UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(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, 2000
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.)
1600 RIVIERA AVENUE, SUITE 200
WALNUT CREEK, CALIFORNIA 94596-3568
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(925) 817-1300 http://www.homestake.com
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH
TITLE OF EACH CLASS 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:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock* held by non-affiliates of the
registrant was approximately $1,857,363,000 as of October 30, 2001.
The number of shares of common stock outstanding as of October 30, 2001 was
263,380,225.*
* Includes 3,017,393 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 2000 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 2001 Annual Meeting
of Shareholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 2000, is incorporated by reference in Part
III of this Form 10-K.
<Page>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
RESTATEMENT
After issuing Homestake's 2000 financial statements and filing the Form
10-K with the Securities and Exchange Commission ("SEC"), and following
extensive discussion with the Staff of the SEC and the Company's independent
accountants, management determined it was necessary to revise its financial
statements to expense previously capitalized costs associated with its Veladero
project in Argentina, to revise its depreciation and reclamation calculations at
the Plutonic and Lawlers mines in Western Australia, and to revise the financial
statement footnote presentation of Homestake's segment information.
Because the level of engineering and other exploration work completed at
the Veladero project does not meet the criteria for a full feasibility study,
Homestake has reclassified its previously stated Veladero reserves as
mineralized material. As a result of this reclassification, Homestake has
revised its financial statements to expense previously capitalized Veladero
project development expenditures. See Note 23 to Homestake's December 31, 2000
Consolidated Financial Statements for the principal effects of this restatement.
Management also determined that it is necessary to revise the Company's
depreciation and reclamation calculations for the Plutonic and Lawlers mines. In
accordance with US GAAP only proven and probable reserves may be used in
depreciation and reclamation calculations. The Company had used its best
estimate of future gold production as the base for its depreciation and
reclamation charges at the Plutonic and Lawlers mines, since their acquisition
in 1998. The Company's decision to use its best estimate of future gold
production for depreciation and reclamation calculations at these mines
reflected the fact that, at the time of their acquisition, only a relatively
small proportion of the total inventory of mineralized material at these mines
had been upgraded to the reserves category. Homestake has revised its financial
statements to use only proven and probable reserves for calculating depreciation
and reclamation charges for these mines. See Note 23 to Homestake's December 31,
2000 Consolidated Financial Statements for the principal effects of this
restatement.
In addition, Homestake determined that it is necessary to revise the
financial statement footnote presentation of its segment information because
discrete operating and financial information is reported to the Chief Operating
Officer for each mine. The Company previously had aggregated each mine within
each geographic segment for segment disclosure purposes because each mine was
considered by management to have similar economic characteristics. However, as
ore grades and other operating factors can vary significantly by mine, with
resulting material variations in unit operating costs, management has determined
that each mine should be reported separately for segment disclosure purposes.
See Note 21 to Homestake's December 31, 2000 Consolidated Financial Statements
for the principal effects of this restatement.
2
<Page>
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 2.2 million ounces of
gold and with reserves of approximately 20.8 million ounces of gold at December
31, 2000. 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 and
a development project in Argentina. Homestake is engaged in active exploration
projects in the United States, Canada, Australia, Argentina and Chile.
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 reacquired 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% interest in the Hemlo
operations 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, then the
third largest Australian gold mining company. As a result of that transaction,
Homestake acquired five mines in Western Australia and a large number of
exploration tenement holdings, principally in Western Australia.
In 1999, Homestake acquired Argentina Gold Corp. ("Argentina Gold"), a
publicly-traded Canadian gold exploration company whose principal asset is its
60% interest in the Veladero property located in northwest Argentina along the
El Indio gold belt.
3
<Page>
SIGNIFICANT 2000 DEVELOPMENTS
Effective July 1, 2000, Homestake acquired Case Pomeroy & Company, Inc.'s
("Case") 25% interest in the Round Mountain mine in Nevada for $42.6 million in
Homestake common stock and cash, increasing Homestake's ownership in the mine
from 25% to 50%. The transaction was accounted for as a purchase.
In July 2000, Freeport-McMoRan Sulphur LLC ("FMS"), the operator and 83.3%
owner of the Main Pass joint venture located in the Gulf of Mexico, announced a
phased closure of the sulfur operations. Sulfur production ceased in August
2000. As a result, Homestake's 16.7% interest in the joint venture was reflected
as a discontinued operation during 2000, and Homestake incurred related
non-recurring charges of $12 million. Homestake had previously written-off the
carrying value of its interest in Main Pass 299 in 1997.
In September 2000, Homestake announced a restructuring of operations at
the Homestake mine in South Dakota. The mine is expected to complete operations
by December 2001. In connection with the restructuring and planned closure, the
Company recorded a write-down and other unusual charges of $42.8 million during
2000, primarily consisting of a $23 million provision for employee termination
benefits and other exit costs and an $18.2 million write-down of property, plant
and equipment.
In addition to the charges related to the Homestake mine restructuring,
the Company also recorded write-downs and other unusual charges of $31.8 million
during 2000, including $16.2 million of additional reclamation accruals at
non-operating properties, $5.9 million in write-downs of certain redundant
equipment, primarily at the Plutonic mine in Western Australia, and $6.2 million
for write-offs of certain exploration properties acquired as part of the 1998
Plutonic acquisition.
GLOSSARY OF TERMS
See "GLOSSARY AND INFORMATION ON RESERVES" beginning on page 39 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 2000 and 1999.
4
<Page>
<Table>
<Caption>
---------------------------------------------------------------------------------------
PRODUCTION
- ------------------------------------------------------------------------------------------------------------------------------------
100 % BASIS TOTAL TOTAL
------------------------------------------- HOMESTAKE'S CASH CASH PRODUCTION
TONS GRADE SHARE(1) OF COST COST COST
HOMESTAKE'S PROCESSED (OUNCES PRODUCTION PRODUCTION PER TON PER OUNCE(2) PER OUNCE(2)
SHARE % YEAR (000'S) PER TON) RECOVERY % (OUNCES) (OUNCES) (DOLLARS) (DOLLARS) (DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------------
GOLD
PRODUCING MINES
AUSTRALIA
Kalgoorlie (3), (4) 50% 2000 13,822 0.068 87% 787,600 393,800 $ 12 $ 189 $ 236
1999 11,670 0.070 88% 720,100 360,100 15 235 276
1998 12,472 0.071 89% 780,400 390,200 14 229 278
- ------------------------------------------------------------------------------------------------------------------------------------
Yilgarn District
Plutonic 100% 2000 3,347 0.085 89% 253,600 253,600 14 196 263
1999 3,344 0.082 86% 236,500 236,500 14 221 319
1998 3,249 0.089 89% 255,500 255,500 17 226 380
- ------------------------------------------------------------------------------------------------------------------------------------
Darlot 100% 2000 768 0.171 97% 127,100 127,100 32 192 236
1999 760 0.156 96% 113,100 113,100 29 198 236
1998 738 0.111 95% 77,500 77,500 26 250 282
- ------------------------------------------------------------------------------------------------------------------------------------
Lawlers 100% 2000 729 0.145 96% 101,200 101,200 27 213 260
1999 669 0.166 95% 104,300 104,300 27 189 255
1998 630 0.208 96% 126,400 126,400 36 181 206
- ------------------------------------------------------------------------------------------------------------------------------------
Yilgarn District Total 100% 2000 481,900 481,900 199 255
1999 453,900 453,900 208 283
1998 459,400 459,400 218 316
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AUSTRALIA 2000 875,700 194 246
1999 835,500 219 278
1998 925,700 224 295
- ------------------------------------------------------------------------------------------------------------------------------------
CANADA
Eskay Creek (5), (6) 100% 2000 212 1.703 95% 333,200 333,200 47 30 156
1999 193 1.773 95% 309,000 309,000 28 15 143
1998 162 1.870 95% 277,700 156,500 9 5 77
- ------------------------------------------------------------------------------------------------------------------------------------
Hemlo (7) 50% 2000 3,247 0.191 95% 632,500 304,900 35 193 227
1999 3,170 0.194 95% 633,100 305,100 37 197 231
1998 3,189 0.182 95% 595,400 286,400 37 210 247
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CANADA (8) 2000 638,100 108 190
1999 656,400 112 188
1998 495,800 145 204
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
Round Mountain (9) 50% 2000 63,090 0.016 640,100 243,700 2 206 271
1999 52,908 0.017 541,800 135,500 2 198 268
1998 46,510 0.016 510,500 127,600 3 220 276
- ------------------------------------------------------------------------------------------------------------------------------------
Ruby Hill 100% 2000 1,200 0.119 88% 125,200 125,200 11 106 245
1999 1,222 0.115 88% 123,800 123,800 12 104 240
1998 1,324 0.098 90% 116,500 116,500 11 122 241
- ------------------------------------------------------------------------------------------------------------------------------------
McLaughlin 100% 2000 2,842 0.063 61% 107,800 107,800 9 235 325
1999 2,834 0.070 61% 121,500 121,500 10 223 337
1998 2,839 0.077 58% 128,700 128,700 10 219 346
- ------------------------------------------------------------------------------------------------------------------------------------
Marigold 33% 2000 2,528 0.035 65,500 21,800 7 247 289
1999 3,549 0.026 74,200 24,700 4 207 248
1998 3,215 0.027 71,900 24,000 5 235 265
- ------------------------------------------------------------------------------------------------------------------------------------
Homestake 100% 2000 838 0.204 94% 170,900 170,900 55 268 308
1999 1,249 0.171 100% 212,700 212,700 44 261 278
1998 2,075 0.141 95% 277,400 277,400 33 249 295
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES (10) 2000 669,400 209 285
1999 624,200 207 278
1998 691,500 221 295
- ------------------------------------------------------------------------------------------------------------------------------------
CHILE
Agua de la Falda 51% 2000 314 0.213 67% 44,900 22,900 30 207 282
1999 318 0.239 63% 47,900 24,400 29 189 278
1998 309 0.216 72% 47,300 24,100 31 198 287
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCING MINE TOTALS
2000 2,206,100 174 242
1999 2,140,500 182 250
1998 2,137,100 205 274
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
NOTES:
(1) Homestake's share of production is shown net of minority interests.
(2) Homestake reports per ounce production costs in accordance with the
"Gold Institute Production Cost Standard."
(3) Includes the effect of insurance proceeds received and credited to
processing costs of $1.1 million and $4.8 million in 2000 and 1999,
respectively.
(4) Includes 21,500 ounces and 23,800 ounces of gold produced at the
Peak Hill mine in Western Australia during 1999 and 1998,
respectively, 52,300 ounces of gold produced at the Mt. Morgans
mine in Western Australia during 1998, and 19,000 ounces of gold
contained in reserves at the Peak Hill mine for the year ended
December 31, 1998.
(5) Eskay Creek's costs per ounce were calculated on a by-product basis.
Included as a credit against costs in 2000 were revenues from the
sale of 14.7 million (13.1 million and 11.7 million in 1999 and
1998, respectively) ounces of silver sold at an average price of
$4.91 ($5.22 and $5.55 in 1999 and 1998, respectively) per ounce. If
Eskay Creek silver production had been accounted for as a
co-product, whereby costs were allocated separately to gold and
silver based on their proportion of revenues, total cash costs and
total production costs would have been $168 and $237 per ounce,
respectively, in 2000 and $131 and $202 per ounce, respectively, in
1999 and $133 and $169 per ounce, respectively, in 1998. For
comparison purposes, costs per ounce include estimated third-party
costs incurred by smelter owners and others to produce marketable
gold and silver.
(6) 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 1998 production amounts
shown are Homestake's share excluding the minority interest's share
of production. Production amounts include ounces payable in ore and
concentrates sold to smelters.
(7) The 100% production includes 414,100, 172,900, and 45,500 ounces in
2000, 423,700, 164,100 and 45,300 ounces in 1999 and 390,400,
159,700 and 45,300 ounces in 1998 from the Williams mine, the David
Bell mine and the Quarter Claim, respectively. Homestake's share of
gold production includes 207,100, 86,500 and 11,300 ounces in 2000,
211,800, 82,000 and 11,300 ounces in 1999 and 195,200, 79,800 and
11,300 ounces in 1998 from the Williams mine, the David Bell mine
and the Quarter Claim, respectively.
(8) Includes 42,300 ounces and 52,900 ounces of gold produced at the
Snip mine in British Columbia, Canada during 1999 and 1998,
respectively.
(9) Homestake acquired an additional 25% interest in the Round Mountain
mine effective July 1, 2000.
(10) Includes 6,000 ounces and 23,800 ounces of gold produced at the
Pinson mine in Nevada during 1999 and 1998, respectively.
5
<Page>
<Table>
<Caption>
----------------------------------------------------------------------------
RESERVES (a)
- ------------------------------------------------------------------------------------------------------------------------------------
100 % BASIS HOMESTAKE'S
----------------------------------------- SHARE OF
GRADE CONTAINED CONTAINED TYPICAL DRILL
HOMESTAKE'S TONS (OUNCES OUNCES OUNCES SPACING (c)
SHARE % YEAR (000'S) PER TON) (000'S) (b) (000'S) (FEET)
- ------------------------------------------------------------------------------------------------------------------------------------
GOLD
PRODUCING MINES
AUSTRALIA
Kalgoorlie 50% 2000 209,108 0.060 12,540 6,270 125
1999 203,046 0.067 13,530 6,765
1998 170,600 0.067 11,440 5,720
- ------------------------------------------------------------------------------------------------------------------------------------
Yilgarn District
Plutonic 100% 2000 9,501 0.131 1,240 1,240 100
1999 7,985 0.107 854 854
1998 9,281 0.073 677 677
- ------------------------------------------------------------------------------------------------------------------------------------
Darlot 100% 2000 8,921 0.157 1,405 1,405 60
1999 8,660 0.148 1,280 1,280
1998 9,022 0.154 1,393 1,393
- ------------------------------------------------------------------------------------------------------------------------------------
Lawlers 100% 2000 2,605 0.145 378 378 65
1999 2,331 0.152 355 355
1998 1,020 0.117 119 119
- ------------------------------------------------------------------------------------------------------------------------------------
Yilgarn District Total 100% 2000 3,023
1999 2,489
1998 2,189
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AUSTRALIA (1) 2000 9,293
1999 9,254
1998 7,928
- ------------------------------------------------------------------------------------------------------------------------------------
CANADA
Eskay Creek (2) 100% 2000 1,617 1.310 2,118 2,118 30
1999 1,610 1.496 2,409 2,409
1998 1,552 1.683 2,611 2,611
- ------------------------------------------------------------------------------------------------------------------------------------
Hemlo (3) 50% 2000 29,368 0.164 4,819 2,396 125
1999 32,649 0.168 5,500 2,725
1998 34,965 0.169 5,926 2,927
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CANADA 2000 4,514
1999 5,134
1998 5,582
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
Round Mountain (4), (5) 50% 2000 273,200 0.019 5,218 2,609 150
1999 320,062 0.018 5,875 1,469
1998 358,597 0.018 6,375 1,594
- ------------------------------------------------------------------------------------------------------------------------------------
Ruby Hill 100% 2000 2,561 0.105 268 268 100
1999 3,773 0.110 417 417
1998 5,082 0.109 553 553
- ------------------------------------------------------------------------------------------------------------------------------------
McLaughlin (6) 100% 2000 4,000 0.060 240 240 n/a
1999 7,825 0.056 438 438
1998 10,934 0.057 626 626
- ------------------------------------------------------------------------------------------------------------------------------------
Marigold 33% 2000 30,259 0.035 1,064 355 120
1999 19,090 0.032 613 204
1998 19,120 0.033 639 213
- ------------------------------------------------------------------------------------------------------------------------------------
Homestake 100% 2000 822 0.203 167 167 50
1999 7,911 0.228 1,802 1,802
1998 11,118 0.216 2,401 2,401
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES 2000 3,639
1999 4,330
1998 5,387
- ------------------------------------------------------------------------------------------------------------------------------------
CHILE
Agua de la Falda 51% 2000 405 0.210 85 43 75
1999 525 0.180 94 48
1998 670 0.185 124 63
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCING MINE TOTALS
2000 17,489
1999 18,766
1998 18,960
- ------------------------------------------------------------------------------------------------------------------------------------
SILVER
PRODUCING MINES
ESKAY CREEK - SILVER
100% 2000 1,617 59.100 95,584 95,584
1999 1,610 68.300 110,000 110,000
1998 1,552 72.700 112,816 112,816
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
NOTES:
(1) Homestake's share of reserves at Kalgoorlie at December 31, 2000
include 6.8 million tons of stockpiled material containing 295,000
ounces of gold (5.8 million tons containing 255,000 ounces and 5.7
million tons containing 265,000 ounces at December 31, 1999 and
1998, respectively) .
(2) Plutonic reserves at December 31, 2000, include 2.6 million tons of
stockpiled material containing 53,000 ounces of gold (3.7 million
tons containing 102,000 ounces and 5.8 million tons containing
148,000 ounces at December 31,1999 and 1998, respectively) .
(3) The 100% contained ounces include 3,548,000 and 1,219,000 ounces in
2000, 4,028,000 and 1,472,000 ounces in 1999 and 4,431,000 and
1,495,000 ounces in 1998 from the Williams and David Bell mines,
respectively. Homestake's share of contained ounces includes
1,774,000 and 623,000 ounces in 2000, 2,014,000 and 711,000 ounces
in 1999 and 2,216,000 and 711,000 ounces in 1998 from the Williams
and David Bell mines, respectively. In addition, reserves for the
David Bell mine include a 25% net profits interest in the Quarter
Claim.
(4) Homestake acquired an additional 25% interest in the Round Mountain
mine effective July 1, 2000.
(5) Homestake's share of reserves at Round Mountain at December 31, 2000
include 44.9 million tons of stockpiled material containing 487,000
ounces of gold (27.6 million tons containing 305,000 ounces and 30.8
million tons containing 342,000 ounces at December 31, 1999 and
1998, respectively).
(6) For all periods presented, McLaughlin reserves consisted entirely of
stockpiled material.
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. Reserve estimates represent
tonnages and grades that are recoverable after losses for mining and
dilution. The per ounce gold and silver prices used in determining
reserve figures for each of the years in the three year period ended
December 31, 2000, were $300 and $5.25, $325 and $5.25 and $325 and
$5.00, respectively. Calculated at a $275 per ounce price, December
31, 2000 gold reserves would decline by 234,000 ounces, or 1% to
20,555,000 ounces.
(b) Contained ounces are estimates of metal contained in ore tonnages
and are before allowances for processing losses.
(c) The drill spacings shown are approximate averages for each mine.
Locally the spacings vary due to geological or mine planning
requirements.
6
<Page>
<Table>
<Caption>
-------------------------------------------------------
MINERALIZED (a)
MATERIAL
- -----------------------------------------------------------------------------------------------------------------------------
100 % BASIS
-----------------------------
GRADE TYPICAL DRILL
HOMESTAKE'S TONS (OUNCES SPACING (b)
SHARE % YEAR (000'S) PER TON) (FEET)
- -----------------------------------------------------------------------------------------------------------------------------
GOLD
PRODUCING MINES
AUSTRALIA
Kalgoorlie 50% 2000 162,040 0.072 150
1999 128,421 0.070
1998 157,422 0.069
- -----------------------------------------------------------------------------------------------------------------------------
Yilgarn District
Plutonic 100% 2000 9,272 0.163 125
1999 11,877 0.130
1998 12,235 0.100
- -----------------------------------------------------------------------------------------------------------------------------
Darlot 100% 2000 3,904 0.111 65
1999 2,951 0.097
1998 3,271 0.105
- -----------------------------------------------------------------------------------------------------------------------------
Lawlers 100% 2000 2,638 0.188 65
1999 2,977 0.125
1998 3,458 0.141
- -----------------------------------------------------------------------------------------------------------------------------
CANADA
Eskay Creek 100% 2000 456 0.387 75
1999 499 0.435
1998 467 0.448
- -----------------------------------------------------------------------------------------------------------------------------
Hemlo 50% 2000 884 0.141 125
1999 645 0.109
1998 645 0.109
- -----------------------------------------------------------------------------------------------------------------------------
UNITED STATES
Round Mountain (1) 50% 2000 18,705 0.022 150
1999 31,364 0.021
1998 28,506 0.020
- -----------------------------------------------------------------------------------------------------------------------------
Ruby Hill 100% 2000 7,325 0.072 150
1999 7,325 0.072
1998 7,325 0.072
- -----------------------------------------------------------------------------------------------------------------------------
McLaughlin 100% 2000 -- -- n/a
1999 -- --
1998 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Marigold 33% 2000 20,641 0.029 200
1999 -- --
1998 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Homestake 100% 2000 -- --
1999 5,982 0.223 n/a
1998 4,070 0.238
- -----------------------------------------------------------------------------------------------------------------------------
CHILE
Agua de la Falda 51% 2000 -- -- n/a
1999 145 0.151
1998 -- --
- -----------------------------------------------------------------------------------------------------------------------------
DEVELOPMENT PROJECTS
CHILE
Jeronimo 51% 2000 6,903 0.162 125
1999 6,903 0.162
1998 6,903 0.162
- -----------------------------------------------------------------------------------------------------------------------------
ARGENTINA
Veladero 60% 2000 224,400 0.044 150
1999 86,530 0.047
1998 -- --
- -----------------------------------------------------------------------------------------------------------------------------
SILVER
PRODUCING MINES
ESKAY CREEK - SILVER
100% 2000 456 12.400
1999 499 12.100
1998 467 11.700
- -----------------------------------------------------------------------------------------------------------------------------
DEVELOPMENT PROJECTS
VELADERO - SILVER
60% 2000 224,400 0.600
1999 86,530 0.770
1998
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
NOTES:
(1) Homestake acquired an additional 25% interest in the Round Mountain
mine effective July 1, 2000.
DEFINITIONS:
(a) 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, but it has not demonstrated economic viability. 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. The category of mineralized
material includes measured and indicated material, but excludes
material often referred to as inferred, or estimated on the basis of
geologic inferences. Consistent with Homestake's normal procedures
for estimating mineralized material, independent data verification
has not been performed. There is no stockpiled material included in
theestimates of mineralized material.
(b) The drill spacings shown are approximate averages for each mine.
Locally the spacings vary due to geological or mine planning
requirements.
7
<Page>
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. All of Homestake's
Australian 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 from 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. At December 31, 2000 the spot gold price was A$488.
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.
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 51 mining leases and 113 prospecting
licenses covering approximately 61,800 acres. The mining leases were granted for
a term of 21 years on conditions covering rental, royalties, expenditures,
mining practices and rehabilitation. 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 is produced onsite and
shipped to offsite refiners for refinement into gold bullion. The facilities and
equipment at the Kalgoorlie operations are modern and 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. During the first quarter of 2000, Homestake and Normandy
completed the transition of mining operations from the open-pit mining
contractor to owner mining. As a result, Homestake is experiencing anticipated
benefits from this change in practice, including an approximate 22% decrease in
the current cost per ton mined compared to the contract bid offers, an 8%
increase in truck availability and a 12% increase in tons mined per hour.
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, was approximately $29.4 million. Homestake's
portion of the fleet cost was financed by capital leases.
8
<Page>
The Mt Charlotte mine uses bulk mining methods and large conventional
diesel powered loaders and trucks. Ore is hauled to the surface through a
1.6-mile decline at the northern end of the Super Pit and is then trucked to the
Fimiston mill. The current mine plan has been extended to November 2001, but the
performance of the mine will be monitored to determine whether the operation
will continue until that date.
The Fimiston mill is a 35,000 tons per day ("TPD") mill with
carbon-in-pulp ("CIP") leaching and refractory sulfide flotation circuits. The
mill processed 13.8 million tons of ore in 2000 compared to 11.7 million tons in
1999. An upgraded flotation circuit was completed in June 2000 and is expected
to both improve recovery and handle future throughput increases from the Super
Pit.
The Gidji roaster complex, which is comprised of two roasters and a CIP
circuit, currently processes sulfide concentrates produced at the Fimiston mill.
The Gidji roaster processed 0.3 million tons of concentrate in 2000 compared to
0.2 million tons in 1999.
As the Mt Charlotte mine scales down its operations and less free milling
ore is delivered to the mill, the proportion of Super Pit refractory ore in the
total feed continues to increase, resulting in greater production of sulfide
concentrates scheduled for treatment by the Gidji roaster. As a result of the
increase in sulfide concentrate production, in conjunction with increasingly
stringent sulfur dioxide emission constraints and unfavorable weather
conditions, the roaster was unable to treat all of the sulfide concentrates
produced by the mill in the latter part of 2000. Kalgoorlie plans to expand its
concentrate treatment facilities, as evidenced by the commissioning of an
ultra-fine grinding unit in February 2001, to reduce its inventory of sulfide
concentrates.
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 2000, the Kalgoorlie operations operated in compliance with all
environmental permits and regulations. KCGM performed a compliance audit during
2000 and reviewed procedures surrounding the safe storage and handling of supply
items. The audit identified new standards required for storage of chemicals in
the Fimiston Plant. Actions to address the upgrading of chemical storage at that
plant are underway.
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" beginning on page 44.)
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 Archean age. The favorable structural, metamorphic
and lithologic setting in conjunction with hydrothermal activity controlled gold
mineralization. Since 1893, in excess of 48 million ounces of gold have been
produced from the
9
<Page>
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)
<Table>
<Caption>
2000 1999
--------------- ----------------
Tons of ore (000) 209,108 203,046
Ounces of gold per ton 0.060 0.067
Contained ounces of gold (000) 12,540 13,530
<Caption>
OPERATING DATA (100% BASIS)
2000 1999
--------------- ----------------
PRODUCTION STATISTICS:
SUPER PIT:
Tons of ore mined (000) 14,652 10,391
Stripping ratio (waste:ore) 5.3:1 5.7:1
Tons of ore milled (000) 12,452 9,958
Mill feed ore grade (oz. gold/ton) 0.066 0.068
Mill recovery (%) 87 88
Gold recovered (000 ozs.) 677 590
MT CHARLOTTE:
Tons of ore mined (000) 1,388 1,686
Tons of ore milled (000) 1,370 1,711
Mill feed ore grade (oz. gold/ton) 0.089 0.081
Mill recovery (%) 90 91
Gold recovered (000 ozs.) 110 130
COMBINED PRODUCTION STATISTICS:
Tons of ore mined (000) 16,040 12,077
Tons of ore milled (000) 13,822 11,670
Mill feed ore grade (oz. gold/ton) 0.068 0.070
Mill recovery (%) 87 88
Gold recovered (000 ozs.) 788 720
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs (1) $183 $231
Other cash costs 6 4
Noncash costs 47 41
--------------- ----------------
Total production costs $236 $276
</Table>
(1) REFLECTS CREDITS FOR INSURANCE PROCEEDS OF $1.1 MILLION IN 2000 AND
$4.8 MILLION IN 1999.
10
<Page>
PLUTONIC MINE
The Plutonic gold mine is located 110 miles northeast of Meekatharra,
Western Australia, and approximately 8 miles from the Great Northern Highway.
Homestake owns 100% of the Plutonic mine. The mine commenced production in 1990.
The Plutonic properties, including the adjoining Marymia property,
encompass an area of approximately 261,608 acres, consisting of 93 mining
leases, two prospecting licenses, eight exploration licenses and ten
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. Staff employees and 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 to define reserves and facilitate mine planning.
Initial underground development commenced in 1995. Capital expenditures of
$12 million and $10 million were incurred during 2000 and 1999, 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 2000 and 1999 was 867,000 tons and 826,000 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 primary
sulfide ore and 1.3 million tons of oxide ore per year in separate sulfide and
oxide circuits. Both circuits utilize crushing, grinding and cyanidation in
carbon-in-leach ("CIL") 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.
Potable quality process water is obtained primarily from two well fields
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 2000, the mine operated in compliance with all environmental
permits and regulations.
11
<Page>
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 lodes, which range in attitude from northwest striking
and moderate to steep northeast dipping to flat dipping. Lodes range from three
to thirty-five feet thick and display good continuity, often for several hundred
feet. Gold is associated with sulfides, particularly arsenopyrite and
pyrrhotite.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 9,501 7,985
Ounces of gold per ton 0.131 0.107
Contained ounces of gold (000) 1,240 854
<Caption>
OPERATING DATA
2000 1999
---------------- --------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 1,843 1,278
Ore grade mined (oz. gold/ton) 0.131 0.159
Tons of ore milled (000) 3,347 3,344
Mill feed ore grade (oz. gold/ton) 0.085 0.082
Mill recovery (%) 89 86
Gold recovered (000 ozs.) 254 236
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $191 $216
Other cash costs 5 5
Noncash costs 67 98
---------------- --------------
Total production costs $263 $319
</Table>
In 2000, noncash costs decreased to $67 per ounce from $98 per ounce in 1999
reflecting a significant increase in reserves at December 31, 1999.
DARLOT MINE
The Darlot gold 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. Homestake owns 100% of the
Darlot mine.
The Darlot properties encompass an area of approximately 33,461 acres,
consisting of 15 mining leases, 31 prospecting licenses and one exploration
license. The Darlot and Centenary
12
<Page>
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
is a fly-in-fly-out operation with staff employees and contractor personnel
working on two-weeks-on and one-week-off rotations.
The mine is an underground operation with access to the Centenary deposit
through an extension of the original Darlot decline, which intersects the
Centenary deposit 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 continued to be a
significant contributor to the mill feed for the operation in 2000. Backfilling
is required to achieve full extraction of the central section of the orebody.
Construction of the cemented aggregate backfill plant was completed in December
1999, and cemented aggregate backfill operations commenced in early 2000.
Several primary stopes in the central section of the orebody were backfilled. As
a result, ore release from secondary stopes in this central section of the
orebody commenced in 2000 and will continue for several years. The thinner
extremities of the orebody currently are being developed and will be suitable
for sub-level open stoping or room-and-pillar stoping.
In 2000, Homestake began to transition mining operations from an
underground mining contractor to owner mining. The Company plans to invest $7.5
million in a new fleet of haul trucks, loaders and other ancillary underground
equipment to convert to owner mining. This transition, which is expected to
improve productivity and lower costs, should be completed by May 2001.
The treatment plant consists of a three-stage crushing circuit, primary
and secondary ball mills, CIP leaching and gold recovery circuits. Construction,
installation and commissioning of a crusher owned and operated by Homestake to
replace the contractor-operated crusher were completed in 2000 at a cost of $4
million. 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. Ore capacity is
approximately 700,000 tons per annum. The treatment plant is in good condition.
Water is obtained from wells five miles from the treatment plant. Two new
generators, together with other Homestake-owned facilities, provide power to the
site.
During 2000, 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.
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.
13
<Page>
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 8,921 8,660
Ounces of gold per ton 0.157 0.148
Contained ounces of gold (000) 1,405 1,280
<Caption>
OPERATING DATA
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 784 733
Ore grade mined (oz. gold/ton) 0.155 0.161
Tons of ore milled (000) 768 760
Mill feed ore grade (oz. gold/ton) 0.171 0.156
Mill recovery (%) 97 96
Gold recovered (000 ozs.) 127 113
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $187 $195
Other cash costs 5 3
Noncash costs 44 38
---------------- ---------------
Total production costs $236 $236
</Table>
LAWLERS MINE
The Lawlers gold mine is located 75 miles northwest of Leonora, Western
Australia. Homestake owns 100% of the 101-year-old mine, which was reopened in
1986.
The Lawlers mine properties are comprised of two groups of contiguous
tenements consisting of three exploration licenses, 88 prospecting licenses and
18 mining leases totaling approximately 69,886 acres. Mining leases vary in date
of grant and expiry.
The Lawlers mine consists of both open-pit and underground mining
operations. The mine is a fly-in-fly-out operation with staff employees and
contractor personnel working on two-weeks-on and one-week-off rotations. During
2000, 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.
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 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.
Good quality process water is obtained from wells ten miles northeast of
the plant. Power is supplied by contract diesel generators. The power contract
was reviewed in 2000 resulting in a decision to obtain power via a connection to
a local grid in 2001. This move will improve both the cost and reliability of
the power supply.
14
<Page>
During 2000, the mine operated in compliance with all environmental
permits and regulations.
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 mined from orebodies hosted within an Archean sedimentary
sequence consisting of steeply dipping sandstone and siltstone units. The gold
lodes occur as a series of shallow dipping, flat to south plunging high-grade
quartz veins confined to the sandstone units. Gold occurs as coarse particles
associated with arsenopyrite and minor galena and sphalerite. Lodes are
continuous for several hundred feet in the plunge direction.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 2,605 2,331
Ounces of gold per ton 0.145 0.152
Contained ounces of gold (000) 378 355
<Caption>
OPERATING DATA
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 517 354
Ore grade mined (oz. gold/ton) 0.174 0.169
Tons of ore milled (000) 729 669
Mill feed ore grade (oz. gold/ton) 0.145 0.166
Mill recovery (%) 96 95
Gold recovered (000 ozs.) 101 104
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $208 $186
Other cash costs 5 3
Noncash costs 47 66
---------------- ---------------
Total production costs $260 $255
</Table>
PEAK HILL
The Peak Hill property is located 82 miles north of Meekatharra, Western
Australia. The mine was closed in 1999. 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 decommissioning and
rehabilitation period.
Reclamation completed in 2000 at the Peak Hill mine included obtaining
regulatory approval for the rehabilitation scope of work and completion of major
earthwork. Initial seeding also has been completed and a long-term monitoring
program has been established.
