UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Quarterly Period Ended September 30, 2001
( ) 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
A Delaware Corporation
IRS Employer Identification No. 94-2934609
1600 Riviera Avenue, Suite 200
Walnut Creek, California 94596-3568
Telephone: (925) 817-1300
http://www. homestake.com
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 _____
-----
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-for-one basis.
Homestake Mining Company and Subsidiaries
FORM 10-Q
For the Quarter Ended September 30, 2001
INDEX
Part 1. Financial Information
Item 1. Financial Statements
a) Condensed Statements of Consolidated Operations
For the Three and Nine Months Ended September 30, 200l and 2000.... 3
b) Condensed Consolidated Balance Sheets
As of September 30, 2001 and December 31, 2000..................... 4
C) Condensed Statements of Consolidated Cash Flows
For the Nine Months Ended September 30, 2001 and 2000.............. 5
d) Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 21
Part 2. Other Information
Item 1. Legal Proceedings....................................................... 31
Item 5. Other Information....................................................... 31
Item 6. Exhibits and Reports on Form 8-K........................................ 32
Item 7. Signatures.............................................................. 33
2
Homestake Mining Company and Subsidiaries
PART 1-FINANCIAL INFORMATION
- ----------------------------
Item 1. Financial Statements
- ----------------------------
A. Condensed Statements of Consolidated Operations (unaudited)
- ------------------------------------------------------------------
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------------- ---------------- ------------- ---------------
(As Restated) (As Restated)
Revenues
Gold and ore sales $ 165,958 $ 160,804 $ 519,830 $ 496,237
Interest income 2,368 4,763 8,819 15,680
Other loss (note 4) (6,219) (7,229) (5,003) (24,347)
-------------- ---------------- ------------- ---------------
162,107 158,338 523,646 487,570
-------------- ---------------- ------------- ---------------
Costs and Expenses
Production costs 110,492 105,832 356,481 328,139
Depreciation, depletion and amortization 36,610 35,194 110,726 107,399
Administrative and general expense 9,156 9,884 32,546 32,224
Exploration expense 7,528 11,267 28,875 35,256
Interest expense 2,799 5,107 8,883 14,993
Reclamation and remediation charges - 16,166 - 16,166
Write-downs and other unusual charges - 47,659 - 48,175
Other expense 357 362 1,146 1,639
-------------- ---------------- ------------- ---------------
166,942 231,471 538,657 583,991
-------------- ---------------- ------------- ---------------
Loss Before Taxes and Minority Interests (4,835) (73,133) (15,011) (96,421)
Income taxes 9,569 239 9,798 (9,935)
Minority interests 250 1,058 1,348 1,890
-------------- ---------------- ------------- ---------------
Income (Loss) From Continuing Operations 4,984 (71,836) (3,865) (104,466)
Loss From Discontinued Operations - - - (15,346)
Gain on Disposal - Discontinued Operations - - 4,312 -
-------------- ---------------- ------------- ---------------
Net Income (Loss) $ 4,984 $ (71,836) $ 447 $(119,812)
============== ================ ============= ===============
Per Share Amounts - Basic and Diluted:
Income (loss) from continuing operations $ 0.02 $ (0.27) $ (0.02) $ (0.40)
Loss from discontinued operations - - - (0.06)
Gain on disposal - discontinued operations - - 0.02 -
-------------- ---------------- ------------- ---------------
Net Income (Loss) Per Share $ 0.02 $ (0.27) $ 0.00 $ (0.46)
============== ================ ============= ===============
Weighted Average Shares Used
in the Computation - basic 263,375 262,672 263,323 261,198
============== ================ ============= ===============
Weighted Average Shares Used
in the Computation - diluted (1) 265,096 262,672 264,462 261,198
============== ================ ============= ===============
Dividends Paid Per Common Share $ - $ - $ - $ -
============== ================ ============= ===============
(1) Options to purchase common shares are not included in the Year 2000
diluted loss per share calculations as their effect is anti-dilutive.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Homestake Mining Company and Subsidiaries
B. Condensed Consolidated Balance Sheets
-------------------------------------
(In thousands, except per share amount) (Unaudited)
September 30, December 31,
2001 2000
----------------- ------------------
(As Restated)
ASSETS
Current Assets
Cash and equivalents $ 187,900 $ 193,422
Short-term investments 1,300 6,237
Receivables 36,390 38,848
Inventories (note 7) 86,363 87,762
Deferred income taxes 10,371 4,021
Other 7,609 1,915
----------------- ------------------
Total current assets 329,933 332,205
----------------- ------------------
Property, Plant and Equipment, net 817,430 926,380
Investments and Other Assets 118,746 99,358
----------------- ------------------
Total Assets $ 1,266,109 $ 1,357,943
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 26,810 $ 37,779
Accrued liabilities 92,825 91,080
Income and other taxes payable 2,422 9,050
Current portion of deferred gain on close-out of
forward sales contracts (note 9) - 12,869
Current portion of long-term debt and capital leases 3,015 2,822
----------------- ------------------
Total current liabilities 125,072 153,600
----------------- ------------------
Long-term Liabilities
Long-term debt and capital leases (note 8) 210,002 224,616
Other long-term obligations 232,493 221,856
----------------- ------------------
Total long-term liabilities 442,495 446,472
----------------- ------------------
Deferred Gain on Close-out of Forward Sales Contracts (note 9) - 22,223
Deferred Income Taxes 154,369 180,089
Minority Interests in Consolidated Subsidiaries 7,851 10,375
Shareholders' Equity
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: 2001 - 3,017; 2000 - 3,375
- Common: 2001 - 260,294; 2000 - 259,846 260,294 259,846
Additional paid-in capital 939,057 936,574
Deficit (555,552) (555,999)
Accumulated other comprehensive loss (107,477) (95,237)
----------------- ------------------
Total shareholders' equity 536,322 545,184
----------------- ------------------
Total Liabilities and Shareholders' Equity $ 1,266,109 $ 1,357,943
================= ==================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Homestake Mining Company and Subsidiaries
C. Condensed Statements of Consolidated Cash Flows (unaudited)
-----------------------------------------------------------
(In thousands)
Nine Months Ended
September 30,
2001 2000
------------------ ------------------
(As Restated)
Operating Activities
Net income (loss) $ 447 $ (119,812)
Reconciliation to net cash provided by continuing operations:
Depreciation, depletion and amortization 110,726 107,399
Gains on investment sales and asset disposals (4,769) (5,272)
Gain on sale of discontinued operations (4,312) -
Loss from discontinued operations - 15,346
Reclamation and remediation - 16,166
Write-downs and other unusual charges - 48,175
Deferred taxes, minority interests and other 5,668 19,427
Effect of changes in operating working capital items (27,681) 10,443
------------------ ------------------
Net cash provided by continuing operations 80,079 91,872
------------------ ------------------
Investment Activities
Decrease in investments 4,937 130,599
Additions to property, plant and equipment (68,044) (55,985)
Acquisition of interest in Round Mountain - (25,930)
Proceeds from sale-leaseback of equipment 3,859 6,713
Payment upon disposition of business (607) -
Purchase of minority interest (2,306) -
Proceeds from investment and asset sales 5,444 4,607
Decrease (increase) in restricted cash (16,514) 1,789
------------------ ------------------
Net cash provided by (used in) investment activities (73,231) 61,793
------------------ ------------------
Financing Activities
Borrowings 6,421 99,172
Debt repayments (15,326) (136,333)
------------------ ------------------
Net cash used in financing activities (8,905) (37,161)
------------------ ------------------
Effect of Exchange Rate Changes on Cash and Equivalents 384 (852)
------------------ ------------------
Net Cash Used in Discontinued Operations (3,849) (3,636)
------------------ ------------------
Net Increase (Decrease) in Cash and Equivalents (5,522) 112,016
Cash and Equivalents, January 1 193,422 130,273
------------------ ------------------
Cash and Equivalents, September 30 $ 187,900 $ 242,289
================== ==================
Supplemental Information Included in Cash Flows Provided
by Continuing Operations:
Exchange loss on intercompany debt $ 13,871 $ 18,664
================== ==================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Homestake Mining Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
1. General Information and Restatement
The condensed consolidated financial statements include Homestake Mining
Company and its majority owned subsidiaries, and their undivided interests in
joint ventures (collectively, "Homestake" or the "Company") after elimination
of intercompany amounts.
