 2) recognized traditional native title rights to land. That
decision and the Racial Discrimination Act raised the possibility that mining
and exploration tenements granted by the Crown after October 31, 1975, over
areas where there were existing native title rights might be invalid to the
extent of any inconsistency with those native title rights. State governments
and industry demanded, and were soon given, validation of all existing
interests. This was achieved by virtue of the Native Title Act 1993 (Cth) and
complementary State and Territory legislation. In 1996, the High Court held in
The Wik Peoples v Queensland that the grant of pastoral leases will not
necessarily extinguish native title rights. (Many mining leases have been
granted over areas of pastoral leasehold.)
The Native Title Act also establishes a mechanism for determination of
claims to native title. The legislation provides for a right to negotiate
before the grant or renewal of certain tenements (other than renewals of
tenements as of right, in accordance with the terms of their original grant)
after January 1, 1994. Negotiations must take place between the native title
holders or claimants, the grantee party and the government party. A grantee
party may pay compensation to the native title holders and claimants for the
future grant of a mining tenement. If agreement cannot be reached after
negotiations in good faith for six months, court approval of the proposed
tenement(s) can be applied for. Such court approval may include conditions with
respect to compensation, but to-date, has not. The grant of a mining tenement
ordinarily has the effect of suspending native title. Any compensation for the
suspension is payable by the government that granted the tenement.
In July 1998, the Native Title Amendment Act was passed by both houses of
the Australian Parliament. The legislation came into operation on September 30,
1998, although in some respects it operates retroactively. The Act makes
significant changes in the regime governing native title in Australia. Among
other things, the new law (i) transfers the determination of native title claims
to the Australian Federal Courts; (ii) requires that native title claims be
registered in compliance with specified requirements in order to qualify for the
right to negotiate; (iii) permits registration of claims to be delegated to
State bodies; and (iv) permits States to validate all titles issued between
January 1, 1994 and December 23, 1996 on land which was the subject of freehold
or leasehold title. Homestake cannot predict the extent to which the new law
will impact its operations, but it is generally expected that the new law will
facilitate and accelerate resolution of many native title issues and eliminate
some uncertainties.
There are a number of native title claims relating to the area of
Homestake's 50% owned Kalgoorlie operations, but the validity of those claims
has not been determined. In any event, all of
51
the mining leases with respect to active mining operations at Kalgoorlie are
pre-1994 leases and therefore native title claims will not affect their
validity. There also are native title claims relating to areas in which
Homestake's other Australian mining operations are conducted, but the validity
of these claims also has not been determined. In any event, with the one
exception described below, all of the other production mining leases are pre-
1994 leases and their validity is not affected by native title claims.
One production mining lease was granted between January 1 and March 15,
1995, when Western Australia did not comply with the requirement of negotiation
in granting these titles. Legislation has now been passed to validate titles
granted in Western Australia during this period.
Some of Homestake's exploration tenements in Australia are subject to
multiple native title claims. Should Homestake be successful in its exploration
activities in these areas and seek to convert its interests to mining leases, it
will be necessary to comply with the right to negotiate provisions of the Native
Title Act. The requirements for negotiation and the possibility of a
requirement to pay compensation may result in delay and increased costs for
mining in the affected mining areas.
Canada
In the Delgamuukw decision in December 1997, the Supreme Court of Canada
(the "Supreme Court") affirmed that aboriginal tribal groups continue to have
aboriginal rights in lands in British Columbia used or occupied by their
ancestors in 1846. Those rights may vary from rights of limited use up to
aboriginal title. The decision has created uncertainty regarding property
rights in Canada (including mineral and other resource rights), particularly in
British Columbia and other areas where treaties were not concluded with
aboriginal groups. The Supreme Court stated these principles in broad terms,
and did not apply them to any particular lands. The decision also did not
address how aboriginal rights or title are to be reconciled with property and
tenure rights previously sold or granted by the government. The Supreme Court
did confirm that the extent of the aboriginal rights (including whether the
rights rise to the level of aboriginal title) will depend on, among other
things, the extent of prior aboriginal use and occupation. The Supreme Court
also stated that, depending on the nature of the aboriginal rights, consultation
with and compensation to (and possibly consent of) aboriginal groups may be
required in connection with sales of government-owned land or granting of
mining, forestry and other rights to use government-owned land. The Supreme
Court indicated that rights of compensation derive from the government's
fiduciary obligations to the aboriginal groups. The application of the
principles enunciated in the decision will not be possible until subsequent
decisions provide clarification, and the application of these principles to any
particular land will not be possible until the exact nature of historical
aboriginal use and occupancy and the resulting rights in the particular property
have been determined.
The British Columbia government has initiated a process for the negotiation
of treaties to resolve outstanding issues of aboriginal rights and title in
British Columbia, under the authority of the B.C. Treaty Commission. To date,
51 aboriginal groups have commenced negotiations under the B.C Treaty Commission
process. Some aboriginal groups have withdrawn from negotiations and commenced
litigation since Delgamuukw. The position of the provincial government is that
it will not negotiate treaties if the claims are being litigated in the courts.
No treaties have yet been ratified under this process.
On August 4, 1998, the government of British Columbia and the government of
Canada initialled a treaty with the Nisga'a Nation negotiated under a separate
process. Before it comes into effect the Nisga'a treaty requires ratification
by the Nisga'a Nation and legislation by both the
52
federal and the provincial governments. The Nisga'a treaty includes provisions
granting fee simple title to an area of Crown land (Treaty title lands),
confirmation of non-exclusive aboriginal rights over an extended area,
provisions for payment of compensation, and provisions for the establishment of
a Nisga'a government. The ratification process has not yet been completed and is
the subject of public debate and challenges as to constitutional validity. None
of Homestake's operations or exploration properties are located in the area
subject to the Nisga'a treaty.