15
<Page>
<Table>
<Caption>
OPERATING DATA
1999
----------------
PRODUCTION STATISTICS:
Tons of ore milled (000) 649
Mill feed ore grade (oz. gold/ton) 0.050
Mill recovery (%) 98
Gold recovered (000 ozs.) 32
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $180
Other cash costs 3
Noncash costs 9
----------------
Total production costs $192
</Table>
LACHLAN RESOURCES NL
Homestake holds an 81.2% interest in Lachlan Resources NL ("Lachlan"), a
publicly-traded Australian company. In December 2000, Lachlan announced a
Selective Capital Reduction in which Lachlan will retire the 18.8% of the
Lachlan shares not owned by Homestake. Shareholder approvals are expected to be
received in April 2001, after which the minority shareholders will receive
approximately A$4.3 million (A$0.07 per share) in cash.
If the Selective Capital Reduction is approved by shareholders, Lachlan
will become a wholly owned subsidiary of Homestake. Homestake intends to de-list
Lachlan from the Australian Securities Exchange, discontinue base metals
exploration and market Lachlan's properties. If the proposal is not approved by
shareholders, Lachlan intends to conserve its cash, maintain in good standing
its significant properties while minimizing exploration expenditures and seek
appropriate opportunities with respect to such properties. Homestake would
further consider the possible disposal of its interest in Lachlan.
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 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
The Eskay Creek gold/silver mine is 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, two mineral
claims and various other mineral and surface rights comprising approximately
5,090 acres. The leases have remaining terms of 20 to 24 years, subject to
renewal rights.
16
<Page>
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 at the minesite prior to
shipment and sale to third-party smelters. Additional higher-grade and
lower-grade ore is sent to a 250 TPD onsite gravity and flotation mill for
further processing and concentration. The mill produces flotation concentrates
which are sold directly to smelters and gravity concentrates that are refined at
a precious metal refinery in Eastern Canada. The vast majority of the metal from
concentrate products is recovered in the flotation concentrate. 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. Currently,
one-half of the flotation concentrate production is committed under a sales
agreement with a Canadian smelter that expires in 2003, and the remainder of
this production being sold via spot sales.
Ore and concentrates are trucked by a contractor 164 miles to Stewart,
British Columbia 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
concentrate to Quebec.
After adjusting for actual production, the Eskay Creek ore reserve
increased during 2000 by 61,000 ounces of gold and 1.2 million ounces of silver.
However, the overall reserve grade at Eskay Creek decreased from 1999 to 2000,
as the actual 2000 production was at above-average reserve grade and the bulk of
new material added was at below-average reserve grade.
Water is supplied from the Eskay and Argillite Creeks and power is
produced onsite by diesel generators.
During 2000, there were four occasions in which water effluent permit
levels were exceeded and two incidents of minor spills. All incidents were
reported to the appropriate authorities and corrective action was taken. No
enforcement or regulatory actions are expected. With these exceptions, the mine
was in compliance with its environmental permits in 2000.
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 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 44.)
17
<Page>
Prior to 2000, Homestake reported its gold production and costs per ounce
using equivalent ounces (co-product reporting) at the Eskay Creek mine. Under
the co-product reporting method, silver production from the Eskay Creek mine was
expressed in terms of an equivalent amount of gold. This method was originally
selected in 1995, when the mine commenced production, due to the mine's
significant silver production (approximately 40%-45% of revenue depending on the
relative market prices of gold and silver). It is now a more common practice in
the industry to report gold production using by-product reporting, where silver
revenue is credited against operating costs in the cost per ounce calculations.
Either method is acceptable under the Gold Institute Production Cost Standard.
Effective July 1, 2000, Homestake adopted the by-product reporting basis for
reporting its gold production and production costs per ounce. All periods
presented have been restated to conform to by-product reporting.
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. Native 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.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
----------------- ---------------
Tons of ore (000) 1,617 1,610
Ore grade (ozs. gold/ton) 1.310 1.496
Contained ounces of gold (000) 2,118 2,409
Ore grade (ozs. silver/ton) 59.1 68.3
Contained ounces of silver (000) 95,584 110,000
</Table>
18
<Page>
OPERATING DATA
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore shipped (000) 116 114
Direct ore sales grade (ozs. gold/ton) 2.34 2.24
Direct ore sales grade (ozs. silver/ton) 102.4 95.4
Tons milled (000) 96 79
Mill grade (ozs. gold/ton) 0.937 1.102
Mill grade (ozs. silver/ton) 36.8 38.6
Mill recovery - gold % 95 95
Mill recovery - silver % 95 95
Gold production (000 ozs.) 333 309
Silver production (000 ozs.) 14,738 13,145
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs (1) $26 $10
Other cash costs 4 5
Noncash costs 126 128
---------------- ---------------
Total production costs $156 $143
</Table>
(1) ESKAY CREEK'S COSTS PER OUNCE WERE CALCULATED ON A BY-PRODUCT BASIS.
INCLUDED AS A CREDIT AGAINST COSTS IN 2000 WERE REVENUES FROM THE
SALE OF 14.7 MILLION (13.1 MILLION IN 1999) OUNCES OF SLIVER AT AN
AVERAGE PRICE OF $4.91 ($5.22 IN 1999) PER OUNCE. FOR COMPARISON
PURPOSES, COSTS PER OUNCE INCLUDE ESTIMATED THIRD-PARTY COSTS
INCURRED BY SMELTER OWNERS AND OTHERS TO PRODUCE MARKETABLE GOLD AND
SILVER.
HEMLO OPERATIONS
The Hemlo operations, comprised of the Williams and David Bell gold 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.
The Hemlo properties consist of 17 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, which is 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 1,700 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 is an underground operation, which is accessible by a
3,819-foot shaft. Production is from stopes using longhole methods. The average
width of ore at the David Bell mine is decreasing as mining progresses away from
the central core of the orebody. In an effort to optimize ore extraction and to
minimize development costs, alternative mining methods, including longitudinal
longhole retreat and Alimak mining, are being used to compliment more
19
<Page>
prevalent transverse longhole open-stoping methods. Cement, tailings, sand and
waste rock are utilized as backfill. Ore from the David Bell mine is hauled by
truck to the Williams mill.
The Williams and David Bell mines share milling, processing and tailings
facilities. The rated capacity of the Williams mill is 7,000 TPD; however,
permitting was amended in 2000 to allow the processing of up to 11,000 TPD and
circuit modifications are in progress to allow for increased throughput. During
2000, the mill operated at 8,900 TPD with a gold recovery of 95%. Gravity and
the CIP process are used to recover gold. Water from the tailings basin is
treated in an effluent treatment plant prior to discharge. Both mines recycle
mill make-up water from the tailings pond. The facilities and equipment are
modern and in good condition.
Ground stability continues to be a significant area of focus for the Hemlo
operations. Changes to the mine plan, mining sequence, increased ground support
and increased monitoring instrumentation, which allows for the active monitoring
of seismic events, have improved the conditions.
The hourly work force at David Bell is represented by the United Steel
Workers of America. The current three-year contract is scheduled to expire in
November 2001.
Fresh water for the property is supplied from Cedar Creek and power is
purchased under an industrial tariff from Ontario Hydro. Political discussions
regarding the privatization of the electrical market currently are underway. The
timing and potential impact on the Hemlo operations' power costs are
undeterminable at this time. Propane for heating mine air and surface facilities
is purchased under a five-year contract.
During 2000, there were 16 minor spills, all of which were reported. There
was no environmental impact from the spills and no enforcement or regulatory
actions are expected. With these exceptions, the mine operated in compliance
with its permits in 2000.
The mining claims at the Williams mine are subject to three net smelter
royalties totaling a net effective rate of 2.08%. The mining claims at the David
Bell mine are subject to 3% net smelter royalty.
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)
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 29,169 32,267
Ounces of gold per ton 0.163 0.167
Contained ounces of gold (000) 4,767 5,401
</Table>
20
<Page>
OPERATING DATA (100% BASIS)
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
WILLIAMS:
Tons of ore milled (000) 2,753 2,681
Mill feed ore grade (oz. gold/ton) 0.158 0.166
Mill recovery (%) 95 95
Gold recovered (000 ozs.) 414 424
DAVID BELL:
Tons of ore milled (000) 494 489
Mill feed ore grade (oz. gold/ton) 0.369 0.346
Mill recovery (%) 94 94
Gold recovered (000 ozs.) 173 164
COMBINED PRODUCTION STATISTICS:
Tons of ore milled (000) 3,247 3,170
Mill feed ore grade (oz. gold/ton) 0.191 0.194
Mill recovery (%) 95 95
Gold recovered (000 ozs.) 587 588
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $187 $191
Other cash costs 6 6
Noncash costs 36 34
---------------- ---------------
Total production costs $229 $231
</Table>
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 Newmont Mining Company ("Newmont") in 1982. Newmont
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. Under the terms
of the Deemed Production Agreement, the 95% threshold will be achieved and
payments will cease in September 2001. Further participation in the 20% net
profits interest will not recommence until actual mining of ore beyond the
estimated 95% of the original estimated reserves occurs. Newmont is not expected
to exceed this total for a number of years since mining has not occurred at a
rate of 500 TPD.
GEOLOGY
See "Hemlo Operations- Geology."
21
<Page>
Homestake has a 25% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 199 382
Ounces of gold per ton 0.258 0.259
Contained ounces of gold (000) 52 99
OPERATING DATA (100% BASIS)
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore milled (000) 183 183
Mill feed ore grade (oz. gold/ton) 0.258 0.257
Mill recovery (%) 96 96
Gold recovered (000 ozs.) 45 45
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $169 $156
Other cash costs 8 8
Noncash costs 2 2
---------------- ---------------
Total production costs $179 $166
</Table>
SNIP MINE
The Snip property is located at the junction of Bronson Creek and the
Iskut River, 56 air miles north of Stewart in northwestern British Columbia. The
mine, which is 100%-owned by Homestake, operated from 1991 through 1999.
Reclamation of the property is essentially complete. Monitoring reclamation
success and water quality will continue for 5 to 10 years.
During 2000, the property operated in compliance with all of its
environmental permits.
OPERATING DATA
<Table>
<Caption>
1999
----------------
PRODUCTION STATISTICS:
Tons of ore milled (000) 71
Mill feed ore grade (oz. gold/ton) 0.665
Mill recovery (%) 92
Gold recovered (000 ozs.) 42
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $208
Noncash costs --
----------------
Total production costs $208
</Table>
22
<Page>
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. Homestake also owns a 50% interest in
the Round Mountain mine and a 33.3% interest in the Marigold mine, each of which
is located in central Nevada. United States mining operations are managed from
an office in Vancouver, British Columbia. The Company's principal exploration
office is in Reno, Nevada.
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 50% interest in
the mine. Echo Bay Mines Ltd. owns the remaining 50% interest and is the
operator. The mine has been in operation since 1977. Access to the property is
by paved road.
Effective July 1, 2000, Homestake increased its ownership in the Round
Mountain mine from 25% to 50%. The purchase price of $42.6 million consisted of
2.6 million newly issued Homestake common shares and $25.9 million in cash.
The Round Mountain property position consists of contiguous patented and
unpatented mining claims covering approximately 27,500 acres. Patented claims
cover all of the current reserves in the ultimate pit.
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.
Heap leaching on a reusable pad recovers gold from oxide ores above a
cut-off grade of 0.018 ounces per ton. Ore is crushed to less than 3/4 inches at
a rate of up to 30,000 TPD and conveyed to two parallel 1.5 million square-foot
reusable asphalt leach pads. This ore is leached for approximately 100 days,
rinsed, removed and placed on the dedicated leach pad and releached. In 2000,
24,300 TPD were processed on the reusable heap leach pad compared to 16,000 TPD
in 1999. Reusable pad volume varies with ore release, which is determined by the
open-pit mining sequence.
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 141,000 TPD in 2000 compared to
120,000 TPD in 1999. Ore is placed in 50-foot thick layers for leaching. After
the completion of an initial leaching cycle of approximately 100 days,
additional layers of ore are placed until the heap reaches an ultimate height of
approximately 400 feet. The dedicated leach pad is constructed in phases, as
additional leach pad capacity is needed. The existing dedicated leach pad covers
approximately 30.7 million square feet and has a capacity of approximately 320
million tons. Current mining rates consume three to four million square feet of
dedicated leach pad per year.
Higher-grade nonoxide ore is treated in a mill designed to process 8,000
TPD. Continuing efforts to de-bottleneck the mill resulted in a processing rate
of 9,300 TPD in 2000 (8,200 TPD in 1999). Mill throughput has continued to
increase with the facility regularly operating at rates in excess of 10,000 TPD
during the fourth quarter of 2000. Mill throughput is
23
<Page>
expected to increase again in 2001. The mill recovered approximately 83% of the
gold contained in nonoxidized ores during 2000 by employing grinding and gravity
concentration. In addition, some success was achieved in processing certain
high-grade oxide ores through the mill.
Gravity concentration is applied only to very high-grade ore containing
coarse gold. A 500 TPD gravity recovery circuit processes this ore from several
small flat-lying narrow veins within the Round Mountain orebody. Gravity circuit
tails are sent to the mill for further cleaning and disposal.
Recovered gold is smelted onsite into dore and shipped to outside
refineries for processing into bullion.
In December 2000, the purchase of a new mining fleet of eight 240-ton haul
trucks at a total cost of $18 million (100% basis) was approved. The trucks,
which are scheduled to be commissioned in late March 2001, will replace older,
higher-cost and smaller-capacity equipment.
Water is supplied from joint venture-owned wells on the property. Power is
purchased from Sierra Pacific Power Company under a standard industry tariff.
During 2000, the mine reported only minor spills, primarily related to
broken hoses on equipment. All spills were reported and any necessary corrective
action was taken. Other than these incidents, the mine operated in compliance
with its environmental permits in 2000.
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 or less
to approximately 6.4% of gold revenues at prices of $440 per ounce of gold or
more. During 2000, 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. Gold mineralization at Round Mountain primarily occurs as electrum, a
natural gold/silver alloy, in association with quartz, adularia and pyrite.
Narrow fractures in shear zones host higher-grade mineralization while porous
sites within the volcanic rocks host the disseminated mineralization. Economic
gold mineralization is found in both the volcanic and surrounding sedimentary
rocks as well as 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.
On July 1, 2000 Homestake increased its interest in the mine from 25% to
50%:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 273,200 320,062
Ounces of gold per ton 0.019 0.018
Contained ounces of gold (000) 5,218 5,875
</Table>
24
<Page>
OPERATING DATA (100% BASIS)
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 38,498 32,925
Stripping ratio (waste:ore) 0.8:1 1.4:1
Tons of ore leached:
Reusable pads (000) 8,785 5,741
Dedicated pad (000) 50,918 44,167
Weighted average ore grade
placed on the pads (oz. gold/ton) 0.014 0.013
Leach recovery - reusable pads (%) 62 73
Tons of ore milled (000) 3,387 2,999
Ore grade milled (oz. gold/ton) 0.045 0.067
Mill recovery (%) 83 87
Gold recovered (000 ozs.) 640 542
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $195 $188
Other cash costs 11 10
Noncash costs 65 70
---------------- ---------------
Total production costs $271 $268
</Table>
RUBY HILL MINE
The Ruby Hill gold mine is located one mile northwest of Eureka, Nevada.
The Ruby Hill mine commenced operations in January 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 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
the 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 onsite wells and power is purchased from Mount
Wheeler Power Company.
During 2000, there were 12 minor spills at the Ruby Hill Mine. All were
reported and any necessary corrective action was taken. No citations or
penalties are expected. Other than these incidents, the mine operated in
compliance with its environmental permits in 2000.
A production royalty of 3% of net smelter returns is payable on cumulative
life-of-mine production in excess of 500,000 ounces of gold.
25
<Page>
GEOLOGY
The West Archimedes gold mineralization is hosted primarily within
brecciated jasperoid and decalcified limestone 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 and underground targets
within the Ruby Hill claim block.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 2,561 3,773
Ounces of gold per ton 0.105 0.110
Contained ounces of gold (000) 268 417
</Table>
OPERATING DATA
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 1,138 1,078
Stripping ratio (waste:ore) 7.1:1 7.1:1
Tons of ore leached (000) 1,200 1,222
Ore grade leached (oz. gold/ton) 0.119 0.115
Recovery (%) 88 88
Gold recovered (000 ozs.) 125 124
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $99 $97
Other cash costs 7 7
Noncash costs 139 136
---------------- ---------------
Total production costs $245 $240
</Table>
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 8,100 acres.
Approximately 7,000 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 1996 and ore now is sourced exclusively from
lower-grade stockpiles, which were built up over the life of the mine. Ore is
processed through an 8,000-TPD grinding circuit, and pumped through a five-mile
slurry pipeline to the process plant consisting of a direct-cyanidation circuit
utilizing CIP and CIL 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.
26
<Page>
Gold production, which is expected to continue into 2002, has declined
significantly over the last four years due to the completion of mining and the
exhaustion of high-grade ores. The Company expects production levels to remain
consistent with the current year's levels until reserves are depleted.
Processing costs also have declined significantly due to the shutdown of the
higher-cost autoclave and flotation circuits, allowing economic treatment of the
lower-grade ore. The current cost structure is expected to continue for the
remainder of the mine life based upon the estimated remaining ore grade of the
stockpiles.
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 Enron Energy Marketing.
During 2000, there were three minor spills at the McLaughlin mine, all of
which were reported and corrective action was taken. No citations are expected
for these incidents. Other than these incidents, the mine operated in compliance
with its environmental permits in 2000.
McLaughlin mine royalties are equivalent to approximately 2% of revenues.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
---------------- ---------------
STOCKPILED:
Tons of ore (000) 4,000 7,825
Ounces of gold per ton 0.060 0.056
Contained ounces of gold (000) 240 438
</Table>
OPERATING DATA
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore milled (000) 2,842 2,834
Mill feed ore grade (oz. gold/ton) 0.063 0.070
Mill recovery (%) 61 61
Gold recovered (000 ozs.) 108 121
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $229 $217
Other cash costs 6 6
Noncash costs 90 114
---------------- ----------------
Total production costs $325 $337
</Table>
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 gravel road at exit 194 of Interstate 80.
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.
27
<Page>
Ore is mined using conventional open-pit methods. Run-of-mine ore is
placed on an impermeable lead pad. 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 the 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.
Prior to 1999, higher-grade ore was processed through a 1,250-TPD mill. In
1999, the mill was idled after the operator completed a study that indicated a
100% heap leach operation provided the most favorable economics. The mill
remains available for future use if circumstances change and additional mill ore
is available.
Water is supplied via a pipeline from a nearby pit-dewatering operation at
no cost. Backup water supply is from onsite wells. Power is purchased from
Sierra Pacific Power Company.
In order to allow for a mine facility expansion necessary to complete the
current life-of-mine plan, the operator must complete and obtain approval for an
Environmental Impact Statement ("EIS"). The three-year process for obtaining an
EIS is substantially complete, and receipt of the EIS is expected in mid-2001.
During 2000, the mine operated in compliance with all of 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)
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 30,259 19,090
Ounces of gold per ton 0.035 0.032
Contained ounces of gold (000) 1,064 613
</Table>
28
<Page>
OPERATING DATA (100% BASIS)
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 2,528 3,491
Stripping ratio (waste:ore) 4.6:1 2.4:1
Tons of ore milled (000) -- 147
Ore grade milled (oz. gold/ton) -- 0.081
Mill recovery (%) -- 94
Tons of ore leached (000) 2,528 3,402
Ore grade leached (oz. gold/ton) 0.035 0.024
Gold recovered (000 ozs.) 65 74
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $227 $188
Other cash costs 20 19
Noncash costs 42 41
---------------- ---------------
Total production costs $289 $248
</Table>
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 1998 and the
processing of Open Cut stockpiles was completed in December 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 TPD capacity
processing plant recovers gold through a combination of gravity, CIP and vat
leaching processes. Recycled process water is pumped through a series of carbon
columns to recover residual gold from solution. Process tails are used for
underground backfill or are deposited in a tailings impoundment facility three
miles from the plant.
Facilities and equipment at this operation are in adequate 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.
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 and 1999, the Company took a number of steps to
restructure operations and reduce operating costs. Not withstanding the actions
taken, the Homestake mine experienced negative cash flows during the first eight
months of 2000
29
<Page>
after the milling of Open Cut stockpiles was completed in December 1999.
Continued high costs and the continued weakness in the price of gold resulted in
the implementation of a "mine-out" plan as the optimum strategy to both extract
the remaining economically recoverable gold from the mine and help provide an
orderly social transition for the local community. Operations under the mine-out
plan are expected to be completed by December 2001. In connection with the
restructuring and planned closure, the Company recorded a non-recurring charge
of $42.8 million during 2000.
The Company expects to spend approximately $65.1 million on final
reclamation and closure of the Homestake mine, of which $50.2 million was
accrued for at December 31, 2000. The remaining unaccrued reclamation balance
will be recorded in earnings over the life of the mine-out plan.
Hourly employees at the Homestake mine are represented by the United Steel
Workers of America. The current five-year contract expires in May 2003.
Untreated water for use in the mine's facilities is obtained from local
watersheds under water right agreements, and potable water is purchased from the
Lead-Deadwood Sanitation District. Approximately 84% of electric power
consumption is purchased under contract from Black Hills Corporation and the
remainder is provided by Homestake-owned hydroelectric facilities.
During 2000, there were two minor spills, each of which was reported,
cleaned up and necessary corrective action taken. In addition, one minor permit
exceedence occurred at the wastewater treatment plant for a 24-hour period. This
incident was reported and corrective action was taken. No citations or penalties
are expected from these incidents.
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 125-year life, the mine has produced approximately 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 complexly deformed by tight folding, faulting, and shearing. Ten
southeast-plunging fold structures, locally called ledges, have produced gold
ore over a vertical extent of more than 8,000 feet.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 822 7,911
Ounces of gold per ton 0.203 0.228
Contained ounces of gold (000) 167 1,802
</Table>
30
<Page>
OPERATING DATA
<Table>
<Caption>
2000 1999
--------------- ---------------
PRODUCTION STATISTICS:
Tons of ore mined (000): 838 821
Ore grade mined (oz. gold/ton): 0.204 0.226
Tons of ore milled (000) 838 1,249
Mill feed ore grade (oz. gold/ton) 0.204 0.171
Mill recovery (%) 94 100
Gold recovered (000 ozs.) 171 213
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $267 $256
Other cash costs 1 5
Noncash costs 40 17
---------------- ---------------
Total production costs $308 $278
</Table>
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.
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 at the property in 2000 included re-contouring and capping of
waste dumps and leach pads, demolishing of some surface facilities, rapid
flooding of old pits, reclamation of unused roads, and re-vegetating of
available areas.
During 2000, there was one minor spill at the Pinson property. This spill
was reported and corrective action was taken. No citations or penalties are
expected. Other than this incident, the mine operated in compliance with its
environmental permits in 2000.
31
<Page>
Homestake has a 50% share of the following amounts:
OPERATING DATA (100% BASIS)
<Table>
<Caption>
1999
----------------
PRODUCTION STATISTICS:
Tons of ore mined (000) 132
Stripping ratio (waste:ore) 3.0:1
Tons of ore leached (000) 132
Ore grade leached (oz. gold/ton) 0.031
Gold recovered (000 ozs.) 12
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $234
Other cash costs 8
Noncash costs --
----------------
Total production costs $242
</Table>
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 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, which is 51%-owned by Homestake and 49%-owned by Codelco. In addition,
Codelco contributed the existing El Hueso plant, which had been under lease to
Homestake. In October 1999, Homestake and Codelco agreed to further consolidate
their interests in the region. Homestake committed to contribute $7 million (of
which $4 million was funded as of December 31, 2000) as well as the Buitre and
Gaucho exploration claims. Codelco contributed the San Antonio Oro, Cerro Coya
and Pedernales mining claims. Both Homestake's and Codelco's respective ADLF
percentage ownership remained unchanged.
ADLF now holds mining properties covering approximately 25,780 hectares in
the Maricunga District of Chile located 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 both the oxide reserves discovered by
Homestake on the property as well as the Jeronimo deposit also discovered by
Homestake.
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 Merrill Crowe process to recover the gold
from solution. Water and power are purchased from Codelco.
Drilling and metallurgical testing continue on the much larger Jeronimo
deposit where, to date, approximately 6.9 million tons of unoxidized mineralized
material (100% basis) at an average
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grade of 0.162 ounces per ton have been outlined. An extension 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. As
part of Homestake's $4 million contribution, ADLF has made a $2 million advance
royalty payment to Codelco 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)
<Table>
<Caption>
2000 1999
---------------- ---------------
Tons of ore (000) 405 525
Ounces of gold per ton 0.210 0.180
Contained ounces of gold (000) 85 94
</Table>
OPERATING DATA (100% BASIS)
<Table>
<Caption>
2000 1999
---------------- ---------------
PRODUCTION STATISTICS:
Tons of ore leached (000) 314 318
Ore grade (oz. gold/ton) 0.213 0.239
Recovery (%) 67 63
Gold recovered (000 ozs.) 45 48
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs $207 $189
Noncash costs 75 89
---------------- ---------------
Total production costs $282 $278
</Table>
ARGENTINA
In 1999, Homestake acquired Argentina Gold Corp. ("Argentina Gold"), a
publicly-traded Canadian gold exploration company. 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.
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In May 2000, Homestake completed an extensive exploration program on the
Veladero property, which included 180 drill holes totaling 200,000 feet, a broad
range of metallurgical testing, engineering and infrastructure assessment. The
program initially increased the confidence level in the previously identified
mineralized areas at the Amable and Filo Federico deposits. In addition, the
drilling identified a new deposit, known as Cuatro Esquinas, located mid-way
between the Amable and Filo Federico deposits.
In October 2000, Homestake commenced a new exploration program on the
Veladero property. This program, scheduled to continue through May 2001,
includes 200,000 feet of drilling, a broad range of metallurgical testing,
condemnation drilling, geotechnical drilling, hydrological and environmental
baseline data collection, and related engineering studies. The initial phase of
this program, which comprised 100,000 feet of drilling and was completed by
December 31, 2000, focused on increasing the confidence level in the Cuatro
Esquinas area and investigating the areas between and to the west of the three
deposits.
Homestake expects the modeled open pit, which includes the Amable, Filo
Federico and Cuatro Esquinas zones, to be approximately two miles long, 4,000
feet wide and 1,250 feet deep. During the current 2000-2001 field season,
Homestake expects to spend approximately $18 million (Homestake's share) on
delineation drilling, engineering field investigations, metallurgical test work
and continuing technical studies to optimize the design parameters for Veladero.
Homestake continues to explore various operating design and process options,
such as pulp agglomeration, 100% heap leaching, and a combination of
conventional milling and heap leaching, to maximize economic return from this
rapidly expanding project.
Identified mineralized material at December 31, 2000 totaled 224.4 million tons
at an average grade of 0.044 ounces of gold and 0.600 ounces of silver per ton.
Homestake has a 60% share of the following amounts:
YEAR-END MINERALIZED MATERIAL
(100% BASIS)
<Table>
<Caption>
2000
----------------
Tons (000) 224,400
Grade (ozs. gold/ton) 0.044
Grade (ozs. silver/ton) 0.600
</Table>
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MAIN PASS 299
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulfur and
oil and gas joint venture. Freeport McMoRan Sulphur LLC ("FMS") owns the
remaining 83.3% and is the operator under joint operating agreements. The sulfur
and oil and gas deposits are located in the Gulf of Mexico approximately 32
miles east of Venice, Louisiana, in water approximately 210 feet deep. The
sulfur 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 to the Minerals Management Service.
In July 2000, in view of continuing low sulfur prices and increased
operating costs, FMS announced a phased closure of the sulfur operations over a
period of six to nine months from the date of the announcement. However, sulfur
production was curtailed on August 30, 2000 as a result of continuing low sulfur
prices and the results of a geologic, geophysical and seismic study of a brine
well cavity required for the sulfur mining process. Reclamation activities,
including plugging and abandonment of the facilities, commenced following the
cessation of production. Oil and gas operations are continuing.
In 1997, due to the prolonged period of low sulfur prices, Homestake
wrote-off its entire carrying-value of the sulfur assets, and in 2000, Homestake
reflected its interest in the joint venture as a discontinued operation.
The Main Pass 299 joint operating agreement provides that each participant
is obligated to pay its share of reclamation and abandonment costs. Homestake's
share of the total remaining estimated sulfur and oil and gas reclamation
liability, including costs at Port Sulphur associated with the sulfur marketing
agreement interest and anticipated credits of $1.5 million, is $9.4 million.
This amount has been fully accrued for at December 31, 2000.
Homestake and FMS are discussing terms related to the termination of the
Main Pass 299 joint operating agreement and the funding of future reclamation
liabilities.
MINERAL EXPLORATION AND DEVELOPMENT
Total exploration expense, including exploration activities in and around
Homestake's mines, increased to $50.5 million in 2000 from $39.5 million in
1999. Expenses in 2000 include $13 million of exploration expenditures at
Veladero project. Exploration expenses related to in-mine definition drilling at
Homestake's active mines are included in the individual mine operating expenses
and their cost per ounce calculations and are excluded from the amounts in the
previous sentence.
Of the $50.5 million spent on exploration in 2000, approximately 26% was
spent in Australia, 18% in North America, and 56% in the Andes of South America.
In 2001, the projected exploration budget is $42.3 million, of which 23% is
expected to be spent in Australia, 19% in North America, and 58% in the Andes.
Exploration expenses increased due to the increased activity at Veladero
partially offset by a reduced level of exploration spending consistent with
general gold industry trends.
AUSTRALIA
Total exploration expenditures in Australia were $13 million in 2000
compared to $15.9 million in 1999. Programs were focused around existing
operations in the Yilgarn region
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of Western Australia and on several prospective properties located in the
eastern and western regions of the country. The 2001 exploration budget for
Australia has been reduced to $9.8 million, largely because active exploration
has been curtailed in the eastern regions.
For the large Plutonic/Marymia tenement package, exploration expenses
totaled $4.2 million and $3.3 million in 2000 and 1999, respectively. The 2000
program included drill testing of both shallow oxide and deep sulfide targets
distributed widely throughout the property. Several significant intercepts of
potentially ore-grade gold mineralization were encountered, primarily in the
sulfide targets located to the northwest and to the south of the existing
Plutonic mine. The 2001 program will continue to evaluate these intercepts, as
well as other targets within the tenements, and has been allocated a budget of
$3.8 million.
At the Lawlers mine property, exploration spending was $1.9 million in
2000 compared to $2.1 million in 1999. The 2000 program provided for systematic
drill testing of favorable mine stratigraphy along trend from the existing
Lawlers mine area, as well as for drill testing of several oxide targets on the
eastern portion of the property. Exploration spending is expected to total $1.3
million in 2001 and will focus primarily on follow-up drill testing of
encouraging intercepts encountered during the 2000 program as well as a deep
multi-drillhole test beneath the principal ore reserve blocks at Genesis/New
Holland South.
Exploration spending at the Mt Morgans tenements totaled $1.6 million and
$1.5 million in 2000 and 1999, respectively. The 2000 program included drill
testing of targets in the vicinity of the Just-In-Case/Wallaby deposit, as well
as several targets developed along trend from previous mining in the Westralia
area and targets north of previous mining in the Jupiter area. The 2001 program
provides for follow-up drill testing of encouraging intercepts encountered
during the 2000 program and has been allocated a budget of $1 million.
At the Darlot mine property, exploration expenditures for 2000 were $1.5
million compared to $2.0 million in 1999. The 2000 program focused on drilling
to evaluate mineralization discovered adjacent to the existing Centenary
operation and resulted in a significant addition to the potential gold
mineralized material of the property. Several other targets have been identified
within the property and were partially drill tested in 2000. These targets will
be further evaluated during the 2001 program, for which the expected spending
will be $0.7 million.
At the Warrida Well tenement package, located between the Darlot and
Lawlers properties, exploration spending for 2000 totaled $0.6 million. The 2000
program resulted in several encouraging intercepts and focused on drill testing
of targets located at the south end of the Warrida Well property, which is
located near a recently discovered deposit owned by another mining company. The
2001 program has been allocated a budget of $0.7 million and will continue the
drill testing around these intercepts and the search for additional targets on
large, untested portions of the property.
Exploration expenditures at the 50%-owned Kalgoorlie operations were $0.2
million (Homestake's share) in 2000 compared to $0.9 million in 1999. The 2000
program failed to generate ore-grade intercepts outside the main mineralized
zone. The 2001 budget has been allocated $0.2 million (Homestake's share).
Elsewhere in Western Australia, exploration spending on several additional
properties widely distributed throughout the Yilgarn region totaled $1.3 million
in 2000. These included programs on Homestake's large tenement packages at
Meekatharra ($0.4 million) and Bellevue
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<Page>
($0.1 million), as well as several smaller properties in the Eastern Goldfields
($0.7 million combined). Results in 2000 were not encouraging and several
projects have been terminated or significantly reduced. The total spending for
these properties in 2001 is expected to be $0.5 million.
A new extensive land position acquired in the Tanami region in
northeastern Western Australia in late 2000 has been allocated a budget of $0.6
million in 2001.
In eastern Australia, the 2000 exploration program included drilling
projects at the Agate Creek and Twin Hills properties. Exploration expenditures
totaled $0.3 million in 2000 and $0.5 million in 1999 at Agate Creek and $0.4
million in 2000 and $1.2 million in 1999 at Twin Hills. Results were not
significant enough to warrant further spending. The Company is seeking joint
venture participation in both properties. All other exploration efforts in
eastern Australia have been curtailed and spending for 2001 is expected to be
minimal. In 2000, the Junction Reefs project was farmed out to another mining
company which must spend $7.7 million over five years in order to earn a 51%
interest.
Exploration expenditures on the properties controlled by Lachlan (owned
81.2% by Homestake) totaled $0.5 million in 2000, essentially unchanged from
1999. Lachlan sold its Balcooma base-metal deposit in 2000, and exploration
expenditures in 2000 are expected to be minimal.