The information furnished in this report reflects all normal recurring
adjustments which, in the opinion of management, are necessary for a fair
statement of the results for the interim periods. Results of operations for
interim periods are not necessarily indicative of results for the full year.
These unaudited condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto, which include
information as to significant accounting policies, in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 2000.
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS 140 replaces SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
It revises the standards for accounting for securitizations and other transfers
of financial assets and collateral. The Company was required to adopt this
standard for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 200l. The adoption of the standard had no
impact on the financial statements of the Company.
In June 2001, the FASB issued SFAS 141 and 142 "Business Combinations" and
"Goodwill and Other Intangible Assets," respectively. SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. FAS 141 will have no impact on the historical financial
statements of the Company, but will require the Company to account for any
future business combinations as purchases. SFAS 142 addresses the accounting for
goodwill and intangible assets subsequent to their initial recognition, and
requires that goodwill not be amortized but assessed for impairment at least
annually. The Company is required to adopt SFAS 142 effective January 1, 2002
and does not expect the adoption to impact the financial position of the
Company.
In June 2001, the FASB issued SFAS 143 "Accounting for Asset Retirement
Obligations." The Company is required to adopt SFAS 143 effective January
1, 2003. SFAS 143 requires full recognition of asset retirement obligations on
the balance sheet from the point in time at which a legal obligation exists. The
obligation is required to be measured at fair value. The carrying value of the
asset or assets to which the retirement obligation relates would be increased by
an amount equal to the liability recognized. This amount would then be
included in the depreciable base of the asset and charged to income over its
life as depreciation. The Company is currently in the process of evaluating the
impact that SFAS 143 will have on its financial statements.
In October 2001, the FASB issued SFAS 144 "Accounting for Impairment or
Disposal of Long-Lived Assets." SFAS 144 replaces SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company is required to adopt SFAS 144 effective January, 1 2002. The
Company has not yet determined the impact that SFAS 144 will have on its
financial statements.
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 expenditures incurred during the period April 1, 2000 through June 30,
200l. See Note 14 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
6
Homestake Mining Company and Subsidiaries
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 14
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 for each mine is reported to the
Chief Operating Officer. 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.
All amounts are in United States dollars unless otherwise indicated.
2. Merger
On June 25, 2001, the Company and Barrick Gold Corporation ("Barrick"), a
publicly traded Canadian gold producer, announced an intention to merge. The
transaction is subject to regulatory and Homestake shareholder approval. On
November 12, 2001, Homestake mailed to its shareholders the Homestake proxy
statement/Barrick F-4 registration statement with respect to the proposed merger
transaction, whereby Barrick will issue 0.53 Barrick shares for each share of
Homestake Common Stock and Homestake will become a wholly owned subsidiary of
Barrick. The merger will be accounted for as a pooling of interests.
7
Homestake Mining Company and Subsidiaries
3. Property Acquisition
On May 30, 2001, the Company reached an agreement with North Gold (WA)
Ltd., a subsidiary of Rio Tinto Limited, to acquire a 100% interest in the Cowal
Gold Project located in central New South Wales, Australia, approximately 250
miles west of Sydney. Under the terms of the agreement, Homestake paid a deposit
of $375,000 (A$724,000) in June 2001, an additional $9.6 million (A$18.8
million) in July 2001, and will pay a further $2.7 million (A$5.2 million) on
the fourth anniversary of the agreement. In addition, Homestake will make a
payment of $15.0 million (A$29.3 million) upon reaching a decision to develop a
mine. Homestake is in the process of mobilizing "drilling" equipment to commence
its own evaluation of the Project.
4. Other Loss
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------------
(in thousands) 2001 2000 2001 2000
------- -------- -------- ---------
Foreign currency contract losses $ (389) $(3,991) $ (2,374) $(15,983)
Foreign currency exchange losses on
intercompany loans and other (7,194) (9,614) (13,955) (19,480)
Oil sales 11 951 17 2,448
Gains (losses) on investments and
asset disposals (365) 4,167 4,390 4,881
Royalty income 445 516 1,469 1,966
Pension plan curtailment and settlement
gains 850 -- 4,099 --
Other 423 742 1,351 1,821
------- ------- ------- --------
$(6,219) $(7,229) $(5,003) $(24,347)
======= ======= ======= ========
In the 2001 first quarter, Homestake recorded a non-recurring gain of $2.4
million related to the sale of mining information in conjunction with an
agreement to sublease its Just-in-Case property in Western Australia for a ten-
year period. Homestake received a payment of $2.4 million (A$5.0 million) for
the sale of the mining information, and subject to receiving government
approvals, will receive lease payments of $3.6 million (A$7.5 million) and $6.0
million (A$12.5 million) no later than December 31, 2006 and December 31, 2008,
respectively. Accordingly, lease revenue of $9.6 million (A$20.0 million)will be
accrued over the ten-year lease term. Homestake will also receive a 3.5% net
smelter return royalty (NSR) on all production from the Just-in-Case sublease,
and in addition, is entitled to a payment of up to $6.3 million (A$13.0 million)
in the event that production from the sublease does not reach a specified
cumulative level by contracted dates. This payment is creditable against the
NSR.
5. Disposition of Main Pass 299
On May 9, 2001, the Company entered into a purchase and sale agreement with
Freeport-McMoRan Sulfur LLC ("Freeport"), the operator and 83.3% owner of Main
Pass 299, under which the Company's 16.7% undivided joint-venture interest in
the Main Pass 299 sulfur and oil and gas assets and liabilities have been sold
to Freeport. Under the agreement, the Company made a payment of $2.6 million to
Freeport and Freeport assumed and agreed to discharge all of the Company's Main
Pass 299 sulfur and oil and gas reclamation obligations. For the quarter ended
June 30, 2001, the Company recognized a gain of $1.3 million in continuing
operations related to its disposition of its interest in the Main Pass 299 oil
and gas operations and a gain of $4.3 million in discontinued operations related
to the disposition of its interest in the Main Pass 299 sulfur operations. The
sulfur operations were recorded as a discontinued operations in the second
quarter of 2000, at which time the Company recorded a provision of $3.5 million
for estimated operating losses during the closure period and $8.5 million for
mine reclamation and closure costs. The $4.3 million gain on disposal of the
Main Pass 299 sulfur operations primarily arose as a result of the discharge of
those environmental liabilities for an amount less than the original estimate.
8
Homestake Mining Company and Subsidiaries
6. Comprehensive Loss
Statements of Consolidated Operations
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
------------ ------------- ------------- -------------
(As Restated) (As Restated)
Net Income (Loss) $ 4,984 $ (71,836) $ 447 $(119,812)
------------ ------------- ------------- -------------
Other Comprehensive Loss:
Changes in unrealized gains (losses)
on securities:
Unrealized holding gains (losses) arising
during the period (2,912) 1,390 (4,735) (327)
Less: Reclassification adjustments
for gains (losses) included in
net income (loss) (250) 3,186 379 3,900
Income taxes (5) 473 (4) (446)
------------ ------------- ------------- -------------
(2,667) (1,323) (5,118) (4,673)
------------ ------------- ------------- -------------
Foreign currency translation adjustments
(before and after tax) (8,873) (28,662) (33,820) (69,347)
------------ ------------- ------------- -------------
Hedged Production:
SFAS 133 transition adjustment (note 9) - - 35,092 -
Reclassification adjustment for deferred
gains on close-out of forward sales
contracts included in net income (loss) (3,207) - (8,070) -
Income taxes (201) - (324) -
------------ ------------- ------------- -------------
(3,408) - 26,698 -
------------ ------------- ------------- -------------
Other Comprehensive Loss (14,948) (29,985) (12,240) (74,020)
------------ ------------- ------------- -------------
Comprehensive Loss $ (9,964) $ (101,821) $ (11,793) $(193,832)
============ ============= ============= =============
7. Inventories
September 30, December 31,
(in thousands) 2001 2000
--------------- ---------------
Finished products $ 24,900 $ 28,327
Ore and in process 42,821 37,955
Supplies 18,642 21,480
--------------- ----------------
$ 86,363 $ 87,762
=============== ================
9
Homestake Mining Company and Subsidiaries
8. Long-term Debt and Capital Leases
September 30, December 31,
(in thousands) 2001 2000
------------ -----------
Cross-border credit facility (due 2003) $136,009 $148,941
Pollution control bonds:
Lawrence County, South Dakota (due 2032) 38,000 38,000
State of California (due 2004) 17,000 17,000
Capital leases 22,008 23,497
------------ -----------
213,017 227,438
Less: current portion of capital leases 3,015 2,822
------------ -----------
$210,002 $224,616
============ ===========
9. 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.