It is the stated policy of the British Columbia government that lands held
in fee simple by third parties will not be affected by treaty negotiation and
that the province will respect the terms of all existing legal interests in
Crown lands and resources including leases and licenses. However, where there
are legal interests in Crown lands which, under a treaty, become Treaty title
lands, and where those legal interests have termination dates, subject to
extensions or renewals, the province will likely decline to grant further
extensions or renewals. The Nisga'a treaty contemplates that future rights and
interests within the Treaty title lands will be subject to negotiation with the
Nisga'a government and to potential payment of fees, royalties or other charges
to the Nisga'a government.
Any confirmation by treaty of non-exclusive aboriginal rights on Crown land
will mean the continuation of certain limitations and procedural requirements
(such as consultation and possibly consent) on the disposition of Crown land and
resources.
There are aboriginal claims that extend to the area of British Columbia in
which the Eskay Creek mine is located. This mining operation is conducted under
government mining leases which grant the exclusive right to mine. There has not
been any determination of the existence of any valid claim of aboriginal rights
or title in the area. Homestake does not expect any interruption of its
existing mining operations in British Columbia, and Homestake does not believe
that its other Canadian operations will be materially adversely affected by
aboriginal claims. However, Homestake expects that future Canadian activities,
including exploration and development of new mines, could be slowed and could be
adversely affected, depending on future legal developments in this area and the
extent of aboriginal rights in any particular property.
United States
There are no native title issues for Homestake's properties in the United
States.
CAUTIONARY STATEMENTS
This Report contains certain information relating to Homestake that is
based on the beliefs of management, as well as assumptions made by and
information currently available to management. Any statements made in this
Report that are not historical in nature, including statements preceded by the
words "anticipate," "believe," "estimate," "expect," "intend," "will" and
similar expressions, as they relate to Homestake, are forward-looking statements
(as such term is defined in the United States Private Securities Litigation
Reform Act of 1995). Estimates of reserves, future production and future cash
costs per ounce of gold-equivalent production are also forward-looking
statements.
The purpose of these cautionary statements is to identify certain important
factors and assumptions on which forward-looking statements may be based or
which could cause actual results to differ materially from those expressed in
forward-looking statements. The important factors and assumptions set forth
below should be read in conjunction with "Risk Factors" above.
53
Reserves
Gold and silver reserves reported by Homestake reflect estimated quantities
and grades of gold and silver in deposits and in stockpiles of mined material
that Homestake believes can be mined, processed and sold at prices sufficient to
recover the estimated future cash costs of production, remaining investment, and
anticipated additional capital expenditures. Estimates of costs of production
are based on current and projected costs taking into account past experience and
expectations as to the future. Estimated mining dilution is factored into
reserve calculations.
Reserves are reported as general indicators of the life of mineral
deposits. Reserves should not be interpreted as assurances of mine lives or of
the profitability of current or future operations. Reserves are estimated for
each property based upon factors relevant to each deposit including drilling
results, past experience with the property, experience of the persons making the
reserve estimates and many other factors. Reserve estimation is an interpretive
process based upon available data, and the actual quality and other
characteristics of ore deposits cannot be known until mining has taken place.
Changes in reserves over time generally reflect (i) efforts to develop
additional reserves, (ii) depletion of existing reserves through production,
(iii) actual mining experience, (iv) continued testing and development of
additional information and (v) price and cost forecasts. Grades of ore actually
processed may be different from the stated reserve grades because of geologic
variations in different areas mined, mining dilution, losses in processing and
other factors. Recovery rates vary with the metallurgical and other
characteristics and grade of ore processed. Actual quality and other
characteristics of ore deposits, gold and silver prices, and costs of production
will vary from the assumptions used to develop reserve estimates. Such
differences may be material.
Gold and silver reserve calculations for properties operated by Homestake
are prepared by Homestake. Gold and silver reserve calculations for properties
not operated by Homestake are based on information provided to Homestake by the
operator. Homestake periodically reviews such information but does not
independently confirm the information provided by these operators.
Homestake's sulfur reserves represent the quantity of sulfur 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 estimated future capital expenditures. Homestake's proven 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, the remaining investment, and
estimated future capital expenditures. The estimates are based on limited
reservoir and engineering data. The reserve estimates are based on information
provided by the operator. The operator principally relies on oil reserve
estimations performed by third-party petroleum engineers. In the third quarter
of 1997, Homestake wrote off its entire investment in the sulfur mine in light
of the continued depressed market for sulfur.
Estimates of Production
Estimates of future production and mine life for particular properties are
derived from annual mining plans that have been developed based on, among other
things, mining experience, reserve estimates, assumptions regarding ground
conditions and physical characteristics of ores (such as hardness and presence
or absence of certain metallurgical characteristics), and estimated rates and
costs of production. Actual production may vary from estimates for a variety of
reasons, including risks and hazards of the types discussed above, actual ore
mined varying from estimates
54
of grade and metallurgical and other characteristics, mining dilution, strikes
and other actions by labor at unionized locations, restrictions imposed by
government agencies and other factors. Estimates of production from properties
not yet in production or from operations that are to be expanded are based on
similar factors (including, in some instances, feasibility reports prepared by
company personnel and/or outside consultants) but, as such estimates do not have
the benefit of actual experience, there is a greater likelihood that actual
results will vary from the estimates.