NORTH AMERICA
Homestake's North American exploration expenditures for 2000 were $3.7
million in Canada and $5.4 million in the United States, compared to 1999
exploration expenditures of $3.1 million in Canada and $6.6 million in the
United States. Exploration in Canada was primarily focused around the Eskay
Creek mine, while exploration spending in the United States was largely focused
around Homestake's existing operations in north central Nevada.
Exploration spending at the Eskay Creek mine totaled $3.1 million in 2000
compared to $2.3 million in 1999. The 2000 program outlined additional reserves
and mineralized material, primarily in the 21B and 21C zones, while drilling
north of the mine explored down-dip extensions of the favorable mine
stratigraphy. The 2001 program has been allocated a budget of $2.4 million and
will continue to explore extensions of the mine stratigraphy to the north, south
and west of the known orebodies.
At the Ruby Hill property, including the adjacent Prospect Mountain joint
venture, exploration spending was $1.3 million and $1.6 million in 2000 and
1999, respectively. The 2000 drilling program focused on testing several shallow
oxide targets, but failed to add any significant new mineralized material.
Planned expenditures of $1.3 million in 2001 will provide for drill testing of
several additional shallow oxide targets, including those developed on the newly
acquired Prospect Mountain joint venture lands.
In 2000, Homestake's share of exploration expenditures at the 50%-owned
Pinson project, managed by Homestake, totaled $0.7 million, compared to $1.5
million in 1999. The 2000 program included additional widely spaced drill
testing of the gravel-covered pediment on the eastern portion of the property,
as well as drill testing of several structural targets to the southwest of
previous mining. A decision has been made to solicit additional joint venture
participation in the project, and Homestake's share of exploration expenditures
is expected to be minimal in 2001.
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<Page>
Homestake's ownership interest in the Round Mountain mine increased from
25% to 50% in July 2000. As a result, Homestake's share of exploration spending
at the property increased to $0.4 million in 2000 from $0.2 million in 1999.
During 2000, significant intervals of potentially economic gold mineralization
were encountered on a new area on the Round Mountain land package, and $0.4
million (Homestake's share) has been allocated to provide for initial follow-up
drilling during 2001.
At the 33%-owned Marigold mine, exploration expenses were $0.4 million
(Homestake's share) in 2000 compared to $0.5 million in 1999. Drill testing in
2000 focused primarily on the Millennium Project area, located about 2 miles
south of the existing pits. The Millennium Project has been advanced to
development status and a small 2001 exploration budget of $0.1 million
(Homestake's share) will provide for several exploratory holes elsewhere on the
property.
Exploration expenses for 2000 at the 38%-owned Ren joint venture were $0.2
million (Homestake's share), compared with no Homestake expenses in 1999.
Homestake has an agreement with the owner of the remaining 62% of the property,
Cameco (U.S.), Inc. ("Cameco"), whereby Cameco was to contribute 100% of the
joint venture's exploration expenses from 1995 through July 2000. All
exploration expenses incurred after July 2000 are to be contributed
proportionately by both Homestake and Cameco. The 2000 exploration program
included drill testing of several deep sulfide targets and resulted in a
significant intercept of gold mineralization. The 2001 program will continue
testing of the deep sulfide targets and has been allocated a budget of $1
million (Homestake's share).
Elsewhere in Nevada, exploration expenses on the Pony Creek project
totaled approximately $0.3 million during 2000. Drilling results were
unfavorable and the project was terminated.
In September 2000, the Company announced the phased closure of the
Homestake mine. As a result, only $0.1 million was spent on exploration during
2000, compared to $0.7 million in 1999. No significant exploration expenditures
are planned for 2001.
ANDES REGION
During 2000, total exploration spending for the Andes region of South
America primarily focused on Homestake's existing properties in Chile and
Argentina and totaled $20.7 million, including $16.8 million and $2.6 million of
pre-feasibility project development costs at the Veladero and Jeronimo deposits,
respectively. Exploration expenditures are expected to be $29.8 million in 2001
and again will focus primarily on Homestake's existing properties.
In Argentina, Homestake's principal exploration interest is the Veladero
Project. At the Veladero project, between October 1999 and May 2000, Homestake
carried out a 180-hole 200,000 foot drilling campaign. Since commencing a new
field season in October 2000, Homestake has drilled 100 additional holes
aggregating 115,000 feet at Veladero. Total expenditures in 2000 were $16.8
million. As drilling continues, the results are being added to the existing
database, which includes information from the ongoing metallurgical,
hydrological and geotechnical testing. Homestake has updated its earlier
engineering studies on the basis of higher cut-off grades, taking into account
the physical distribution of gold and silver and the metallurgical
characteristics of the deposit. As a result, at December 31, 2000, Veladero's
in-pit mineralized material, on a 100% basis, totaled 224 million tons grading
0.044 ounces of gold and 0.600 ounces of silver per ton.
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<Page>
Homestake's principal other exploration interests in Argentina are the Del
Carmen, Rio Frio, and Los Amarillos land packages located adjacent to its
60%-owned Veladero development project. Expenditures in 2000 totaled $1.2
million for Del Carmen, $2.3 million for Rio Frio, and $0.2 million for Los
Amarillo compared to 1999 expenditures of $0.7 million for Del Carmen and $0.8
million for Rio Frio. At Rio Frio, field exploration discovered a number of new
mineralized areas and drill testing encountered several encouraging intercepts
during the 2000 program. These will be the focus of additional drilling in 2001,
for which a budget of $2.3 million has been allocated. Additional work is also
planned for Los Amarillos where a 2001 budget of $0.3 million has been
allocated. A joint venture partner will be sought for participation in further
exploration at Del Carmen in 2001.
The 2000 exploration program also included $0.4 million for drill testing
of targets identified on the Cantera/Breccia Ridge property in southern
Argentina. A small body of gold mineralization was outlined at Breccia Ridge for
which a buyer is being sought. The bulk of the extensive Patagonian land package
has been dropped.
In Chile, Homestake's principal exploration interests are the 51%-owned
operating mine at Agua de la Falda and its surrounding land package, which
includes the Jeronimo project. Including minor expenditures on the contiguous
properties, exploration spending for the district totaled $2 million in 2000
compared to $2.4 million in 1999. The 2000 program included drilling to expand
the known sulfide mineralization at the Jeronimo deposit, as well as drill
testing of several targets in the southern portion of the property. Although no
strongly encouraging intercepts were encountered during the 2000 program,
several additional targets were generated. These will be drill tested during the
2001 program, for which an exploration budget of $1 million has been allocated.
Elsewhere in the Andes, Homestake conducted reconnaissance exploration
programs in portions of Peru, as well as property evaluations in selected areas
of Chile and Argentina. Expenditures for this work totaled $0.8 million in 2000
and a similar level of spending is expected in 2001.
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<Page>
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,
silver by-product credits, marketing expenses, onsite general and administrative
costs, in-mine drilling expenditures that are related to production, and other
direct costs, but exclude depreciation, depletion and amortization, corporate
general and administrative expense, mineral exploration expense, royalties,
federal and state income and production taxes, Canadian mining taxes, financing
costs, and accruals for final reclamation.
"Other cash costs" are costs that are not related to, but may result from,
gold production activities, 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. Noncash costs exclude 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" are 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. 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.
"Portal" is a tunnel driven into a mountainside providing access to an ore
deposit.
"Run-of-mine ore" is mined ore that has not been subjected to any
pretreatment, such as washing, sorting or crushing, prior to processing.
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"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.
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<Page>
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 long-term gold prices of $300 and $325
per ounce in calculating reserves at its North American operations at December
31, 2000 and 1999, respectively. At its Australian operations, Homestake used
long-term gold prices of $265 (A$475) and $311 (A$475) at December 31, 2000 and
1999, respectively.
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,
2000 and 1999 are based on an assumed price of $5.00 and $5.25 per ounce,
respectively.
ESTIMATION OF RESERVES
Gold and silver reserves are estimated for each of the properties operated
by Homestake based upon factors relevant to each deposit. These estimates have
been prepared by, or under the supervision of, engineers or geoscientists with
at least five years of relevant experience and who are members in good standing
of a recognized professional association, or who in Homestake's opinion have
equivalent prerequisite qualifications and experience. 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.
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 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
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<Page>
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 titleholder 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 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
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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 are 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 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.
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.
Environmental audits are conducted on a regular basis with the objective of
auditing each operation at least once every three years. A committee of the
Homestake Board of Directors oversees the establishment and implementation of
environmental policy.
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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 2000, these expenditures totaled approximately $1.7
million compared to $3.5 million in 1999. Homestake estimates that during 2001
capital expenditures for such purposes will be approximately $2 million and that
during the five years ending December 31, 2005, such capital expenditures will
be approximately $6 million.
Homestake also incurs operating costs to minimize the effects of its
operations on the environment, including concurrent 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 $17.6 million in 2000,
compared with approximately $28 million in 1999. Homestake estimates that
environmental and related operating costs in 2001 will be approximately $14
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, 2000 and 1999, Homestake had total accruals of $169.1 million and $137
million, respectively, for future reclamation, remediation and related costs.
With respect to nonoperating properties, Homestake believes that it has fully
provided for all reclamation and remediation liabilities. Homestake's provisions
are evaluated regularly and adjusted when necessary. During 2000, following a
review of its reclamation liabilities, Homestake increased its reclamation
accruals for certain non-operating properties by $16.2 million. These charges
include $10 million for the former uranium millsite near Grants in New Mexico,
$2.4 million related to Whitewood Creek in South Dakota, $2 million for the
Cullaton Lake mine in Nunavut, Canada, $1.5 million for the Bulldog mine in
Colorado, and $0.3 million for other non-operating properties. 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 reclamation and related costs 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.
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
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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 and Natural Resource Damage claims relating to Whitewood
Creek and downstream areas were resolved in 1999. The costs for the settlement
were recorded in 1998. A payment of $1 million will be made in 2001 and an
additional $1 million payment will be made in 2002 to complete the settlement.
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 and
since 1999 has operated a water treatment facility for treating the groundwater
adjacent to the tailings. The estimated costs of continued remediation are
included in the accrued reclamation and remediation 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 2000, Homestake spent $3 million on reclamation
expenditures at the Grants facility. Approximately $3.8 million is planned to be
expended during 2001.
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, 2000 Homestake had received $33 million from the DOE and the
balance sheet at December 31, 2000 includes an additional receivable of $4.2
million for the DOE's share of reclamation expenditures made by Homestake
through 2000.
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 in the
production of lead metal and lead
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concentrates in Missouri. In June 1991, HLCM was 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. A number of other lead producers and
former lead producers have also been so notified. 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. 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 ground.
Homestake believes that any future costs it may incur in connection with this
matter will not be material.
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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" below.
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 the
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.
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
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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.
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Gold
High........................... $313 $326 $313 $367 $416
Low............................ 264 253 273 283 367
Average........................ 279 279 294 331 388
Period End..................... 273 290 287 290 369
Silver
High........................... $5.53 $5.71 $7.81 $6.27 $5.83
Low............................ 4.57 4.88 4.69 4.22 4.71
Average........................ 4.96 5.22 5.54 5.17 5.19
Period End..................... 4.59 5.33 5.01 5.95 4.73
</Table>
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.
At December 31, 2000 the Company's gold hedging contracts, used to reduce
exposure to precious metal prices, consisted entirely of forward sales
contracts. The Company intends to physically deliver metals in accordance with
the terms of these forward sales contracts.
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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 North American gold reserves at December 31, 2000 and 1999
are based on assumed prices of $300 per ounce and $325 per ounce, respectively.
At its Australian operations, Homestake used long-term gold prices of $265
(A$475) and $311 (A$475) at December 31, 2000 and 1999, respectively. Silver
reserves at December 31, 2000 and 1999 at the Eskay Creek mine are based on
assumed silver prices of $5.00 per ounce and $5.25 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.
Oil reserve realization is subject to similar risks.
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
similarly might be payable. Should the Mining Law be so amended, it could reduce
the amount of
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future exploration and development activity conducted by Homestake on federal
government-owned property in the United States.
In November 2000, the U.S. Department of Interior, Bureau of Land
Management ("BLM") issued final regulations regarding management of mining
claims on BLM land (the "3809 Regulations"). The 3809 Regulations, which became
effective in January 2001, substantially expand discretionary authority of the
BLM over existing and potential mining activity on BLM ground, including
authority to deny approval of a proposed plan of operation at any stage of the
review process based on a discretionary determination that "significant
scientific, cultural or environmental resource values of the public lands" will
be substantially harmed, notwithstanding the use of best available reclamation
practices. The 3809 Regulations impose a new, detailed set of operating
performance standards on mining operations, including authority to require
backfilling of open-pit mines, although backfilling is not mandated. The 3809
Regulations also require 100% funding, in the form of cash, surety bonds,
letters of credit, or securities for the estimated cost of reclamation of
disturbances under new plans of operation or under modified plans of operation
to the extent it results in an increase in the estimated costs of reclamation.
The 3809 Regulations include new and expanded inspection authority, enforcement
orders, and civil and criminal penalties for violations of plans of operation or
the regulations. The 3809 Regulations were adopted over the opposition of most
of the governors and key senators and congressmen from the western states, which
are most heavily impacted by the regulations. The National Mining Association
and the State of Nevada have filed judicial complaints seeking to have the 3809
Regulations declared invalid. Although existing mining operations are protected
through certain "grandfathering" provisions, the regulations are expected to
increase the cost and uncertainty associated with mining on BLM lands. The new
provisions giving the BLM authority to deny approval of a proposed plan of
operation at any stage of the review process may reduce new mining activity on
BLM land due to the uncertainty associated with the process and the prospect
that a proposed plan of operation will be rejected on a discretionary basis
after significant expenditures of funds.
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 has, in the
past, engaged in currency hedging in Canadian and Australian dollars to protect
against significant currency fluctuations relative to the US dollar. In July
2000, the Company discontinued its foreign currency protection program. Option
contracts outstanding at December 31, 2000 are expected to remain in place until
maturity. The Company continues to mitigate the risk of strengthening Australian
or Canadian currencies by entering into forward gold sales contract for delivery
in those currencies.
RISKS OF NATIVE TITLE CLAIMS
AUSTRALIA
The decision of the High Court of Australia in 1992 in MABO ET AL V
QUEENSLAND (No. 2) recognized the existence of traditional native title rights
to land. That decision raised the possibility that mining and exploration
tenements granted by the Crown after October 31, 1975 (the date the Racial
Discrimination Act (Commonwealth) came into effect) 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 given, validation of all existing interests. This was achieved by virtue of
the Native Title Act 1993 (Commonwealth) and complementary
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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 established 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 titleholders or claimants,
the grantee party and the government party. A grantee party may pay compensation
to the native titleholders and claimants for the future grant of mining
tenements. If agreement cannot be reached after negotiations in good faith for
six months, court approval of the proposed tenements 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. Substantial amendments made in 1998 to the Native
Title Act eliminated a number of uncertainties and made the legislation more
workable.
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 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. 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 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, unless the particular tenement application
falls within the new Western Australia policy, which permits the granting of
mining tenements without reference to the NATIVE TITLE ACT processes in cases
where it can be shown from available evidence that native titles have been
extinguished based on the rationale contained in the MIRIUWUNG GAJERRONG federal
appellate court decision. That case held that native title had been extinguished
on land subject to pastoral or mining leases. That decision is now on appeal to
the Australian High Court. 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
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 titles 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
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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 and federal governments have 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
governments is that they will not negotiate treaties if the claims are being
litigated in the courts. No treaties have yet been ratified under this process.
In April 2000,the Nisga'a treaty between the governments of Canada and
British Columbia and the Nisga'a Nation came into effect. The treaty is the
first modern day treaty in British Columbia. 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. 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. For example, 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) 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.
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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 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.
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.
54
<Page>
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 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, but it has not demonstrated economic validity. 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. The category of mineralized material includes
measured and indicated material, but excludes material often referred to as
inferred, or estimated on the basis of geologic inferences. Consistent with
Homestake's normal procedures for estimating mineralized material, independent
data verification has not been performed.
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 carrying amount of a mining operation exceeds its fair
value, an impairment loss is measured and recorded based on the fair value of
the asset, which generally will be computed using the discounted expected future
cash flows.
Estimates for reclamation and environmental remediation costs are
developed based on the Company's interpretation of existing and expected
regulatory 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.
55
<Page>
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, 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 income tax is approximately 48%. In 2000, Ontario enacted
legislation that will result in significant tax rate changes. Effective May
2000, the income tax rate on mining income in Ontario decreased from 13.5% to
12.5% and will be further reduced to 12% effective January 1, 2001. In addition,
the provincial mining income tax rate will be reduced to 10% from the current
rate of 20% ratably over five years. When fully effective, these changes will
reduce the blended statutory rate to approximately 44%. The applicable United
States tax rate for the Company currently is 21% (20% alternative minimum tax
plus 1% state tax). 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 from 36% 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 2001.
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 Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," under which the deferred tax
purchase accounting adjustments are 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.
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<Page>
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.
CUSTOMERS
Sales to individual customers exceeding 10% of Homestake's 2000 and 1999
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.
<Table>
<Caption>
2000 1999
---- ----
($ IN THOUSANDS)
Customer A $159,600 $142,000
B 115,700 --
C 113,900 99,000
D 58,200 96,000
E -- 77,800
F -- 76,700
</Table>
CREDIT FACILITIES
See note 13, "Long-term Debt," to the consolidated financial statements on
beginning on page 46 of the 2000 Annual Report to Shareholders for details of
the Company's credit facilities. Such information is hereby incorporated by
reference.
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<Page>
EMPLOYEES
The number of full-time employees at December 31, 2000 of Homestake and
its subsidiaries was:
<Table>
<Caption>
Plutonic mine 137
Darlot mine 64
Lawlers mine 67
Eskay Creek mine 114
Nickel Plate mine 11
Ruby Hill mine 90
McLaughlin mine 91
Homestake mine (1) 322
Agua de la Falda mine (1) 48
United States corporate staff and other 72
Australian exploration and corporate staff 64
Canada exploration and corporate staff 19
Argentina exploration and corporate staff 32
United States exploration 13
Uranium 7
Chile exploration and corporate staff 22
-----------
Total 1,173
</Table>
1. OPERATIONS WHERE A PORTION OF THE EMPLOYEES ARE REPRESENTED BY A
LABOR UNION.
The number of full-time employees (excluding contractors' employees)
at December 31, 2000 in jointly owned operations in which Homestake participates
was:
<Table>
<Caption>
Kalgoorlie Consolidated Gold Mines Pty Ltd (1) 407
Hemlo operations 792
Round Mountain mine 652
Marigold Mining Company 103
Pinson Mining Company 5
Main Pass 299 177
-----------
Total 2,136
</Table>
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.
58
<Page>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages at December 31, 2000,
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 50. 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 30 years of experience in mining and mine management.
Walter T. Segsworth - Director since February 2001 and President and Chief
Operating Officer since April 1999, age 51. 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 29 years of professional experience.
David W. Peat - Vice President, Finance and Chief Financial Officer since
April 1999, age 48. He was Vice President and Controller from December 1995 to
April 1999, and 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 24
years of accounting and finance experience.
Michael L. Carroll - Vice President and Treasurer since July 1999, age 47.
He was Treasurer from April 1997 to July 1999 and Director of 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 23 years of accounting,
finance and tax experience.
Lee A. Graber - Vice President, Corporate Development since 1983, age 53.
From 1980 to 1983, he was Manager, Corporate Development and Planning. He has
over 29 years of experience in finance and corporate development.
Wayne Kirk - Vice President, General Counsel and Corporate Secretary since
September 1992, age 57. He was a partner in Thelen, Marrin, Johnson & Bridges
from 1976 to 1992. He has practiced law for 32 years.
Gregory A. Lang - Vice President, Australian Operations since January
1999, age 45. 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
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<Page>
Fe mine, a position he had held with International Corona Corporation since
1988. He is a mining engineer with over 23 years of experience in mining and
mine management.
Igor Levental - Vice President, Investor Relations since August 1999, age
45. He was the Manager, Corporate Development from 1994 until August 1999. Prior
to joining Homestake in 1994, he was Vice President, Investments and Investor
Relations for International Corona Corporation. He has over 24 years of
experience in engineering and investor relations.
Donald W. T. Lewis - Vice President, Evaluations and Development since
March 1997, age 43. 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 21 years of professional experience.
William F. Lindqvist - Vice President, Exploration since August 1995, age
58. 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 30 years of
professional experience.
Alex G. Morrison - Vice President and Controller since April 2001, age 37.
Prior to joining Homestake, he was the Director of External Reporting at Phelps
Dodge Corporation from May 2000, held senior positions in the Global Energy and
Mining Group of PricewaterhouseCoopers from 1995 through 2000 and was Controller
at Stillwater Mining Company in 1994 and 1995. He is a chartered accountant with
over 16 years of accounting and finance experience.
Stephen A. Orr - Vice President, North American Operations since August
1999, age 45. 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 23 years of experience in mining and
mine management.
Mary T. Schuba - Vice President, Human Resources since April 1999, age 53.
She was the Director, Human Resources from August 1995 to April 1999. She has
been with Homestake since 1985 and has over 26 years of experience in personnel
and employee relations.
Harold F. Barnes - Vice President, Environmental, Health, Safety and
Government Affairs since December 2000, age 58. He was the Director,
Environmental, Health, Safety and Government Affairs from September 1992 to
November 2000, and Corporate Manager, Health and Safety from 1980 to August
1992. Prior to joining Homestake, he was Assistant Director, Health, Safety and
Environment for the Tennessee Valley Authority and has held various health and
safety positions with the Boeing Corporation, RCA, Brown Root-Northrup and
Arnold Research Organization. He is a Board Certified Safety and Health
Professional and Registered Professional Engineer in California with over 35
years of experience in safety, health, environmental, and government relations.
Dennis B. Goldstein - Vice President and Corporate Counsel since December
2000, age 55. He was Corporate Counsel and Manager of Land Services from 1992 to
November 2000,
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<Page>
Corporate Counsel from 1985 to 1992 and Assistant Counsel from 1976 to 1985.
Prior to joining Homestake, he was a Deputy Attorney General for the State of
California. He has practiced law for 29 years.
Richard L. Jensen - Vice President, Tax since December 2000, age 48. From
August 1997 to November 2000, he was Director of Taxes. Prior to joining
Homestake, he was Director of Tax Compliance at Freeport-McMoRan Inc. from 1986
to July 1997 and Director of Taxation for Petro-Lewis Corporation from 1976 to
1986. He has 25 years of experience in domestic and international tax.
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. Trial of this
action commenced in February 2001 and is ongoing. Homestake is vigorously
defending this action.
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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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<Page>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
a. The common stock of Homestake Mining Company is listed 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, 2001 was
18,713. The number of holders of HCI Exchangeable Shares of record as of
March 6, 2001 was 1,460.
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 58 in the Company's 2000 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 13 entitled
"Long-term Debt" beginning on page 46 in the Notes to Consolidated
Financial Statements in the Company's 2000 Annual Report to Shareholders.
Such information is hereby incorporated by reference.
d. Reference is hereby made to the note 17 entitled "Shareholders' Equity" on
page 50 in the Notes to Consolidated Financial Statements in the Company's
2000 Annual Report to Shareholders. Such information is hereby
incorporated by reference. .
e. The Registrant did not sell any securities during 2000 that were not
registered under the Securities Act of 1933 except as follows:
(i) ACQUISITION OF CASE'S 25% INTEREST IN THE ROUND MOUNTAIN MINE. On July
14, 2000 Homestake acquired the outstanding capital stock of Bargold
Corporation ("Bargold") from Case, Pomeroy & Company, Inc., for $42.6
million, consisting of 2.6 million shares of Homestake Common Stock, $1.00
par value (the "Shares"), and $25.9 million in cash. Bargold's sole asset
is its 25% interest in the Round Mountain mine located in Nevada. As a
result of the acquisition, Homestake now owns 50% of the Round Mountain
mine interests. The Shares were issued in reliance on the exemption for
non-public offerings provided by Section 4(2) of the Securities Act of
1933, as amended.
Homestake subsequently filed a registration statement providing for the
resale of the Shares (File No. 333-41434), which was declared effective by
the Securities and Exchange Commission on August 4, 2000.
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<Page>
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, 2000 follows:
Five-Year Selected Financial Data (1)
<Table>
<Caption>
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------
(As Restated) (As Restated) (As Restated) (As Restated) (As Restated)
Revenues and other income $ 666,789 $ 729,872 $ 777,938 $ 948,167 $ 975,399
Net income (loss) from continuing operations (109,099)(2) (11,283)(3) (244,106)(4) (126,361)(5) 42,168(7)
Loss from discontinued operations (15,346) (4,356) (3,909) (111,456)(7) (2,393)
Net income (loss) (124,445) (15,639) (248,015) (237,817) 39,775
Per common share:(8)
Net income (loss) from continuing operations (0.42)(2) (0.04)(3) (1.05)(4) (0.55)(5) 0.19(7)
Loss from discontinued operations (0.06) (0.02) (0.02) (0.49)(6) (0.01)
============ =========== =========== =========== ===========
(0.48) (0.06) (1.07) (1.04) 0.18
============ =========== =========== =========== ===========
Total assets 1,357,943 1,583,268 1,626,911 1,615,911 1,954,103
Long-term debt 224,616 278,494 357,410 374,593 255,170
Other long-term obligations 244,079(9) 222,206(9) 178,548 153,822 123,851
Deferred income and mining taxes 180,090 205,982 217,047 156,853 215,857
Minority interests 10,375 13,800 7,825 108,116 103,960
Shareholders' equity 545,184 722,778 717,360 691,956 1,039,848
Dividends per share(10) 0.025 0.075 0.10 0.15 0.20
</Table>
1. CERTAIN AMOUNTS HAVE BEEN RESTATED. SEE NOTE 23 TO CONSOLIDATED FINANCIAL
STATEMENTS FOR DETAILS.
2. INCLUDES WRITE-DOWNS OF $66.0 MILLION ($70.6 MILLION PRETAX) OR $0.25 PER
SHARE INCLUDING (I) HOMESTAKE MINE RESTRUCTURING CHARGES OF $23 MILLION
($23 MILLION PRETAX) OR $0.09 PER SHARE, (II) REDUCTIONS IN THE CARRYING
VALUES OF CERTAIN RESOURCE ASSETS OF $25.5 MILLION ($28.0 MILLION PRETAX)
OR $0.10 PER SHARE, (III) AN INCREASE OF $15 MILLION ($16.2 MILLION
PRETAX) OR $0.06 PER SHARE IN THE ACCRUAL FOR FUTURE ESTIMATED RECLAMATION
EXPENDITURES AND (IV) AND OTHER CHARGES OF $2.5 MILLION ($3.4 MILLION
PRETAX) OR $0.01 PER SHARE.
3. INCLUDES WRITE-DOWNS OF $4.6 MILLION ($6.2 MILLION PRETAX) OR $0.02 PER
SHARE INCLUDING (I) HOMESTAKE MINE RESTRUCTURING CHARGES OF $1 MILLION ($1
MILLION PRETAX) OR $NIL PER SHARE, (II) REDUCTIONS IN THE CARRYING VALUE
OF CERTAIN ASSETS OF $3.6 MILLION ($5.3 MILLION PRETAX) OR $0.01 PER
SHARE.
4. INCLUDES BUSINESS COMBINATION AND INTEGRATION COSTS OF $1.3 MILLION ($1.3
MILLION PRETAX) OR $0.01 PER SHARE.
5. INCLUDES BUSINESS COMBINATION AND INTEGRATION COSTS OF $3.5 MILLION ($3.5
MILLION PRETAX) OR $0.01 PER SHARE AND THE WRITE-DOWN OF AN INVESTMENT OF
$3.5 MILLION ($3.5 MILLION PRETAX) OR $0.01 PER SHARE.
6. INCLUDES WRITE-DOWNS AND UNUSUAL CHARGES OF $4.4 MILLION ($6.9 MILLION
PRETAX) OR $0.02 PER SHARE INCLUDING (I) REDUCTIONS OF $1.1 MILLION ($1.7
MILLION PRETAX) IN THE CARRYING VALUES OF RESOURCE ASSETS AND (II) AN
INCREASE OF $3.3 MILLION ($5.2 MILLION PRETAX) IN THE ACCRUAL FOR
ESTIMATED FUTURE REMEDIATION AND RECLAMATION.
63
<Page>
7. INCLUDES WRITE-DOWNS AND UNUSUAL CHARGES OF $7.8 MILLION ($10 MILLION
PRETAX) OR $0.03 PER SHARE TO REDUCE THE CARRYING VALUES OF CERTAIN
RESOURCE ASSETS.
8. BASIC AND DILUTED EARNINGS PER SHARE.
9. HOMESTAKE ONLY.
10. REFLECTS THE PRO FORMA EFFECT OF THE APPLICATION OF SAB 101 FOR THE THREE
MONTH PERIOD ENDED DECEMBER 31, 1999. THE APPLICATION OF SAB 101 DOES NOT
HAVE A MATERIAL EFFECT ON THE PRO FORMA FINANCIAL RESULTS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998. ADDITIONALLY, THE CUMULATIVE EFFECT OF
ADOPTION OF SAB 101, EFFECTIVE JANUARY 1, 2000, WAS NOT MATERIAL TO THE
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2000.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(UNLESS OTHERWISE STATED, THE FOLLOWING INFORMATION RELATES TO AMOUNTS INCLUDED
IN THE CONSOLIDATED FINANCIAL STATEMENTS, WITHOUT REDUCTION FOR MINORITY
INTERESTS. HOMESTAKE REPORTS PER OUNCE PRODUCTION COSTS IN ACCORDANCE WITH THE
"GOLD INSTITUTE PRODUCTION COST STANDARD.")
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
RESTATEMENT
After issuing Homestake's 2000 financial statements and filing the Form
10-K with the Securities and Exchange Commission ("SEC"), and following
extensive discussion with the Staff of the SEC and the Company's independent
accountants, management determined it was necessary to revise its financial
statements to expense previously capitalized costs associated with its Veladero
project in Argentina, to revise its depreciation and reclamation calculations at
the Plutonic and Lawlers mines in Western Australia, and to revise the financial
statement footnote presentation of Homestake's segment information.
Because the level of engineering and other exploration work completed at
the Veladero project does not meet the criteria for a full feasibility study,
Homestake has reclassified its previously stated Veladero reserves as
mineralized material. As a result of this reclassification, Homestake has
revised its financial statements to expense previously capitalized Veladero
project development expenditures. See Note 23 to Homestake's December 31, 2000
Consolidated Financial Statements for the principal effects of this restatement.
Management also determined that it is necessary to revise the Company's
depreciation and reclamation calculations for the Plutonic and Lawlers mines. In
accordance with US GAAP only proven and probable reserves may be used in
depreciation and reclamation calculations. The Company had used its best
estimate of future gold production as the base for its depreciation and
reclamation charges at the Plutonic and Lawlers mines, since their acquisition
in 1998. The Company's decision to use its best estimate of future gold
production for depreciation and reclamation calculations at these mines
reflected the fact that, at the time of their acquisition, only a relatively
small proportion of the total inventory of mineralized material at these mines
had been upgraded to the reserves category. Homestake has revised its financial
statements to use only proven and probable reserves for calculating depreciation
and reclamation charges for these mines. See Note 23 to Homestake's December 31,
2000 Consolidated Financial Statements for the principal effects of this
restatement.
In addition, Homestake determined that it is necessary to revise the
financial statement footnote presentation of its segment information because
discrete operating and financial information is reported to the Chief Operating
Officer for each mine. The Company previously had aggregated each mine within
each geographic segment for segment disclosure purposes because each mine was
considered by management to have similar economic characteristics. However, as
ore grades and other operating factors can vary significantly by mine, with
resulting material variations in unit operating costs, management has determined
that each mine should be reported separately for segment disclosure purposes.
See Note 21 to Homestake's December 31, 2000 Consolidated Financial Statements
for the principal effects of this restatement.
RESULTS OF OPERATIONS
SUMMARY
Homestake recorded a loss from continuing operations of $109.1 million or
$0.42 per share in 2000 compared to a loss of $11.3 million or $0.04 per share
and a loss of $244.1 million or $ 1.05 per share from continuing operations in
1999 and 1998, respectively. The 2000 loss from continuing operations includes
after-tax non-recurring items amounting to $66.0 million compared to $20.5
million in 1999 and $205.5 million in 1998. The 1999 and 1998 results include
after-tax business combination and integration costs of $4.8 million and $17
million, respectively. The loss from continuing operations in 2000 also includes
after-tax foreign currency exchange losses of $28.6 million compared to gains of
$20.6 million in 1999 and losses of $23.5 million in 1998.
On July 20, 2000, Freeport-McMoRan Sulphur LLC, the operator and 83.3%
owner of the Main Pass 299 joint venture, located in the Gulf of Mexico,
announced a phased closure of sulfur operations. Homestake's 16.7% interest in
the sulfur joint venture was reflected as a discontinued operation effective
June 30, 2000. Losses from discontinued operations in 2000 amounted to $15.3
million or $0.06 per share, compared to $4.4 million or $0.02 per share and $3.9
million or $0.02 per share in 1999 and 1998, respectively. The 2000 loss from
discontinued operations included a non-recurring charge of $12 million,
reflecting Homestake's $8.5 million share of unaccrued reclamation and closure
costs and a $3.5 million allowance for projected operating losses during the
closure period. Homestake wrote-off the carrying value of its interest in Main
Pass in 1997.
Including losses from discontinued operations, Homestake recorded a net
loss of $124.4 million or $0.48 per share in 2000 compared to a net loss of
$15.6 million or $0.06 per share in 1999 and a net loss of $248.0 million or
$1.07 per share in 1998.