Effective January 1,2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (" SFAS 133"), as amended by SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (" SFAS 138"). The
adoption of SFAS 133, as amended by SFAS 138, had no impact on the Company's
results for the period. However, gains of $35.1 million relating to gold and
silver hedging contracts previously closed out have been reclassified on
adoption from deferred gains to accumulated other comprehensive loss.
SFAS 133 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 are designated as, and qualify for, hedge accounting.
The Company uses combinations of put and call options to hedge its exposure to
foreign currency exchange rates. In accordance with SFAS 133, the Company has
elected not to designate its foreign currency options as hedges and,
accordingly, gains and losses resulting from changes in the fair value of these
contracts will continue to be recorded in earnings each period.
At January 1,200l and September 30,2001, the Company's hedging contracts used
to reduce exposure to precious metal prices, consisted entirely of forward sales
contracts. The Company settles these contracts through the physical delivery of
production from its operations at the contract settlement dates. Therefore, the
forward sales contracts meet the criteria for the normal purchases and sales
exemption of SFAS 133, as amended by SFAS 138. Accordingly, recognition of the
precious metals forward sales contracts will continue to be deferred until
settlement.
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. In July 2000, the Company discontinued its
foreign currency protection program. Contracts outstanding at September 30,200l
are expected to remain in place until maturity.
10
Homestake Mining Company and Subsidiaries
At September 30, 2001, the Company had foreign exchange currency option
contracts outstanding as follows:
Expected Maturity or Transaction Date
-------------------------------------
Total or
(US$ in millions, except exchange rate amounts) 2001 2002 Average
----------- ----------- -----------
Canadian $/US $ option contracts:
- --------------------------------
US $ covered $9.0 - $9.0
Written puts, average exchange rate (1) 0.63 - 0.63
US $ covered $9.0 - $9.0
Purchased calls, average exchange rate (2) 0.68 - 0.68
Australian $/US $ option contracts:
- ---------------------------------
US $ covered $17.7 $33.0 $50.7
Written puts, average exchange rate (1) 0.68 0.68 0.68
US $ covered $17.7 $33.0 $50.7
Purchased calls, average exchange rate (2) 0.68 0.68 0.68
US $ covered $17.7 $33.0 $50.7
Purchased puts, average exchange rate (3) 0.65 0.65 0.65
(1) Assuming exercise by the counterparty at the expiration date, the Company
would exchange US dollars for Canadian or Australian dollars at the put
exchange rate. The counterparty 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 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.
Precious Metal 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.
At September 30, 2001, the unamortized portion of the pretax gain resulting
from the early settlement of certain gold forward sales and option contracts
prior to the adoption of SFAS 133, maturing in the years 2001, 2002 and 2003 was
$26.7 million which has been recorded in accumulated other comprehensive loss
and will be reclassified into income as the originally designated production is
sold. Of this amount, $312.5 million will be recognized in income in the twelve-
month period to September 30, 2002. In March 2000, the Company closed out and
financially settled its remaining U.S. dollar denominated silver forward sales
contracts covering 3.6 million ounces maturing in 2000 and 2001. At September
30, 2001, the unamortized pretax portion of this gain of $206,000, realized on
this transaction has been recorded in accumulated other comprehensive loss and
will be reclassified in income as the originally designated production is sold.
11
Homestake Mining Company and Subsidiaries
At September 30,2001, the Company had gold forward sales contracts
outstanding as follows:
Expected Maturity or Transaction Date
-------------------------------------------------------------------
Total or
2001 2002 2003 2004 2005 Thereafter Average
-------------------------------------------------------------------
US $ denominated contracts:
- --------------------------
Forward sales contracts :
Ounces 10,000 10,000 - - 90,000 559,200 669,200
Average price (US$ per oz.) $400 $403 - - $400 $418 $415
Australian $denominated contracts :/(1)/
- ----------------------------------
Forward sales contracts:
Ounces 111,000 348,800 258,800 228,800 302,000 - 1,249,400
Average price (A$ per oz.) $511 $539 $553 $592 $568 - $556
Average price (US$ per oz.)/(l)/ $252 $265 $272 $291 $279 - $274
/(1)/ Expressed in U.S. dollars at September 30, 200l exchange rate of
A$=US$ O.4922
10. Segment Information
The Company is primarily 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.
12
Homestake Mining Company and Subsidiaries
Segment information for the three and nine months ended September 30, 200l and
2000 are as follows:
Round Ruby
(in thousands) Mountain Homestake McLaughlin Hill Eskay Creek Hemlo
--------------------------------------------------------------------------------------
For the three months ended:
September 30, 200l
Gold and ore sales $27,645 $11,042 $ 9,047 $ 8,048 $29,048 $15,966
Other revenues (losses) - 1,668 7 - (6) 382
Total revenues and other
income (loss) 27,645 12,710 9,054 8,048 29,042 16,348
Operating earnings (loss) (b) $ 3,346 $ 674 $(1,500) $ 762 $ 3,598 $ 1,793
September 30, 2000 (As Restated)
Gold and ore sales $18,854 $11,410 $ 7,427 $ 9,521 $29,633 $19,225
Other revenues (losses) (4) 382 30 - 44 13
Total revenues and other
income (loss) 18,850 11,792 7,457 9,521 29,677 19,238
Operating earnings (loss) (b $ (225) $(1,741) $(1,218) $ 1,483 $ 5,022 $ 4,030
For the nine months ended:
September 30, 200l
Gold and ore sales $79,486 $40,344 $23,559 $26,218 $86,917 $59,290
Other revenues (losses) 11 3,100 33 - 90 1,083
Total revenues and other
income (loss) 79,497 43,444 23,592 26,218 87,007 60,373
Operating earnings (loss) (b) $ 8,305 $ 222 $(4,647) $ 2,515 $10,461 $ 5,873
September 30, 2000 (As Restated)
Gold and ore sales $39,041 $38,486 $23,734 $26,657 $95,025 $65,828
Other revenues (losses) 19 772 (45) - 47 473
Total revenues and other income 39,060 39,258 23,689 26,657 95,072 66,301
Operating earnings (loss) (b) $(2,318) $(2,359) $(3,395) $ 4,042 $20,212 $13,631
Corporate
and All Reconciling
Kalgoorlie Plutonic Darlot Lawlers Other Items (a) Total
-------------------------------------------------------------------------------------------------
For the three months ended:
September 30, 200l
Gold and ore sales $22,007 $21,546 $ 8,789 $6,872 $ 5,948 $ - $165,958
Other revenues (losses) 31 50 (31) 2 (4,981) (973) (3,851)
Total revenues and other
income (loss) 22,038 21,596 8,758 6,874 967 (973) 162,107
Operating earnings (loss) (b) $ 1,701 $ 6,027 $2,060 $ 791 $(3,274) $ (973) $ 15,005
September 30, 2000 (As Restated)
Gold and ore sales $24,737 $16,303 $ 9,045 $6,911 $ 7,738 $ - $160,804
Other revenues (losses) 72 (20) - (17) (212) (2,754) (2,466)
Total revenues and other
income (loss) 24,809 16,283 9,045 6,894 7,526 (2,754) 158,338
Operating earnings (loss) (b) $ 3,449 $ 5,777 $ 1,904 $ (63) $ 1,648 $(2,754) $ 17,312
For the nine months ended:
September 30, 200l
Gold and ore sales $79,014 $60,995 $25,474 $19,560 $18,973 $ - $519,830
Other revenues (losses) 290 75 (31) 27 4,737 (5,599) 3,816
Total revenues and other
income (loss) 79,304 61,070 25,443 19,587 23,710 (5,599) 523,646
Operating earnings (loss) (b) $ 8,190 $14,304 $ 5,580 $ 978 $10,257 $(5,599) $ 56,439
September 30, 200O (As Restated)
Gold and ore sales $82,603 $50,431 $27,620 $19,905 $26,907 $ - $496,237
Other revenues (losses) 390 75 (33) 19 (2,356) (8,028) (8,667)
Total revenues and other income 82,993 50,506 27,587 19,924 24,551 (8,028) 487,570
Operating earnings (loss) (b) $11,360 $ 7,309 $ 4,144 $ 627 $ 6,807 $ (8,028) $ 52,032
(a) Primarily intercompany financing.