Mineralized Material
Mineralized material is gold-bearing material that has been physically
delineated by one or more of a number of methods including drilling, underground
work, surface trenching and other types of sampling. This material has been
found to contain a sufficient amount of mineralization of an average grade of
metal or metals to have economic potential that warrants further exploration
evaluation. While this material is not currently or may never be classified as
reserves, it is reported as mineralized material only if the potential exists
for reclassification into the reserves category. This material has established
geologic continuity, but cannot be classified in the reserves category until
final technical, economic and legal factors have been determined and the project
containing the material has been approved for development.
Estimates of Operating Costs and Capital Costs; Capital Projects
Estimates of cash costs for mining operations are developed based on past
experience, reserve and production estimates, anticipated mining and ground
conditions, metallurgical recoveries, estimated costs of materials, supplies and
utilities, exchange rates and other items. Estimates of amortization of noncash
costs are based on total capital costs and reserve estimates and may change at
least annually based on actual amounts of unamortized capital and changes in
reserve estimates. If the net book value of mining operations exceeds the fair
value, usually determined based on the estimated future undiscounted cash flows
from that mine, then an impairment loss based on the discounted cash flows would
be recognized as an expense in the period in which such evaluation is made.
Estimates for reclamation and environmental remediation costs are developed
based on existing and expected legal requirements, past reclamation experience,
cost estimates provided by company employees and third parties and other
factors. Estimates also reflect assumptions with respect to actions of
government agencies, including exercise of discretion and the amount of time
government agencies may take in completing processes required under applicable
laws and regulations. As a result, final costs may vary significantly from
estimates. Homestake periodically reevaluates reclamation cost estimates and
reclamation reserves to take account of such factors.
Estimates of future capital costs are based on a variety of factors and may
include past operating experience, estimated levels of future production,
estimates by and contract terms with third-party suppliers, expectations as to
government and legal requirements, feasibility reports (which may be prepared by
company personnel and/or outside consultants) and other factors. Capital cost
estimates for new projects under development generally are subject to greater
uncertainties than additional capital costs for existing operations.
Estimated periods for completion of capital projects are based on many
factors, including experience in completing capital projects, and estimates
provided by and contract terms with contractors, engineers, suppliers and others
involved in design and construction of projects. Estimates also reflect
assumptions with respect to factors beyond the control of Homestake, including,
but not limited to, the time government agencies may take in processing
applications,
55
issuing permits and otherwise completing processes required under applicable
laws and regulations. Actual time to completion may vary significantly from
estimates.
Estimates of exploration costs are based upon many factors such as past
exploration costs, estimates of the level and cost of future activities, and
assumptions regarding anticipated results on each property. Actual costs may
vary during the year as a result of such factors as actual exploration results
(which could result in increasing or decreasing expenditures for particular
properties), changed conditions, and acquisitions and dispositions of property.
Taxes
Homestake's operations are conducted in a number of jurisdictions, with
differing rates of taxation, but substantially all of Homestake's revenues come
from the United States, Canada and Australia.
The Canadian statutory tax rate, including federal and provincial income
tax and mining tax is approximately 49%. The applicable United States tax rate
is 21% (20% alternative minimum tax plus 1% state tax). The Australian
statutory rate was 36% in 1999. In December 1999, the Australian government
enacted certain significant changes to the structure of taxation in Australia.
These changes included a reduction of the statutory rate to 34% for the fiscal
year beginning July 1, 2000 and a further reduction to 30% for years thereafter.
Further changes to the structure of taxation in Australia, the impacts of which
currently are unknown, are expected to be enacted during 2000.
Homestake's reported tax rate varies from the statutory rate because of
certain differences between the tax laws and the accounting treatment of income
and expenditures. For example, as a result of the acquisition of the minority
interests in Prime, there was an increase in the basis of mining assets for
financial reporting purposes that is not deductible for Canadian tax purposes.
The problem is partially mitigated by the FASB 109 deferred tax purchase
accounting adjustments established at the time of purchase. In addition, some
of Homestake's foreign exploration costs are expensed for accounting purposes
but are not yet deductible for tax purposes. Therefore, the tax benefit related
to those expenditures cannot be recognized until there is sufficient taxable
income generated in the jurisdictions where such expenditures are incurred.
Certain Canadian accounting expenses cannot be deducted in calculating the
mining tax. Homestake also has limited ability to utilize foreign tax credits
in calculating its United States income tax.
Homestake's overall effective tax rate is dramatically impacted by the
geographic mix of its pretax income and losses. A greater proportion of income
in a high tax jurisdiction, like Canada, can cause the consolidated effective
tax rate to rise.
Homestake's overall effective tax rate also can fluctuate significantly
during a period of low gold prices, because the tax rate is affected by the
ratio of tax expense to pretax income. Low pretax income or pretax losses can
produce unusually high or unusually low effective tax rates (including the
possibility of negative rates). This can occur if mining and income tax
expenses continue to accrue on profitable mines in high tax jurisdictions while
losses are incurred in low tax jurisdictions. The tax expense in the high tax
jurisdiction is not fully offset by the tax benefit from losses generated in the
low tax jurisdictions. As a result, as the income and tax expenses from all
jurisdictions are blended into a consolidated total, the overall effective rate
is disproportionately impacted.
56
CUSTOMERS
Sales to individual customers exceeding 10% of Homestake's 1999 and 1998
consolidated revenues are stated below. 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.