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Excluding the effect of the write-downs and unusual charges, business
combination costs, and foreign currency exchange gains and losses, Homestake
recorded a loss from continuing operations of $14.5 million or $0.06 per share
in 2000 compared to a loss from continuing operations of $11.4 million or $0.04
per share in 1999 and a loss from continuing operations of $15.6 million or
$0.07 per share in 1998. The 2000 results reflect higher gold production, lower
per ounce operating costs and lower administrative and general, exploration and
tax expenses, offset by lower gold prices and higher depreciation charges. The
improvement in 1999 results compared to 1998 primarily was due to lower
operating costs, lower exploration expenses and lower minority interest charges,
partially offset by lower gold prices.
A summary of significant non-recurring items in 2000, 1999 and 1998
follows:
<Table>
<Caption>
SIGNIFICANT NON-RECURRING ITEMS
(AFTER- TAX, IN MILLIONS OF DOLLARS) 2000 1999 1998
================================================================================
Resource asset write-downs (25.5) $ (8.9) $ (130.8)
Increase in the estimated accrual for
remediation and reclamation expenditures (15.0) (3.3) (36.0)
Write-downs of noncurrent investments (3.5) (7.6)
Business combination and
integration costs (4.8) (17.0)
Homestake mine restructuring charges (23.0) (5.9)
Other (2.5) (8.2)
- --------------------------------------------------------------------------------
$ (66.0) $ (20.5) $ (205.5)
================================================================================
<Caption>
(PRE-TAX, IN MILLIONS OF DOLLARS) 2000 1999 1998
================================================================================
Resource asset write-downs $ (28.0) $ (11.7) $ (151.6)
Increase in the estimated accrual for
remediation and reclamation expenditures (16.2) (5.2) (36.0)
Write-downs of noncurrent investments -- (3.5) (8.2)
Homestake mine restructuring charges (23.0) -- (8.9)
Other (3.4) -- (9.1)
- --------------------------------------------------------------------------------
(70.6) (20.4) (213.8)
Business combination and integration costs -- (4.8) (19.4)
================================================================================
$ (70.6) $ (25.2) $ (233.2)
================================================================================
</Table>
65
<Page>
<Table>
<Caption>
GOLD OPERATIONS - SUMMARY
2000 1999 1998
================================================================================
Revenues (millions of dollars) $665.7 $671.6 $782.2
Gold sales (thousands of ounces) 2,181 2,168 2,379
Gold production (thousands of ounces)
Consolidated 2,228 2,164 2,332
Attributable 2,206 2,141 2,137
Average gold price ($ per ounce)
Realized $ 288 $ 291 $ 312
Spot 279 279 294
Consolidated production costs ($ per ounce)
Total cash cost $ 174 $ 182 $ 205
Total production cost 242 250 274
================================================================================
</Table>
Revenues from gold, ore and concentrate sales during 2000 are consistent
with revenues in 1999. The average realized gold price decline of 1% was offset
by a 1% increase in sales volumes. The higher sales volumes in 2000 were
attributable to a 3% increase in consolidated gold production partially offset
by an increase in finished bullion inventories. The 14% decrease in consolidated
revenues in 1999 from 1998 reflects a 7% decline in the average realized gold
price and a 9% reduction in sales volumes. Lower realized prices in 1999
compared to 1998 primarily were due to lower average spot gold prices, which
declined by 5%. The Company's hedging activities increased revenues by
approximately $21 million, $28 million and $47 million in 2000, 1999 and 1998,
respectively.
The 3% increase in consolidated gold production in 2000 reflects 7% higher
production in the United States and 5% higher production in Australia, partially
offset by a 3% decrease in production in Canada. Higher production from United
States operations primarily reflects Homestake's additional 25% ownership
interest in the Round Mountain mine in Nevada effective July 1, 2000, partially
offset by lower production from the Homestake mine. Higher production in
Australia reflects higher production from the Kalgoorlie operations due to the
resolution of the mill gear problems that hampered production in the first half
of 1999 and higher production from the Yilgarn operations, partially offset by
the absence of production from the Peak Hill mine, which ceased operations in
November 1999. Lower consolidated production from the Canadian operations
reflects the absence of production from the Snip mine, which ceased operations
in June 1999. Attributable production from the Canadian operations increased by
6% in 1999 compared to 1998 reflecting Homestake's December 1998 acquisition of
the minority interests of Prime Resources Group Inc. ("Prime"), the owner of the
Eskay Creek mine.
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<Page>
CONSOLIDATED PRODUCTION COSTS PER OUNCE
<Table>
<Caption>
(PER OUNCE OF GOLD) 2000 1999 1998
================================================================================
Direct mining costs $ 184 $ 198 $ 210
Deferred stripping adjustments -- (4) 1
Costs of third-party smelters 18 16 8
By-product credits (34) (33) (18)
- --------------------------------------------------------------------------------
Cash Operating Costs 168 177 201
Royalties 5 4 3
Production taxes 1 1 1
================================================================================
Total Cash Costs 174 182 205
Depreciation and amortization 57 61 63
Reclamation 11 7 6
- --------------------------------------------------------------------------------
Total Production Costs $ 242 $ 250 $ 274
================================================================================
</Table>
The 4% reduction in total cash costs per ounce in 2000 compared to 1999
reflects the Company's continuing cost reduction efforts, higher production at
the low-cost Eskay Creek mine, a decrease in production at the higher-cost
Homestake mine and the benefit of the weaker Australian dollar in relation to
the US dollar.
The Company's total noncash cost per ounce was $68 during 2000 and 1999
compared to $69 per ounce during 1998. Total noncash costs per ounce remained
unchanged in 2000 as increased production at the Eskay Creek mine, which has a
higher noncash cost component, depreciation of the owner-mining equipment at the
Kalgoorlie operations and increases in reclamation accruals where largely offset
by lower depreciation charges at the Plutonic mine due to an increase in that
mine's proven and probable reserve base.
Consolidated total cash costs per ounce have been derived from amounts
included in revenues and production costs in the Statements of Consolidated
Operations as follows:
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<Page>
RECONCILIATION OF TOTAL CASH COSTS PER OUNCE TO FINANCIAL STATEMENTS (a)
<Table>
<Caption>
(MILLIONS OF DOLLARS, EXCEPT PER OUNCE AMOUNTS) 2000 1999 1998
================================================================================
Production Costs per Financial Statements $ 440.4 $ 451.5 $ 513.5
Adjustments to production costs:
Costs of third-party smelters (b) 38.9 35.0 18.1
Production costs of consolidated joint ventures (4.6) (4.4) (29.4)
Production costs of equity-accounted investments 2.0 1.9 1.9
By-product adjustments (74.6) (71.3) (38.5)
Reclamation accruals (24.7) (15.5) (13.2)
Inventory movements and other 6.1 (7.7) (14.6)
- --------------------------------------------------------------------------------
Production Costs for Per Ounce Calculations $ 383.5 $ 389.5 $ 437.8
- --------------------------------------------------------------------------------
Gold Production During the Year (in thousands) 2,206 2,141 2,137
- --------------------------------------------------------------------------------
Total Cash Costs Per Ounce $ 174 $ 182 $ 205
================================================================================
</Table>
(a) PRIOR TO 2000, HOMESTAKE REPORTED ITS GOLD PRODUCTION AND COSTS PER OUNCE
USING EQUIVALENT OUNCES (CO-PRODUCT REPORTING) AT THE ESKAY CREEK MINE. UNDER
THE CO-PRODUCT REPORTING METHOD, SILVER PRODUCTION FROM THE ESKAY CREEK MINE WAS
EXPRESSED IN TERMS OF AN EQUIVALENT AMOUNT OF GOLD. THIS METHOD WAS ORIGINALLY
SELECTED IN 1995, WHEN THE MINE COMMENCED PRODUCTION, DUE TO THE MINE'S
SIGNIFICANT SILVER PRODUCTION (APPROXIMATELY 40%-45% OF REVENUE DEPENDING ON THE
RELATIVE MARKET PRICES OF GOLD AND SILVER). IT IS NOW A MORE COMMON PRACTICE IN
THE INDUSTRY TO REPORT GOLD PRODUCTION USING BY-PRODUCT REPORTING, WHERE SILVER
REVENUE IS CREDITED AGAINST OPERATING COSTS IN COST PER OUNCE CALCULATIONS.
EITHER METHOD IS ACCEPTABLE UNDER THE GOLD INSTITUTE PRODUCTION COST STANDARD.
EFFECTIVE JULY 1, 2000, HOMESTAKE ADOPTED THE BY-PRODUCT REPORTING BASIS FOR
REPORTING ITS GOLD PRODUCTION AND PRODUCTION COSTS PER OUNCE. TOTAL CASH COSTS
PER OUNCE FOR ALL PERIODS PRESENTED HAVE BEEN RESTATED TO CONFORM TO BY-PRODUCT
REPORTING.
(b) ESKAY CREEK SELLS ORE AND CONCENTRATES CONTAINING GOLD AND SILVER DIRECTLY
TO THIRD-PARTY SMELTERS. FOR COMPARISON PURPOSES, CASH OPERATING COSTS PER OUNCE
INCLUDE ESTIMATED THIRD-PARTY COSTS INCURRED BY SMELTERS AND OTHERS TO PRODUCE
MARKETABLE GOLD AND SILVER.
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<Page>
AUSTRALIA
Western Australia operations produced 875,700 ounces of gold (Homestake's
share) at a total cash cost of $194 per ounce compared to 835,500 ounces at a
total cash cost of $219 per ounce during 1999 and 925,700 ounces at a total cash
cost of $224 per ounce during 1998.
Homestake's 50% share of production from the Kalgoorlie operations totaled
393,800 ounces at a total cash cost of $189 per ounce during 2000 compared to
360,100 ounces at a total cash cost of $235 per ounce during 1999 and 390,200
ounces at a total cash cost of $229 per ounce during 1998. The increase in
production in 2000 reflects higher mill throughput reflecting the resolution of
the Fimiston SAG mill gear issues in 1999, partially offset by the build up of
in-process concentrate inventories at the Gidji roaster in 2000. From June 1998,
until a permanent replacement gear was installed in May 1999, structural cracks
in the mill's ring gear required that the mill be operated at a reduced rotation
speed to minimize stress on the gears, which limited capacity. The Company
received insurance proceeds of $1.1 million and $4.8 million related to the ring
gear failure during 2000 and 1999, respectively. The increase in in-process
inventories at the Gidji roaster reflects increasingly stringent sulfur dioxide
emission constraints coupled with higher sulfur levels in the ore and
unfavorable weather conditions during the year which limited operation of the
roaster. Lower total cash costs per ounce in 2000 reflect the weaker Australian
dollar and the benefit of lower owner mining costs. The Super Pit operations
completed the transition from contract to owner mining in the first quarter of
2000. During 1999, total cash costs per ounce increased in comparison to 1998 as
a result of a slightly stronger Australian dollar and a temporary increase in
mining costs associated with an interim mining agreement with the contract
miner, partially offset by the mill gear insurance proceeds.
In July 1999, development was suspended and a 40-person reduction in
workforce at the Mt Charlotte underground mine was announced. Mining activities
since that time have concentrated on previously developed ore blocks. The
current mine plan extends to March 2001, but performance of the mine will be
monitored to determine whether the operation will continue beyond that date.
Gold production at the Yilgarn operations, which consist of the Plutonic,
Lawlers and Darlot mines, was 481,900 ounces at a total cash cost of $199 per
ounce in 2000 compared to 453,900 ounces at a total cash cost of $208 per ounce
in 1999 and 459,400 ounces at a total cash cost of $218 per ounce in 1998.
Production at the Plutonic mine totaled 253,600 ounces at a total cash cost of
$196 per ounce in 2000 compared to 236,500 ounces at a total cash cost of $221
per ounce in 1999 and 255,500 ounces at a total cash cost of $226 per ounce in
1998. Higher production in 2000 reflects a higher average grade of ore milled
and higher recoveries. Production decreased in 1999 compared to 1998 primarily
due to a lower average grade of ore milled. During 2000, 1999 and 1998, the
processing of underground ore was supplemented with ore from lower grade
open-pit stockpiles and from mining small satellite open-pit deposits near the
processing facilities, which enabled the mill to operate at full capacity.
During 2000, ore sourced from the underground operations comprised 60% of total
production compared to 65% and 41% in 1999 and 1998, respectively. Lower total
cash costs in 2000 primarily reflect the weaker Australian dollar.
Production at the Darlot mine continued to increase and total cash costs
per ounce continued to decrease in 2000. Darlot mine production in 2000 amounted
to 127,100 ounces at a total cash cost of $192 per ounce compared to 113,100
ounces at a total cash cost of $198 per ounce in 1999 and 77,500 ounces at a
total cash cost of $250 per ounce in 1998. The increased production in 2000 is
due to a higher average grade of ore milled. Increased production in 1999
reflects the
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<Page>
commencement of mining in the higher-grade Centenary underground deposit in late
1998 and higher mill recovery rates. Reduced total cash costs in 2000 reflect
the weaker Australian dollar partially offset by higher diesel fuel prices and
additional backfill costs. Lower total cash costs per ounce in 1999 compared to
1998 reflect the increased production. The Company plans to invest $7.5 million
in a new fleet of haul trucks, loaders and other ancillary underground equipment
to convert the Darlot mine to owner mining in the first half of 2001.
Production at the Lawlers mine totaled 101,200 ounces in 2000 compared to
104,300 ounces in 1999 and 126,400 ounces in 1998. The Lawlers mine has been
exclusively an underground operation since 1998. Production in 2000 decreased
due to lower average grade of ore milled, partially offset by higher mill
throughput. Production in 1999 decreased 17% as a result of the completion of
open-pit mining in October 1998 and lower average grade of ore milled resulting
from difficulties associated with developing high-grade ore sources in the
second half of the year. Total cash costs per ounce increased 13% to $213 per
ounce in 2000 as the effect of the lower production was only partially offset by
the weaker Australian dollar. Total cash costs per ounce increased to $189 per
ounce in 1999 compared to $181 per ounce in 1998 as a result of lower production
and higher exchange rates.
CANADA
Canadian operations produced 638,100 ounces of gold (Homestake's share) at
a total cash cost of $108 per ounce during 2000 compared to 656,400 ounces at a
total cash cost of $112 per ounce during 1999 and 495,700 ounces at a total cash
cost of $147 per ounce during 1998.
Attributable production at the Eskay Creek mine, in British Columbia,
consisting of payable gold contained in ore and concentrates sold, increased to
333,200 ounces in 2000 compared to 309,000 ounces and 156,500 ounces in 1999 and
1998, respectively. Total cash costs per ounce, including third-party smelter
costs, increased to $30 per ounce in 2000 compared to $15 per ounce in 1999 and
$9 per ounce in 1998. The increase in production in 2000 is primarily due to an
increase in concentrate shipments, partially offset by a lower average grade of
ore mined. The increase in production in 1999 from 1998 primarily is due to
Homestake's acquisition of the Prime minority interests. In addition, the higher
1999 production also reflects an increase in ore and concentrate shipment
volumes partially offset by a lower average grade of ore mined. Total cash costs
per ounce increased in 2000 due to lower silver by-product credits and higher
fuel and third-party smelter costs. Lower total cash costs in 1999 compared to
1998 reflect higher by-product credits due to an increase in silver production.
Homestake's share of production in 2000 from the Hemlo mining camp in
Ontario, which includes the Williams and David Bell mines and the Quarter Claim
royalty interest, amounted to 304,900 ounces at a total cash cost of $193 per
ounce compared to 305,100 ounces at a total cash cost of $197 per ounce in 1999
and 286,300 ounces at a total cash cost of $210 per ounce in 1998. David Bell
and Williams ore have both been processed through the Williams mill since
mid-1999. Lower cash costs in 2000 compared to 1999 were primarily due to lower
mining costs reflecting the consolidation of milling facilities. Higher
production and lower cash costs from the Hemlo mines in 1999 compared to 1998
were primarily due to higher ore grades and increased mill throughput.
UNITED STATES
70
<Page>
United States operations produced 669,400 ounces of gold (Homestake's
share) at a total cash cost of $209 per ounce during 2000 compared to 624,200
ounces at a total cash cost of $207 per ounce during 1999 and 691,500 ounces at
a total cash cost of $221 per ounce during 1998.
Effective July 1, 2000, Homestake increased its ownership interest in the
Round Mountain mine in Nevada from 25% to 50%. Homestake's share of 2000 gold
production from the Round Mountain mine was 243,700 ounces at a total cash cost
of $206 per ounce, compared to 135,500 ounces at a total cash cost of $198 per
ounce in 1999 and 127,600 ounces at a total cash cost of $220 per ounce in 1998.
The increased production in 2000 primarily is due to the increase in Homestake's
ownership interest and higher dedicated leach pad production. Higher total cash
costs in 2000 reflect the processing of higher cost mill inventory, which had
accumulated in the prior year. The increased production and decrease in costs
during 1999 is due to an increase in the tonnage and grade of ore placed on the
dedicated leach pad and a significantly higher average grade of ore processed
through the mill.
At the Ruby Hill mine in Nevada, gold production increased to 125,200
ounces at a total cash cost of $106 per ounce in 2000 compared to 123,800 ounces
at a total cash cost of $104 per ounce in 1999 and 116,500 ounces at a total
cash cost of $122 per ounce in 1998. Higher production in 2000 primarily
reflects higher tons processed.
At the McLaughlin mine in northern California, production decreased to
107,800 ounces at a total cash cost of $235 per ounce in 2000 compared to
121,500 ounces at a total cash cost of $223 per ounce in 1999 and 128,700 ounces
at a total cash cost of $219 per ounce during 1998. Mining operations at the
McLaughlin mine were completed in 1996 and since that time the operation has
processed stockpiled ore through a conventional carbon-in-pulp circuit. The
lower production and higher cost per ounce in 2000 compared to 1999, and in 1999
compared to 1998 is due to the processing of lower grade ore as the higher-grade
stockpiles were depleted in the third quarter of 1999. Production and total cash
costs in 2001 are expected to be similar to 2000. At currently anticipated
production rates, the stockpiles are expected to be depleted in 2002.
At the Homestake mine in South Dakota, production in 2000 decreased to
170,900 ounces at a total cash cost of $268 per ounce from 212,700 ounces at a
total cash cost of $261 per ounce in 1999 and 277,400 ounces at a total cash
cost of $249 per ounce in 1998. The lower production and higher total cash costs
during 2000 reflect the completion of the processing of the lower-cost Open Cut
ore stockpile in December 1999. In 1998, the underground operations at the
Homestake mine were restructured, and as a result, the workforce was reduced by
450 employees, parts of the mine were closed and mining was concentrated on
substantially fewer production levels. Lower production and higher total cash
costs during 1999 compared to 1998 reflect lower Open Cut ore production. In the
first eight months of 2000, underground ore grades were lower and development
costs were higher than planned due to the discontinuous nature of the remaining
ore lodes. As a result of these conditions and the continued weakness in the
price of gold, a decision was made to implement a phased closure at the
Homestake mine. The new "mine-out" plan contemplates extraction of remaining
developed ore through December 2001. The Homestake mine is expected to produce
approximately 172,000 ounces in 2001 from the underground operations.
At the Marigold mine, the Company's 33% share of production in 2000
decreased to 21,800 ounces at a total cash cost of $247 per ounce compared to
24,700 ounces at a total cash cost of $207 per ounce in 1999 and 24,000 ounces
at a total cash cost of $235 per ounce in 1998. Lower production and higher
costs in 2000 compared to 1999 reflect additional waste stripping. In 2001,
production is expected to increase slightly and cash costs to decline
significantly compared to 2000.
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<Page>
SOUTH AMERICA
Homestake's share of production at its 51%-owned Agua de la Falda mine
amounted to 22,900 ounces of gold at an average total cash cost of $207 per
ounce in 2000 compared to 24,400 ounces at a total cash cost of $189 per ounce
in 1999 and 24,100 ounces at a total cash cost of $198 per ounce in 1998.
Production decreased in 2000 primarily due to lower grade ore, and cash cost per
ounce increased primarily due to lower production and higher processing costs.
OTHER INCOME (LOSS) of $(19) million in 2000 compares to $42 million in 1999 and
$(23.6) million in 1998. Other income (loss) for the years ended December 31,
2000, 1999, and 1998 includes income (losses) of $(16.6) million, $15.8 million,
and $(34.3) million, respectively, related to the Company's Foreign Currency
Protection Program (see "Foreign Currency, Gold and Other Commitments"). Other
income for the years ended December 31, 2000, 1999, and 1998 also includes
foreign currency exchange gains (losses) of $(18.2) million, $10.9 million, and
$(4.4) million, respectively, related to intercompany advances. The intercompany
advances were established between the US parent company and its Australian and
Canadian subsidiaries to finance corporate acquisitions and capital development
projects.
Foreign currency gains and losses recorded under the Foreign Currency
Protection Program and with respect to the intercompany advances are due to
movements in the Australian and Canadian currencies in relation to the United
States dollar. Generally, a strengthening of either of the Australian and
Canadian currencies results in foreign currency exchange gains, whereas a
weakening of either of these currencies results in foreign exchange losses. The
average annual Australian/United States exchange rate during 2000, 1999 and 1998
was 0.582, 0.640 and 0.630, and the December 31, 2000, 1999 and 1998 closing
rate was 0.559, 0.654 and 0.611, respectively. The average annual
Canadian/United States exchange rate during 2000, 1999 and 1998 was 0.673, 0.679
and 0.675, and the December 31, 2000, 1999 and 1998 closing rate was 0.667,
0.693 and 0.653, respectively.
Other income in 2000, 1999 and 1998 also includes gains on investments and
asset disposals of $8.3 million, $4.2 million and $8.9 million, respectively.
Gains on investments and asset disposals primarily relate to the purchase and
sale of securities in the Grantor Trust established to fund nonqualified
retirement benefits and deferred compensation plans, and the disposal of
redundant equipment and mining properties.
DEPRECIATION, DEPLETION AND AMORTIZATION decreased to $145.2 million during 2000
from $151.7 million during 1999 and $161.8 million during 1998. The lower
depreciation expense in 2000 primarily is due to an increase in proven and
probable reserves at the Plutonic mine, partially offset by increased production
at the Eskay Creek mine, which has a relatively high noncash charge per ounce,
additional depreciation of $3.3 million associated with the new owner-mining
fleet at the Kalgoorlie operations and the impact of the 3% increase in gold
production. Depreciation expense decreased in 1999 primarily as a result of an
increase in proven and probable reserves at the Plutonic mine and the asset
write-downs recorded in 1999 and 1998.
ADMINISTRATIVE AND GENERAL EXPENSE declined to $37.9 million during 2000 from
$42 million during 1999 and $46.8 million during 1998. Reduced administrative
and general expenses in 2000 are the result of continuing cost reduction efforts
and benefits from the Company's over-funded pension plans.
72
<Page>
EXPLORATION EXPENSE increased to $50.5 million in 2000 compared to $39.5 million
in 1999 and $59.9 million in 1998. 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. The increased exploration
spending levels reflect increased exploration activity at the Veladero project,
partially offset by a general reduction in exploration spending consistent with
general gold industry trends and a refocus of exploration efforts following the
acquisitions of Plutonic in 1998 and Argentina Gold in 1999. Homestake is
concentrating exploration activities on existing major projects and on the
extensive land packages in prime gold belts associated with its recent
acquisitions. The Company currently plans to spend approximately $42 million on
exploration activities during 2001, including $20 million on the Veladero
project. The remainder of 2001 spending is planned primarily around existing
operations and on advanced exploration projects that have the greatest prospect
of creating commercially viable mines
RECLAMATION, REMEDIATION, WRITE-DOWNS AND OTHER UNUSUAL CHARGES during 2000,
1999 and 1998 were $70.6 million, $20.4 million and $213.8 million,
respectively. See Note 5 to the consolidated financial statements for details on
write-downs and other unusual charges.
Included in write-downs and other unusual charges were resource asset
write-downs of $28.0 million, $11.7 million and $151.6 million in 2000, 1999,
and 1998, respectively.
Since 1998, the Company has recorded various asset impairments and
severance costs relating to the restructuring of the operations of the Homestake
mine in South Dakota, which forms part of the Company's North American operating
segment. At the time of these impairments, the mine was expected to continue in
operation and accordingly the write-downs of the operation's assets in 2000,
1999 and 1998 were accounted for under the assets held for use model of
Statement of Financial Accounting Standard (SFAS) 121. The mine continues to be
operated as expected following the latest restructuring of operations in 2000,
with mining efforts concentrating on the higher-grade developed sections of the
underground mine. Mining operations are currently scheduled to cease by December
2001.
In 1998, following an underground seismic event, the Company recorded an
impairment charge and severance costs at its Mt Charlotte mine, in Kalgoorlie,
Western Australia, which forms part of the Company's Australian operating
segment. The seismic event resulted in various sections of the mine becoming
unstable and accordingly mining activities were restricted to accessing ore from
the lower risk areas of the mine. The resulting reduction in recoverable ounces
and negative impact on cash flow resulted in an asset impairment charge being
recorded and accounted for under the assets held for use model of SFAS 121. The
mine continues to operate as expected. Mining operations are currently scheduled
to cease by December 2001.
Since 1998, the Company has recorded various impairment charges relating
to non-operating properties acquired as part of the Plutonic acquisition, which
forms part of the Company's Australian operating segment. The Company has
continued to evaluate these non-operating properties since acquisition and has
recorded impairments in the periods in which events or circumstances change
indicating that the capitalized costs would not be recoverable. These assets
were held for expected use, however following the write downs they have now
either been put up for sale, abandoned, or held in the hope that some other
party would be interested in spending funds on them in the future.
The Company reduced the carrying values of certain mineral properties
acquired as part of the Argentina Gold acquisition, following receipt of
drilling results that indicated that further
73
<Page>
exploration expenditure was unwarranted, and termination of exploration
activities by the Company's joint venture partners who were the operators of the
joint ventures. Based on drilling results to date, the Company does not expect
to realize any value from the properties, however continues to hold these
properties in the hope of future third party interest.
On September 11, 2000, the Company announced a phased closure of the
Homestake mine in South Dakota that contemplates completion of operations by
December 2001. In connection with the planned closure, the Company recorded a
$23 million provision for employee termination benefits and other exit costs.
During 2001, the workforce will be reduced, from the then current level of 366
employees, to approximately 40 by no later than December 2001. Reclamation and
remediation activities will continue for a number of years. The Company expects
to spend approximately $65.1 million on final reclamation and remediation of the
Homestake mine, of which $50.2 million had been accrued at December 31, 2000.
In January 1998, the Company commenced a restructuring of underground
operations at the Homestake mine and recorded severance and other costs of $8.9
million.
During 2000, following a review of its reclamation liabilities, the
Company recorded a charge of $16.2 million to increase reclamation accruals for
certain non-operating properties. These charges include $10 million for the
former uranium mill site near Grants, New Mexico, $2.4 million related to
Whitewood Creek in South Dakota, $2.0 million for the Cullaton Lake mine in
Nunavut, Canada, $1.5 million for the Bulldog mine in Colorado, and $270,000 for
other non-operating properties. Increased cost estimates for future reclamation
reflect changes in the scope and expected cost of the required reclamation and
closure activities identified during 2000.
During 1999, the Company recorded unusual charges of $5.2 million to
increase the estimated reclamation liability for certain non-operating
properties in Australia following an environmental audit of those properties. In
1998, following an environmental audit at the Homestake mine and a change in
that operation's mining plan, the Company recorded a provision for estimated
additional remediation and related reclamation of $35 million.
Write-downs and unusual charges for 1999 include a $3.5 million write-down
to the carrying value of the Company's investment in an exploration joint
venture in Eastern Europe following a decision to exit the venture.
During 1998, the Company recorded write-downs and unusual charges of $8.2
million to decrease the carrying values of certain marketable securities and
other investments that it deemed to be other than temporary.
INCOME TAXES: During 2000, Homestake recorded tax expense of $12.6 million,
compared to tax expense of $10.4 million in 1999 and a tax benefit of $20.4
million in 1998. Homestake's effective income tax rate was negative 12.6% during
2000 compared to a negative 463.0% in 1999 and 7.8% in 1998, respectively. The
geographic mix of pretax income and losses dramatically impacts the Company's
overall effective tax rate. During 2000, the Company had pretax losses of $21.4
million in the United States, $22.2 million in Canada, $27.8 million in
Australia and $28.2 million in South America. Homestake recorded tax expense of
$9.4 million in the United States, $461,000 in Canada and $2.6 million in
Australia. In 2000, no tax benefit was recognized on losses incurred in South
American jurisdictions due to the uncertainty of their realization.
74
<Page>
The losses from discontinued sulfur operations in 2000, 1999 and 1998 of
$15.3 million, $4.4 million and $3.9 million, respectively, are net of the
related tax benefits of $141,000, $597,000 and $1.3 million.
The statutory tax rate in the United States is 35%. However, the Company
expects to be subject to the 20% Alternative Minimum Tax, which can be reduced
by 90% through the use of foreign tax credits. The Company's effective United
States tax rate was negative 43.7% in 2000 reflecting foreign withholding taxes
on intercompany interest income and changes in prior year accruals. The Canadian
statutory tax rate, including federal and provincial income taxes, is
approximately 48.3%. The Company's effective Canadian tax rate in 2000 was
negative 2.1%, primarily due to depreciation expense recorded in the financial
statements that is not deductible for tax purposes, partially offset by the
deferred tax benefit from reduced Ontario income tax rates which were enacted
during the year. In December 1999, the Australian government reduced corporate
tax rates to 34% for the fiscal year beginning July 1, 2000 (calendar year 2000
for Homestake) and to 30% thereafter. The Company's effective Australian tax
rate was 9.5%, reflecting expenses recorded in the financial statements that are
not deductible for tax purposes and valuation allowances on net deferred tax
assets.
At December 31, 2000, 1999 and 1998 the Company had valuation allowances
related to its deferred tax assets of $274.7 million, $315.0 million and $217.5
million, respectively. Future tax benefits for United States, Australia and
South America have not been recognized because realization of these benefits is
uncertain. In addition, there currently is not a strategy that would result in
the realization of certain Australian and Canadian deferred tax assets.
MINORITY INTERESTS: Losses allocable to minority interests in consolidated
subsidiaries amounted to $3.1 million in 2000 compared to $1.4 million in 1999
and income allocable to minority interests of $3.2 million in 1998. The
increases in losses allocable to minority interests in 2000 compared to 1999
primarily reflects the minority interest's share of write-downs to certain
assets of Lachlan Resources NL, an 81.2% owned subsidiary of Homestake. The
reduction in income allocable to minority interests in 1999 from 1998 is due to
the December 1998 acquisition of the Prime minority interests. Minority
interests' share of net assets increased during 1999 as a result of additional
assets contributed to the Agua de la Falda joint venture ("Agua") by Agua's 49%
shareholder, Codelco, partially offset by the allocation of losses to minority
interests, resulting primarily from exploration and prefeasibility expenditures
in excess of the joint venture operating earnings.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $199.7 million at the end of 2000
compared with $266.6 million at the end of 1999, a decrease of $66.9 million.
Net cash provided by continuing operations in 2000 amounted to $119.2 million
compared to $122.1 million and $114 million in 1999 and 1998, respectively. The
decrease in cash provided by continuing operations in 2000 reflects higher
exploration expenditures and lower gold prices partially offset by improved
operating performance and changes in working capital. The increase in cash
provided by continuing operations during 1999 from 1998 reflects improved
operating performance and $35 million of proceeds related to the early close out
of forward sales contracts, partially offset by the effect of lower gold prices.
Net cash used by discontinued operations amounted to $5.7 million in 2000
compared to net cash used by discontinued operations of $4.7 million in 1999 and
net cash provided by discontinued operations of $1.0 million in 1998.
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Total debt outstanding, including capital lease obligations, was $227.4
million at December 31, 2000 compared to $315.7 million at December 31, 1999.
The Company has a cross-border credit facility ("Credit Facility")
providing a total availability of $430 million. The Credit Facility is available
through July 14, 2003 and provides for borrowings in United States, Canadian or
Australian dollars, gold, or a combination of these. At December 31, 2000,
borrowings outstanding under the Credit Facility consisted of Canadian
dollar-denominated borrowings of $148.9 million (C$223.4 million). The Company
pays a commitment fee on the unused portion of the Credit Facility ranging from
0.15% to 0.35% per annum, depending upon rating agencies' ranking for the
Company's senior debt. The credit agreement requires, among other provisions, a
minimum consolidated net worth, as defined in the agreement (primarily
shareholders' equity plus the amount of all noncash write-downs made after
December 31, 1997), of $500 million. Interest on the Canadian dollar borrowings
is payable quarterly based on the Bankers' Acceptance discount rate plus a
stamping fee. At December 31, 2000 and 1999, this rate was 6.95% and 6.17%,
respectively.
The Company has entered into capital leases to finance its portion of
mining equipment purchases at the Kalgoorlie operations. Leased assets of $21.5
million are included in property, plant and equipment at December 31, 2000.
Long-term debt repayments, net of borrowings, amounted to $87.9 million in
2000, compared to $74.5 million in 1999 and $8.1 million in 1998. Net debt
repayments in 2000 include the redemption of the remaining outstanding $135
million of the 5.5% convertible subordinated notes ("Convertible Notes") which
matured on June 23, 2000. The repayment of the Convertible Notes was financed
from existing cash balances and Canadian dollar-denominated borrowings of $99.2
million (C$149.5 million) drawn under the Credit Facility. In addition, during
November 2000, the Company repaid $50 million of Canadian denominated borrowings
under the credit facility from existing cash balances. During 2000 and 1999, the
Company also received $6.7 million and $23 million, respectively, of capital
lease proceeds related to additional owner-mining equipment at Kalgoorlie. In
1999, the Company repaid $149.6 million of Australian dollar-denominated
borrowings under the Credit Facility and $10 million of South Dakota pollution
control bonds and repurchased $15 million of Convertible Notes. The 1999 debt
repayments were made from existing cash and short-term investment balances and
by Canadian dollar-denominated borrowings of $99.8 million (C$150 million) under
the Credit Facility.