(b) Operating earnings represent total revenues and other income less production
costs and depreciation, depletion and amortization.
13
Homestake Mining Company and Subsidiaries
11. Contingencies
Environmental Contingencies
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 imposes heavy liabilities on any person who discharges hazardous
substances. The Environmental Protection Agency 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
NFL. 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 September 30, 2001, Homestake had received $35.5 million from
the DOE and had a receivable of $1.5 million for the DOE's share of reclamation
expenditures made by Homestake through September 30, 200l.
In 1983, the state of New Mexico filed claims against Homestake for natural
resource damages resulting from the Grants site. To date, the state of New
Mexico has taken no action to enforce its claims.
Other Contingencies
In addition to the above, 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 results of
operations.
12. Homestake Canada Inc. ("HCI")
In connection with the 1998 acquisition of the minority interests in Prime
Resources Group Inc., 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 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.
Homestake, through a wholly owned subsidiary, owns all the outstanding common
shares of HCI. At September 30, 2001, 3.0 million of the HCI exchangeable shares
outstanding were held by the public.
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$282.0 million (US$191.0 million). In accordance with United
States generally accepted accounting principles, the assets, liabilities and
shareholder's equity of Argentina Gold have been recorded in HCI's financial
statements at their historical cost basis. The difference between the historical
cost basis of Argentina Gold shareholder's equity and its fair value at the date
of transfer has been recorded as a reduction to HCI's shareholders' equity.
14
Summarized consolidated financial information for HCI is as follows:
(in thousands) September 30, December 31, December 31,
2001 2000 2000
---------------- ---------------- ----------------
(As Previously (As Restated)
Reported)
Current assets $ 36,276 $ 41,837 $ 41,837
Noncurrent assets 375,859 449,228 436,224
---------------- ---------------- ----------------
Total assets $ 412,135 $ 491,065 $ 478,061
================ ================ ================
Current portion of notes
payable to the Company $ 131,085 $ 122,992 $ 122,992
Other current liabilities 18,842 28,044 28,044
Long-term debt 136,009 148,941 148,941
Notes payable to the Company 190,872 190,872 190,872
Other long-term liabilities 12,852 15,474 15,474
Deferred income taxes 135,652 161,976 161,976
Shareholders' equity (213,177) (177,234) (190,238)
---------------- ---------------- ----------------
Total liabilities and
shareholders' equity $ 412,135 $ 491,065 $ 478,061
================ ================ ================
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------- -------------------------------------------
2001 2000 2000 2001 2000 2000
----------- ------------- -------------- ----------- ------------- -------------
(As Previously (As Restated) (As Previously (As Restated)
Reported) Reported)
Total revenues and other income $ 45,384 $ 49,386 $ 49,386 $ 146,882 $ 161,547 $ 161,547
Less: Costs and expenses 53,063 60,580 61,951 183,571 182,446 188,180
----------- ------------- -------------- ----------- ------------- -------------
Loss before taxes $ (7,679) $ (11,194) $ (12,565) $ (36,689) $ (20,899) $ (26,633)
=========== ============= ============== =========== ============= =============
Net loss $ (1,597) $ (8,133) $ (9,504) $ (19,290) $ (23,689) $ (29,412)
=========== ============= ============== =========== ============= =============
15
Homestake Mining Company and Subsidiaries
13. Write-Downs and Other Unusual Charges
On September 11,2000, the Company announced a restructuring of the
operations of 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 $23.0 million provision for employee termination benefits and
other exit costs in the third quarter of 2000. By no later than December 2001,
the workforce will be reduced from the current level of 262 employees, to
approximately 40 employees who will oversee the reclamation and other closure
procedures. The classifications of the affected employees include mining
engineers, geologists, administrative employees and mine workers. The following
table presents a roll-forward of the liability accrued in connection with the
Homestake mine restructuring plan:
(in thousands)
Liability balance at December 31, 2000 $ 22,427
Severance payments (1,001)
----------------
Liability balance at September 30, 2001 $ 21,426
================
Pension and other post-retirement curtailment gains of $850,000 and $4.1
million were recognized during the three and nine months ended September
30,2001, respectively, reflecting the termination of employees and the
settlement of obligations.
14. 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 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 expenditures incurred during the period April 1, 2000 through June 30,
200l.
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 or 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 10 for comparative restated segment information.
16
Homestake Mining Company and Subsidiaries
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:
Statements of Consolidated Operations (Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- --------------------------------------
2000 2000
--------------------------------- --------------------------------------
As Previously As As Previously As
Reported Restated Reported Restated
---------------- --------------- ------------------- ---------------
Revenues $ 158,338 $ 158,338 $ 487,570 $ 487,570
---------------- --------------- ------------------- -----------------
Costs and Expenses
Production costs 105,346 105,832 326,473 328,139
Depreciation, depletion and amortization 37,967 35,194 108,133 107,399
Administrative and general expense 9,884 9,884 32,224 32,224
Exploration expense 9,896 11,267 29,522 35,256
Interest expense 5,107 5,107 14,993 14,993
Reclamation accrual 16,166 16,166 16,166 16,166
Write-downs and other unusual items 51,657 47,659 52,173 48,175
Other expense 362 362 1,639 1,639
---------------- --------------- ------------------- -----------------
236,385 231,471 581,323 583,991
---------------- --------------- ------------------- -----------------
Loss Before Taxes
and Minority Interests (78,047) (73,133) (93,753) (96,421)
Income Taxes 913 239 (2,414) (9,935)
Minority Interests 1,058 1,058 1,890 1,890
---------------- --------------- ------------------- -----------------
Loss From Continuing Operations (76,076) (71,836) (94,277) (104,466)
Loss From Discontinued Operations - - (15,346) (15,346)
---------------- --------------- ------------------- -----------------
Net Loss $ (76,076) $ (71,836) $ (109,623) $ (119,812)
================ =============== =================== =================
Per Share Amounts - Basic and Diluted
Loss From Continuing Operations $ (0.29) $ (0.27) $ (0.36) $ (0.40)
Loss From Discontinued Operations - - (0.06) (0.06)
---------------- --------------- ------------------- -----------------
Net Loss Per Share $ (0.29) $ (0.27) $ (0.42) $ (0.46)
================ =============== =================== =================
17
Homestake Mining Company and Subsidiaries
Consolidated Balance Sheets
(in thousands)
December 31, 2000
-------------------------------
As Previously As
Reported Restated
------------- ------------
Current Assets $ 332,205 $ 332,205
Property, Plant and Equipment (net) 987,812 926,380
Investments and Other Assets 99,358 99,358
----------- ------------
Total Assets $ 1,419,375 $ 1,357,943
=========== ============
Current Liabilities $ 153,600 $ 153,600
Long-term Liabilities 224,616 224,616
Other Long-Term Obligations 217,786 221,856
Deferred Gain on Close-Out of
Forward Sales Contracts 22,223 22,223
Deferred Income Taxes 181,961 180,089
Minority Interests in Consolidated
Subsidiaries 10,375 10,375
Shareholders' Equity
Capital stock 259,846 259,846
Additional paid-in capital 937,463 936,574
Deficit (493,286) (555,999)
Accumulated other comprehensive loss (95,209) (95,237)
----------- ------------
Total Liabilities and Shareholders'
Equity $ 1,419,375 $ 1,357,943
=========== ============
18
Statements of Consolidated Cash Flows (Unaudited)
(in thousands)
Nine Months Ended September 30,
---------------------------------------
2000
---------------------------------------
As Previously As
Reported Restated
------------------- ------------------
Operating Activities
- --------------------
Net loss $ (109,623) $ (119,812)
Reconciliation to net cash provided by operations
Depreciation, depletion and amortization 108,133 107,399
Loss from discontinued operations 15,346 15,346
Other 73,307 78,496
Effect of changes in working capital items 10,443 10,443
------------------- ------------------
Net cash provided by continuing operations 97,606 91,872
------------------- ------------------
Investment Activities
- ---------------------
Additions to property, plant and equipment (61,719) (55,985)
Other 117,778 117,778
------------------- ------------------
Net cash provided by investment activities 56,059 61,793
------------------- ------------------
Financing Activities
- --------------------
------------------- ------------------
Net cash used in financing activities (37,161) (37,161)
------------------- ------------------
Effect of Exchange Rate Changes on Cash and
Equivalents (852) (852)
------------------- ------------------
Net cash used in discontinued operations (3,636) (3,636)
------------------- ------------------
Net Increase in Cash and Equivalents 112,016 112,016
Cash and Equivalents, January 1 130,273 130,273
------------------- ------------------
Cash and Equivalents, September 30 $ 242,289 $ 242,289
=================== ==================
19
Homestake Mining Company and Subsidiaries
15. Subsequent Event
On October 25, 2001, the Company declared a dividend of US$0.025 per share of
common stock, payable on December 6, 200l to shareholders of record at the
close of business on November 15, 200l. Homestake Canada Inc. ("HCI") also
declared a dividend of C$0.039 (US$0.025) per HCI exchangeable share payable on
December 6, 200l to shareholders of record at the close of business on
November 15, 200l.
