ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings required to be reported in response to this item.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1993 to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages as of March 1, 1994, of each of the present executive officers of the Company together with principal occupations held by each during the past five years. Executive officers are appointed annually to serve for the ensuing year or until their successors have been appointed. No officer is related to any other by blood, marriage or adoption. No arrangement or understanding exists between any officer and any other person under which any officer was elected. Messrs. Mazur, Quinn and Reisbick have been employed with the Company since July 1985.
KARL E. ELERS previously served as President and Chief Operating Officer of the Company from April 1988 until April 1990. Mr. Elers also serves as a member of the Executive Committee and of the Environmental Affairs and Ethics Committee of the Company's Board of Directors.
KENNETH R. WERNEBURG was Executive Vice President of the Company from November 1989 until April 1990. Prior to joining the Company, Mr. Werneburg served as Chairman and Chief Executive Officer of Hill Refrigeration Corporation (commercial
refrigeration equipment) since April 1989. From 1985 through 1988, Mr. Werneburg served as Executive Vice President of St. Joe Minerals Corporation (international mining and manufacturing). Mr. Werneburg also serves as a member of the Executive Committee of the Company's Board of Directors.
ANDRE J. DOUCHANE was Manager of North American Operations from July 1991 until April 1992. Prior to joining the Company in July 1991, Mr. Douchane was employed by Round Mountain Gold Corp. as Vice President and General Manager.
R. DENNIS O'CONNELL was Vice President of the Company from May 1992 until July 1992 when he was named Vice President - Finance and Chief Financial Officer. Prior to joining the Company, Mr. O'Connell served as Assistant Controller, Worldwide Exploration and Production for Marathon Oil Company since January 1991. From July 1988 through January 1991, Mr. O'Connell served as Manager, Finance and Administration, Worldwide Production for Marathon Oil Company. From January 1987 through July 1988, Mr. O'Connell served as Director, Finance and Administration of Marathon Oil U.K., Ltd.
ROBERT J. QUINN previously served as Secretary and Corporate Counsel of the Company until 1989.
FRED B. REISBICK previously served as General Manager, North America Exploration until November 1992.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock, par value $0.10 per share (the "Common Stock"), is traded on the New York Stock Exchange (the "NYSE"), the Toronto Stock Exchange, the Australian Stock Exchange Limited, the Swiss Stock Exchanges and the Frankfurt Stock Exchange. The ticker symbol for the Common Stock on the exchanges is "BMG."
The following table sets forth for the periods indicated the high and low sales prices for the Common stock as reported on the NYSE Composite Tape.
As of March 7, 1994, the Company had 22,559 record holders of Common Stock.
Cash dividends of $0.025 per share were paid in each quarter of fiscal 1992. Cash dividends of $0.025 per share were paid in each half of fiscal 1993 pursuant to the Company's October 1992 announcement of its intention to reduce cash dividends. A determination to pay future dividends and the amount thereof will be made by the Company's Board of Directors and will depend on the Company's future earnings, capital requirements, financial condition and other relevant factors. The Company's ability to pay dividends is subject to certain restrictions contained in the Company's committed revolving credit facility. These restrictions are not expected to affect the payment of dividends. For a further discussion of the credit facility and of restrictions on Inti Raymi to pay dividends to BMG, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and Note 11 of Notes to Consolidated Financial Statements under Item 8 herein. The Company intends to retain most of its earnings to support current operations, to fund exploration and development projects and to provide funds for acquiring gold properties.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data for the respective periods presented and should be read in conjunction with the Consolidated Financial Statements and the related notes thereto in Item 8 and Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During 1993, the Company completed the transition of its primary production stream from the Fortitude mine in Nevada to the 85 percent owned Kori Kollo mine in Bolivia. As expected, there was little change in the Company's total gold production during this transition period. However, increased costs related to the transition to a lower grade ore body at the Fortitude mine and lower than anticipated production levels from the heap leach operations at the Battle Mountain complex and the San Cristobal mine resulted in an increase in total operating costs per equivalent ounce of gold for 1993. The Company reported a net loss of $4.4 million for 1993.
In 1992, the Company increased its gold production as it realized the first full year of production from three new mines: the San Luis mine in Colorado, the San Cristobal mine in Chile and the Red Dome mine in Australia. For 1992, the Company reported a net loss of $36.4 million as a result of weak gold prices, impairment in value of the Company's San Luis mine and the Canyon Placer facility and higher operating costs associated with its newer, low-grade mines. In particular, the San Luis mine experienced an extended period of start-up difficulties. This compares with a net loss of $1.2 million for 1991, which included the impairment in value of the Company's San Juan project. Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Employer's Accounting for Postretirement Benefits other than Pensions." (See Notes 6 and 7 to the Consolidated Financial Statements.)