Effective July 1, 2000, Homestake acquired Case Pomeroy & Company, Inc's
("Case") 25% interest in the Round Mountain mine for $42.6 million. The
transaction was effected by Homestake purchasing 100% of the shares of Bargold
Corporation, a wholly-owned subsidiary of Case. Purchase consideration consisted
of 2.6 million newly issued Homestake common shares and $25.9 million in cash.
The transaction was accounted for as a purchase with the purchase price
allocated $3.4 million for net working capital and $44.7 million for property,
plant and equipment, less $5.5 million for reclamation obligations assumed.
In December 1998, Homestake purchased, for common stock, the 49.4%
interest in Prime it did not already own. The total acquisition cost was $321.8
million (including $4 million of capitalized direct acquisition costs). The
excess of the purchase price paid over the value of the minority interests
acquired was $224 million of which $174 million ($259.6 million including an
increase related to deferred taxes) was allocated to the Eskay Creek mine's ore
reserves and $50
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million ($74.6 million including an increase related to deferred taxes) was
allocated to Eskay Creek exploration properties.
Capital expenditures of $69.9 million in 2000 include $33.9 million at the
Yilgarn operations primarily for underground development work, development
drilling and camp upgrades, $14.8 million at the Kalgoorlie operations primarily
for a flotation circuit upgrade and to acquire additional equipment for owner
mining, and $5.6 million at the Eskay Creek mine for a new tailings pipeline and
other capital improvements. The remaining expenditures primarily were for
sustaining capital to maintain existing production capacity.
On September 11, 2000 ("the commitment date"), the Company announced a
phased closure of the Homestake mine in South Dakota that contemplated
completion of operations by no later than December 2001. In accordance with the
provisions of EITF 94-3, the Company only recorded as a liability at the
commitment date a provision for restructuring costs that were incremental to
other costs incurred by the Company in its operation of the Homestake mine and
that will be incurred as a direct result of the restructuring. Consistent with
EITF 94-3 and other authoritative literature, the Company was unable to
recognize unaccrued reclamation of $18.7 million, employee retention costs and
severance benefits attributable to future service at the date of the
restructuring. The Company's accounting policy is to accrue post-closure
reclamation obligations on a units-of-production method based upon estimated
quantities of ore which can be recovered economically in the future from known
mineral deposits. Although the Company announced a phased closure of the
Homestake mine, the asset is still in use and, accordingly, the unaccrued
portion of the estimated post-closure reclamation liability, at the commitment
date, will be accrued on a units-of-production basis over the remaining reserves
to be produced. These costs are not considered incremental and do not result
from the restructuring plan and therefore were not recorded as a liability at
the commitment date. Future revenues and operating costs, including stay
bonuses, will be recognized as incurred throughout the remaining term of the
operations plan at the Homestake mine.
The restructuring is not expected to have a material impact on the
Company's liquidity or capital resources. Prior to the restructuring, forecasted
cash flows from the Homestake Mine, excluding cash outflows for reclamation,
were close to break even. Under the mine out plan, forecasted cash flows
continue to be close to break even.
The Company's reclamation obligation at the Homestake Mine was largely
unchanged as a result of the restructuring, and the only impact the
restructuring had on the Company's forecasted cash out-flows for reclamation is
an acceleration of the timing of reclamation spending, with the majority of the
reclamation expenditures being incurred in the three years following mine
closure. The Company intends to fund reclamation expenditures from operating
cash flow and existing cash resources.
Severance and other employee benefits to be provided to Homestake Mine
employees that are to be terminated will primarily be made from the existing,
unrecognized surplus in the Company's defined benefit pension plans, and
accordingly these payments will have no impact on the liquidity and capital
resources of the Company. During 2001, the workforce will be reduced from the
December 31, 2000 level of 322 employees, to approximately 40 by no later than
December 2001.
There were no other payments made, or expected to be made as a result of
the restructuring that would have a material impact on the Company's liquidity
and capital resources.
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In addition to sustaining capital, planned capital expenditures of
approximately $80 million during 2001 include approximately $26.2 million at the
Yilgarn operations to convert the Darlot mine to owner-mining and for
underground development, $17.5 million at the Round Mountain mine primarily to
replace the mining equipment fleet, $11.3 million at the Kalgoorlie operations
primarily for mining equipment, Gidji roaster upgrades and infrastructure
relocation, $9.9 million at the Eskay Creek mine for ramp development and
facilities upgrades, and $8.5 million at the Hemlo operations primarily for
mobile mining equipment and construction of a paste-fill plant.
At December 31, 2000, the Company had an outstanding purchase commitment
of $9.0 million dollars representing its 50% share of the purchase of a new
fleet of eight 240-ton trucks at the Round Mountain mine.
During the fourth quarter 2000, Homestake paid a dividend of $0.025 per
share.
The Company paid cash income taxes, net of refunds, of $18.3 million in
2000, consisting primarily of Canadian taxes.
Future results will be impacted by such factors as the market price of
gold and to a lesser extent, silver, the Company's ability to expand its ore
reserves, and fluctuations of foreign currency exchange rates. The Company
believes that the combination of cash, short-term investments, available lines
of credit and future cash flows from operations will be sufficient to meet
normal operating requirements, planned capital expenditures, and anticipated
dividends.
FOREIGN CURRENCY, GOLD AND OTHER COMMITMENTS
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. Homestake does not hold or
issue financial instruments or derivative financial instruments for trading
purposes or to create hedge positions in excess of forecast identifiable
exposures.
During 2000, 1999 and 1998 the Company delivered or financially settled
315,100, 449,980 and 1,258,000 ounces of gold at average prices of $328, $327
and $335 per ounce, respectively, under maturing forward sales and option
contracts. During 2000, the Company closed out and financially settled its
remaining US dollar denominated silver forward sales contracts covering 3.6
million ounces maturing in 2000 and 2001 and Australian dollar denominated
option contracts covering 884,000 ounces of gold expiring in years 2001 through
2004. The pretax gains of $4.2 million resulting from these transactions have
been deferred and are being recorded in income as the originally designated
production is sold. In 1999, the Company also delivered or financially settled
option contracts for 3.1 million ounces of silver at an average price of $6.35
per ounce. In July 1999, the Company closed out and financially settled US
dollar denominated forward sales gold contracts covering 245,000 ounces 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. The estimated fair value of the
Company's remaining gold and silver hedging position at December 31, 2000 was
approximately $43.3 million. At December 31, 2000, Homestake's gold hedging
program covered approximately 8% of its proven and probable reserves and
contained no exposure to floating lease rates or margin call requirements.
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Under the Company's foreign currency protection program, the Company has
entered into 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. Realized and unrealized gains and losses on this program
are recorded in other income. In July 2000, the Company discontinued its foreign
currency protection program. At December 31, 2000 the Company had recorded net
unrealized losses of $4.2 million on the remaining open contracts under this
program. Option contracts outstanding at December 31, 2000 are expected to
remain in place until maturity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 was amended in June 2000 with the
issuance of SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS 133, which the company adopted effective January 1,
2001, requires that derivatives be recognized as assets or liabilities and be
measured at fair value. Gains or losses resulting from changes in the fair value
of derivatives in each period are to be accounted for either in current earnings
or other comprehensive income depending on the use of the derivatives and
whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in the fair value or cash flows of the hedging
instruments and the hedged items.
Foreign currency derivatives are currently marked-to-market with the
change in fair value included in earnings. In July 2000, the Company
discontinued its foreign currency protection program. Contracts outstanding at
December 31, 2000 are expected to remain in place until maturity. Gains and
losses resulting from changes in the fair value of these contracts will continue
to be recorded in earnings each period after adoption of SFAS 133. At December
31, 2000, the Company's gold hedging contracts, used to reduce exposure to
precious metal prices, consisted entirely of forward sales contracts. The
Company intends to physically deliver metals in accordance with the terms of
these forward sales contracts. Under SFAS 133, as amended by SFAS 138, the
Company expects these forward sales contracts will qualify for the normal
purchases and sales exemption. Accordingly, adoption of SFAS 133 at December 31,
2000 would have had no impact to the financial statements.
See notes 2 and 19 to the consolidated financial statements for additional
information regarding the Company's hedging programs.
RISKS AND UNCERTAINTIES
Homestake's operations are affected by the quantity of metals produced,
market prices of gold, and to a lesser extent silver, operating costs, interest
rates on borrowings and investments, and exploration spending levels. The market
price for gold is affected by a worldwide market. Gold 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 rates 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, speculation, and sales by holders and producers of gold in
response to these factors. In addition, because Homestake operates
internationally, exposure also exists with respect to fluctuations in currency
exchange rates, political risk and levels of taxation. Homestake attempts to
manage its exposures to these risks through hedging programs and by maintaining
appropriate levels of liquidity and leverage.
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The Company competes with other mining companies for exploration
properties, mining claims, joint-venture agreements and for the acquisition of
gold mining assets. Such competition could increase the difficulty of acquiring
assets on terms acceptable to Homestake.
Homestake's estimates of its remediation and reclamation obligations are
based on currently available facts, existing technology and presently enacted
laws and regulations. Environmental laws and regulations are continually
changing in all regions in which Homestake operates. It is not possible to
determine the impact of future changes in environmental laws and regulations on
Homestake's future financial position because of uncertainty surrounding the
form such changes may take. The Company regularly reviews these obligations.
However, it is reasonably possible that as reclamation plans and associated cost
estimates change, the Company's remediation and reclamation liability could
change significantly.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT'S
EXPECTATIONS AND ASSUMPTIONS. THEY INCLUDE STATEMENTS PRECEDED BY THE WORDS
"BELIEVE," "ESTIMATE," "EXPECT," "INTEND," "WILL," AND SIMILAR EXPRESSIONS, AND
ESTIMATES OF RESERVES, FUTURE PRODUCTION AND MINE LIFE, COSTS PER OUNCE,
RECLAMATION AND REMEDIATION COSTS, DATES OF CONSTRUCTION COMPLETION, COSTS OF
CAPITAL PROJECTS AND COMMENCEMENT OF OPERATIONS, EXPLORATION COSTS AND TAXES.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM EXPECTATIONS.
AMONG THE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY ARE THE FOLLOWING. RESERVE ESTIMATION IS AN INTERPRETIVE PROCESS
BASED ON DRILLING RESULTS AND PAST EXPERIENCE AS WELL AS ESTIMATES OF ORE
CHARACTERISTICS AND MINING DILUTION, PRICES, COSTS OF MINING AND PROCESSING,
CAPITAL EXPENDITURES AND MANY OTHER FACTORS. ACTUAL QUALITY, QUANTITY AND
CHARACTERISTICS OF ORE DEPOSITS CANNOT BE KNOWN UNTIL ORE IS ACTUALLY MINED.
RESERVE ESTIMATES CHANGE OVER TIME TO REFLECT ACTUAL EXPERIENCE. GRADES OF ORE
PROCESSED AT ANY TIME ALSO MAY VARY FROM RESERVE ESTIMATES DUE TO GEOLOGIC
VARIATIONS WITHIN AREAS MINED. PRODUCTION AND MINE LIVES MAY VARY FROM ESTIMATES
FOR PARTICULAR PROPERTIES AND FOR THE COMPANY AS A WHOLE BECAUSE OF CHANGES IN
RESERVES, VARIATIONS IN ORE MINED FROM ESTIMATED GRADE AND METALLURGICAL
CHARACTERISTICS, UNEXPECTED GROUND CONDITIONS, MINING DILUTION, LABOR ACTIONS,
GOVERNMENT RESTRICTIONS, AND GENERAL ECONOMIC CONDITIONS. TOTAL CASH COSTS MAY
VARY DUE TO CHANGES FROM RESERVE AND PRODUCTION ESTIMATES, UNEXPECTED MINING
CONDITIONS, AND CHANGES IN ESTIMATED COSTS OF EQUIPMENT, SUPPLIES, UTILITIES,
LABOR COSTS AND EXCHANGE RATES. NONCASH COST ESTIMATES, BASED ON TOTAL CAPITAL
COSTS AND RESERVE ESTIMATES, CHANGE BASED ON ACTUAL AMOUNTS OF UNAMORTIZED
CAPITAL, CHANGES IN ESTIMATES OF FINAL RECLAMATION, AND CHANGES IN RESERVES.
RECLAMATION AND REMEDIATION COST ESTIMATES ARE BASED ON EXISTING AND EXPECTED
LEGAL REQUIREMENTS, PAST EXPERIENCE, COST ESTIMATES BY THE COMPANY AND OTHERS,
AND EXPECTATIONS REGARDING GOVERNMENT ACTION AND TIME FOR GOVERNMENT AGENCIES TO
ACT, ALL OF WHICH CHANGE OVER TIME AND REQUIRE PERIODIC RE-EVALUATION. CAPITAL
COST ESTIMATES ARE BASED ON OPERATING EXPERIENCE, RESERVE ESTIMATES AND EXPECTED
PRODUCTION RATES, ESTIMATES BY AND CONTRACT TERMS WITH THIRD-PARTY SUPPLIERS,
EXPECTED LEGAL REQUIREMENTS, FEASIBILITY REPORTS BY COMPANY PERSONNEL AND
OTHERS, AND OTHER FACTORS. FACTORS INVOLVED IN ESTIMATED TIME FOR COMPLETION OF
PROJECTS INCLUDE THE COMPANY'S EXPERIENCE IN COMPLETING CAPITAL PROJECTS,
ESTIMATES BY AND CONTRACT TERMS WITH CONTRACTORS, ENGINEERS, SUPPLIERS AND
OTHERS INVOLVED IN DESIGN AND CONSTRUCTION OF PROJECTS, AND ESTIMATED TIME FOR
THE GOVERNMENT TO PROCESS APPLICATIONS, ISSUE PERMITS AND TAKE OTHER ACTIONS.
CHANGES IN ANY FACTOR MAY CAUSE COSTS AND TIME FOR COMPLETION TO VARY
SIGNIFICANTLY FROM ESTIMATES. THERE IS A GREATER LIKELIHOOD OF VARIATION FOR
PROPERTIES AND FACILITIES NOT YET IN PRODUCTION DUE TO LACK OF ACTUAL
EXPERIENCE. EXPLORATION COST ESTIMATES ARE BASED ON PAST EXPERIENCE, ESTIMATED
LEVELS OF FUTURE ACTIVITY AND ASSUMPTIONS REGARDING RESULTS ON A PARTICULAR
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PROPERTY AND CHANGE BASED ON ACTUAL EXPLORATION RESULTS (INCREASING OR
DECREASING EXPENDITURES), CHANGED CONDITIONS AND PROPERTY ACQUISITIONS AND
DISPOSITIONS. TAX ESTIMATES REFLECT EXPECTATIONS REGARDING GEOGRAPHIC SOURCES OF
INCOME, LOCATIONS OF EXPENDITURES AND EXPECTED TAX RATES IN EACH JURISDICTION,
AND CHANGE AS THE MIX OF INCOME, EXPENDITURES AND TAX RATES CHANGE.
ITEM - 7 (a) MARKET RISK DISCLOSURES
See notes 2 and 19 to the consolidated financial statements at December
31, 2000 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 a number of 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.
The Company's precious metals hedging policy governs all of its precious
metals hedging activities. Any changes to such policy must be approved by the
Company's Board of Directors. The objective of the Company's precious metals
hedging activities is to i) insure a minimum price for a specified portion of
future gold production, and ii) enhance revenues from the sale of a specified
portion of future gold production by taking advantage of the forward price
premium (contango) usually available in the market. In the case of gold the
contango is the positive difference between the spot market gold price and the
forward market gold price. It is often expressed as an interest rate and is the
difference between the inter-bank deposit rates and gold lease rates. Through
prudent and limited use of hedging, the Company has delivered a realized gold
price consistently above market levels, outperforming the spot price of gold
over the past four years by an average of $15 per ounce.
In general, the Company'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. However, in the case of gold hedging, the Chief Executive
Officer has the authority to authorize sales of up to an additional 300,000
ounces per year if approved by the Board of Directors. In addition to forward
sales contracts, the policy also provides for the use of combinations of put and
call option contracts to establish minimum floor prices. The Company does not
hold or issue financial instruments or derivative financial instruments for
trading purposes or to create hedge positions in excess of forecast identifiable
exposures.
The Company has well established hedging practices that are reviewed and
approved by the finance committee and the board of directors. The Company's Gold
Hedging Management Committee, chaired by the Chief Executive Officer and
including the Chief Financial Officer, the Controller, the Treasurer, the Vice
President, North American Operations and the Vice President, Australia, is
responsible for the overseeing the Company's precious metals hedging program and
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authorizing specific hedging strategies. A report on the Company's hedge
position is prepared each month and distributed to the Gold Hedging Management
Committee by the Company's treasury group. This report summarizes the Company's
outstanding hedge position the end of the month (including aggregate hedge
volume vs. policy maximum, type of contract and key terms and mark-to-market
value) as well as all new hedge positions added during the month. The Company's
Board of Directors also receives a report on the Company's hedge position at
each of its regularly scheduled meetings. Hedging execution is limited to a
small group authorized individuals. Furthermore, on the day that a hedge trade
is executed, a detailed hedge transaction report is prepared by the Company's
treasury group and distributed to Chief Financial Officer and Controller.
As of December 31, 2000, the Company has gold hedging arrangements in
place with four counterparties, each of which has at least an A credit rating.
Each of these hedging counterparties are well-established bullion banks or large
commercial banks with a significant presence in the bullion trading market. To
reduce exposure to defaults by counterparties, the Company diversifies its
hedging arrangements across a number of counterparties and regularly monitors
each counterparties' credit rating. To date, all of the Company's counterparties
have fully performed under their obligations to such arrangements.
As of December 31, 2000 the Company's had gold forward sales contracts
outstanding as follows:
<Table>
<Caption>
Fair
Value
Expected Maturity or Transaction Date (US$
TOTAL OR MILLIONS)
2001 2002 2003 2004 2005 THEREAFTER AVERAGE (2)
---- ---- ---- ---- ---- ---------- ------- ---
US $ DENOMINATED
CONTRACTS:
Forward sales
contracts:
Ounces 10,000 10,000 -- -- 90,000 559,200 669,200
Average price
(US$ per oz.) (1) $ 400 $ 403 $ -- $ -- $ 400 $ 418 $ 415 $ 31.1
A$ DENOMINATED
CONTRACTS:
Forward sales
contracts:
Ounces 300,000 264,800 144,800 228,800 26,000 -- 964,400
Average price
(AU$ per oz.) (1) $ 519 $ 548 $ 567 $ 592 $ 526 $ -- $ 551
Average price
(US$ per oz.) (1) $ 290 $ 306 $ 317 $ 331 $ 294 $ -- $ 308 $ 12.2
% of expected annual
production 13% 14%
</Table>
(1) Expressed in US dollars at December 31, 2000 exchange rate of A$=
US$ 0.5588
(2) Fair values are based on market quotations for similar financial
instruments
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As of December 31, 2000, the estimated fair value of the Company's
outstanding hedge positions was approximately $43 million. There are no unusual
features on any of the Company's hedges that can materially affect either the
fair value of the contracts or the expected performance of the contracts.
Furthermore, the Company has no margin requirements at any price. The estimated
fair value of the Company's outstanding hedge positions may be impacted by
future changes in the spot price of gold, interest rates, gold lease rates and
the spot currency rate in which Australian dollars can be exchanged for US
dollars. The following is a summary of the estimated fair value sensitivities
with respect to each of the above changes as of December 31, 2000:
<Table>
<Caption>
IMPACT ON ESTIMATED FAIR VALUE
AS OF DECEMBER 31, 2000
INCREASE (DECREASE)
(US$ MILLIONS)
US$1/oz increase in spot
gold price: ($1.5)
0.1% decline in interest
rates: $1.5
US$ 0.01 decrease in A$
exchange rate ($4.7)
0.1% rise in gold lease
rates: $1.3
</Table>
During 2000, the Company closed out and financially settled its
then-remaining US dollar-denominated silver forward sales contracts covering 3.6
million ounces maturing in 2000 and 2001 and US and Australian-dollar
denominated option contracts covering 884,000 ounces of gold expiring in 2001
through 2004. The pretax gains of $4.2 million realized as a result of these
transactions has been deferred are being recorded in income as the originally
designated production is sold.
FOREIGN CURRENCY RISK DISCLOSURES
Significant portions of the Company's operations are located in Australia
and Canada. The Company's profitability is impacted by fluctuations in those
countries' currency exchange rates relative to the United States dollar. Under
the Company's foreign currency protection program, the Company has entered into
a series of foreign currency option contracts to minimize the effects of a
strengthening of either the Canadian or Australian currencies in relation to the
United States dollar. In July 2000, the Company discontinued its foreign
currency protection program. Option contracts outstanding at December 31, 2000
are expected to remain in place until maturity.
At December 31, 2000 the Company had Canadian and Australian foreign
currency option contracts outstanding as follows:
<Table>
<Caption>
Expected Maturity or Transaction Date
Total or Fair
2001 2002 Average Value (4)
----- ----- ------- ---------
(US$ IN MILLIONS)
Canadian $ / US $ option contracts: $ (0.1)
US $ covered $62.1 $62.1
Written puts, average exchange rate (1) 0.66 0.66
US $ covered $66.1 $66.1
Purchased calls , average exchange rate (2) 0.69 0.69
US $ covered $38.3 $38.3
Purchased puts, average exchange rate (3) 0.65 0.65
Australian $ / US $ option contracts: (4.1)
US $ covered $96.8 $33.0 $129.8
Written puts, average exchange rate (1) 0.65 0.68 0.66
US $ covered $96.8 $33.0 $129.8
Purchased calls , average exchange rate (2) 0.66 0.68 0.66
US $ covered $85.8 $33.0 $118.8
Purchased puts, average exchange rate (3) 0.64 0.65 0.64
</Table>
(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.
83
<Page>
(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.
At December 31, 2000 the Company had borrowings outstanding under its
cross-border credit facility ("Credit Facility") of $148.9 million. Interest on
these borrowings is payable quarterly, based upon the Bankers' Acceptance
Discount Rate plus a stamping fee. At December 31, 2000 and 1999 this rate was
6.95% and 6.17% respectively. If this rate had been 1% higher during 2000, the
Company's interest expense would have increased by $1.5 million. Conversely, if
this rate had been 1% lower during 2000, the Company's interest expense would
have decreased by $1.6 million.
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, 2000 (see
notes 13 and 16 to the consolidated financial statements at December 31, 2000).
The fair value of borrowings under the pollution control bonds and the Company's
Credit Facility have been estimated to approximate their carrying values as
these instruments bear interest at prevailing market rates. The Canadian
dollar-denominated borrowings under the 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.
84
<Page>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
85
<Page>
AMENDED CONSOLIDATED FINANCIAL STATEMENTS
HOMESTAKE MINING COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2000
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF HOMESTAKE MINING COMPANY:
In our opinion, the accompanying restated consolidated balance sheets and the
related restated consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows present fairly, in all material
respects the financial position of Homestake Mining Company and its subsidiaries
at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As more fully described in Notes 23 and 21, the Company restated its
consolidated financial statements for the years ended December 31, 2000, 1999
and 1998 to revise its depreciation and reclamation calculations, expense
previously capitalized costs and revise its segment information.
PricewaterhouseCoopers LLP
San Francisco, California
January 31, 2001, except for Notes 23 and 21, as to which the date is
November 7, 2001
2
<Page>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
REVENUES AND OTHER INCOME (As Restated) (As Restated) (As Restated)
Gold and ore sales $ 665,668 $ 671,572 $ 782,159
Interest income 20,106 16,344 19,426
Other income (loss) (note 4) (18,985) 41,956 (23,647)
- ---------------------------------------------------------------------------------------------------------------
666,789 729,872 777,938
- ---------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Production costs 440,397 451,472 513,549
Depreciation, depletion and amortization 145,169 151,728 161,803
Administrative and general expense 37,922 42,011 46,800
Exploration expense 50,500 39,511 59,865
Interest expense 19,511 17,827 20,884
Business combination and integration costs (note 3) -- 4,764 19,351
Reclamation and remediation charges (note 5) 16,166 5,185 36,000
Write-downs and other unusual charges (note 6) 54,399 15,230 177,813
Other expense 2,396 4,396 3,231
- ---------------------------------------------------------------------------------------------------------------
766,460 732,124 1,039,296
- ---------------------------------------------------------------------------------------------------------------
LOSS BEFORE TAXES AND MINORITY INTERESTS (99,671) (2,252) (261,358)
Income Taxes (note 8) (12,553) (10,426) 20,437
Minority Interests 3,125 1,395 (3,185)
- ---------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (109,099) (11,283) (244,106)
LOSS FROM DISCONTINUED OPERATIONS (15,346) (4,356) (3,909)
- ---------------------------------------------------------------------------------------------------------------
NET LOSS $(124,445) $ (15,639) $ (248,015)
- ---------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNTS - BASIC AND DILUTED:
Loss from continuing operations $ (0.42) $ (0.04) $ (1.05)
Loss from discontinued operations (0.06) (0.02) (0.02)
- ---------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (0.48) $ (0.06) $ (1.07)
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES USED IN THE COMPUTATION 261,692 259,964 231,747
- ---------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
3
<Page>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<Table>
<Caption>
DECEMBER 31, 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS (As Restated) (As Restated)
CURRENT ASSETS
Cash and equivalents $ 193,422 $ 130,273
Short-term investments 6,237 136,362
Receivables (note 9) 38,848 44,988
Inventories (note 10) 87,762 63,337
Deferred income taxes (note 8) 4,021 14,663
Other 1,915 7,479
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 332,205 397,102
PROPERTY, PLANT AND EQUIPMENT - NET (note 11) 926,380 1,081,645
INVESTMENTS AND OTHER ASSETS (note 12) 99,358 104,521
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,357,943 $ 1,583,268
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,779 $ 34,873
Accrued liabilities (note 13) 91,080 64,460
Current portion of deferred gain on close-out of forward sales contracts (note 19) 12,869 --
Income and other taxes payable 9,050 3,469
Current portion of long-term debt (note 14) 2,822 37,206
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 153,600 140,008
LONG-TERM LIABILITIES
Long-term debt (note 14) 224,616 278,494
Other long-term obligations (note 15) 221,856 187,250
- ----------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 446,472 465,744
DEFERRED GAIN ON CLOSE-OUT OF FORWARD SALES CONTRACTS (note 19) 22,223 34,956
DEFERRED INCOME TAXES (note 8) 180,089 205,982
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 10,375 13,800
SHAREHOLDERS' EQUITY (note 18)
Capital stock, $1 par value per preferred and common share:
Authorized - Preferred: 10,000 shares; no shares outstanding
- Common: 450,000 shares
Outstanding - HCI exchangeable shares: 2000 - 3,375; 1999 - 6,657
- Common: 2000 - 259,846; 1999 - 253,808 259,846 253,808
Additional paid-in capital 936,574 922,495
Deficit (555,999) (424,976)
Accumulated other comprehensive loss (95,237) (28,549)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 545,184 722,778
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,357,943 $ 1,583,268
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Commitments and Contingencies - see note 20
The accompanying notes are an integral part of these financial statements.
4
<Page>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (As Restated) (As Restated) (As Restated)
Net loss $(124,445) $ (15,639) $(248,015)
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 145,169 151,728 161,803
Deferred gains on close-out of forward sales contracts 4,184 34,956 --
Reclamation, remediation, write-downs and other unusual 70,565 20,415 204,934
charges (notes 5 and 6)
Unrealized foreign currency exchange (gains) losses
on intercompany debt (note 4) 16,236 (9,975) 5,671
Gains on investment sales and asset disposals (8,275) (4,155) (8,910)
Loss on discontinued operations 15,346 4,356 3,909
Deferred income taxes (note 8) (7,747) (14,786) (46,786)
Minority interests (3,125) (1,395) 3,185
Reclamation - net 11,411 (1,943) 1,859
Other items - net (6,910) 94 (8,475)
Effect of changes in operating working capital items:
Receivables 627 2,987 (8,566)
Inventories (31,684) 13,909 40,596
Accounts payable 5,058 (9,285) (15,081)
Accrued liabilities and taxes payable 20,190 (34,806) 16,679
Payroll and other 6,923 (8,572) 9,738
Prepaid expenses 5,564 (2,443) 4,164
Other 129 (3,380) (2,697)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 119,216 122,066 114,008
Net cash provided by (used in) discontinued operations (5,693) (4,727) 1,046
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 113,523 117,339 115,054
- -------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Decrease (increase) in short-term investments 130,125 19,069 (19,307)
Additions to property, plant and equipment (69,887) (104,927) (73,323)
Proceeds from sale-leaseback of equipment (note 20) 6,713 23,044 --
Acquisition of 25% interest in the Round Mountain mine (25,930) -- --
Proceeds from asset sales 7,783 6,309 15,606
Decrease in restricted cash 1,789 11,772 2,429
Investments in mining companies (873) -- 11,088
Other -- -- (135)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investment activities 49,720 (44,733) (63,642)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Borrowings 99,172 99,791 97,697
Debt repayments (187,096) (174,287) (105,747)
Dividends paid (6,578) (18,487) (22,494)
Common shares issued -- 6,707 3,399
Other -- -- 1,795
- -------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (94,502) (86,276) (25,350)
- -------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (5,592) (3,576) (7,433)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 63,149 (17,246) 18,629
CASH AND EQUIVALENTS, JANUARY 1 130,273 147,519 128,890
- -------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, DECEMBER 31 $ 193,422 $ 130,273 $ 147,519
- -------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
5
<Page>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
-----------------------------
ADDITIONAL RETAINED ACCUMULATED UNREALIZED
FOR THE YEARS ENDED COMMON PAID-IN EARNINGS TRANSLATION SECURITIES
DECEMBER 31, STOCK CAPITAL (DEFICIT) ADJUSTMENTS GAINS (LOSSES) TOTAL
--------- --------- ---------- ----------- -------------- --------
(As Restated) (As Restated) (As Restated)
BALANCES, DECEMBER 31, 1997 $ 228,743 $ 616,330 $ (121,381) $ (33,563) $ 1,827 $691,956
Comprehensive income:
Net loss (248,015) (248,015)
Other comprehensive income (loss) (32,291) 3,937 (28,354)
Dividends paid (21,454) (21,454)
Stock issued to employees and directors 250 2,911 3,161
Stock issued for acquisition of Plutonic
options and partly-paid shares (note 3) 503 (503) --
Stock issued in private placement 1,390 1,845 3,235
Exercise of stock options 34 (10) 24
Stock issued for purchase of Prime
minority interests (note 3):
Homestake common shares 16,672 173,843 190,515
HCI exchangeable shares 127,285 127,285
Other (109) (885) (994)
--------- --------- ---------- --------- ------- --------
BALANCES, DECEMBER 31, 1998 247,483 920,816 (390,850) (65,854) 5,764 717,359
Comprehensive income:
Net loss (15,639) (15,639)
Other comprehensive income 28,949 2,592 31,541
Dividends paid (18,487) (18,487)
Stock issued to employees and directors 254 2,016 2,270
Stock issued in exchange for
HCI exchangeable shares 4,482 (4,482) --
Stock issued in private placement 1,090 5,199 6,289
Exercise of stock options 499 (121) 378
Other (933) (933)
--------- --------- ---------- --------- ------- --------
BALANCES, DECEMBER 31, 1999 253,808 922,495 (424,976) (36,905) 8,356 722,778
Comprehensive income:
Net loss (124,445) (124,445)
Other comprehensive loss (59,710) (6,978) (66,688)
Dividends paid (6,578) (6,578)
Stock issued to employees and directors 265 2,272 2,537
Stock issued in exchange for
HCI exchangeable shares 3,282 (3,282) --
Shares issued on purchase of 25%
interest in Round Mountain (note 3) 2,600 14,137 16,737
Other (109) 952 843
--------- --------- ---------- --------- ------- --------
BALANCES, DECEMBER 31, 2000 $ 259,846 $ 936,574 $ (555,999) $ (96,615) $ 1,378 $545,184
========= ========= ========== ========= ======= ========
</Table>
The accompanying notes are an integral part of these financial statements.
6
<Page>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
(As Restated) (As Restated) (As Restated)
NET LOSS $(124,445) $(15,639) $(248,015)
- ---------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS)
Changes in unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 299 4,012 1,213
Less: Reclassification adjustments for gains (losses)
included in net income (loss) 7,029 1,033 (1,620)
- ---------------------------------------------------------------------------------------------------------------------
(6,730) 2,979 2,833
Income taxes (248) (387) 1,104
- ---------------------------------------------------------------------------------------------------------------------
(6,978) 2,592 3,937
Foreign currency translation adjustments (before and
after tax) (59,710) 28,949 (32,291)
- ---------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) (66,688) 31,541 (28,354)
- ---------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $(191,133) $ 15,902 $(276,369)
- ---------------------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these financial statements.
7
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, all tabular amounts are in thousands)
NOTE 1: NATURE OF OPERATIONS
Homestake Mining Company ("Homestake" or the "Company") is engaged in gold
mining and related activities including exploration, extraction,
processing, refining and reclamation. Gold bullion, the Company's
principal product, is produced and sold in the United States, Canada,
Australia and Chile. Ore and concentrates containing gold and silver from
the Eskay Creek mine in Canada are sold directly to smelters.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include
Homestake and its majority-owned subsidiaries, and their undivided
interests in joint ventures after elimination of intercompany amounts.