20
Homestake Mining Company and Subsidiaries
Item 2 - Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations
- ---------------------
(Unless specifically stated otherwise, the following information relates to
amounts included in the condensed consolidated financial statements without
reduction for minority interests. Homestake reports per ounce production costs
in accordance with the "Gold Institute Production Cost Standard".)
This discussion should be read in conjunction with the Management's
Discussion and Analysis included in Homestake Mining Company's ("Homestake" or
the "Company") Annual Report on Form 10-K/A for the year ended December 31,
2000.
On June 25, 2001, the Company and Barrick Gold Corporation ("Barrick"), a
publicly traded Canadian gold producer, announced an intention to merge. The
transaction is subject to Regulatory and Homestake shareholder approval. On
November 12, 2001, Homestake mailed to its shareholders the Homestake proxy
statement/Barrick F-4 registration statement with respect to the proposed merger
transaction, whereby Barrick will issue 0.53 Barrick shares for each share of
Homestake Common Stock and Homestake will become a wholly owned subsidiary of
Barrick. The merger will be accounted for as a pooling of interests.
On May 30, 2001, the Company reached an agreement with North Gold (WA) Ltd.,
a subsidiary of Rio Tinto Limited, to acquire a 100% interest in the Cowal Gold
Project located in central New South Wales, Australia, approximately 250 miles
west of Sydney. Under the terms of the agreement, Homestake paid a deposit of
$375,000 (A$724,000) in June 2001, an additional $9.6 million (A$18.8 million)
in July 2001, and will pay a further $2.7 million (A$5.2 million) on the fourth
anniversary of the agreement. In addition, Homestake will make a payment of
$15.0 million (A$29.3 million) upon reaching a decision to develop a mine.
Homestake is in the process of mobilizing drilling equipment to commence its own
evaluation of the project.
In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS 140 replaces SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
It revises the standards for accounting for securitizations and other transfers
of financial assets and collateral. The Company was required to adopt this
standard for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The adoption of the standard had no
impact on the financial statements of the Company.
In June 2001, the FASB issued SFAS 141 and 142 "Business Combinations" and
"Goodwill and Other Intangible Assets," respectively. SFAS 141 requires all
business combinations initiated after June 30, 200l to be accounted for using
the purchase method. FAS 141 will have no impact on the historic financial
statements of the Company, but will require the Company to account for any
future business combinations as purchases. SFAS 142 addresses the accounting for
goodwill and intangible assets subsequent to their initial recognition, and
requires that goodwill not be amortized but assessed for impairment at least
annually. The Company is required to adopt SFAS 142 effective January 1, 2002
and does not expect the adoption to impact the financial position of the
Company.
In June 2001, the FASB issued SFAS 143 "Accounting for Asset Retirement
Obligations." The Company is required to adopt SFAS 143 effective January
1, 2003. SFAS 143 requires full recognition of asset retirement obligations on
the balance sheet from the point in time at which a legal obligation exists. The
obligation is required to be measured at fair value. The carrying value of the
asset or assets to which the retirement obligation relates would be increased by
an amount equal to the liability recognized. This amount would then be included
in the depreciable base of the asset and charged to income over its life as
depreciation. The Company is currently in the process of evaluating the impact
that SFAS 143 will have on its financial statements.
In October 2001, the FASB issued SFAS 144 "Accounting for Impairment or
Disposal of Long-Lived Assets." SFAS 144 replaces SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company is required to adopt SFAS 144 effective January, 1 2002. The Company
has not yet determined the impact that SFAS 144 will have on its financial
statements.
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
21
Homestake Mining Company and Subsidiaries
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 expenditures incurred during the period April 1, 2000 through June 30,
2001. See Note 14 to Homestake's September 30, 2001 Condensed 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 14 to Homestake's September
30, 2001 Condensed 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 for each mine is reported to the
Chief Operating Officer. 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 10 to Homestake's September 30, 2001 Condensed Consolidated Financial
Statements.
RESULTS OF OPERATIONS
SUMMARY
Homestake recorded net income of $5.0 million ($0.02 per share) and $447,000
($nil per share) in the quarter and nine months ended September 30, 2001,
compared with the losses of $71.8 million ($0.27 per share) and $119.8 million
($0.46 per share) in the respective 2000 periods.
The third quarter and year-to-date 2001 results include after-tax foreign
currency losses of $7.2 million ($0.03 per share) and $15.4 million ($0.06 per
share), respectively. During the third quarter of 2001, the Australian and
Canadian currencies weakened in relation to the U.S. dollar. The majority of the
foreign currency losses in 2001 relate to intercompany advances established
between the U.S. parent and its Australian and Canadian subsidiaries to finance
corporate acquisitions and capital development projects. Third quarter and year-
to-date results in 2000 include after-tax foreign currency exchange losses of
$11.9 million ($0.05 per share) and $29.6 million ($0.11 per share),
respectively, after tax write-downs and unusual charges of $48.2 million ($0.18
per share) and additional provision for reclamation and remediation charges of
$16.2 million ($0.06 per share).