1999 1998
($ in thousands)
Customer A $142,000
B 99,000 $ 75,600
C 96,000 -
D 77,800 -
E 76,000 108,000
F - 120,100
G - 99,200
CREDIT FACILITIES
See note 12 "Long-term Debt" to the consolidated financial statements on
beginning on page 45 of the 1999 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, 1999 of Homestake and its
subsidiaries was:
Homestake mine /1/ 360
McLaughlin mine 94
Ruby Hill mine 91
Nickel Plate mine 12
Eskay Creek mine 110
Plutonic mine 126
Darlot mine 62
Lawlers mine 49
Agua de la Falda mine /1/ 47
United States corporate staff and other 68
Canada exploration and corporate staff 19
Australian exploration and corporate staff 73
Argentina exploration and corporate staff 82
United States exploration 18
Uranium 8
Chile exploration and corporate staff 31
-----
Total 1,250
1. Operations where a portion of the employees are represented by a labor
union.
57
The number of full-time employees (excluding contractors' employees) at
December 31, 1999 in jointly-owned operations in which Homestake participates
was:
Kalgoorlie Consolidated Gold Mines Pty Ltd /1/ 389
Williams Operating Corporation 605
Round Mountain mine 694
Teck-Corona Operating Corporation /1/ 212
Pinson Mining Company 13
Marigold Mining Company 91
Main Pass 299 177
------
Total 2,181
1. Operations where a portion of the employees are represented by a
labor union.
Labor relations at all locations are believed to be good. At the
Homestake mine, a five-year labor contract was signed in May 1998. A new three-
year union contract at the David Bell mine was signed in April 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages at December 31, 1999,
their business experience and principal occupations during the past five years
and their business backgrounds are:
Jack E. Thompson - Chairman since July 1998 and Chief Executive Officer
since May 1996, age 49. He was President from August 1994 to April 1999. He
was Chief Operating Officer from August 1994 until May 1996, and 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 29 years of experience in mining and
mine management.
Walter T. Segsworth - President and Chief Operating Officer since April
1999, age 50. He was President and Chief Executive Officer of HCI and Vice
President, Canada from April 1998 to March 1999 and was President and Chief
Executive Officer of Prime from April 1998 through December 1998. Prior to
joining Homestake, he was President, Chief Executive Officer and Director of
Westmin Resources Limited in Vancouver until it was acquired in early 1998.
Before joining Westmin in 1990 he was employed by Noranda Limited in a number of
positions of increasing responsibility. He is a mining engineer with more than
28 years of professional experience.
David W. Peat - Vice President, Finance and Chief Financial Officer since
April 1999, age 47. He was Vice President and Controller from December 1995 to
April 1999. 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 23
years of accounting and finance experience.
58
Michael L. Carroll - Vice President and Treasurer since July 1999, age 46.
He was Treasurer from April 1997 to July 1999 and Director or Taxes from October
1991 to April 1997. Prior to joining Homestake in 1991, he was Assistant Vice
President of Bond International Gold Inc. Before joining Bond, he was Director
of Taxes for St. Joe Minerals Corporation. He has over 22 years of accounting,
finance and tax experience.
Lee A. Graber - Vice President, Corporate Development since 1983, age 51.
From 1980 to 1983, he was Manager, Corporate Development and Planning. He has
over 28 years of experience in finance and corporate development.
James B. Hannan - Vice President and Controller since July 1999, age 33.
Prior to joining Homestake, he was the Chief Financial Officer from March 1999
to June 1999 and Director, Commercial Development from February 1998 to March
1999 at Koch Mineral Services, a division of Koch Industries, Inc. Before
joining Koch, he was controller at Pegasus Gold Corporation from November 1996
to February 1998 and Assistant Controller from April 1995 to November 1996. He
is a certified public accountant with over ten years of experience in accounting
and finance.
Wayne Kirk - Vice President, General Counsel and Secretary since September
1992, age 56. He was a partner in Thelen, Marrin, Johnson & Bridges from 1976
to 1992. He has practiced law for 31 years.
Gregory A. Lang - Vice President, Australian Operations since January 1999,
age 44. He was Vice President, U.S. and International Operations from August
1998 to December 1998, Vice President, Development from March 1997 to August
1998, Vice President of Homestake International Minerals Limited from June 1996
until March 1997, General Manager, Project Development from January 1996 until
June 1996 as well as General Manager of the Ruby Hill project from October 1994
through June 1996, and General Manager of the Nickel Plate mine from 1993 until
October 1994. He joined Homestake in 1992 as Resident Manager of the Santa Fe
mine, a position he had held with International Corona Corporation since 1988.
He is a mining engineer with over 22 years of experience in mining and mine
management.
Igor Levental - Vice President, Investor Relations since August 1999, age
44. He was the Manager, Corporate Development since 1994. Prior to joining
Homestake in 1994, he was Vice President, Investments and Investor Relations for
International Corona Corporation. He has over 23 years experience in
engineering and investor relations.
Donald W. T. Lewis - Vice President, Evaluations since March 1997, age 42.
He was Director, North American Exploration/Evaluations from January 1996 until
March 1997. He joined Homestake in 1992 as Director, Project Generation. Prior
to joining Homestake he was Exploration Manager - Western Canada for
International Corona Corporation from 1989 until 1992. He is a geologist with
more than 20 years of professional experience.
William F. Lindqvist - Vice President, Exploration since August 1995, age
57. 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 29 years of
professional experience.
59
Stephen A. Orr - Vice President, North American Operations since August
1999, age 44. He also is President and Chief Executive Officer of HCI. He was
the Vice President, Investor Relations from August 1998 to July 1999, Vice
President, U.S. Operations from December 1996 to August 1998, General Manager of
the Homestake mine from January 1995 until December 1996, Operations Manager
from 1993 to 1995 and Manager, Mine Engineering from 1992 to 1993. He was a
Financial Analyst in the Corporate Finance Department from 1990 to 1992. He has
been with Homestake since 1981 and has over 22 years of experience in mining and
mine management.