Undivided interests in mining properties (the Round Mountain and Marigold
mines in Nevada; the Kalgoorlie operations in Western Australia; the Hemlo
operations in Canada; and the Veladero project in Argentina) are reported
using pro rata consolidation whereby the Company reports its proportionate
share of assets, liabilities, income and expenses. These financial
statements have been restated; refer to footnote 21 and 23 for the
principal effects of this restatement.
USE OF ESTIMATES: The preparation of financial statements in conformity
with United States generally accepted accounting principals requires the
Company's management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the related
notes thereto. Actual results could differ from those estimates.
CASH AND EQUIVALENTS are stated at cost and consist of highly liquid
United States and foreign government and corporate investments with
original maturities of three months or less at the date of purchase. The
Company minimizes its credit risk by investing its cash and equivalents
with major international banks and financial institutions located
principally in the United States, Canada and Australia. The Company
believes that no concentration of credit risk exists with respect to the
investment of its cash and equivalents.
SHORT-TERM INVESTMENTS principally consist of highly liquid United States
and foreign government and corporate securities with original maturities
in excess of three months and current maturities of less than twelve
months from the balance sheet date. The Company classifies all short-term
investments as available-for-sale. Unrealized gains and losses on these
investments are recorded in accumulated other comprehensive income, a
separate component of shareholders' equity, except that declines in market
value judged to be other than temporary are recognized in determining net
income.
INVENTORIES, which include finished products, ore in process, stockpiled
ore, ore in transit, and supplies, are stated at the lower of cost or net
realizable value. The cost of gold produced by certain United States
operations is determined principally by the last-in, first-out method. The
cost of other inventories is determined primarily by averaging methods.
CAPITALIZED INTEREST: Interest expense allocable to the cost of
development of mining properties and to the construction of new facilities
is capitalized until the related asset is ready for its intended use.
Capitalized interest is determined by applying a weighted average interest
rate of borrowings outstanding during the period to the average amount of
accumulated expenditures for the asset during the period. Capitalized
interest is recorded as a component of the cost of the asset to which it
relates and is amortized on the same basis as the other components of
asset cost.
8
<Page>
EXPLORATION COSTS are expensed as incurred. All costs related to property
acquisitions are capitalized.
DEVELOPMENT COSTS: Following identification of proven and probable
reserves, development costs incurred to place new mines into production
and to complete major development projects at operating mines are
capitalized. Costs of start-up activities and ongoing costs to maintain
production are expensed as incurred.
DEPRECIATION, DEPLETION AND AMORTIZATION of mining properties, mine
development costs and major plant facilities is computed using the
units-of-production method based on proven and probable reserves. Such
estimates are based on current and projected costs and prices. Other
equipment and plant facilities are depreciated using straight-line or
accelerated methods principally over estimated useful lives of three to
ten years. At several minesites, the current terms of mining rights or
licenses are scheduled to expire prior to the completion of production
that is included in depreciation, depletion and amortization calculations,
impairment analyses and other accounting estimates. Renewals of such
mining rights or licenses are granted by right upon application to the
relevant authorities in the manner prescribed by law and regulations. We
have assumed, consistent with our experience and applicable laws and
regulations, that we will obtain renewals of mining rights and licenses
through the completion of scheduled ore production.
PROPERTY EVALUATIONS: Long-lived assets are reviewed for impairment when
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If deemed impaired, an impairment loss is
measured and recorded based on the fair value of the asset, which
generally will be computed using discounted expected future cash flows.
Estimated future net cash flows from each mine are calculated using
estimates of production, future sales prices (considering historical and
current prices, price trends and related factors), production costs,
capital and reclamation costs. During 2000, 1999 and 1998, the Company
estimated future net cash flows from its gold operations using long-term
gold prices of $300, $325 and $325 per ounce, respectively, to perform
impairment reviews. The Company's estimates of future cash flows are
subject to risks and uncertainties. Therefore, it is possible that changes
could occur which may affect the recoverability of the Company's
investments in mineral properties and other assets.
Undeveloped properties upon which the Company has not performed
sufficient exploration work to determine whether significant
mineralization exists are carried at original acquisition cost. If it is
determined that significant mineralization does not exist, an impairment
loss is measured and recorded based on the fair value of the property at
the time of such determination.
RECLAMATION AND REMEDIATION: Reclamation costs (undiscounted) and related
liabilities, which are based on the Company's interpretation of current
environmental and regulatory requirements, are accrued and expensed in
production costs using the units-of-production method based on proven and
probable reserves. Amounts to be received from the Federal Government for
its share of the cost of future reclamation activities are offset against
estimated remaining reclamation liabilities and are recorded in the period
that such expenditures are made. Remediation liabilities, including
estimated governmental oversight costs, are expensed upon determination
that a liability has been incurred and where reasonable estimate of the
cost (undiscounted) can be determined.
Based on current environmental regulations and known reclamation
requirements, the Company has included its best estimates of these
obligations in its reclamation accruals. The Company updates these
estimates regularly, however, the Company's estimates of its ultimate
reclamation liabilities could change significantly as a result of changes
in regulations or cost estimates.
9
<Page>
INVESTMENTS: Investments in mining securities that have readily
determinable fair values and assets held in trust to fund employee
benefits are classified as available-for-sale investments. Unrealized
gains and losses on these investments are recorded in accumulated other
comprehensive income, except that declines in market value judged to be
other than temporary are recognized in determining net income. Realized
gains and losses on these investments are recognized in determining net
income.
GOLD AND ORE SALES are recognized when delivery has occurred, title passes
and pricing is either fixed or determinable. All gold and ore sales are
made in accordance with standard sales contracts that the Company enters
into with smelters and major financial institutions.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses derivative financial
instruments as part of an overall risk-management strategy. These
instruments are used as a means of hedging exposure to precious metals
prices and foreign currency exchange rates. The Company does not hold or
issue derivative financial instruments for trading purposes.
The Company uses forward sales contracts to hedge its exposure to
precious metals prices. The underlying hedged production is designated at
the inception of the hedge. Deferral accounting is applied only if the
derivatives continue to reduce the price risk associated with the
underlying hedged production. Contracted prices on forward sales contracts
and options are recognized in product sales as the designated production
is delivered or sold. In the event of early settlement of hedge contracts,
gains and losses are deferred and recognized in income at the originally
designated delivery date.
The Company uses combinations of put and call options to hedge its
exposure to foreign currency exchange rates. These options do not qualify
for deferral accounting and are marked to market at each balance sheet
date. Realized and unrealized gains and losses on these options are
recognized in other income.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
was amended in June 2000 with the issuance of SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". SFAS 133,
which the company will adopt effective January 1, 2001, requires that
derivatives be recognized as assets or liabilities and be measured at fair
value. Gains or losses resulting from changes in the fair value of
derivatives in each period are to be accounted for either in current
earnings or other comprehensive income depending on the use of the
derivatives and whether they qualify for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in the fair value or cash
flows of the hedging instruments and the hedged items.
Foreign currency derivatives are currently marked-to-market with the
change in fair value included in earnings. In July 2000, the Company
discontinued its foreign currency protection program. Contracts
outstanding at December 31, 2000 are expected to remain in place until
maturity. Gains and losses resulting from changes in the fair value of
these contracts will continue to be recorded in earnings each period after
adoption of SFAS 133. At December 31, 2000, the Company's hedging
contracts, used to reduce exposure to precious metal prices, consisted
entirely of forward sales contracts. The Company intends to physically
deliver metals in accordance with the terms of these forward sales
contracts. Under SFAS 133, as amended by SFAS 138, the Company expects
these forward sales contracts will qualify for the normal purchases and
sales exemption. Accordingly, adoption of SFAS 133 at December 31, 2000
would have had no impact to the financial statements.
10
<Page>
SFAS 133 requires that gains or losses resulting from the close out
of a derivative contract designated as a cash flow hedge before its
maturity date be deferred in other comprehensive income, until the sale of
the originally hedged production. At December 31, 2000, the Company had
deferred gains of $35.1 million related to the close out of gold forward
sales contracts during 2000 and 1999 that were classified as liabilities
in the Consolidated Balance Sheets. Had the Company adopted SFAS 133 at
December 31, 2000, these amounts would have been included in accumulated
other comprehensive income.
INCOME TAXES: The Company follows the liability method of accounting for
income taxes whereby deferred income taxes are recognized for the tax
consequences of temporary differences by applying statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of certain assets and liabilities.
Changes in deferred tax assets and liabilities include the impact of any
tax rate changes enacted during the year. Mining income taxes represent
Canadian provincial taxes levied on defined profits from mining
operations. Foreign withholding taxes represent Canadian and Australian
withholding taxes on intercompany interest.
FOREIGN CURRENCY: Assets and liabilities of foreign subsidiaries are
translated at exchange rates in effect at the end of each period. Revenues
and expenses of foreign subsidiaries are translated at the average
exchange rate for the period. Accumulated currency translation adjustments
are included in accumulated other comprehensive income. Foreign currency
transaction gains and losses are included in the determination of net
income.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: Pension costs related to
United States employees are determined using the projected unit credit
actuarial method. The Company's funding policy for defined benefit pension
plans is to fund the plans annually to the extent allowed by the
applicable regulations. In addition, the Company provides medical and life
insurance benefits for certain retired employees. The cost of such
benefits are accrued and expensed over the period in which active
employees become eligible for the benefits. Postretirement medical and
life insurance benefits are paid at the time such benefits are provided.
NET INCOME OR LOSS PER SHARE is computed by dividing net income or loss by
the weighted average number of common shares outstanding, including the
Homestake Canada Inc. ("HCI") exchangeable shares (see note 18). Options
to purchase common shares are not included in the diluted loss per share
calculations as their effect is anti-dilutive, therefore the Company's
basic and diluted net income or loss per share are the same. Options to
purchase common shares in 2000, 1999 and 1998 were 7.2 million, 5.7
million and 4.9 million, respectively (see note 16).
PREPARATION OF FINANCIAL STATEMENTS: Certain 1999 and 1998 amounts have
been reclassified to conform to the current year's presentation. All
dollar amounts are expressed in United States dollars unless otherwise
indicated.
NOTE 3: ACQUISITIONS AND DIVESTITURES
ROUND MOUNTAIN MINE: Effective July 1, 2000, Homestake acquired Case
Pomeroy & Company Inc.'s ("Case") 25% interest in the Round Mountain mine
for $42.6 million, increasing Homestake's ownership in the mine from 25%
to 50%. The transaction was effected by Homestake purchasing 100% of the
shares of Bargold Corporation, a wholly owned subsidiary of Case. Purchase
consideration consisted of 2.6 million newly issued Homestake common
shares and $25.9 million in cash. The transaction was accounted for as a
purchase with the purchase price allocated $3.4 million
11
<Page>
for net working capital and $44.7 million for property, plant and
equipment, less $5.5 million for reclamation obligations.
AGUA DE LA FALDA: In October 1999, the Company and Corporacion Nacional
del Cobre Chile ("Codelco") contributed additional capital of $14.9
million in Agua de la Falda ("ADLF") in proportion to their ownership
interests (Homestake 51% and Codelco 49%). The Company's subscribed
capital contribution primarily was in the form of cash. Codelco
contributed property, subject to a retained royalty.
ARGENTINA GOLD CORP: In April 1999, Homestake issued 20.9 million common
shares to acquire Argentina Gold Corp. ("Argentina Gold"), a
publicly-traded Canadian gold exploration company whose principal asset is
its 60% interest in the Veladero property in northern Argentina. The
business combination was accounted for as a pooling of interests and
accordingly, Homestake's consolidated financial statements include
Argentina Gold for all periods presented. In 1999, the Company recorded
business combination expenses of $4.8 million related to this transaction.
PRIME RESOURCE GROUP INC.: In December 1998, Homestake acquired the 49.4%
of Prime Resources Group Inc. ("Prime") it did not already own for $317.8
million. Purchase consideration consisted of 16.7 million newly issued
Homestake common shares and 11.1 million HCI exchangeable shares (see note
17). The acquisition of the Prime minority interests was accounted for as
a purchase.
PLUTONIC RESOURCES LIMITED: In April 1998, Homestake issued 64.4 million
common shares to acquire Plutonic Resources Limited ("Plutonic"), a
publicly traded Australian gold producer. The business combination was
accounted for as a pooling of interests and accordingly, Homestake's
consolidated financial statements include Plutonic for all periods
presented. Business combination and integration costs of $19.1 million
were incurred in 1998 related to this transaction.
NOTE 4: OTHER INCOME (LOSS)
<Table>
<Caption>
2000 1999 1998
------------------------------------------------------
Foreign currency contract gains (losses) (note 19) $(16,621) $15,814 $(34,332)
Foreign currency exchange gains (losses)
on intercompany advances and other (18,181) 10,913 (4,400)
Oil sales - net 2,831 1,145 1,098
Gains on investments and asset disposals 8,275 4,155 8,910
Royalty income 2,753 2,213 2,398
Other 1,958 7,716 2,679
------------------------------------------------------
$(18,985) $41,956 $(23,647)
======================================================
</Table>
NOTE 5: RECLAMATION AND REMEDIATION CHARGES
<Table>
<Caption>
2000 1999 1998
-------- ------- -------
Reclamation and remediation charges $ 16,166 $ 5,185 $36,000
======== ======= =======
</Table>
12
<Page>
During 2000, following a review of its reclamation liabilities, the
Company recorded a charge of $16.2 million to increase reclamation
accruals for certain non-operating properties. These charges include $10
million for the former uranium millsite near Grants, New Mexico, $2.4
million related to Whitewood Creek in South Dakota, $2.0 million for the
Cullaton Lake mine in Nunavut, Canada, $1.5 million for the Bulldog mine
in Colorado, and $270,000 for other non-operating properties. Events and
circumstances supporting these increases in reclamation accruals are as
follows:
GRANTS, NEW MEXICO
The results of a scheduled environmental audit of the former uranium
millsite in Grants, New Mexico completed in the third quarter of 2000
indicated that the rate of groundwater clean-up required to remediate
contaminated groundwater at the site would not meet final clean-up
standards as scheduled. The audit led to the conclusion that an additional
reverse osmosis system would be the most appropriate means of meeting the
schedule and compliance limits. As a result, the reclamation accrual for
this site was increased by $10 million representing management's best
estimate of the additional costs.
WHITEWOOD CREEK
The Company is required to fund ongoing monitoring by the Environmental
Protection Agency ("EPA") pursuant to the terms of a consent decree.
During July 2000, the Company determined that based upon a review of the
probable future costs of monitoring and five-year EPA reviews of Whitewood
Creek that an increase in the accrual was required. As a result, the
accrual was increased by $2.4 million representing management's best
estimate of the amount of future EPA oversight costs.
CULLATON LAKE
During the third quarter of 2000, a contractor who had been successful in
bidding for rehabilitation work at the former Cullaton Lake, Northwest
Territories, Canada minesite entered bankruptcy proceedings. A new
contractor was chosen as a result of the retendered bid process and the
related contract bid provided the basis for the new accrual for
reclamation at Cullaton Lake.
BULLDOG MINE
In the third quarter of 2000, stream sampling determined that contaminated
water from a mine waste rock dump was creating elevated levels of metals
in a surface stream. The increase in the remediation accrual by $1.5
million represents management's best estimate of the remediation costs.
In 1999, following an environmental audit of certain properties
acquired as a result of the Plutonic acquisition in 1998, the Company
recorded a charge of $5.2 million to increase the estimated reclamation
liability for certain non-operating properties in Australia.
In 1998, following an environmental audit at the Homestake mine and
a change in that operation's mining plans, the Company recorded a
provision for estimated additional remediation and related reclamation
costs of $35 million related to closed portions of the property.
13
<Page>
NOTE 6: WRITE-DOWNS AND OTHER UNUSUAL CHARGES
<Table>
<Caption>
2000 1999 1998
------------- ---------- ----------
(As Restated)
Reduction in the carrying values
of resource assets (i) $ 28,029 $ 11,730 $ 151,581
Homestake mine restructuring charges (ii) 22,987 -- 8,879
Write-downs of noncurrent investments (iii) -- 3,500 8,213
Other 3,383 -- 9,140
------------- ---------- ----------
$ 54,399 $ 15,230 $ 177,813
============= ========== ==========
</Table>
(i) REDUCTION IN THE CARRYING VALUES OF RESOURCE ASSETS:
Year 2000
Following the completion of milling of stockpiled open-pit ore in December
1999, the Company began experiencing declining ore grades and increased
development costs in the underground operation at the Homestake mine. The
poorer than expected grades and development costs were primarily due to
the discontinuous nature of the remaining ore lodes, which was becoming
more apparent as these areas were mined. In the third quarter of 2000, the
Company determined that the risk that grades and costs would not improve
was sufficiently high that the Company concluded that it could not justify
the spending of the sustaining capital required to continue to mine the
orebody in accordance with the revised mine plan developed in connection
with the 1998 restructuring of the mine. As a result, the Company adopted
a 16-month mine out plan focusing on extracting the remaining developed
ore. Based on projected cash flows under the mine out plan, the Company
recorded an impairment charge of $18.2 million to write-down the remaining
long-lived assets at the operation to their fair value. Fair value was
determined based on the present value of future cash flows expected to be
derived from operating the mine under the mine out plan.
The Company determined, based on drilling results and property
evaluations, that it did not expect to proceed with further drilling and
development at the Keith Kilkenny, Bellevue and Nimbus properties in
Western Australia, and accordingly recorded an impairment charge of $7.4
million writing off the carrying values of these properties. Absent any
further intention to explore these properties, and given their remote
location, the Company did not expect to derive any future cash flows from
these properties, and accordingly considered them to have no value.
The Company also recorded $1.3 million and $0.6 million of
impairment charges relating to the write-offs of certain redundant
equipment at the Eskay Creek and Marigold mines, respectively.
Year 1999
During December 1999, the Company commissioned an independent expert to
perform a review of the exploration potential of the Peak Hill property in
Western Australia, acquired as part of the 1998 acquisition of Plutonic.
Based on the results of this review, the Company concluded that conceptual
targets on the property did not justify additional exploration
expenditures. Absent any further intention to explore these properties,
and given their remote location, the Company did not expect to derive any
future cash flows from these properties, and accordingly considered them
to have no value.
14
<Page>
Therefore, an impairment charge of $10 million was recognized to write-off
the recorded value of this property.
At the Kalgoorlie operations in Western Australia, the Company
upgraded its processing circuit to improve throughput and recovery. As a
result, a secondary crusher was removed from the circuit and dismantled.
The Company recorded an impairment charge of $1.7 million representing the
carrying value of the secondary crusher.
Year 1998
In January 1998, Homestake began a major restructuring of operations at
the Homestake mine in an effort to reduce operating costs. The new plan,
which included an additional capital investment of $30 million, involved
closing down certain portions of the mine and scaling back operations. The
decision to proceed with the capital investment was expected to be made in
the first half of 1999 based on the mine's performance to that date. At
September 30, 1998, Homestake reviewed the carrying value of the Homestake
mine in accordance with SFAS 121 using a gold price of $325 per ounce. As
a result of this review, the Company recorded an impairment charge of
$76.1 million to write-down the assets of the Homestake mine down to their
fair value. Fair value was determined based on the present value of future
cash flows expected to be derived from operating the mine under the
revised mine plan.
During the third quarter of 1998, the Company experienced increased
levels of seismic activity at the Mt Charlotte mine in Western Australia.
As a result, the Company and its joint venture partner announced a revised
operating plan, which provided for a restricted level of mining activity
in the lower-risk areas of the mine. The Company recorded an impairment
charge of $34.5 million to write-down the carrying value of the Mt
Charlotte mine to its fair value, which was determined based on the
present value of the expected future cash flows from the revised plan. The
Company also recorded severance charges of $3.9 million related to
employees that were terminated as a result of a reduced level of mining.
The Company also recorded additional impairment charges at the Kalgoorlie
operations of $4.6 million related to fixed assets that were no longer in
use, and capitalized development costs related to areas where it was
determined that mining would not proceed.
The Company and independent experts completed evaluations of certain
exploration properties acquired in the Plutonic transaction, and held by
the Company's majority owned subsidiary Lachlan Resources. Based on these
evaluations, which included the Balcooma, Nimbus, Koongie and Archean
properties, the Company determined that the extent of mineralization
identified was not sufficient to recover the full carrying value of these
properties. Accordingly, these properties were written down to their fair
value, determined as the present value of the future cash flows expected
to be generated from disposal or development of the properties and an
impairment charge of $22.3 million was recorded.
During 1998, the Company recorded write downs of $10.2 million
related to resource properties acquired as part of the Argentina Gold
acquisition, including $9.0 million related to the Rio Frio property and
$1.2 million related to the Del Carmen property. The Company's joint
venture partners who were also the operators of the exploration joint
ventures that were evaluating these properties, together with the Company,
determined that based on drilling results, further exploration of these
properties was not warranted. Accordingly, the Company determined that
these properties did not have any future recoverable value and wrote-off
the carrying amount of these assets.
(ii) HOMESTAKE MINE RESTRUCTURING CHARGES:
15
<Page>
On September 11, 2000, the Company announced a restructuring of the
operations at the Homestake mine in South Dakota. The mine is expected to
complete operations by December 2001. In connection with the
restructuring, the Company recorded a $23 million provision comprised of
employee severance and related costs of $18.2 million and contract
termination penalties of $4.8 million. The workforce will be reduced from
the December 31, 2000 level of 322 employees (down from 366 at the time
the restructuring was announced), to approximately 40 by no later than
December 2001. The classifications of the employees at the Homestake mine
being terminated include mining engineers, geologists, administrative
employees and mine workers. Pension and other postretirement curtailment
and settlement gains will be recognized as employees are terminated and
the obligations settled. The key elements of the mine-out plan consist of
abandonment of efforts to redevelop the mine above the 4850 level and
completion of all production activities. Homestake mine reclamation
activities will continue for a number of years. The Company expects to
spend approximately $65.1 million for reclamation, of which $50.2 million
was accrued at December 31, 2000. The remaining $14.9 million will be
accrued and expensed on a units of production basis over the remaining
life of the operations.
The following table presents a reconciliation of the liabilities
incurred in connection with the September 2000 Homestake mine
restructuring plan.
<Table>
<Caption>
Beginning December 31,
Accrual Payments 2000
---------- ---------- ------------
Employee severance and related costs (a) $ 18,187 $ (560) $ 17,627
Contract and other termination penalties (b) 4,800 -- 4,800
---------- ---------- ----------
Total $ 22,987 $ (560) $ 22,427
========== ========== ==========
</Table>
(a) At December 31, 2000, to the extent that employee severance and
related costs are expected to be paid from pension assets, $11.5
million of the liability is classified as a contra to long-term
pension assets. To the extent that employee severance and related
benefits are expected to be settled in cash, $5.1 million of the
liability is classified as current liabilities, and the remaining
$1.0 million is classified as other long-term obligations.
(b) At December 31, 2000, the provision for contract and other
termination penalties is classified as a component of other
long-term obligations.
In January 1998, the Company commenced a restructuring of
underground operations at the Homestake mine including a significant
workforce reduction. As a result of the restructuring, the Company
recorded severance and other costs of $8.9 million, net of pension and
other postretirement curtailment and settlement gains of $9.3 million.
(iii) WRITE-DOWNS OF NONCURRENT INVESTMENTS:
In 1999 and 1998, the Company recorded in income the reductions in the
carrying values of certain marketable securities and other noncurrent
investments that it deemed to be other than temporary.
NOTE 7: DISCONTINUED OPERATIONS
The Company has a 16.7% undivided joint-venture interest in the Main Pass
299 sulfur mine in the Gulf of Mexico. In July 2000, in response to
continued low sulfur prices and increased operating costs,
Freeport-McMoRan Sulphur LLC, the operator and 83.3% owner of the Main
Pass sulfur mine, announced a phased closure of sulfur operations. Sulfur
production ceased in August 2000. The Company's joint venture interest was
reflected as a discontinued operation effective June 30, 2000.
16
<Page>
The Company wrote off the carrying value of sulfur property, plant and
equipment in 1997. Results for the year ended December 31, 2000 include
provisions of $3.5 million for estimated operating losses during the
closure period and an additional $8.5 million for estimated remaining
reclamation and remediation costs.
Summarized results of the discontinued sulfur operations are as follows:
<Table>
<Caption>
2000 1999 1998
----------------------------------
Revenues $ 5,367 $ 14,797 $ 16,974
==================================
Loss before income taxes $ (3,487) $ (4,953) $ (5,211)
Income tax benefit 141 597 1,302
----------------------------------
Loss from operations (3,346) (4,356) (3,909)
Loss on shutdown, including provisions
of $3.5 million for operating losses
during the closure period and $8.5 million
for reclamation (no tax effect) (12,000) -- --
----------------------------------
Loss from discontinued operations $(15,346) $ (4,356) $ (3,909)
==================================
</Table>
17
<Page>
NOTE 8: INCOME TAXES
The provision for income taxes from continuing operations consists of the
following:
<Table>
<Caption>
2000 1999 1998
-------------------------------------------------
Current (As Restated) (As Restated) (As Restated)
Income taxes
United States $ (3,320) $ 3,400 $ (11,332)
Canada 5,864 6,275 22,576
Foreign withholding taxes 4,117 2,848 421
Mining income taxes - Canada 13,638 12,689 14,684
------------- ------------- -------------
Total current taxes 20,299 25,212 26,349
------------- ------------- -------------
Deferred
Income taxes
United States 8,663 (982) 12,213
Canada (11,770) (3,453) (19,286)
Australia 2,632 (4,856) (37,599)
Mining income taxes - Canada (7,271) (5,495) (2,114)
------------- ------------- -------------
Total deferred taxes (7,746) (14,786) (46,786)
------------- ------------- -------------
Total income taxes $ 12,553 $ 10,426 $ (20,437)
============= ============= =============
</Table>
The provision for income taxes is based on pretax income (loss) before
minority interests as follows:
<Table>
<Caption>
2000 1999 1998
------------- ------------- -------------
(As Restated) (As Restated) (As Restated)
United States $ (21,433) $ 39,620 $ (158,163)
Canada (22,231) 12,298 38,058
Australia (27,809) (40,177) (117,790)
South America and other foreign (28,198) (13,993) (23,463)
------------- ------------- -------------
$ (99,671) $ (2,252) $ (261,358)
============= ============= =============
</Table>
In 2000, the Canadian province of Ontario enacted legislation which
resulted in significant provincial corporate income and mining tax rate
changes. Effective May 2, 2000, the provincial income tax rate decreased
from 13.5% to 12.5%, with a further reduction to 12% effective January 1,
2001. In addition, the Ontario mining tax rate will be reduced to 10%
(from the current 20%) over 5 years. Effective May 2, 2000 the rate
dropped to 18%, with further 2% reductions that will occur each January 1,
until January 1, 2004. A deferred tax benefit of $2 million was booked in
2000 with respect to these Ontario rate changes.
In December 1999, the Australian government reduced corporate tax
rates to 34% for the fiscal year beginning July 1, 2000 (calendar year
2000 for Homestake) and to 30% thereafter. Australia has
18
<Page>
proposed further changes to the structure of taxation, the impact of which
currently cannot be estimated.
Deferred tax liabilities and assets as of December 31, 2000 and 1999
relate to the following:
<Table>
<Caption>
December 31,
2000 1999
-------------------------------
(As Restated) (As Restated)
Deferred Tax Liabilities
Depreciation and other resource property differences $ 186,743 $ 223,739
Other 55,446 60,952
-------------------------------
Gross deferred tax liabilities 242,189 284,691
-------------------------------
Deferred Tax Assets
Tax loss carry-forwards 113,690 107,415
Reclamation costs 56,481 45,848
Depreciation, land and other resource property 48,276 36,924
Employee benefit costs 30,025 23,244
Alternative minimum tax credit carry-forwards 32,283 35,955
Foreign tax credit carry-forwards 6,152 111,469
Unrealized foreign exchange losses 21,413 --
Deferred gain on close-out of forward sales contracts 12,724 12,724
Write-downs of noncurrent investments 1,706 3,046
Inventory 6,262 9,306
Other 11,764 22,457
-------------------------------
Gross deferred tax assets 340,776 408,388
Valuation allowance (274,655) (315,016)
-------------------------------
Net deferred tax assets 66,121 93,372
-------------------------------
Net deferred tax liability $ 176,068 $ 191,319
===============================
Net deferred tax liability consists of:
Current deferred tax assets $ (4,021) $ (14,663)
Long-term deferred tax liability 180,089 205,982
-------------------------------
Net deferred tax liability $ 176,068 $ 191,319
===============================
</Table>
The classification of deferred tax assets and liabilities as current
or long term is based on the related asset or liability creating the
deferred tax. Deferred taxes not related to a specific asset or liability
are classified based on the estimated period of reversal.
The Company has established a valuation allowance for certain
deferred tax assets which management believes will not be realized based
on projections at December 31, 2000. The valuation allowance primarily
relates to a full valuation allowance against United States, South
American and Australian net deferred tax assets of $172.6 million $57.7
million and $39.1 million, respectively. The remaining valuation allowance
primarily relates to Canadian loss carry-forwards of Argentina Gold with a
tax effect of $3.3 million.
19
<Page>
At December 31, 1999 the Company had expected a significant increase
in United States foreign tax credit carry-forwards as a result of Canadian
dividends to the United States parent following the acquisition of Prime.
A full valuation allowance was placed against foreign tax credits. Based
on additional information, which became available in 2000, the recognition
of these foreign tax credits has been deferred. Accordingly, deferred tax
assets and related valuation allowances have been adjusted to reflect the
decrease in realized foreign tax credits. The remaining foreign tax credit
carry-forwards are due to expire at various times through the year 2005.
Alternative minimum tax credits can be carried forward indefinitely.
United States tax losses can be carried back two years and forward twenty
years. Argentina tax loss carry-forwards expire if not utilized within
five taxable years following the loss year. Australian and Chilean loss
carry-forwards currently can be carried forward indefinitely.
Major items causing the Company's income tax provision to differ
from the federal statutory rate of 35% were as follows:
<Table>
<Caption>
2000 1999 1998
---------------------------------------------------
(As Restated) (As Restated) (As Restated)
Income tax benefit based on statutory rate $ (34,885) $ (788) $ (91,475)
Percentage depletion (1,068) (1,835) (1,806)
Earnings in foreign jurisdictions
at different rates (7,301) (3,009) (999)
Canadian mining income taxes 6,344 7,217 12,570
Change in prior year accruals 5,047 (5,050) (15,953)
Nondeductible expenses 9,044 5,537 7,934
Foreign income less tax credits utilized 1,014 4,462 --
Change in foreign tax credits generated
and not utilized 71,089 (99,462) --
Change in valuation allowance (40,090) 99,496 59,914
Other - net 3,359 3,858 9,378
------------- ------------- -------------
$ 12,553 $ 10,426 $ (20,437)
============= ============= =============
</Table>
NOTE 9: RECEIVABLES
<Table>
<Caption>
December 31,
2000 1999
------------------------------
Trade accounts $ 19,776 $ 28,096
U.S. Government receivable (note 14) 2,000 2,000
Interest and other 17,072 14,892
------------------------------
$ 38,848 $ 44,988
==============================
</Table>
20
<Page>
NOTE 10: INVENTORIES
<Table>
<Caption>
December 31,
2000 1999
------------------------------
Finished products $ 28,327 $ 7,452
Ore and in-process 37,955 30,591
Supplies 21,480 25,294
------------------------------
$ 87,762 $ 63,337
==============================
</Table>
NOTE 11: PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
December 31,
2000 1999
-------------------------------
(As Restated) (As Restated)
Mining properties $ 1,464,935 $ 1,562,040
Plant and equipment 1,038,089 1,141,650
Construction in progress 10,540 16,224
-------------------------------
2,513,564 2,719,914
Accumulated depreciation, depletion and
amortization (1,587,184) (1,638,269)
-------------------------------
$ 926,380 $ 1,081,645
===============================
</Table>
NOTE 12: INVESTMENTS AND OTHER ASSETS
<Table>
<Caption>
December 31,
2000 1999
-------------------------------
Assets held in trust (note 16) $ 55,687 $ 47,918
Ore stockpiles 16,049 15,971
Prepaid pension assets (note 16) 7,144 12,747
U.S. Government receivable (note 15) 2,218 6,063
Restricted cash (note 14) -- 1,789
Noncurrent investments 8,664 10,493
Other 9,596 9,560
-------------------------------
99,358 $ 104,541
===============================
</Table>
Based upon current long-range plans, ore stockpiles will be consumed between
2002 and 2019. Ore stockpiles are valued at the lower of cost or net realizable
value.
21
<Page>
NOTE 13: ACCRUED LIABILITIES
<Table>
<Caption>
December 31,
2000 1999
-------------------------------
Accrued payroll and other compensation $ 22,162 $ 21,730
Current portion of accrued reclamation and
remediation costs 31,500 20,092
Unrealized loss on foreign exchange contracts 4,180 2,709
Deferred gold sales proceeds 9,951 --
Other 23,287 19,929
-------------------------------
91,080 $ 64,460
===============================
</Table>
NOTE 14: LONG-TERM DEBT
<Table>
<Caption>
December 31,
2000 1999
-------------------------------
Cross-border credit facility (due 2003) $ 148,941 $ 102,666
Pollution control bonds
Lawrence County, South Dakota (due 2032) 38,000 38,000
State of California (due 2004) 17,000 17,000
Capital leases (note 20) 23,497 23,044
Convertible subordinated notes (due 2000) -- 134,990
-------------------------------
227,438 315,700
Less current portion 2,822 37,206
-------------------------------
$ 224,616 $ 278,494
===============================
</Table>
The following is a schedule of future maturities of long-term debt
as of December 31, 2000:
<Table>
<Caption>
2001 $ 2,822
2002 3,003
2003 152,140
2004 20,405
2005 3,630
Thereafter 45,438
--------
$227,438
========
</Table>
CROSS-BORDER CREDIT FACILITY: The Company has a credit facility ("Credit
Facility") providing a total borrowing availability of $430 million. This
facility is available through July 14, 2003 and provides for borrowing in
United States, Canadian or Australian dollars, gold, or a combination of
these. At December 31, 2000, Canadian dollar-denominated borrowings under
the Credit Facility of $148.9 million (C$223.4 million) were outstanding.