22
Homestake Mining Company and Subsidiaries
The following table outlines the closing U.S. dollar exchange rate for
Canadian and Australian dollars on dates indicated
Australian Dollar Canadian Dollar
--------------------- ---------------------
December 31, 1999 0.6539 0.6929
March 31, 2000 0.6132 0.6880
June 30, 2000 0.5967 0.6760
December 31, 2000 0.5588 0.6666
March 31, 2001 0.4858 0.6340
June 30, 2001 0.5115 0.6589
September 30, 2001 0.4922 0.6333
Excluding the effect of the foreign currency exchange losses the 2000
write-downs and unusual charges and the additional provision for reclamation and
remediation the Company recorded net income of $12.2 million ($0.05 per share)
and $15.8 million ($0.06 per share) for the quarter and nine months ended
September 30, 2001, respectively, compared to net income of $3.6 million ($0.01
per share) and a net loss of $10.9 million ($0.04 per share) for the
corresponding periods in 2000. The improvement in the current year's results
primarily reflects higher sales volumes, lower exploration spending, an $11 per
ounce decrease in production costs, a gain of $2.4 million on the sale of mining
information with respect to the Just-in-Case property, and gains of $4.3 million
and $1.3 million on the sale of the discontinued sulfur operations and oil and
gas assets in the Gulf of Mexico, respectively, partially offset by a $18 per
ounce decline in the realized gold price from the first nine months of the prior
year.
On July 20, 2000, Freeport-McMoRan Sulphur LLC ("Freeport"), 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. Homestake's 16.7% interest
in the joint venture was reflected as a discontinued operation at June 30,
2000. The 2000 second quarter loss included a non-recurring charge of $12.0
million, reflecting Homestake's $8.5 million share of unaccrued reclamation and
closure costs and a $3.5 million allowance for project operating losses during
the shutdown period.
On May 9, 2001, the Company entered into a purchase and sale agreement with
Freeport, under which the Company's 16.7% undivided joint-venture interest in
the Main Pass 299 sulfur and oil and gas assets and liabilities have been sold
to Freeport. Under the agreement, the Company made a payment of $2.6 million to
Freeport and Freeport assumed and agreed to discharge all of the Company's Main
Pass 299 sulfur and oil and gas reclamation obligations. For the quarter ended
June 30, 2001, the Company recognized a gain of $4.3 million in discontinued
operations related to the disposition of its interest in the Main Pass 299
sulfur operations and a gain of $1.3 million in continuing operations related to
the disposition of its interest in the Main Pass 299 oil and gas operations.
23
Homestake Mining Company and Subsidiaries
GOLD OPERATIONS
Revenues from gold and ore sales totaled $166.0 million and $519.8 million
in the three and nine months ended September 30, 2001, respectively, compared to
$160.8 million and $496.2 million in the respective periods in 2000. Higher
sales volumes in 2001 were partially offset by lower realized gold prices as
reflected in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2001 2000 2001 2000
--------- -------- -------- ---------
Ounces sold 574,900 544,100 1,819,500 1,601,100
Average realized price per ounce $276 $284 $272 $290
24
Homestake Mining Company and Subsidiaries
The following table details Homestake's gold production by location:
Production
(Ounces in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
Mine (Percentage interest) 2001 2000 2001 2000
- -------------------------- --------- -------- -------- --------
Australia
Kalgoorlie (50) 84.3 92.4 291.4 289.5
Yilgarn:
Plutonic (100) 76.4 61.0 226.8 176.9
Darlot (100) 31.5 35.0 95.1 98.8
Lawlers (100) 24.7 26.2 71.2 70.5
----- ----- ------- -------
Total Australia 216.9 214.6 684.5 635.7
Canada
Eskay Creek (100) 78.8 81.9 238.3 249.9
Hemlo (50) 67.4 75.0 216.9 236.5
----- ----- ------- -------
Total Canada 146.2 156.9 455.2 486.4
United States
Round Mountain (50)(a) 102.9 77.8 301.0 152.0
Ruby Hill (100) 34.6 35.6 99.2 97.0
McLaughlin (100) 29.4 25.8 87.0 81.7
Marigold (33) 7.1 4.2 22.4 15.9
Homestake (100) 45.9 40.6 148.8 132.4
----- ----- ------- -------
Total United States 219.9 184.0 658.4 479.0
Chile
Agua de la Falda (51) 4.6 3.4 12.4 15.9
----- ----- ------- -------
Homestake Total 587.6 558.9 1,810.5 1,617.0
===== ===== ======= =======
(a) Homestake acquired an additional 25% interest in the Round Mountain mine
effective July 1, 2000 increasing its ownership from 25% to 50%.
25
Homestake Mining Company and Subsidiaries
The following table details Homestake's total cash costs per ounce by
location:
Total Cash Costs
(Dollars per ounce)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Mine (Percentage interest) 2001 2000 2001 2000
- -------------------------- ------- -------- ------ -------
Australia
Kalgoorlie (50) $ 201 $ 183 $ 190 $ 195
Yilgarn:
Plutonic (100) 157 201 161 201
Darlot (100) 178 168 166 192
Lawlers (100) 193 227 208 226
----- ----- ----- -----
Total Australia 181 191 179 200
Canada
Eskay Creek (100)(a) 60 33 53 24
Hemlo (50) 203 187 205 190
----- ----- ----- -----
Total Canada 126 107 126 105
United States
Round Mountain (50) 184 202 176 221
Ruby Hill (100) 104 97 102 101
McLaughlin (100) 214 240 219 234
Marigold (33) 163 339 169 257
Homestake (100) 193 287 199 276
----- ----- ----- -----
Total United States 176 209 176 215
Chile
Agua de la Falda (51) 222 223 253 212
----- ----- ----- -----
Homestake Total $ 166 $ 173 $ 165 $ 176
===== ===== ===== =====
(a) Eskay Creek's costs per ounce were calculated on a by-product basis.
Included as a credit against costs in the 2001 third quarter and year-to-date
periods were revenues from the sale of 3.9 million and 11.4 million ounces of
silver, respectively, at average prices of $4.35 and $4.43 per ounce
respectively. Included as a credit against costs in the 2000 third quarter and
year-to-date periods were revenues from the sale of 3.6 million and 10.7
million ounces of silver at average prices of $4.86 and $5.02 per ounce,
respectively. 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 relative sales values, consolidated total cash costs would have been $177
and $184 per ounce, in the 2001 and 2000 third quarters, respectively, and $175
and $187 for the year-to-date periods in 2001 and 2000, respectively. For
comparison purposes, costs per ounce include estimated third-party costs
incurred by smelter owners and others to produce marketable gold and silver.
26
Homestake Mining Company and Subsidiaries
The following table details Homestake's consolidated production costs per
ounce:
Consolidated Production Costs per Ounce (1)
(Dollars per ounce of gold)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
(As Restated) (As Restated)
Realized Gold Price $ 276 $ 284 $ 272 $ 290
============= ============= ============= =============
Per Ounce Costs
Direct mining costs $ 173 $ 182 $ 172 $ 188
Deferred stripping adjustments (2) - (1) (1)
Costs of third-party smelters 18 17 16 17
By-product credits (30) (33) (29) (35)
Other - 1 - 1
------------- ------------- ------------- -------------
Cash Operating Costs 159 167 158 170
Royalties 6 6 6 5
Production taxes 1 - 1 1
------------- ------------- ------------- -------------
Total Cash Costs 166 173 165 176
Depreciation and amortization 54 61 53 58
Reclamation and mine closure 15 11 16 10
------------- ------------- ------------- -------------
Total Production Costs $ 235 $ 245 $ 234 $ 244
============= ============= ============= =============
(1) Homestake reports per ounce production costs in accordance with the "Gold
Institute Cost Standard".
Australia
Australian production increased by 1% to 216,900 ounces during the third
quarter of 2001 from 214,600 ounces during the third quarter of 2000, due to
increased production at the Plutonic mine partially offset by lower production
at Kalgoorlie, and slightly lower production at the Darlot and Lawlers mines.
The weighted average total cash cost at the Australian mines was $181 per ounce
during the third quarter of 2001 compared to $191 per ounce during the same
period in 2000.
During the third quarter of 2001, production at Homestake's 50% owned
Kalgoorlie operations decreased by 9% to 84,300 ounces at a total cash cost of
$201 per ounce compared to 92,400 ounces at a total cash cost of $183 during the
third quarter a year ago. The lower gold output and the increased cash costs
were primarily due to lower mill throughput, lower average ore grade and lower
gold recovery. The operation principally sourced its ore from the lower-grade
areas of the pit with abnormally high concentration of voids left from past
underground mining. The lower recoveries were mainly due to lower ore grade of
the ore feed to the mill.