Mary T. Schuba - Vice President, Human Resources since April 1999, age 52.
She was the Director, Human Resources from August 1995 to April 1999. She has
been with Homestake since 1985 and has over 25 years of experience in personnel
and employee relations.
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.
ITEM 3 - LEGAL PROCEEDINGS
Certain environmental proceedings in which Homestake or its subsidiaries
are or may become parties are discussed under the caption "Environmental
Matters."
In October 1997, HCI and Prime entered into an agreement with Inmet Mining
Corporation ("Inmet") to purchase the Troilus mine in Quebec for $110 million
plus working capital. In December 1997, HCI and Prime terminated the agreement
after determining that, on the basis of due diligence studies, conditions to
closing the arrangement would not be satisfied. On February 23, 1998, Inmet
filed suit against Prime and HCI in the British Columbia Supreme Court,
disputing the termination of the agreement, and alleging that Prime and HCI had
breached the agreement. Inmet seeks specific performance or, in the
alternative, equitable damages. Homestake believes that the agreement with
Inmet was terminated properly and that the action by Inmet is without merit.
Homestake intends to defend this action vigorously. Discovery is continuing and
trial is scheduled for January 2001.
Homestake and its subsidiaries are defendants in various legal actions in
the ordinary course of business. In the opinion of management, such matters
will be resolved without material adverse effect on the Homestake's financial
condition, results of operations or cash flow.
60
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 in Switzerland on the Basel, Geneva and Zurich
stock exchanges under the same symbol and on the Australian Stock
Exchange under the symbol HSM. HCI Exchangeable Shares are listed and
traded in Canada on the Toronto stock exchange under the symbol "HCX".
b. The number of holders of common stock of record as of March 6, 2000 was
19,949. The number of holders of HCI Exchangeable Shares of record as
of March 6, 2000 was 1,488.
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 57 in the Company's 1999 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 in note 12 entitled "Long-term Debt" beginning on page 45 in
the Notes to Consolidated Financial Statements in the Company's 1999
Annual Report to Shareholders. Such information is hereby incorporated
by reference.
d. Reference is hereby made to the note 16 entitled "Shareholders' Equity"
on page 50 in the Notes to Consolidated Financial Statements in the
Company's 1999 Annual Report to Shareholders. Such information is
hereby incorporated by reference.
e. The Registrant did not sell any securities during 1999 that were not
registered under the Securities Act of 1933 except as follows:
(i) Argentina Gold Corp. Acquisition. Homestake issued 20.9
--------------------------------
million shares of its Common Stock to acquire Argentina Gold Corp. The
shares were issued effective as of April 29, 1999. These shares were
issued without registration in reliance upon an exemption under Section
3(a)(10) of the Securities Act after a fairness hearing by the Supreme
Court of British Columbia.
ITEM 6 - SELECTED FINANCIAL DATA
A summary of selected consolidated financial data of the Company and its
subsidiaries for the five-year periods ended December 31, 1999 appears on page
58 in the Company's 1999 Annual Report to Shareholders. The summary of selected
consolidated financial data is hereby incorporated by reference.
61
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 periods ended December 31, 1999 appears on
pages 24 through 33 in the Company's 1999 Annual Report to Shareholders and is
hereby incorporated by reference.
ITEM - 7 (a) MARKET RISK DISCLOSURES
See notes 2 and 18 to the consolidated financial statements at December 31,
1999 for additional information regarding the Company's precious metals and
foreign currency hedging programs and the adoption of Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities". Such information is hereby incorporated by reference.
Gold And Silver Risk Disclosures
The results of the Company's operations are affected significantly by the
market price of gold. Gold prices are influenced by numerous factors over which
the Company has no control, including expectations with respect to the rate of
inflation, the relative strength of the United States dollar 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. Homestake's precious metals
hedging policy provides for the use of forward sales contracts to hedge up to
30% of each of the following ten year's expected annual gold production, and up
to 30% of each of the following five year's expected annual silver production,
at prices in excess of certain targeted prices. The policy also provides for
the use of combinations of put and call option contracts to establish minimum
floor prices.
62
At December 31, 1999 the Company had gold forward sales and option contracts
outstanding as follows:
Expected Maturity or Transaction Date
----------------------------------------------------------------------- Fair
There- Total or Value (US $
2000 2001 2002 2003 2004 after Average millions) (2)
------------ ----------- ----------- ---------- ---------- ------------ ----------- -------------
US $ denominated contracts:
Forward sales contracts: $ 14.8
Ounces 85,080 10,000 10,000 - - 409,200 514,280
Average price ($ per oz.) $ 430 $ 400 $ 403 - - $ 408 $411
Put options owned: 4.2
Ounces 110,000 80,000 - - - - 190,000
Average price ($ per oz.) $ 279 $ 253 - - - - $268
Call options written: (7.8)
Ounces 95,000 80,000 - - - - 175,000
Average price ($ per oz.) $ 275 $ 253 - - - - $265
Call options purchased: 5.8
Ounces 80,000 80,000 - - - - 160,000
Average price ($ per oz.) $ 268 $ 268 - - - - $268
Australian $ denominated contracts: (1)
Forward sales contracts: -
Ounces - - 24,800 24,800 24,800 26,000 100,400
Average price (US$ per oz.) - - $ 344 $ 344 $ 344 $ 344 $344
Put options owned: 10.4
Ounces 120,000 120,000 - - - - 240,000
Average price (US$ per oz.) $ 340 $ 350 - - - - $345
(1) Expressed in US dollars at an exchange rate of A$ = US$0.6539
(2) Fair values are based on market quotations for similar financial
instruments
At December 31, 1999 the Company had forward sales contracts outstanding
for approximately 4.2 million ounces of silver for delivery during 2000 and 2001
at an average price of $6.24 per ounce. The fair value of these silver
contracts at December 31, 1999, based on market quotations for similar financial
instruments, was $3 million.