The Company pays a commitment fee on the unused portion of the Credit
Facility ranging from 0.15% to 0.35% per annum, depending upon credit
ratings for the Company's senior debt. The credit agreement requires,
among other provisions, a minimum consolidated net worth, as defined in
the agreement (primarily shareholders' equity plus the amount of all
noncash write-downs made after December 31, 1997), of $500 million.
Interest on the
22
<Page>
Canadian dollar borrowings is payable quarterly based on the Bankers'
Acceptance discount rate plus a stamping fee. At December 31, 2000 and
1999, this rate was 6.95% and 6.17%, respectively.
POLLUTION CONTROL BONDS: In July 1997, Lawrence County, South Dakota
issued $30 million of South Dakota Solid Waste Disposal Revenue Bonds
("Waste Disposal Bonds") and $18 million of South Dakota Pollution Control
Refunding Revenue Bonds, both of which are due in 2032. The Company is
responsible for funding principal and interest payments on these bonds.
Proceeds from the Waste Disposal Bonds were placed in a trust account and
used for construction of a new tailings dam lift and other qualifying
expenditures at the Homestake mine. During 1999, Homestake reduced the
projected size of the tailings dam project and redeemed $10 million of the
Waste Disposal Bonds from funds held in the trust account.
The Company pays interest monthly on the pollution control bonds
based on variable short-term, tax-exempt obligations rates. Interest rates
at December 31, 2000 and 1999 were 4.7% and 5.1%, respectively. No
principal payments are required until cancellation, redemption or
maturity.
CONVERTIBLE SUBORDINATED NOTES: During the first six months of 2000, the
Company repurchased, prior to maturity, the 5.5% convertible subordinated
notes ("Convertible Notes") having a principal amount of $1 million. The
remaining $135 million principal amount of Convertible Notes were repaid
upon maturity on June 23, 2000. The repayment was financed by the Credit
Facility borrowings, discussed above, and from existing cash balances.
NOTE 15: OTHER LONG-TERM OBLIGATIONS
<Table>
<Caption>
December 31,
2000 1999
-------------------------------
(As Restated) (As Restated)
Accrued reclamation and remediation costs $ 141,683 $ 118,937
Accrued pension and other postretirement
benefit obligations (note 15) 62,618 58,299
Other 17,555 10,014
-------------------------------
$ 221,856 $ 187,250
===============================
</Table>
While the ultimate amount of reclamation and remediation costs to be
incurred in the future is uncertain, the Company has estimated that the
aggregate amount of these costs for operating properties, plus previously
accrued reclamation and remediation liabilities for nonoperating
properties, will be approximately $262 million. At December 31, 2000 the
Company had accrued $169.1 million for estimated reclamation and
remediation costs (see note 13).
GRANTS: The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") imposes heavy liabilities on persons who
discharge hazardous substances. The Environmental Protection Agency
("EPA") publishes a National Priorities List ("NPL") of known or
threatened releases of such substances. Homestake's former uranium
millsite near Grants, New Mexico is listed on the NPL.
Pursuant to the Energy Policy Act of 1992, the United States
Department of Energy ("DOE") is responsible for 51.2% of past and future
costs of reclaiming the Grants site in accordance with Nuclear Regulatory
Commission license requirements. At December 31, 2000 Homestake had
23
<Page>
received $33.0 million from the DOE and had a receivable of $4.2 million
(see notes 9 and 12) for the DOE's share of reclamation expenditures made
by Homestake through 2000.
NOTE 16: EMPLOYEE BENEFIT PLANS
UNITED STATES PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS: The Company
has pension plans covering substantially all United States employees.
Pension plans covering salaried and other nonunion employees provide
benefits based on the employee's years of service and highest compensation
for a period prior to retirement. Pension plans covering union employees
provide defined benefits based on each year of service. The Company also
has other postretirement plans which provide medical and life insurance
benefits for certain retired employees, primarily retirees of the
Homestake mine.
24
<Page>
The following table provides a reconciliation of benefit obligations, plan
assets and the funded status of the plans:
<Table>
<Caption>
Other Postretirement
Pension Benefits Benefits
----------------------- -----------------------
2000 1999 2000 1999
----------------------- -----------------------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation, January 1 $ 225,880 $ 256,674 $ 27,807 $ 34,750
Service cost 3,498 4,752 17 19
Interest cost 16,477 16,784 1,874 1,931
Participants contributions -- -- 217 --
Plan amendments and special terminations 10,700 3,222 1,000 --
Actuarial losses (gains) 3,967 (23,672) (1,966) (7,132)
Benefits paid (19,463) (31,880) (2,149) (1,761)
Curtailments (3,439) -- 200 --
--------- --------- --------- ---------
Benefit obligation, December 31 $ 237,620 $ 225,880 $ 27,000 $ 27,807
========= ========= ========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1 $ 248,908 $ 259,371
Actual return on plan assets 24,490 16,834
Company contributions 1,450 4,583 $ 2,149 $ 1,761
Benefits paid (19,463) (31,880) (2,149) (1,761)
--------- --------- --------- ---------
Fair value of plan assets, December 31 $ 255,385 $ 248,908 $ -- $ --
========= ========= ========= =========
Plan assets in excess of (less than)
projected benefit obligations $ 17,765 $ 23,028 $ (27,000) $ (27,807)
Unrecognized net actuarial gains (47,178) (43,741) (4,688) (4,353)
Unrecognized prior service cost 9,413 10,309 (4,214) (5,064)
Unrecognized net transition asset (882) (1,324) -- --
--------- --------- --------- ---------
Accrued pension and postretirement
benefit obligations $ (20,882) $ (11,728) $ (35,902) $ (37,224)
========= ========= ========= =========
</Table>
25
<Page>
Amounts for pension and postretirement benefits in the consolidated
balance sheets consist of the following:
<Table>
<Caption>
Other Postretirement
Pension Benefits Benefits
----------------------- -----------------------
2000 1999 2000 1999
----------------------- -----------------------
Prepaid pension asset $ 7,144 $ 12,747 $ -- $ --
Accrued benefit liability - current (1,200) (1,200) (110) (2,200)
Accrued benefit liability - long-term (26,826) (23,275) (35,792) (35,024)
--------- --------- --------- ---------
$ (20,882) $ (11,728) $ (35,902) $ (37,224)
========= ========= ========= =========
</Table>
The weighted-average actuarial assumptions were as follows:
<Table>
<Caption>
Other Postretirement
Pension Benefits Benefits
December 31, December 31,
--------------------------------- ---------------------------
2000 1999 1998 2000 1999 1998
--------------------------------- ---------------------------
Discount rate 7.25% 7.75% 6.50% 7.25% 7.75% 6.50%
Expected return on plan assets 8.50% 8.50% 8.50%
Rate of compensation increase 5.00% 5.00% 5.00%
</Table>
The Company has assumed a health care cost trend rate of 8.0% for
2000, decreasing ratability to 5.0% in 2006 and thereafter.
26
<Page>
Net periodic pension and other postretirement benefit costs include
the following components:
<Table>
<Caption>
Pension Benefits
-------------------------------------
2000 1999 1998
-------------------------------------
Service cost $ 3,498 $ 4,752 $ 4,215
Interest cost 16,477 16,784 16,969
Expected return on assets (20,623) (21,496) (21,346)
Amortization of:
Transition asset (440) (242) (370)
Prior service costs 1,471 1,440 1,005
Actuarial gains (1,874) (196) (898)
--------- --------- ---------
Net periodic benefit cost (1,491) 1,042 (425)
Additional charges (credits):
Special termination charges 10,498 -- 3,922
Curtailments 1,600 -- (7,246)
Settlement credits -- -- (2,531)
--------- --------- ---------
Total net benefit cost (credit) $ 10,607 $ 1,042 $ (6,280)
========= ========= =========
</Table>
<Table>
<Caption>
Other
Postretirement
Benefits
-------------------------------------
2000 1999 1998
-------------------------------------
Service cost $ 17 $ 19 $ 188
Interest cost 1,874 1,931 2,406
Amortization of:
Prior service costs (850) (850) (850)
Actuarial (gains) losses (1,431) (291) 60
--------- --------- ---------
Net periodic benefit cost (390) 809 1,804
Additional charges (credits):
Special termination charges 1,000 -- 600
Curtailments -- -- (3,293)
--------- --------- ---------
Total net benefit cost (credit) $ 610 $ 809 $ (889)
========= ========= =========
</Table>
The projected benefit obligation and accumulated benefit obligation
for pension plans with accumulated benefit obligations in excess of plan
assets were $38.5 million and $31.5 million, respectively, at December 31,
2000, and $30.9 million and $22.9 million, respectively, at December 31,
1999. These amounts pertain to a nonqualified supplemental pension plan
covering certain employees and a nonqualified pension plan covering
directors of the Company. These plans are unfunded. The Company has
established a grantor trust, consisting of money funds, mutual funds and
corporate-owned life insurance policies, to provide funding for the
benefits payable under these nonqualified plans and certain other deferred
compensation plans. The grantor trust, which is included in other assets,
amounted to $55.7 million and $47.9 million at December 31, 2000 and 1999,
respectively.
27
<Page>
Health care benefits are contributory and were restricted to
employees at the Homestake mine whose combined years of age and years of
service exceeded 65 as of January 1, 2000. The Company announced the
restructuring and ultimate closure of the Homestake mine. Termination
benefits and certain curtailment costs were recognized during 2000 to
reflect the planned closure of the mine (see note 5).
The assumed health care cost trend rate has a significant effect on
the amounts reported. A one percentage point change in the assumed health
care cost trend rate would have had the following effects on 2000 service
and interest costs and the accumulated postretirement benefit obligation
at December 31, 2000:
<Table>
<Caption>
One percentage point change Increase Decrease
- --------------------------- -------- --------
Effect on service and interest
components of net periodic cost $ 216 $ (194)
Effect on accumulated postretirement
benefit obligation $ 2,438 $ (2,236)
</Table>
FOREIGN PENSION PLANS: Certain of the Company's foreign operations also
participate in pension plans. The Company's share of contributions to
these plans was $1.5 million in 2000, $2.2 million in 1999 and $2.5
million in 1998.
STOCK OPTION AND SHARE RIGHTS PLAN: The Company's 1996 Stock Option and
Share Rights Plan, as amended ("1996 Plan") provided for stock option and
share rights grants of up to 18 million common shares. At December 31,
2000 and 1999, 11.6 million and 1.6 million shares, respectively, were
available for future grants. At December 31, 2000 stock options and share
rights for 6.1 million shares were outstanding under the 1996 Plan and
stock options for 1.7 million shares were outstanding under prior plans.
28
<Page>
The exercise price of each stock option granted under these plans is equal
to the market price of the Company's stock at the time of grant. Stock
options generally vest over a four-year period and have a maximum term of
ten years. A summary of the Company's stock option activities during the
periods indicated is as follows (in thousands except share amounts):
<Table>
<Caption>
2000 1999 1998
--------------------- ----------------------- -----------------------
Number Average Number Average Number Average
of Price Per of Price Per of Price Per
Shares Share Shares Share Shares Share
---------------------- ----------------------- -----------------------
Balance at January 1 5,653 4,947 4,873
Granted 2,049 $ 7.27 1,600 $ 9.40 2,129 $ 7.28
Exercised -- (500) 0.74 (35) 0.74
Plutonic options retired -- -- (1,033) 15.52
Expired (487) 15.61 (394) 16.27 (987) 11.86
--------- --------- ---------
Balance at December 31 7,215 5,653 4,947
========= ========= =========
Options exercisable at
December 31 3,481 2,916 2,136
</Table>
Note: The above table includes stock option activity of Argentina Gold and
Plutonic prior to their acquisition by Homestake in April 1999 and
April 1998, respectively.
The average fair value of options granted during 2000, 1999 and 1998
was $3.19, $2.69 and $3.03 per share, respectively. The fair value of each
stock option is estimated on the date of grant using a Black-Scholes
option-pricing model with the following weighted-average assumptions at
December 31,:
<Table>
<Caption>
2000 1999 1998
------ ------ ------
Expected volatility 39% 35% 31%
Risk-free interest rate 6.7% 5.0% 5.7%
Expected lives (years) 6.6 4.8 5.2
Expected dividend yield 1% 1% 1%
</Table>
29
<Page>
The following table summarizes information about stock options
outstanding at December 31, 2000:
<Table>
<Caption>
Options Outstanding Options Exercisable
------------------------------------------------------------- --------------------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Prices Number Remaining Exercise Price Number Exercise Price
Per Share Outstanding Contractual Life Per Share Exercisable Per Share
--------------- ------------------------------------------------------------- --------------------------------------
$6.49 to $9.37 3,331 8.4 years $8.11 769 $9.36
9.41 to 15.23 2,547 6.7 years 11.46 1,406 12.55
15.38 to 20.63 1,337 3.3 years 17.60 1,306 17.61
------- -------
7,215 3,481
======= =======
</Table>
At December 31, 2000 and 1999, there were 586,000 and 381,000 share
rights outstanding under the 1996 plan. Share rights are converted into
common stock when certain performance measurement or vesting criteria are
met. During 2000, 29,000 share rights valued at $151,000 were converted
into common stock under the 1996 plan.
The Company elected to use the pro forma disclosure provisions of
SFAS 123, "Accounting for Stock-Based Compensation," and has applied
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for its stock options. Accordingly, no compensation cost has
been recognized for the Company's stock options. The compensation cost for
share rights is being recognized based on the fair value of the Company's
stock over the period that the performance measurement and vesting
criteria are estimated to be met. Had compensation expense for the
Company's stock options been determined based on the fair value of options
at the grant dates as calculated in accordance with SFAS 123, the
Company's net income (loss) and earnings per share for the years ended
December 31, 2000, 1999 and 1998 would have been as follows:
<Table>
<Caption>
2000 1999 1998
----------------------------------- --------------------------------- ---------------------------------
(As Restated) (As Restated) (As Restated)
Net Loss Per Share Net Loss Per Share Net Loss Per Share
----------------------------------- --------------------------------- ---------------------------------
As reported $(124,445) $ (0.48) $(15,639) $ (0.06) $(248,015) $ (1.07)
Pro forma (128,767) (0.49) (18,977) (0.07) (251,327) (1.08)
</Table>
OTHER PLANS: Substantially all full-time United States employees of the
Company are eligible to participate in the Company's defined contribution
savings plans. The Company's matching contributions of approximately $1.6
million, $1.8 million and $1.9 million in 2000, 1999 and 1998,
respectively, were in the form of Homestake stock.
NOTE 17: FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2000 and 1999 the carrying values of the Company's cash
and equivalents, short-term investments, noncurrent investments, long-term
debt and foreign currency options approximated their estimated fair
values.
30
<Page>
NOTE 18: SHAREHOLDERS' EQUITY
HCI EXCHANGEABLE SHARES: In connection with the 1998 acquisition of the
minority interests in Prime (see note 3), HCI issued 11.1 million HCI
exchangeable shares. Each HCI exchangeable share is exchangeable for one
Homestake common share at any time at the option of the holder and has
essentially the same voting, dividend (payable in Canadian dollars), and
other rights as one Homestake common share. A share of special voting
stock, which was issued to the transfer agent in trust for the holders of
the HCI exchangeable shares, provides the mechanism for holders of the HCI
exchangeable shares to receive their voting rights. During 2000 and 1999,
3.3 million and 4.5 million HCI exchangeable shares were exchanged for an
equivalent number of Homestake common shares. At December 31, 2000 the
Company had reserved 3.4 million shares of common shares for issuance on
exchange of the HCI exchangeable shares outstanding. At any time on or
after December 31, 2008, or such time that there are fewer than 1.39
million HCI exchangeable shares outstanding, the Company will have the
right, but not the obligation, to require the exchange of all HCI
exchangeable shares then outstanding for an equivalent number of Homestake
common shares.
STOCK RIGHTS: Each share of common stock includes and trades with a right
which will become exercisable on a date designated by the Board of
Directors following the commencement of, or announcement of an intent to
commence, a tender offer by any person, entity or group for 15% or more of
the Company's common shares and the HCI exchangeable shares, considered as
a single class. When exercisable, each right initially entitles the owner
to purchase from the Company one one-hundredth of a share of Series A
Participating Preferred Stock, par value $1 per share, at a price of $75
per share (the "Purchase Price"). Each one one-hundredth of a share of
Series A Preferred Stock is equivalent to one Homestake common share with
respect to voting and is entitled, on a quarterly basis, to the greater of
a ten cent cash dividend or the dividend payable on one Homestake common
share. In addition, if any person, entity or group (an "Acquiring Person")
acquires 15% or more of the Company's common stock and the HCI
exchangeable shares, considered as a single class, each right (whether or
not previously exercisable) thereafter entitles the owner (other than an
Acquiring Person or its affiliates and associates) to purchase for the
Purchase Price the number of one one-hundredth of a share of Series A
Preferred Stock equal to the Purchase Price divided by one-half of the
market price of the Company's common stock. In lieu of the rights holder
exercising such right, the Board of Directors has the option to issue, in
exchange for each right, one-half of the number of shares of preferred
stock (or common stock having a value equal to the Purchase Price) that
would be issuable on the exercise of the right. If the Board of Directors
has not exchanged shares for the rights and the Company engages in a
business combination with an Acquiring Person (or affiliate or associate
thereof), the holder of rights will be entitled to purchase for the
Purchase Price (i) common stock of the surviving company of its
publicly-held affiliate having a market value equal to twice the Purchase
Price, or (ii) common stock of the surviving company having a book value
equal to twice the Purchase Price if the surviving company and its
affiliates are not publicly held. The number of shares and the Purchase
Price are subject to adjustment for stock dividends, stock splits and
other changes in capitalization. The rights expire on October 15, 2007.
Each HCI exchangeable share trades with an HCI right issued under
the HCI rights agreement. The HCI rights entitle the holders to acquire
additional HCI exchangeable shares at the same price and in the same
amounts and circumstances in which holders of Company rights are entitled
to acquire Company common stock.
31
<Page>
NOTE 19: ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest and for income taxes is as follows:
<Table>
<Caption>
2000 1999 1998
------------------------------------------------------
Interest $17,750 $ 18,377 $ 20,236
Income taxes, net of refunds 18,274 33,292 22,620
</Table>
Certain investing and financing activities of the Company affected
its financial position but did not affect its cash flows. See note 3 for
discussion of the noncash components of the acquisitions of the interests
the in Round Mountain mine, Argentina Gold, Plutonic and Prime and
additions to property at ADLF.
NOTE 20: COMMITMENTS AND CONTINGENCIES
FOREIGN CURRENCY CONTRACTS
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. At December 31, 2000 net
unrealized losses of $4.2 million were outstanding on these contracts
compared to net unrealized gains of $3.4 million at December 31, 1999.
Other income for the years ended December 31, 2000, 1999 and 1998 includes
income (losses) of $(16.6) million, $15.8 million, and $(34.3) million,
respectively, related to this program. In July 2000, the Company
discontinued its foreign currency protection program. Option contracts
outstanding at December 31, 2000 are expected to remain in place until
maturity.
32
<Page>
At December 31, 2000 the Company had foreign currency contracts
outstanding as follows:
<Table>
<Caption>
Expected Maturity or Transaction Date
Total or
US$ IN MILLIONS 2001 2002 Average
------------------------------------------
CANADIAN $ / US $ OPTION CONTRACTS:
US $ covered $62.1 -- $62.1
Written puts, average exchange rate (1) 0.66 -- 0.66
US $ covered $66.1 -- $66.1
Purchased calls, average exchange rate (2) 0.69 -- 0.69
US $ covered $38.3 -- $38.3
Purchased puts, average exchange rate (3) 0.65 -- 0.65
AUSTRALIAN $ / US $ OPTION CONTRACTS:
US $ covered $96.8 $33.0 $129.8
Written puts, average exchange rate (1) 0.65 0.68 0.66
US $ covered $96.8 $33.0 $129.8
Purchased calls, average exchange rate (2) 0.66 0.68 0.67
US $ covered $85.8 $33.0 $118.8
Purchased puts, average exchange rate (3) 0.64 0.65 0.64
</Table>
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. The counter-party
would be expected to exercise the option if the spot exchange
rate was below the put exchange rate.
2. Assuming exercise by the Company at the expiration date, the
Company would exchange US dollars for Canadian or Australian
dollars at the call exchange rate. The Company would exercise
the option if the spot exchange rate was above the call
exchange rate.
3. Assuming exercise by the Company at the expiration date, the
Company would exchange Canadian or Australian dollars for US
dollars at the put exchange rate. The Company would exercise
the option if the spot exchange rate was below the put
exchange rate.
In addition to amounts related to the foreign currency option
contracts, the Company recorded foreign currency exchange gains (losses)
on intercompany debt and other of $(18.2) million, $10.9 million and
$(4.4) million in 2000, 1999 and 1998, respectively, which also were
included in other income. These foreign currency exchange gains and losses
primarily are mark to market adjustments related to the Company's Canadian
and Australian dollar denominated advances to its foreign subsidiaries.
GOLD AND SILVER CONTRACTS
Homestake's hedging policy provides for the use of forward sales contracts
to hedge up to 30% of each of the following ten year's expected annual
gold production, and up to 30% of each of the following five year's
expected annual silver production, at prices in excess of certain targeted
prices. The policy also provides for the use of combinations of put and
call option contracts to establish minimum floor prices.
33
<Page>
During 2000, 1999 and 1998, the Company delivered or financially
settled gold and silver production under maturing forward sales and option
contracts as follows:
<Table>
<Caption>
2000 1999 1998
--------------------------------------
GOLD
Forward sales contracts
Ounces 85,080 109,900 358,000
Average price (US$ per oz.) $ 430 $ 415 $ 359
Option contracts
Ounces 230,000 340,000 900,000
Average price (US$ per oz.) $ 290 $ 298 $ 325
SILVER
Option contracts
Ounces 655,000 3,095,000 --
Average price (US$ per oz.) $ 6.30 $ 6.35 $ --
</Table>
During 2000, the Company closed out and financially settled US
dollar denominated forward sales contracts covering 3.6 million ounces of
silver maturing in years 2001 and 2002 and US and Australian dollar
denominated option contracts covering 884,000 ounces of gold expiring in
years 2001 through 2004. The pretax gains of $4.2 million resulting from
these transactions have been deferred and are being recorded in income as
the originally designated production is sold.
In 1999, the Company closed out and financially settled 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.
34
<Page>
The Company does not require or place collateral for its foreign
currency and gold hedging derivatives. However, the Company minimizes its
credit risk by dealing only with major international banks and financial
institutions.
At December 31, 2000 the Company had gold forward sales contracts
outstanding as follows:
<Table>
<Caption>
EXPECTED MATURITY OR TRANSACTION DATE
-------------------------------------------------------------------
THEREAFTER TOTAL OR
2001 2002 2003 2004 2005 AVERAGE
-------- -------- ------ ------ ------- -------- --------
US $ DENOMINATED CONTRACTS:
Forward sales contracts:
Ounces 10,000 10,000 -- -- 90,000 559,200 669,200
Average price ($ per oz.) $ 400 $ 403 $ -- $ -- $ 400 $ 418 $ 415
AUSTRALIAN $ DENOMINATED CONTRACTS: (1)
Forward sales contracts:
Ounces 300,000 264,800 144,800 228,800 26,000 -- 964,400
Average price (US$ per oz.) $ 290 $ 306 $ 317 $ 331 $ 294 $ -- $ 308
</Table>
(1) EXPRESSED IN US DOLLARS AT AN EXCHANGE RATE OF A$ = US$0.5588
35
<Page>
LEASE COMMITMENTS
The Company entered into capital leases to finance the purchase of its 50%
share of certain mobile mining equipment at the Kalgoorlie operations.
Leased assets of $21.5 million are included in property, plant and
equipment at December 31, 2000. Accumulated depreciation on the leased
equipment was $3.9 million. The Company also leases certain office
facilities and equipment under various noncancellable operating leases.
Rental expense for 2000, 1999, and 1998 relating to these operating leases
was approximately $2.4 million, $2.4 million and $2.6 million,
respectively.
Future minimum annual payments under noncancellable leases at December 31,
2000 are as follows:
<Table>
<Caption>
Operating Capital
Year ending December 31, Leases Leases
--------------------------
2001 $ 1,686 $4,252
2002 1,596 4,252
2003 1,381 4,252
2004 1,096 4,252
2005 1,005 4,252
Thereafter 3,260 7,881
---------- --------
Total minimum lease payment $10,024 29,141
==========
Less: estimated amount representing interest (5,644)
--------
Present value of net minimum capital lease payments 23,497
Less: current portion (2,822)
--------
Long-term capital lease obligation at December 31, 2000 $20,675
========
</Table>
The Company has entered into various commitments during the ordinary
course of business including commitments to perform assessment work and
other obligations necessary to maintain or protect its interests in mining
properties, financing and other obligations to joint ventures and partners
under venture and partnership agreements, and commitments under federal
and state environmental health and safety permits.
The Company is party to legal actions and administrative proceedings
and is subject to claims arising in the ordinary course of business. The
Company believes the disposition of these matters will not have a material
adverse effect on its financial position or result of operations.
NOTE 21: SEGMENT INFORMATION (AS RESTATED)
The Company primarily is engaged in gold mining and related
activities. Accordingly, the Company's operating mines are considered
segments for financial reporting purposes. The Company's Round Mountain,
Homestake, McLaughlin and Ruby Hill mines are located in the United
States, the Eskay Creek and Hemlo mines are located in Canada and the
Kalgoorlie, Plutonic, Darlot and Lawlers mines are located in Australia.
36
<Page>
REPORTABLE SEGMENTS
REPORTABLE SEGMENTS
<Table>
<Caption>
ROUND
2000 MOUNTAIN HOMESTAKE MCLAUGHLIN RUBY HILL ESKAY CREEK HEMLO KALGOORLIE
------------------------------------------------------------------------------------
Gold and ore sales $ 63,991 $ 47,253 $ 30,798 $ 34,891 $ 125,268 $ 80,440 $ 110,592
Other revenues 44 1,056 (28) -- (24) 298 431
Total revenues and other income 64,035 48,309 30,770 34,891 125,244 80,738 111,023
Depreciation, depletion and -- --
amortization 12,081 1,656 3,815 15,117 57,579 9,708 18,480
Operating earnings (b) 1,117 (3,953) (4,947) 4,209 23,818 15,497 15,688
Exploration expense -- -- -- -- -- -- --
Reclamation, remediation, write-downs
and unusual items -- 41,746 320 -- 1,282 -- --
Capital expenditures 2,985 5,834 103 178 5,800 5,100 14,800
Property, plant and equipment 74,486 0 5,757 31,663 362,110 68,294 239,666
Total assets 98,111 8,721 12,658 35,743 376,515 80,881 281,180
<Caption>
CORPORATE
AND ALL RECONCILING
PLUTONIC DARLOT LAWLERS OTHER ITEMS TOTAL
----------------------------------------------------------------------------
Gold and ore sales $ 71,061 $ 35,470 $ 27,701 $ 38,203 $ -- $ 665,668
Other revenues 2 (50) 48 10,075 (10,731)a 1,121
Total revenues and other income 71,063 35,420 27,749 48,278 (10,731) 666,789
Depreciation, depletion and
amortization 9,898 5,352 3,535 7,948 -- 145,169
Operating earnings (b) 8,046 5,224 1,428 25,824 (10,731)a 81,220
Exploration expense -- -- -- 50,500 -- 50,500
Reclamation, remediation, write-downs
and unusual items 1,235 193 193 25,596 -- 70,565
Capital expenditures 12,100 11,700 10,100 1,187 -- 69,887
Property, plant and equipment 39,946 51,345 15,567 37,546 -- 926,380
Total assets 44,033 56,337 20,020 343,744 -- 1,357,943
</Table>
37
<Page>
<Table>
<Caption>
ROUND
1999 MOUNTAIN HOMESTAKE MCLAUGHLIN RUBY HILL ESKAY CREEK HEMLO KALGOORLIE
------------------------------------------------------------------------------------
Gold and ore sales $ 37,424 $ 59,638 $ 34,939 $ 34,503 $ 120,796 $ 82,112 $ 100,405
Other revenues (216) 3,507 399 0 45 509 100
Total revenues and other income 37,208 63,145 35,338 34,503 120,841 82,621 100,505
Depreciation, depletion and -- -- -- -- -- -- --
amortization 7,271 1,399 8,480 14,711 54,167 9,247 15,486
Operating earnings (b) 909 3,706 (6,711) 4,805 26,985 12,887 (1,481)
Exploration expense -- -- -- -- -- -- --
Reclamation, remediation, write-downs
and unusual items -- -- -- -- -- -- 1,701
Capital expenditures 3,588 11,193 480 1,798 2,843 4,447 34,351
Property, plant and equipment 40,935 13,979 10,880 45,581 431,350 76,059 285,362
Total assets 51,057 20,343 15,868 47,726 445,116 85,264 325,549
<Caption>
CORPORATE
AND ALL RECONCILING
PLUTONIC DARLOT LAWLERS OTHER ITEMS TOTAL
-----------------------------------------------------------------------------
Gold and ore sales $ 68,712 $ 32,281 $ 30,739 $ 70,023 $ -- $ 671,572
Other revenues 22 (177) 46 61,270 (7,205)a 58,300
Total revenues and other income 68,734 32,104 30,785 131,293 (7,205) 729,872
Depreciation, depletion and
amortization 22,854 4,121 6,089 7,903 -- 151,728
Operating earnings (b) (8,908) 4,953 2,869 93,863 (7,205)a 126,672
Exploration expense -- -- -- 39,511 -- 39,511
Reclamation, remediation, write-downs
and unusual items -- -- -- 18,714 -- 20,415
Capital expenditures 10,988 16,994 12,361 5,884 -- 104,927
Property, plant and equipment 54,634 52,540 11,523 58,802 -- 1,081,645
Total assets 61,167 57,567 17,758 455,853 -- 1,583,268
</Table>
38
<Page>
<Table>
<Caption>
ROUND
1998 MOUNTAIN HOMESTAKE MCLAUGHLIN RUBY HILL ESKAY CREEK HEMLO KALGOORLIE
-----------------------------------------------------------------------------------
Gold and ore sales $ 39,330 $ 84,848 $ 38,993 $ 34,967 $ 115,321 $ 79,662 $ 114,913
Other revenues 5 1,444 1,340 0 34 84 502
Total revenues and other income 39,335 86,292 40,333 34,967 115,355 79,746 115,415
Depreciation, depletion and -- -- -- -- -- -- --
amortization 6,530 10,228 13,804 12,333 20,960 9,692 19,960
Operating earnings (b) 2,345 1,142 (5,433) 6,089 57,833 12,523 4,469
Exploration expense -- -- -- -- -- -- --
Reclamation, remediation, write-downs
and unusual items -- 120,016 -- -- -- -- 38,400
Capital expenditures 6,037 12,722 1,732 2,175 4,400 3,100 17,200
Property, plant and equipment 42,829 4,185 18,886 57,551 430,638 76,123 251,980
Total assets 50,066 10,597 24,605 59,528 446,758 89,009 281,187
<Caption>
CORPORATE
AND ALL RECONCILING
PLUTONIC DARLOT LAWLERS OTHER ITEMS TOTAL
------------------------------------------------------------------------------------
Gold and ore sales $ 88,693 $ 22,823 $ 39,074 $ 123,535 $ -- $ 782,159
Other revenues -- (160) 39 (5,300) (2,209)a (4,221)
Total revenues and other income 88,693 22,663 39,113 118,235 (2,209) 777,938
Depreciation, depletion and
amortization 38,405 2,410 2,447 25,034 -- 161,803
Operating earnings (b) (17,128) 849 12,560 29,546 (2,209)a 102,586
Exploration expense -- -- -- 59,866 -- 59,865
Reclamation, remediation, write-downs
and unusual items 2,900 -- -- 52,497 -- 213,813
Capital expenditures 11,200 8,100 3,500 3,157 -- 73,323
Property, plant and equipment 60,941 37,178 5,946 84,937 -- 1,071,194
Total assets 94,723 46,868 22,515 503,204 -- 1,629,060
</Table>
a) PRIMARILY INTERCOMPANY FINANCING.
b) OPERATING EARNINGS REPRESENT REVENUES AND OTHER INCOME LESS PRODUCTION
COSTS AND DEPRECIATION, DEPLETION AND AMORTIZATION.
39
<Page>
Amounts related to United States operations were as follows:
<Table>
<Caption>
2000 1999 1998
------------------------------
Gold and ore sales $186,411 $211,814 $259,044
Property, plant and equipment 140,495 117,690 131,121
</Table>
Sales to individual customers exceeding 10% of the Company's
consolidated revenues were as follows:
<Table>
<Caption>
2000 1999 1998
------------------------------
Customer A $159,574 $142,000 $ --
B 115,683 -- 120,100
C 113,939 99,000 75,600
D 58,228 96,000 --
E -- 77,800 --
F -- 76,700 108,000
G -- -- 99,200
</Table>
Because of the active worldwide market for gold, Homestake believes
that the loss of any of these customers would not have a material adverse
impact on the Company.