Homestake's lOO%-owned Yilgarn operations, consisting of the Plutonic, Darlot
and Lawlers mines, increased production by 9% to 132,600 ounces at a weighted
average total cash cost of $169 per ounce during the third quarter of 2001
compared to 122,200 ounces at a weighted average total cash cost of $197 per
ounce a year ago, reflecting higher production at the Plutonic mine partially
offset by slightly lower production at the
27
Homestake Mining Company and Subsidiaries
Darlot and Lawlers mines. Production at the Plutonic mine totaled 76,400 ounces
at a total cash cost of $157 per ounce during the third quarter of 2001 compared
to 61,000 ounces at a total cash cost of $201 per ounce during the same period
in 2000. The increase in production is due to operating efficiencies resulting
from higher grade and recovery in the third quarter of 2001 compared to the same
period in 2000. Cash costs decreased by $44 per ounce primarily due to the
increased production and the weaker Australian dollar. During the third quarter
of 2001, the Darlot mine produced 31,500 ounces at a total cash cost of $178
per ounce compared to 35,000 ounces at a total cash cost of $168 per ounce
during the third quarter of 2000. The increase in total cash costs is a result
of lower production resulting from lower ore grades. The Lawlers mine produced
24,700 ounces at a total cash cost of $193 per ounce compared to 26,200 ounces
at a total cash cost of $227 per ounce a year ago. The decrease in total cash
costs is primarily due to favorable impact of a weaker Australian dollar.
At the recently acquired Cowal project, Homestake has commenced its own
detailed evaluation program. One drill rig is active and a second is in the
process of being mobilized.
Canada
Canadian gold production decreased 7% to 146,200 ounces during the third
quarter of 2001 from 156,900 ounces in 2000. During the third quarter of 2001,
the weighted average total cash cost per ounce from the Company's Canadian mines
increased to $126 per ounce from $107 per ounce a year ago primarily due to
lower silver by-product credits at the Eskay Creek mine and increased unit
mining costs at the Hemlo operations, as a result of lower ore grades.
At the Eskay Creek mine, third quarter 2001 production totaled 78,800 ounces
at a total cash cost of $60 per ounce compared to 81,900 ounces at a total cash
cost of $33 per ounce during the same period in 2000. The decrease in production
was as a result of lower grades in the direct shipment ore. The increase in
total cash costs reflects higher fuel, transportation and smelting charges
related to higher volumes of shipped concentrates, lower silver by-product
credits and increased third-party treatment charges. By-product silver credits
were lower due to a $0.50-per-ounce decline in the average price of silver
realized in the third quarter of 2001 compared to 2000. Site costs were also
marginally higher as ore continued to be sourced from smaller ore bodies
characterized by higher mining costs. At the Hemlo operations, Homestake's 50%
share of the third quarter of 2001 production from the combined Williams and
David Bell mines totaled 67,400 ounces at an average total cash cost of $203 per
ounce compared to 75,000 ounces at an average total cash cost of $187 per ounce
for the same quarter of 2000. The reduction in gold production and the increase
in total cash costs during the third quarter of 2001 are mainly due to greater
quantities of lower grade material sourced from the open pit, and production
from lower grade stopes. The effect of processing lower grade material was
partially offset by higher mill throughput, which averaged 10,607 tons of ore
per day in the third quarter.
United States
United States production increased by 20% to 219,900 ounces during the third
quarter of 2001 compared to 184,000 ounces in the corresponding quarter of 2000,
primarily due to higher production at the Round Mountain mine. The weighted
average United States total cash cost decreased by 16% to $176 per ounce during
the third quarter of 2001 compared to $209 per ounce during the third quarter of
2000.
During the third quarter of 2001, Homestake's 50% share of production from
the Round Mountain mine amounted to 102,900 ounces compared to 77,800 ounces in
the third quarter of 2000. Total cash costs decreased to $184 per ounce during
the third quarter of 2001 from $202 per ounce during the same period in 2000.
The higher production is due primarily to increased tons leached on the reusable
pad. Lower cash costs were mainly due to the increase in production. Homestake's
wholly-owned Ruby Hill mine produced 34,600 ounces at a total cash cost of $104
per ounce during the third quarter of 2001 compared to 35,600 ounces at a total
cash cost of $97 per ounce for the comparable period of 2000. The decrease in
production was due to lower recovery rates during the third quarter of 2001. The
Ruby Hill mine will complete mining in December 2002. Production from the
Homestake mine increased to 45,900 ounces during the third quarter of 2001 from
40,600 ounces during the same period in 2000. Total cash costs during the third
quarter of 2001 were $193 per ounce compared to $287 per ounce during the
corresponding period of 2000. The reduction in cash costs is mainly due to lower
mining costs associated with the planned mine closure. The Homestake mine is
gradually
28
Homestake Mining Company and Subsidiaries
reducing its workforce and site costs in accordance with a planned mine-out
schedule. By the end of October 2001, all abandoned mine sites related to and in
the proximity of the Homestake mine had been rehabilitated and several equipment
components and facilities had either been closed and disposed of or cleaned up
and removed. During the third quarter of 2001, gold production from the
processing of the residual stockpiles at the McLaughlin mine totaled 29,400
ounces compared to 25,800 ounces during the third quarter in 2000. Total cash
costs decreased to $214 per ounce during the third quarter of 2001 compared to
$240 per ounce for the third quarter of 2000. The Company's share of production
from the Marigold mine was 7,100 ounces during the third quarter of 2001 at a
total cash cost of $163 per ounce compared to 4,200 ounces at a total cash cost
of $339 per ounce during the same period in 2000.
South America
Homestake's share of production at its 51%-owned Agua de la Falda mine
amounted to 4,600 ounces at a total cash cost of $222 per ounce during the third
quarter of 2001 compared to 3,400 ounces of gold at a total cash cost of $223
per ounce in the third quarter of 2000.
Homestake's 60%-owned Veladero project in northwestern Argentina has
completed its 2000-2001 field season. During the third quarter, Homestake
focused on continuing the metallurgical testing, incorporating and interpreting
new drill results and updating the mine planning, process design, permitting,
capital and operating cost estimates, and financial models. The engineering
studies have advanced to further refine the mining plan and process flow sheet
for the project.
Costs associated with the Veladero project are included in exploration
expenses. The costs incurred during the third quarter and year-to-date of 2001
were $743,000 and $9.7 million respectively, compared to $1.4 million and $9.5
million, respectively for the same periods in 2000.
Other loss for the three months ended September 30, 200l includes foreign
exchange losses of $7.6 million relating to intercompany loans. During the 2001
third quarter, other loss also includes $850,000 of pension plan curtailment and
settlement gains. Other loss during the first nine months of 2001 includes
foreign exchange losses of $16.3 million, $2.4 million related to foreign
currency contracts and $13.9 million related to intercompany loans. In addition,
other loss during the nine month period of 2001 also includes the $1.3 million
gain from the sale of oil and gas assets, a gain of $2.4 million for the sale of
mining information related to the Just-in-Case property in Western Australia and
$4.1 million for the recognition of pension plan curtailment and settlement
gains. Other loss in the first nine months of 2000 includes foreign exchange
losses of $35.5 million, $16.0 million related to foreign currency contracts and
$19.5 million related to intercompany loans, respectively.
Depreciation, depletion and amortization expense of $110.7 million during the
first nine months of 2001 was comparable to $107.4 million in the same period
of 2000. The effects of higher production and the increases in property, plant
and equipment resulting from the conversion of certain Australian mines from
contract to owner mining were partially offset by reserve expansions.
Exploration expense for the first nine months of 2001 decreased to $28.9
million compared to $35.3 million a year ago reflecting a general reduction in
spending in the Company's overall exploration activities partially offset by a
slight increase in exploration spending at the Veladero project.