Foreign Currency Risk Disclosures
Significant portions of the Company's operations are located in Australia
and Canada. The Company's profitability is impacted by fluctuations in those
countries' currency exchange rates relative to the United States dollar. Under
the Company's foreign currency protection program, the Company has entered into
a series of foreign currency option contracts to minimize the effects of a
strengthening of either the Canadian or Australian currencies in relation to the
United States dollar.
63
At December 31, 1999 the Company had Canadian and Australian foreign
currency option contracts outstanding as follows:
Expected Maturity or Transaction Date
------------------------------------- Fair
Total or Value (US $
2000 2001 2002 Average millions) (4)
----------- ---------- ---------- ----------- -------------
(US$ in millions)
Canadian $ / US $ option contracts: $ 1.4
US $ covered $105.4 $ 62.1 - $ 167.5
Written puts, average exchange rate (1) 0.69 0.66 - 0.68
US $ covered $105.4 $66.1 - $171.5
Purchased calls, average exchange rate (2) 0.72 0.69 - 0.71
US $ covered $105.4 $38.3 - $143.7
Purchased puts, average exchange rate (3) 0.65 0.65 - 0.65
Australian $ / US $ option contracts: 2.0
US $ covered $129.5 $63.3 $26.0 $218.8
Written puts, average exchange rate (1) 0.66 0.65 0.69 0.66
US $ covered $129.5 $63.3 $26.0 $218.8
Purchased calls, average exchange rate (2) 0.68 0.66 0.69 0.67
US $ covered $118.6 $52.3 $26.0 $196.9
Purchased puts, average exchange rate (3) 0.63 0.64 0.66 0.64
(1) Assuming exercise by the counter-party at the expiration date, the
Company would exchange US dollars for Canadian or Australian dollars at
the put exchange rate if the spot exchange was below the put exchange
rate.
(2) Assuming exercise by the Company of the expiration date, the Company
would exchange US dollars for Canadian dollars or Australian dollars at
the call exchange rate if the spot exchange rate was above the call
exchange rate.
(3) Assuming exercise by the Company of the expiration date, the Company
would exchange Canadian or Australian dollars for US dollars at the put
exchange rate if the spot exchange rate was below the put exchange rate.
(4) Fair values are based on market quotations for similar financial
instruments.
The Company does not require or place collateral for its foreign currency and
precious metals hedging derivatives. However, the Company minimizes its credit
risk by dealing with only major international banks and financial institutions.
Other Financial Instrument Risk Disclosures
The carrying values of the Company's long-term debt and other financial
instruments approximated their estimated fair values at December 31, 1999 (see
notes 12 and 15 to the consolidated financial statements at December 31, 1999).
The Company's 5.5% convertible subordinated notes (with a principal balance of
$135 million at December 31, 1999) mature in June 2000 and the fair value of
this debt has been estimated to approximate its carrying value due to the
relatively short time until maturity and the provision that the Company can
redeem this debt at any time at par value. The fair value of borrowings under
the pollution control bonds and the Company's cross-border credit facility have
been estimated to approximate their carrying
64
values as these instruments bear interest at prevailing market rates. The
Canadian dollar-denominated borrowings under the cross-border credit facility
are held by the Company's Canadian subsidiaries whose functional currency is the
Canadian dollar. Therefore the reported liability balance, as expressed in the
US dollar reporting currency of Homestake, will fluctuate as the Canadian to US
dollar exchange rate changes.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's 1999 Annual Report to Shareholders includes the
Company's consolidated balance sheets as of December 31, 1999 and 1998 and
related statements of consolidated operations, consolidated shareholders'
equity, consolidated cash flows and consolidated comprehensive income (loss) for
each of the three years in the period ended December 31, 1999 and the
independent accountants' report thereon, and certain supplementary financial
information. The following are hereby incorporated by reference from the
Company's 1999 Annual Report to Shareholders at the pages indicated:
Statements of Consolidated Operations (page 34)
Consolidated Balance Sheets (page 35)
Statements of Consolidated Shareholders' Equity (page 36)
Statements of Consolidated Cash Flows (page 37)
Statements of Consolidated Comprehensive Income (Loss) (page 38)
Notes to Consolidated Financial Statements (pages 39 - 55)
Report of Independent Accountants (page 56)
Quarterly Selected Data (page 57)
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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.
65
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:
All schedules have been omitted since they either are not
required or because the required information is included in the
financial statements or related notes.
3. Exhibits
3.1 Restated Certificate of Incorporation of Homestake Mining Company
(incorporated by reference to Exhibit 3.6 to the Registrant's Form
8-K dated December 10, 1998.)
3.2 Bylaws (as amended through May 11, 1999) of Homestake Mining
Company. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 8-K dated June 18, 1999.)
3.3 Homestake Canada Inc. Exchangeable Share Provisions (incorporated
by reference to Appendix D to the Registrant's Proxy Statement
dated as of October 20, 1998).
3.4 Voting, Support and Exchange Trust Agreement in respect of
Homestake Canada Inc. Exchangeable Shares (incorporated by
reference to Appendix E to the Registrant's Proxy Statement dated
as of October 20, 1998).