NOTE 22: HOMESTAKE CANADA INC. ("HCI")
Homestake, through a wholly owned subsidiary, owns all of the common
shares outstanding of HCI. At December 31, 2000, HCI had 3.4 million HCI
exchangeable shares outstanding, which were held by the public (see notes
3 and 18).
Following the 1999 business combination with Argentina Gold,
Homestake's investment in Argentina Gold was transferred to HCI in
exchange for a Canadian dollar-denominated intercompany note payable by
HCI to its parent company of approximately C$282 million (US$191 million).
In accordance with United States generally accepted accounting principles,
the assets, liabilities and shareholders' equity of Argentina Gold have
been recorded in HCI's financial statements at the historical cost basis
to the parent company. The difference between the historical cost basis of
Argentina Gold shareholders' equity and its fair value at the date of
transfer has been recorded as a reduction to HCI's shareholders' equity.
40
<Page>
Summarized financial information for HCI is as follows:
<Table>
<Caption>
December 31, 2000
-----------------
As Previously As December 31,
Reported Restated 1999
------------------------------ ------------
Current assets $ 41,837 $ 41,837 $ 43,666
Noncurrent assets 449,228 436,224 498,567
------------- ------------- ------------
Total assets $ 491,065 $ 478,061 $ 542,233
============= ============= ============
Current portion of notes
payable to the Company $ 122,992 $ 122,992 $ 138,233
Other current liabilities 28,044 28,044 19,521
Long-term debt 148,936 148,936 102,666
Notes payable to the Company 190,872 190,872 190,872
Other long-term liabilities 15,479 15,479 10,843
Deferred income and mining taxes 161,976 161,976 199,979
Shareholders' equity (177,234) (190,238) (119,881)
------------- ------------- -------------
Total liabilities and
shareholders' equity $ 491,065 $ 478,061 $ 542,233
============= ============= =============
<Caption>
For the years ended December 31,
----------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------
As Previously As
Reported Restated
Revenues and other income $ 202,811 $ 202,811 $ 234,708 $ 219,091
Costs and expenses 233,213 246,217 229,084 196,488
------------- ------------- ------------- -------------
Income (loss) before taxes and
minority interests $ (30,402) $ (43,406) $ 5,624 $ 22,603
============= ============= ============= =============
Net loss $ (30,237) $ (43,241) $ (4,875) $ (2,242)
============= ============= ============= =============
</Table>
41
<Page>
NOTE 23: RESTATEMENT
After issuing Homestake's 2000 financial statements and filing the Form 10-K
with the Securities and Exchange Commission ("SEC"), and following extensive
discussion with the Staff of the SEC and the Company's independent accountants,
management determined it was necessary to revise its financial statements to
expense previously capitalized costs associated with its Veladero project in
Argentina, to revise its depreciation and reclamation calculations at the
Plutonic and Lawlers mines in Western Australia, and to revise the financial
statement footnote presentation of Homestake's segment information.
Because the level of engineering and other exploration work completed at the
Veladero project does not meet the criteria for a full feasibility study,
Homestake has reclassified its previously stated Veladero reserves as
mineralized material. As a result of this reclassification, Homestake has
revised its financial statements to expense previously capitalized Veladero
project development expenditures incurred during the period April 1, 2000
through December 31, 2000.
Management also determined that it is necessary to revise the Company's
depreciation and reclamation calculations for the Plutonic and Lawlers mines. In
accordance with US GAAP only proven and probable reserves may be used in
depreciation and reclamation calculations. The Company had used its best
estimate of future gold production as the base for its depreciation and
reclamation charges at the Plutonic and Lawlers mines, since their acquisition
in 1998. The Company's decision to use its best estimate of future gold
production for depreciation and reclamation calculations at these mines
reflected the fact that, at the time of their acquisition, only a relatively
small proportion of the total inventory of mineralized material at these mines
had been upgraded to the reserves category. Homestake has revised its financial
statements to use only proven and probable reserves for calculating depreciation
and reclamation charges for these mines.
In addition, Homestake determined that it is necessary to revise the financial
statement footnote presentation of its segment information because discrete
operating and financial information is reported to the Chief Operating Officer
for each mine. The Company previously had aggregated each mine within each
geographic segment for segment disclosure purposes because each mine was
considered by management to have similar economic characteristics. However, as
ore grades and other operating factors can vary significantly by mine, with
resulting material variations in unit operating costs, management has determined
that each mine should be reported separately for segment disclosure purposes.
Refer to note 21 for revised segment information.
The following sets forth the effects of the restatements on Homestake's
accompanying consolidated balance sheets and the consolidated statements of
operations and cash flows:
42
<Page>
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2000 1999 1998
---------------------- ------------------------ --------------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
--------- --------- --------- ----------- ----------- -----------
REVENUES $ 666,789 $ 666,789 $ 729,872 $ 729,872 $ 777,938 $ 777,938
--------- --------- --------- ----------- ----------- -----------
COSTS AND EXPENSES
Production costs 438,241 440,397 450,660 451,472 513,094 513,549
Depreciation, depletion and amortization 144,459 145,169 134,478 151,728 139,371 161,803
Administrative and general expense 37,922 37,922 42,011 42,011 46,800 46,800
Exploration expense 37,495 50,500 39,511 39,511 59,865 59,865
Interest expense 19,511 19,511 17,827 17,827 20,884 20,884
Business combination and integration costs -- -- 4,764 4,764 19,351 19,351
Reclamation and remediation charges 16,166 16,166 5,185 5,185 36,000 36,000
Write-downs and other unusual charges 58,397 54,399 15,230 15,230 177,813 177,813
Other expense 2,396 2,396 4,396 4,396 3,231 3,231
--------- --------- --------- ----------- ----------- -----------
754,587 766,460 714,062 732,124 1,016,409 1,039,296
--------- --------- --------- ----------- ----------- -----------
LOSS BEFORE TAXES AND MINORITY INTERESTS (87,798) (99,671) 15,810 (2,252) (238,471) (261,358)
Income taxes (4,418) (12,553) (7,985) (10,426) 11,785 20,437
Minority interests 3,125 3,125 1,395 1,395 (3,185) (3,185)
--------- --------- --------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (89,091) (109,099) 9,220 (11,283) (229,871) (244,106)
LOSS FROM DISCONTINUED OPERATIONS (15,346) (15,346) (4,356) (4,356) (3,909) (3,909)
--------- --------- --------- ----------- ----------- -----------
NET LOSS $(104,437) $(124,445) $ 4,864 $ (15,639) $ (233,780) $ (248,015)
========= ========= ========= =========== =========== ===========
PER SHARE AMOUNTS - BASIC AND DILUTED
Loss from continuing operations $ (0.34) $ (0.42) $ 0.04 $ (0.04) $ (0.99) $ (1.05)
Loss from discontinued operations (0.06) (0.06) (0.02) (0.02) (0.02) (0.02)
--------- --------- --------- ----------- ----------- -----------
NET LOSS PER SHARE $ (0.40) $ (0.48) $ 0.02 $ (0.06) $ (1.01) $ (1.07)
========= ========= ========= =========== =========== ===========
</Table>
43
<Page>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<Table>
<Caption>
AS AT DECEMBER 31,
--------------------------------------------------------
2000 1999
-------------------------- --------------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
----------- ----------- ----------- -----------
Current assets $ 332,205 $ 332,205 $ 397,102 $ 397,102
Property, plant and equipment (net) 987,812 926,380 1,132,846 1,081,645
Investments and other assets 99,358 99,358 104,521 104,521
----------- ----------- ----------- -----------
TOTAL ASSETS $ 1,419,375 $ 1,357,943 $ 1,634,469 $ 1,583,268
=========== =========== =========== ===========
Current liabilities 153,600 153,600 140,008 140,008
Long-term debt 224,616 224,616 278,494 278,494
Other long-term obligations 217,786 221,856 184,893 187,250
Deferred gain on close-out of
Forward sales contracts 22,223 22,223 34,956 34,956
Deferred income taxes 181,961 180,089 216,958 205,982
Minority interests in consolidated 10,375 10,375 13,800 13,800
subsidiaries
Capital stock 259,846 259,846 253,808 253,808
Additional paid-in capital 937,463 936,574 923,091 922,495
Deficit (493,286) (555,999) (382,271) (424,976)
Accumulated other comprehensive loss (95,209) (95,237) (29,268) (28,549)
TOTAL LIABILITIES AND SHAREHOLDERS'
----------- ----------- ----------- -----------
EQUITY $ 1,419,375 $ 1,357,943 $ 1,634,469 $ 1,583,268
=========== =========== =========== ===========
</Table>
44
<Page>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
--------- --------- --------- --------- --------- ---------
OPERATING ACTIVITIES
Income (loss) from operations $(104,437) $(124,445) $ 4,864 $ (15,639) $(233,780) $(248,015)
Reconciliation to net cash provided by operations
Depreciation, depletion and amortization 144,459 145,169 134,478 151,728 139,371 161,803
Reclamation (net) 9,254 11,411 (2,755) (1,943) 1,404 1,859
Loss from discontinued operations 15,346 15,346 4,356 4,356 3,909 3,909
Other 60,792 64,928 22,713 25,154 158,271 149,619
Effect of changes in working capital items 6,806 6,807 (41,590) (41,590) 44,833 44,833
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED BY CONTINUING OPERATIONS 132,220 119,216 122,066 122,066 114,008 114,008
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS (5,693) (5,693) (4,727) (4,727) 1,046 1,046
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 126,527 113,523 117,339 117,339 115,054 115,054
--------- --------- --------- --------- --------- ---------
INVESTMENT ACTIVITIES
Additions to property, plant and equipment (82,891) (69,887) (104,927) (104,927) (73,323) (73,323)
Other 119,607 119,607 60,194 60,194 9,681 9,681
--------- --------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES 36,716 49,720 (44,733) (44,733) (63,642) (63,642)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES
--------- --------- --------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (94,502) (94,502) (86,276) (86,276) (25,350) (25,350)
--------- --------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (5,592) (5,592) (3,576) (3,576) (7,433) (7,433)
--------- --------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 63,149 63,149 (17,246) (17,246) 18,629 18,629
CASH AND EQUIVALENTS, JANUARY 1 130,273 130,273 147,519 147,519 128,890 128,890
--------- --------- --------- --------- --------- ---------
CASH AND EQUIVALENTS, DECEMBER 31 $ 193,422 $ 193,422 $ 130,273 $ 130,273 $ 147,519 $ 147,519
========= ========= ========= ========= ========= =========
</Table>
45
<Page>
QUARTERLY SELECTED DATA
<Table>
<Caption>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
2000:
Revenues and other income,
as previously reported $ 152,397(1) $ 171,333(1) $ 161,128(2) $ 179,219 $ 664,077
Adjustment for adoption of
SAB 101 5,796 (294) (2,790) -- 2,712
--------- --------- --------- --------- ---------
Revenues and other income $ 158,193 $ 171,039 $ 158,338 $ 179,219 $ 666,789
========= ========= ========= ========= =========
Net loss from:
Continuing operations,
as previously reported and restated $ (20,946) $ (10,819)(3) $ (71,503)(4) $ (4,633)(5) $(107,901)(3-5)
Adjustment for adoption of
SAB 101 (179) (686) (333) -- (1,198)
--------- --------- --------- --------- ---------
Continuing operations as restated (21,125) (11,505)(3) (71,836)(4) (4,633)(5) (109,099)(3-5)
Discontinued operations (1,459) (13,887) -- -- (15,346)
--------- --------- --------- --------- ---------
Net loss as restated $ (22,584) $ (25,392) $ (71,836) $ (4,633) $(124,445)
========= ========= ========= ========= =========
Per common share:
Net loss from: 10
Continuing operations as restated $ (0.08) $ (0.05) $ (0.27) $ (0.02) $ (0.42)
Discontinued operations (0.01) (0.05) -- -- (0.06)
--------- --------- --------- --------- ---------
Net loss as restated $ (0.09) $ (0.10) $ (0.27) $ (0.02) $ (0.48)
--------- --------- --------- --------- ---------
Dividends paid 11 $ -- $ -- $ -- $ 0.025 $ 0.025
<Caption>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
1999:
Revenues and other income $ 174,669(1) $ 194,165(2) $ 171,668(2) $ 189,370(2) $ 729,872(1)
Net loss from:
Continuing operations as restated (1,757)(6) (2,418)(7) (2,200)(8) (4,908)(9) (11,283)(6-9)
Discontinued operations (1,264) (658) (462) (1,972) (4,356)
--------- --------- --------- --------- ---------
Net loss as restated $ (3,021) $ (3,076) $ (2,662) $ (6,880) $ (15,639)
========= ========= ========= ========= =========
Per common share:
Net loss from: 8
Continuing operations as restated $ (0.01)(6) $ (0.01)(7) $ (0.01)(8) $ (0.02)(9) $ (0.05)(6-9)
Discontinued operations -- -- -- (0.01) (0.01)
--------- --------- --------- --------- ---------
Net loss as restated $ (0.01) $ (0.01) $ (0.01) $ (0.03) $ (0.06)
========= ========= ========= ========= =========
Dividends paid 11 $ -- $ 0.050 $ -- $ 0.025 $ 0.075
Pro forma: 12
Net loss from
continuing operations $ (5,338)
=========
Per common share -
basic and diluted $ (0.02)
=========
Net income $ (7,310)
=========
Per common share -
basic and diluted $ (0.03)
=========
</Table>
1. Adjusted for discontinued operations of Main Pass 299 and reclassification
of oil and gas revenues, net.
2. Adjusted for the reclassification of oil and gas revenues, net.
46
<Page>
3. INCLUDES WRITE-DOWNS OF $0.5 MILLION ($0.5 MILLION PRETAX) OR $NIL PER
SHARE TO REDUCE THE CARRYING VALUES OF CERTAIN ASSETS.
4. INCLUDES WRITE-DOWNS OF $63.5 MILLION ($67.8 MILLION PRETAX) OR $0.24 PER
SHARE INCLUDING (i) HOMESTAKE MINE RESTRUCTURING CHARGES OF $22 MILLION
($22 MILLION PRETAX) OR $0.08 PER SHARE, (ii) REDUCTIONS IN THE CARRYING
VALUES OF CERTAIN RESOURCE ASSETS OF $23.9 MILLION ($26.2 MILLION PRETAX)
OR $0.09 PER SHARE, (iii) AN INCREASE OF $15 MILLION ($16.2 MILLION
PRETAX) OR $0.06 PER SHARE IN THE ACCRUAL FOR FUTURE ESTIMATED RECLAMATION
EXPENDITURES AND (iv) AND OTHER CHARGES OF $2.6 MILLION ($3.4 MILLION
PRETAX) OR $0.01 PER SHARE.
5. INCLUDES WRITE-DOWNS OF $4.6 MILLION ($6.2 MILLION PRETAX) OR $0.02 PER
SHARE INCLUDING (i) HOMESTAKE MINE RESTRUCTURING CHARGES OF $1 MILLION ($1
MILLION PRETAX), (ii) REDUCTIONS IN THE CARRYING VALUE OF CERTAIN ASSETS
OF $3.6 MILLION ($5.3 MILLION PRETAX) OR $0.01 PER SHARE.
6. INCLUDES BUSINESS COMBINATION AND INTEGRATION COSTS OF $1.3 MILLION ($1.3
MILLION PRETAX) OR $0.01 PER SHARE.
7. INCLUDES BUSINESS COMBINATION AND INTEGRATION COSTS OF $3.5 MILLION ($3.5
MILLION PRETAX) OR $0.01 PER SHARE AND THE WRITE-DOWN OF AN INVESTMENT OF
$3.5 MILLION ($3.5 MILLION PRETAX) OR $0.01 PER SHARE.
8. INCLUDES WRITE-DOWNS AND NON-RECURRING CHARGES OF $4.4 MILLION ($6.9
MILLION PRETAX) OR $0.02 PER SHARE INCLUDING (i) REDUCTIONS OF $1.1
MILLION ($1.7 MILLION PRETAX) IN THE CARRYING VALUES OF RESOURCE ASSETS
AND (ii) AN INCREASE OF $3.3 MILLION ($5.2 MILLION PRETAX) IN THE ACCRUAL
FOR ESTIMATED FUTURE REMEDIATION AND RECLAMATION.
9. INCLUDES WRITE-DOWNS AND NON-RECURRING CHARGES OF $7.8 MILLION ($10
MILLION PRETAX) OR $0.03 PER SHARE TO REDUCE THE CARRYING VALUES OF
CERTAIN RESOURCE ASSETS.
10. BASIC AND DILUTED EARNINGS PER SHARE. THE APPLICATION OF SAB 101 DOES NOT
HAVE AN IMPACT ON THE NET INCOME OR LOSS PER SHARE, AS PREVIOUSLY
REPORTED.
11. HOMESTAKE ONLY.
12. REFLECTS THE PRO FORMA EFFECT OF THE APPLICATION OF SAB 101 FOR THE THREE
MONTH PERIOD ENDED DECEMBER 31, 1999. THE APPLICATION OF SAB 101 DOES NOT
HAVE A MATERIAL EFFECT ON THE PRO FORMA NET INCOME (LOSS) AND PER SHARE
AMOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998. ADDITIONALLY, THE
CUMULATIVE EFFECT OF ADOPTION OF SAB 101, EFFECTIVE JANUARY 1, 2000, WAS
NOT MATERIAL TO THE FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31,
2000.
COMMON STOCK PRICE RANGE
(PRICES AS QUOTED ON THE NEW YORK STOCK EXCHANGE)
<Table>
<Caption>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------------------
2000: High $8.00 $7.63 $6.94 $5.25 $8.00
Low 5.88 5.63 5.00 3.50 3.50
1999: High $11.44 $10.75 $10.88 $10.13 $11.44
Low 8.13 7.50 7.19 7.50 7.19
</Table>
FIVE YEAR SELECTED FINANCIAL DATA (1)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
(As Restated) (As Restated) (As Restated) (As Restated) (As Restated)
Revenues and other income $ 666,789 $ 729,872 $ 777,938 $ 948,167 $ 975,399
Net income (loss) from continuing operations (109,099)(2) (11,283)(3) (244,106)(4) (126,361)(5) 42,168(7)
Loss from discontinued operations (15,346) (4,356) (3,909) (111,456)(6) (2,393)
</Table>
47
<Page>
<Table>
Net income (loss) (124,445) (15,639) (248,015) (237,817) 39,775
Per common share:(8)
Net income (loss) from continuing operations (0.42)(2) (0.04)(3) (1.05)(4) (0.55)(5) (0.19)(7)
Loss from discontinued operations (0.06) (0.02) (0.02) (0.49)(6) (0.01)
---------- ----------- ----------- ----------- -----------
(0.48) (0.06) (1.07) (1.04) 0.18
---------- ----------- ----------- ----------- -----------
Total assets 1,357,943 1,583,268 1,626,941 1,615,511 1,954,103
Long-term debt 224,616 278,494 357,410 374,593 255,170
Other long-term obligations 221,856(9) 187,250(9) 178,548 153,822 123,851
Deferred income and mining taxes 180,089 205,982 217,047 156,853 215,857
Minority interests 10,375 13,800 7,825 108,116 103,960
Shareholders' equity 545,184 722,778 717,360 691,956 1,039,848
Dividends per share(10) 0.025 0.075 0.10 0.15 0.20
</Table>
1. FIVE-YEAR SELECTED FINANCIAL DATA REFLECTS THE 1999 COMBINATION OF
HOMESTAKE AND ARGENTINA GOLD AND THE 1998 COMBINATION OF HOMESTAKE AND
PLUTONIC, BOTH ON A POOLING-OF-INTERESTS BASIS. ACCORDINGLY, ALL PERIODS
PRESENTED INCLUDE THE RESULTS AND FINANCIAL POSITION OF ARGENTINA GOLD AND
PLUTONIC.
2. INCLUDES WRITE-DOWNS AND UNUSUAL CHARGES OF $68.6 MILLION ($74.6 MILLION
PRETAX) INCLUDING (i) HOMESTAKE MINE RESTRUCTURING CHARGES OF $23 MILLION
($23 MILLION PRETAX), (ii) REDUCTIONS IN THE CARRYING VALUES OF REDUNDANT
ASSETS OF $32 MILLION ($28 MILLION PRETAX), (iii) AN INCREASE IN THE
ACCRUAL FOR ESTIMATED FUTURE RECLAMATION EXPENDITURES OF $15 MILLION
($16.2 MILLION PRETAX), AND (iv) OTHER CHARGES OF $3.4 MILLION ($2.6
MILLION PRETAX).
3. INCLUDES BUSINESS COMBINATION AND INTEGRATION COSTS OF $4.8 MILLION ($4.8
MILLION PRETAX) AND WRITE-DOWNS AND OTHER UNUSUAL CHARGES OF $15.7 MILLION
($20.4 MILLION PRETAX) INCLUDING (i) REDUCTIONS IN THE CARRYING VALUES OF
RESOURCE ASSETS OF $8.9 MILLION ($11.7 MILLION PRETAX), (ii) AN INCREASE
IN THE ESTIMATED ACCRUAL FOR FUTURE REMEDIATION AND RECLAMATION
EXPENDITURES OF $3.3 MILLION ($5.2 MILLION PRETAX) AND (iii) A WRITE-DOWN
OF $3.5 MILLION ($3.5 MILLION PRETAX) FOR AN EXPLORATION JOINT VENTURE.
4. INCLUDES BUSINESS COMBINATION AND INTEGRATION COSTS OF $17 MILLION ($19.4
MILLION PRETAX) AND WRITE-DOWNS AND OTHER UNUSUAL CHARGES OF $188.5
MILLION ($213.8 MILLION PRETAX) INCLUDING (i) A REDUCTION IN THE CARRYING
VALUES OF RESOURCE ASSETS OF $130.8 MILLION ($151.6 MILLION PRETAX), (ii)
AN INCREASE IN THE ESTIMATED ACCRUAL FOR REMEDIATION AND RECLAMATION
EXPENDITURES OF $36 MILLION ($36 MILLION PRETAX), (iii) HOMESTAKE MINE
RESTRUCTURING CHARGES OF $5.9 MILLION ($8.9 MILLION PRETAX), (iv)
WRITE-DOWNS OF INVESTMENTS OF $7.6 MILLION ($8.2 MILLION PRETAX), AND (v)
OTHER CHARGES OF $8.2 MILLION ($9.1 MILLION PRETAX).
5. INCLUDES A GAIN OF $47.2 MILLION ($62.9 MILLION PRETAX) ON THE FEE
RECEIVED UPON TERMINATION OF HOMESTAKE'S MERGER AGREEMENT WITH SANTA FE
PACIFIC GOLD CORPORATION, A GAIN OF $10.4 MILLION ($10.4 MILLION PRETAX)
WITH RESPECT TO THE CANCELLATION OF AN OPTION TO ACQUIRE GREAT CENTRAL
MINES LIMITED, AND A GAIN OF $8.1 MILLION ($13.5 MILLION PRETAX) ON THE
SALE OF THE GEORGE LAKE AND BACK RIVER JOINT VENTURE INTERESTS IN NUNAVUT,
CANADA, AND WRITE-DOWNS AND UNUSUAL CHARGES OF $140 MILLION ($177.5
MILLION PRETAX) INCLUDING (i) A REDUCTION OF $60.1 MILLION ($84.7 MILLION
PRETAX) IN THE CARRYING VALUES OF RESOURCE ASSETS, (ii) WRITE-DOWNS OF
$45.7 MILLION ($47.9 MILLION PRETAX) OF CERTAIN INVESTMENTS, (iii) AN
INCREASE OF $21.5 MILLION ($29.1 MILLION PRETAX) IN THE ACCRUAL FOR
ESTIMATED FUTURE RECLAMATION EXPENDITURES, AND (iv) OTHER CHARGES OF $12.7
MILLION ($15.8 MILLION PRETAX) CONSISTING PRIMARILY OF FOREIGN EXCHANGE
LOSSES ON INTERCOMPANY REDEEMABLE PREFERRED STOCK AND LOSSES ON AN
INTERCOMPANY GOLD LOAN.
6. INCLUDES A WRITE-DOWN OF $84.9 MILLION ($107.8 MILLION PRETAX) IN
HOMESTAKE'S INVESTMENT IN THE MAIN PASS 299 SULFUR MINE.
7. INCLUDES INCOME OF $24 MILLION FROM A REDUCTION IN THE COMPANY'S ACCRUAL
FOR PRIOR YEAR INCOME TAXES, A GAIN OF $7.9 MILLION ($7.9 MILLION PRETAX)
FROM THE SALE OF THE INVESTMENT IN EAGLE MINING CORPORATION NL,
WRITE-DOWNS OF $8.3 MILLION ($9 MILLION PRETAX) IN THE CARRYING VALUES OF
INVESTMENTS IN MINING COMPANY SECURITIES, AND PROCEEDS OF $4.9 MILLION
($5.5 MILLION PRETAX) FROM A LITIGATION RECOVERY.
8. BASIC AND DILUTED EARNINGS PER SHARE.
9. INCLUDES A DEFERRED GAIN OF $22.2 MILLION AND $35 MILLION AT DECEMBER 31,
2000 AND 1999, RESPECTIVELY, ON THE EARLY CLOSE-OUT OF FORWARD SALES
CONTRACTS.
10. HOMESTAKE ONLY.
48
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
86
<Page>
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, the Compensation Committee report and the Audit Committee
report contained therein) is hereby incorporated by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMS 8-K
(a) 1. FINANCIAL STATEMENTS:
Refer to Part II, Item 8.
2. FINANCIAL STATEMENT SCHEDULES:
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 Report dated December 10, 1998.)
3.2 Bylaws (as amended through April 28, 2000) of Homestake Mining
Company (incorporated by reference to Exhibit 3.2 to the
Registrant's Form 10-Q Report for the quarterly period ended March
31, 2000.)
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
Report 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 Report filed on October 16, 1997).
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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 Report filed on December 4, 1998).
3.8 Rights Agreement dated as of December 3, 1998, between Homestake
Canada Inc., Homestake Mining Company and Computershare Trust
Company of Canada as Rights Agent (incorporated by reference to
Exhibit 5 to the Registrant's Form 8-A/A Report filed on December 4,
1998).
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 Agent for Lenders (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q Report for the quarterly
period ended June 30, 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 Report
for the quarterly period ended September 30, 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 Report
for the quarterly period ended September 30, 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 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).
*10.6 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).
*10.7 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).
*10.8 Retirement plan for outside directors of the Registrant dated as of
July 21, 1994 (incorporated by reference to Exhibit 10.2 to the
Registrant's Form 8-K Report dated March 20, 1995).
10.9 Combination Implementation Agreement dated December 22, 1997 between
Homestake Mining Company and Plutonic Resources Limited
(incorporated by
88
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reference to Appendix A to the Registrant's Preliminary Proxy
Statement dated January 26, 1998 and as amended March 11, 1998).
10.10 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).
10.11 Agreement dated October 9, 1991 between the Registrant and Chevron
Minerals Ltd. (incorporated by reference to Exhibit 10(b) to the
Registrant's Form 10-K Report for the year ended December 31, 1991).
10.12 Guarantee dated December 18, 1991 between the Registrant and Chevron
Minerals Ltd. (incorporated by reference to Exhibit 10(c) to the
Registrant's Form 10-K Report for the year ended December 31, 1991).
10.13 Agreement dated May 4, 1990 for the sale of the Registrant's 42.5%
partnership interest in The Doe Run Company (incorporated by
reference to Exhibit 28(a) to the Registrant's Form 8-K Report dated
May 18, 1990).
10.14 Purchase and sale agreement dated January 15, 1989 between the
Registrant's subsidiary, Homestake Gold of Australia Limited, and
North Kalgoorlie Mines Limited (and Group Companies) and Kalgoorlie
Lake View Pty. Ltd. (incorporated by reference to Exhibit 10(g) to
the Registrant's Form 10-K Report for the year ended December 31,
1989).
10.15 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 Report for
the year ended December 31, 1996).
10.16 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 Report for
the year ended December 31, 1992).
10.17 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 Report for the year ended
December 31, 1993).
10.18 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 Report for the year ended
December 31, 1993).
10.19 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 Report for
the year ended December 31, 1996).
10.20 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 Report for the year ended December 31, 1992).
89
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10.21 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 Report for the year
ended December 31, 1992).
10.22 Project Agreement (Williams Mine) dated August 11, 1989 among Teck
Corporation, Corona Corporation (now Homestake Canada Inc. and a
subsidiary of Registrant) and Williams Operating Corporation
(incorporated by reference to Exhibit 10.19 to the Registrant's Form
10-K Report for the year ended December 31, 1992).
10.23 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 Report for the year ended December 31,
1992).
10.24 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 Report for the year ended December 31, 1992).
*10.25 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 Report for the year
ended December 31, 1992).
*10.26 Employees' Stock Option and Share Rights Plan-1988 (incorporated by
reference to Exhibit 10(n) to the Registrant's Form 10-K Report for
the year ended December 31, 1987).
*10.27 Amended Homestake Mining Company Stock Option and Share Rights Plan
- 1996 ("1996 Plan") (incorporated by reference to Exhibit A to the
Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders).
*10.28 Form of Stock Option Agreement under the 1996 Plan (incorporated by
reference to Exhibit 10.36 to the Registrant's Form 10-K Report for
the year ended December 31, 1998).
*10.29 Form of Performance Based Share Agreement under the 1996 Plan
(incorporated by reference to Exhibit 10.37 to the Registrant's Form
10-K Report for the year ended December 31, 1998).
*10.30 Form of Bonus Share Agreement under the 1996 Plan (incorporated by
reference to Exhibit 10.38 to the Registrant's Form 10-K Report for
the year ended December 31, 1998).
*10.31 Form of Matching Stock Agreement under the 1996 Plan (incorporated
by reference to Exhibit 10.39 to the Registrant's Form 10-K Report
for the year ended December 31, 1998).
*10.32 1998 Outside Directors' Stock Compensation Plan (effective as of
January 1, 2000).
*10.33 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 Report dated January 18, 2000).
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*10.34 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 Report
dated January 18, 2000).
*10.35 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 Report
dated January 18, 2000).
*10.36 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 Report
dated January 18, 2000).
*10.37 Amended Form of Stock Option Agreement under the 1996 Plan
(incorporated by reference to Exhibit 10.46 to the Registrant's Form
8-K Report dated January 18, 2000).
*10.38 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 Report dated January 18, 2000).
*10.39 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 Report dated January 18, 2000).
*10.40 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 Report dated January 18, 2000).
*10.41 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 Report dated January 18, 2000).
*10.42 Amended Form of Matching Stock Agreement under the 1996 Plan
(incorporated by reference to Exhibit 10.51 to the Registrant's Form
8-K Report dated January 18, 2000).
13 Specified Sections from the Company's 2000 Annual Report to
Shareholders that are incorporated herein by reference
21 Subsidiaries of the Registrant.
* 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,
2000.
91
<Page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date November 9, 2001 By: *
---------------------- ---------------------------
Jack E. Thompson
Director, 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.
<Table>
<Caption>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ David W. Peat Vice President, Finance and November 9, 2001
- ----------------------- Chief Financial Officer
David W. Peat (Principal Accounting and
Financial Officer)
* Vice President and Controller November 9, 2001
- ----------------------- (Principal Accounting Officer
Alex G. Morrison
* Director, Chairman and Chief November 9, 2001
- ----------------------- Executive Officer
Jack E. Thompson
* Director November 9, 2001
- -----------------------
Gerhard Ammann
* Director November 9, 2001
- -----------------------
Robert H. Clark, Jr.
* Director November 9, 2001
- -----------------------
Peter J. Neff
* Director November 9, 2001
- -----------------------
Thomas J. O'Neil
* Director November 9, 2001
- -----------------------
Carol A. Rae
* President, Chief Operating November 9, 2001
- ----------------------- Officer and Director
Walter T. Segsworth
* Director November 9, 2001
- -----------------------
Jeffrey L. Zelms
* By: /s/ David W. Peat
---------------------
David W. Peat
Attorney-in-Fact
92
</Table>
<Page>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Wayne Kirk, Alex
G. Morrison and David W. Peat, and each of them severally, acting alone and
without the other, his true and lawful attorney-in-fact with authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amended Form 10-K Reports for the year 2000 that may be
necessary or advisable to enable Homestake Mining Company to comply with the
Securities Exchange Act of 1934 and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, which amendments may
make such changes in such 10-K Report as the aforesaid attorneys-in-fact deem
appropriate.
Date: November 9, 2001 /s/ Jack E. Thompson
---------------------------------------
Jack E. Thompson, Director,
Chairman and Chief Executive
Officer
Date: November 9, 2001 /s/ David W. Peat
---------------------------------------
David W. Peat, Vice President,
Finance and Chief Financial Officer
Date: November 9, 2001 /s/ Alex G. Morrison
---------------------------------------
Alex G. Morrison, Vice President
and Controller and Chief Accounting
Officer
Date: November 9, 2001 /s/ Gerhard Ammann
---------------------------------------
Gerhard Ammann, Director
Date: November 9, 2001 /s/ Robert H. Clark, Jr.
---------------------------------------
Robert H. Clark, Jr., Director
Date: November 9, 2001 /s/ Peter J. Neff
---------------------------------------
Peter J. Neff, Director
Date: November 8, 2001 /s/ Thomas J. O'Neil
---------------------------------------
Thomas J. O'Neil, Director
Date: November 9, 2001 /s/ Carol A. Rae
---------------------------------------
Carol A. Rae, Director
Date: November 9, 2001 /s/ Walter T. Segsworth
---------------------------------------
Walter T. Segsworth, Director,
President and Chief Operating
Officer
Date: November 8, 2001 /s/ Jeffrey L. Zelms
---------------------------------------
Jeffrey L. Zelms, Director