Income tax expense for the first nine months of 2001 was a benefit of $9.8
million compared to an expense of $9.9 million for the same period in 2000. The
current year's tax benefit reflects the geographic mix of pre-tax income and
losses. No tax benefits are being recognized on the United States, Australian
and South American losses. The Company's consolidated effective income tax rate
fluctuates depending on the geographic mix of pre-tax income and losses.
Minority interests: During the first nine months of 2001, minority
interests'share of losses in consolidated subsidiaries decreased to $1.3 million
compared to $1.9 million in the first nine months of 2000, primarily reflecting
lower exploration expenditures at the Agua de la Falda joint venture.
29
Homestake Mining Company and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operations totaled $80.1 million in the first
nine months of 2001 compared to $91.9 million in the first nine months of 2000.
Working capital at September 30,2001, amounted to $204.9 million, including cash
and equivalents and short-term investments of $189.2 million.
Capital expenditures of $68.0 million during the first nine months of 2001
compares to capital expenditures of $56.0 million during the first nine months
of 2000. Capital expenditures in 2001 include $11.9 million at Round Mountain,
primarily for new haul trucks, $20.6 million at the Yilgarn operations,
primarily for mine development and mining equipment required for the conversion
to owner mining, $11.5 million for the Cowal property purchase, $7.7 million at
the Eskay Creek mine for the construction of the water treatment plant and $5.9
million at Kalgoorlie primarily for the purchase of additional haul trucks. The
balance of the 2001 capital expenditures primarily relate to sustaining capital
at the Company's operating mines. Capital expenditures in 2000 included
approximately $22.0 million at the Yilgarn operations primarily for underground
development work, $13.8 million at Kalgoorlie primarily for owner mining
equipment and a flotation circuit upgrade, and $5.5 million at the Eskay Creek
mine for a new tailings pipeline and other capital improvements with the balance
primarily relating to sustaining capital at the Company's operating mines.
The Company has a cross-border credit facility ("Credit Facility") providing
a total availability of $430.0 million. The facility is available through July
14, 2003 and provides for borrowings in United States, Canadian and Australian
dollars, or gold, or a combination of these. At September 30, 2001, Canadian
dollar borrowings under the Credit Facility of $136.0 million (C$214.8
million) were outstanding. The Company pays a commitment fee on the unused
portion of this facility ranging from 0.15% to 0.35% per annum, depending upon
rating agencies' ratings for the Company's senior debt. The credit agreement
includes a minimum consolidated net worth test. Interest on the Canadian
dollar borrowings is payable quarterly and is based on the Bankers' Acceptance
discount rate plus a stamping fee. At September 30, 2001, this rate was 4.12%.
Debt repayments during the first nine months of 2001 were $15.3 million
compared to $136.3 million in the prior year's first nine months. Debt
repayments in 2001 primarily reflect capital lease principal payments and a
repayment on the Credit Facility. In addition, the Company received $3.9 million
of capital lease proceeds related to the acquisition of the new haul trucks at
Kalgoorlie. During the first nine months of 2000, the Company drew down $99.2
million on the Credit Facility and repaid $135.0 million of the 5.5% convertible
subordinated notes. In addition, the Company received $6.7 million of capital
lease proceeds.
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 the third quarter of 2001 and 2000, the Company delivered 111,000 and
101,300 ounces of gold under hedge contracts at average prices of $260 and $312
per ounce, respectively. During the first nine months of 2001 and 2000, the
Company delivered 309,000 and 243,800 ounces of gold under hedge contracts at
average prices of $264 and $325 per ounce, respectively. During the first nine
months of 2000, the Company also delivered 655,000 ounces of silver at an
average price of $6.30 per ounce under maturing forward sales and option
contracts. The foregoing hedging activities decreased revenues in the nine
months ended September 30, 2001 by approximately $1.5 million and increased
revenues by $11.8 million during the same period in 2000, respectively, versus
the then prevailing spot prices. The estimated fair value of the Company's
remaining gold hedge position at September 30, 200l is approximately $1.4
million. The Company's gold hedge program at September 30, 2001, covers
30
Homestake Mining Company and Subsidiaries
approximately 10% of its proven and probable reserves and contains no exposure
to floating lease rates or margin call requirements.
Under the Company's foreign currency protection program, the Company entered
into foreign currency option contracts to minimize the effects of the
strengthening of the Canadian and/or Australian currencies in relation to the
United States dollar. In July 2000, the Company discontinued its foreign
currency protection program. Contracts outstanding at September 30, 2001 are
expected to remain in place until maturity. Realized and unrealized gains and
losses on this program are recorded in other income. At September 30, 2001 the
Company had a net unrealized loss of $1.7 million on open contracts under this
program.
Part II-OTHER INFORMATION
Item 1-Legal Proceedings
- ------------------------
In October 1997, HCI entered into an agreement with Inmet Mining Corporation
("Inmet") to purchase the Troilus mine in Quebec for $110.0 million plus working
capital. In December 1997, HCI 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 HCI in
the British Columbia Supreme Court, disputing the termination of the agreement,
and alleging that 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 and was completed by
June 2001. The judge's final decision is pending.
In addition, Homestake and its subsidiaries are defendants in various legal
actions in the ordinary course of business.
In the opinion of management, the above matters will be resolved without a
material adverse effect on Homestake's financial condition, results of
operations or cash flow.
Item 5-Other Information
(a) CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements contained in this Form 10-Q that are not statements of
historical facts are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based on
beliefs of management, as well as assumptions made by and information currently
available to management. Forward looking statements include those preceded by
the words "believe," "estimate," "expect," "intend, " "will," and similar
expressions, and include estimates of reserves, future production, costs per
ounce, dates of construction completion, costs of capital projects and
commencement of operations. Forward looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from expected results. Some important factors and assumptions that
could cause actual results to differ materially from expected results are
discussed below. Those listed are not exclusive.
Estimates of reserves and future production for particular properties and for
the Company as a whole are derived from annual mine plans that have been
developed based on mining experience, assumptions regarding ground conditions
and physical characteristics of ore (such as hardness and metallurgical
characteristics), expected rates and costs of production, and estimated future
sales prices. Actual production may vary for a variety of reasons, such as the
factors described above, ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, actions by labor, and
government imposed restrictions. Estimates of production from properties and
facilities not yet in production are based on similar factors but there is a
greater likelihood that actual results will vary from estimates due to a lack of
actual experience. Cash
31
Homestake Mining Company and Subsidiaries
cost estimates are based on such things as past experience, reserve and
production estimates, anticipated mining conditions, estimated costs of
materials, supplies and utilities, and estimated exchange rates. Noncash cost
estimates, based on total capital costs and reserve estimates, change based on
actual amounts of unamortized capital, changes in reserve estimates, and changes
in estimates of final reclamation. Estimates of future capital costs are based
on a variety of factors and 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 by Company personnel and outside consultants, and other factors. Capital
cost estimates for new projects are subject to greater uncertainties than
additional capital costs for existing operations. Estimated time for completion
of capital projects is based on such factors as the Company's 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 reflect assumptions about factors beyond the Company's
control, such as the time government agencies take in processing applications,
issuing permits and otherwise completing processes required under applicable
laws and regulations. Actual time to completion can vary significantly from
estimates.
See the Company's Form 10-K/A Report for the year ended December 31, 2000,
"RISK FACTORS" and "CAUTIONARY STATEMENTS" included under Part I-Item 1, for a
more detailed discussion of factors that may impact on expected future results.
Item 6-Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Form 8-K
The Company filed a report on Form 8-K on November 12, 2001 to provide the
consent of PricewaterhouseCoopers LLP Independent Accountants, relating to the
incorporation by reference in certain Homestake registration statements, of the
December 31, 2000 consolidated financial statements contained in the Report on
From 10-K/A for the year ended December 31, 2000.
32
Homestake Mining Company and Subsidiaries
SIGNATURES
Pursuant to the requirements 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 14, 200l By /s/ David W. Peat
-------------------------------
David W. Peat
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 200l By /s/ Alex G. Morrison
-------------------------------
Alex G. Morrison
Vice President and Controller
(Principal Accounting Officer)
33