3.5 Rights Agreement dated October 16, 1987 (incorporated by reference
to Exhibit 1 to the Registrant's Registration Statement on Form 8-
A dated October 16, 1987).
3.6 Amendment No. 1 dated as of October 15, 1997 to the Rights
Agreement dated as of October 16, 1987 (incorporated by reference
to Exhibit 4 to the Registrant's Form 8-A/A filed on October 16,
1997).
3.7 Amendment No. 2 dated as of December 3, 1998 to the Rights
Agreement dated as of October 16, 1987 (incorporated by reference
to Exhibit 6 to the Registrant's Form 8-A/A filed on December 4,
1998).
3.8 Rights Agreement dated as of December 3, 1998, between Homestake
Canada Inc., Homestake Mining Company and Montreal Trust Company
of Canada as Rights Agent (incorporated by reference to Exhibit 5
to the Registrant's Form 8-A/A filed on December 4, 1998).
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 Credit Agreement dated as of July 24, 1998 between the Registrant,
the Lenders, The Chase Manhattan Bank of Canada as Canadian
Administrative Agent for Lenders, Chase Securities Australia
Limited, as Australian Administrative Agent for Lenders, Chase
Securities Inc., as Arranger, The Chase Manhattan Bank, as
Administrative Agent for Lenders, and Deutsche Bank A.G., as
Documentation
66
Agent for Lenders (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q dated as of August 13,
1998).
10.2 First Amendment and Waiver to Credit Agreement dated as of
September 14, 1998 among the Registrant, the Lenders, Deutsche
Bank A.G. as Documentation Agent, The Chase Manhattan Bank of
Canada as Canadian Administrative Agent, Chase Securities
Australia Limited, as Australian Administrative Agent, Chase
Securities Inc., as Arranger, and The Chase Manhattan Bank, as
Administrative Agent (incorporated by reference to Exhibit 10.2 to
the Registrant's Form 10-Q dated November 13, 1998).
10.3 Second Amendment, dated as of October 16, 1998, to Credit
Agreement among the Registrant, the Lenders, Deutsche Bank A.G.,
as Documentation Agent, The Chase Manhattan Bank of Canada as
Canadian Administrative Agent, Chase Securities Australia Limited,
as Australian Administrative Agent, Chase Securities Inc., as
Arranger, and The Chase Manhattan Bank, as Administrative Agent
(incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-Q dated November 13, 1998).
10.4 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 (incorporated by reference
to Exhibit 10.1 to the Registrant's Form 10-K Report for the year
ended December 31, 1995).
* 10.5 Form of Change of Control Severance Plan of Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's
Form 10-K Report for the year ended December 31, 1995).
* 10.6 Deferred Compensation Plan of Homestake Mining Company effective
October 1, 1995 (incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-K Report for the year ended December 31,
1995).
* 10.7 Amended and Restated Executive Supplemental Retirement Plan of
Homestake Mining Company effective August 1, 1995 (and as modified
January 23, 1998).
* 10.8 Supplemental Retirement Plan of Homestake Mining Company, amended
and restated effective as of January 1, 1990 (including November
29, 1990 modification) (incorporated by reference to Exhibit 10.5
to the Registrant's Form 10-K Report for the year ended December
31, 1995).
* 10.9 Master Trust under the Homestake Mining Company Deferred
Compensation Plans as of December 5, 1995 (incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-K Report for
the year ended December 31, 1995).
* 10.10 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).
10.11 Combination Implementation Agreement dated December 22, 1997
between Homestake Mining Company and Plutonic Resources Limited
(incorporated by reference to Appendix A to the Registrant's
Preliminary Proxy Statement dated January 26, 1998 and as amended
March 11, 1998).
10.12 Arrangement Agreement dated as of September 28, 1998 among Prime
Resources Group Inc., Homestake Canada Inc., Homestake Canada
Holdings Company and Homestake Mining Company (incorporated by
reference to Appendix b to the Registrant's Proxy Statement dated
as of October 20, 1998).
10.13 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).
67
10.14 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).
10.15 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).
10.16 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).
10.17 Agreement Amending Joint Venture Agreement made 19 June 1996
between Homestake Gold of Australia Limited, North Kalgoorlie
Mines Pty Ltd. and Kalgoorlie Consolidated Gold Mines Pty Ltd.
(incorporated by reference to Exhibit 10.14 to the Registrant's
Form 10-K for the year ended December 31, 1996).
10.18 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 sulfur
project (incorporated by reference to Exhibit 10.16 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.19 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).
10.20 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).
10.21 Letter dated June 17, 1996, amending Amendment No. 1 to Joint
Operating Agreement between Freeport McMoran Resource Partners,
IMC Fertilizer Inc. and Homestake Sulphur Company (incorporated by
reference to Exhibit 10.18 to the Registrant's Form 10-K for the
year ended December 31, 1996).
10.22 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).
10.23 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).
10.24 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
68
Exhibit 10.19 to the Registrant's Form 10-K for the year ended
December 31, 1992).
10.25 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).
10.26 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).
* 10.27 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).
10.28 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).
10.29 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).
* 10.30 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).
* 10.31 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).
* 10.32 Consulting agreement dated as of May 15, 1996 between Harry M.
Conger and the Registrant (incorporated by reference to Exhibit
10.30 to the Registrant's Form 10-K for the year ended December
31, 1996).
* 10.34 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).
* 10.35 Homestake Mining Company Stock Option and Share Rights Agreement -
1996 ("1996 Plan") (incorporated by reference to Exhibit A to the
Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders).
* 10.36 Form of Stock Option Agreement under the 1996 Plan. (incorporated
by reference to Exhibit 10.36 to the Registrant's Form 10-K for
the year ended December 31, 1998).
* 10.37 Form of Performance Based Share Agreement under the 1996 Plan.
(incorporated by reference to Exhibit 10.37 to the Registrant's
Form 10-K for the year ended December 31, 1998).
* 10.38 Form of Bonus Share Agreement under the 1996 Plan. (incorporated
by reference to Exhibit 10.38 to the Registrant's Form 10-K for
the year ended December 31, 1998).
* 10.39 Form of Matching Stock Agreement under the 1996 Plan.
(incorporated by reference to Exhibit 10.39 to the Registrant's
Form 10-K for the year ended December 31, 1998).
69
* 10.40 1998 Outside Directors' Stock Compensation Plan. (incorporated by
reference to Exhibit 10.40 to the Registrant's Form 10-K for the
year ended December 31, 1998).
* 10.41 Consulting Agreement between McClintock Associates Pty Limited and
Plutonic Resources Limited, composite as amended September 24,
1999 (incorporated by reference to Exhibit 10.41 to the
Registrant's Form 8-K dated January 18, 2000).
* 10.42 Amended 1999 Executive Supplemental Retirement Plan of Homestake
Mining Company, Effective April 1, 1999, amended as of September
1, 1999 (incorporated by reference to Exhibit 10.42 to the
Registrant's Form 8-K dated January 18, 2000).
* 10.43 1999 Change of Control Severance Plan of Homestake Mining
(alternative I, applicable to persons who became participants in
the Change of Control Severance Plan prior to May, 1998)
(incorporated by reference to Exhibit 10.43 to the Registrant's
Form 8-K dated January 18, 2000).
* 10.44 1999 Change of Control Severance Plan of Homestake Mining Company
(alternative II, applicable to persons who became participants in
the Change of Control Severance Plan after May, 1998)
(incorporated by reference to Exhibit 10.44 to the Registrant's
Form 8-K dated January 18, 2000).
* 10.45 First Amendment to the Retirement Plan for Outside Directors of
Homestake Mining Company, dated as of January 6, 2000
(incorporated by reference to Exhibit 10.45 to the Registrant's
Form 8-K dated January 18, 2000).
* 10.46 Amended Form of Stock Option Agreement under the 1996 Plan
(incorporated by reference to Exhibit 10.46 to the Registrant's
Form 8-K dated January 18, 2000).
* 10.47 Amended Form of Performance Based Share Agreement under the 1996
Plan-1997 Grants (incorporated by reference to Exhibit 10.47 to
the Registrant's Form 8-K dated January 18, 2000).
* 10.48 Amended Form of Performance Based Share Agreement under the 1996
Plan-1998 Grants (incorporated by reference to Exhibit 10.48 to
the Registrant's Form 8-K dated January 18, 2000).
* 10.49 Amended Form of Performance Based Share Agreement under the 1996
Plan-1999 Grants (incorporated by reference to Exhibit 10.49 to
the Registrant's Form 8-K dated January 18, 2000).
* 10.50 Amended Form of Bonus Stock Program Agreement under the 1996 Plan
(incorporated by reference to Exhibit 10.50 to the Registrant's
Form 8-K dated January 18, 2000).
* 10.51 Amended Form of Matching Stock Agreement under the 1996 Plan
(incorporated by reference to Exhibit 10.51 to the Registrant's
Form 8-K dated January 18, 2000).
13 Specified Sections from the Company's 1999 Annual Report to
Shareholders that are incorporated herein by reference
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
27 Financial Data Schedule.
* Compensatory plan or management contract.
(b) Reports Filed on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
70
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 23, 2000 By: /s/ Jack E. Thompson
--------------------------- ---------------------------------
Jack E. Thompson
Chairman 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/ David W. Peat Vice President, Finance and March 23, 2000
- ----------------- Chief Financial Officer
David W. Peat (Principal Financial Officer)
/s/ James B. Hannan Vice President and Controller March 23, 2000
- ------------------- (Principal Accounting Officer)
James B. Hannan
(Signatures continued on following page.)
71
Signature Capacity Date
- --------- -------- ----
/s/ Jack E. Thompson Chairman, Chief Executive March 23, 2000
- -------------------- Officer and Director
Jack E. Thompson
/s/ Gerhard Ammann Director March 23, 2000
- ------------------
Gerhard Ammann
/s/ M. Norman Anderson Director March 23, 2000
- ----------------------
M. Norman Anderson
/s/ Richard R. Burt Director March 23, 2000
- -------------------
Richard R. Burt
/s/ Robert H. Clark, Jr. Director March 23, 2000
- ------------------------
Robert H. Clark, Jr.
/s/ Paul McClintock Director March 23, 2000
- -------------------
Paul McClintock
/s/ John Neerhout, Jr. Director March 23, 2000
- ----------------------
John Neerhout, Jr.
/s/ Peter J. Neff Director March 23, 2000
- -----------------
Peter J. Neff
/s/ Stuart T. Peeler Director March 23, 2000
- --------------------
Stuart T. Peeler
/s/ Carol A. Rae Director March 23, 2000
- ----------------
Carol A. Rae
/s/ Jeffrey L. Zelms Director March 23, 2000
- --------------------
Jeffrey L. Zelms
72
EXHIBIT INDEX
Exhibit
13 Specified Sections of the 1999 Annual Filed herewith electronically
Report to Shareholders
21 List of Subsidiaries Filed herewith electronically
23 Consent of Pricewaterhouse Coopers LLP, Filed herewith electronically
Independent Accountants
27 Financial Data Schedule Filed herewith electronically