Revenues
Gross revenue of $207.3 million in 1993 represented an increase of 8 percent from gross revenue of $192.2 million in 1992. This increase, resulting from increased sales volumes and improved gold prices in 1993, followed a 9 percent gross revenue increase realized in 1992, which reflected the growth in volumes of gold production and sales that the Company achieved through the acquisition and development of new mines. Gold sales volumes increased 3 percent in 1993 to a total of 503,000 ounces (of which 417,000 ounces were attributable to BMG) following an increase of 8 percent in 1992. Also contributing to improved revenues in 1993 was an increase in average realized gold prices (to $366 per ounce in 1993 from $359 per ounce in 1992). During 1992, lower average realized gold prices partially offset volume gains. In the upcoming years, the Company expects development and evaluation projects at the Battle Mountain complex and the Crown Jewel site to be permitted, and the Kori Kollo mine to be expanded. Because of these factors, the Company expects continued production growth through the mid-1990's.
Selling and Operating Costs
Freight, allowances and royalties increased to $13.8 million ($24 per equivalent ounce of gold sold) in 1993 from $10.4 million ($19 per equivalent ounce of gold sold) in 1992 and $6.2 million ($13 per equivalent ounce of gold sold) in 1991. The increase in 1993 resulted from higher costs associated with new smelting and refining agreements for Red
Dome mine concentrates and increased sales from the Kori Kollo mine. The 1992 increase was primarily attributable to the first full year of production of Red Dome mine concentrates which had characteristics requiring significant additional freight, smelting and refining costs for conversion to salable products.
Higher costs primarily associated with the production transition from the Fortitude mine to the Kori Kollo mine and higher sales volumes contributed to higher aggregate mining, milling and other costs in 1993. Increases in production and sales volumes resulted in higher costs in 1992 as compared with 1991. These costs increased to $128.5 million ($227 per equivalent ounce of gold sold) in 1993 from $117.4 million ($219 per equivalent ounce of gold sold) in 1992 and $89.4 million ($191 per equivalent ounce of gold sold) in 1991.
Depreciation, depletion and amortization expense increased to $41.4 million ($73 per equivalent ounce of gold sold) in 1993 from $38.6 million ($72 per equivalent ounce of gold sold) in 1992, and $28.1 million ($60 per equivalent ounce of gold sold) in 1991, as a result of the higher capital costs associated with the Company's newer operations and increases in sales volumes. Increased production and sales volumes, and the higher acquisition costs of new reserves, will cause depreciation, depletion and amortization to increase in the future. Selling and operating costs per equivalent ounce of gold sold are based on actual sales and include inventoried costs; therefore, these costs are not directly comparable to production costs per equivalent ounce of gold.
Exploration Costs
Exploration and evaluation expenses were reduced to $9.5 million in 1993 from $17.1 million in 1992 and from $27.4 million in 1991 as a result of the Company's decision to focus its exploration efforts on fewer, higher potential targets. Exploration and evaluation expenses are expected to increase to about $14 million in 1994 as the Company expands its international exploration program and intensifies its efforts to evaluate targets already in hand. (See "-- Liquidity and Capital Resources -- Exploration and Capital Expenditures.")
Write-downs
The volatility of gold prices requires that the Company, in assessing the impact of prices on recoverability, exercise judgement as to whether price changes are temporary or are likely to persist. The Company performs a comprehensive evaluation of the recoverability of its assets on a periodic basis to assess the impact of significant changes in market conditions and other factors.
During 1992, the Company recognized charges totalling approximately $23.3 million, net of $11.1 million in income tax benefits for the impairment in value of certain of the Company's assets. The charges included: (1) a write-down of $17.6 million, net of a $9.1 million income tax benefit, of BMG's investment in the San Luis mine in Colorado that reduced the carrying value of the investment to a level which BMG believed would be recoverable under then existing and expected future market conditions (lower gold prices, compared with those at the time of project conception, and greater than anticipated capital expenditures resulting from a difficult start-up period led to the write-down), (2) a write-off of $4 million, net of a $2 million income tax benefit, of BMG's investment in the
previously closed Canyon Placer facility, which was abandoned because of a persistently weak gold market, and (3) an impairment of $1.7 million, included as Other income (expense), net, to adjust to current market the carrying value of certain marketable equity security investments. These charges compare with a 1991 charge of $4.5 million (net of a $1.1 million tax benefit) to adjust the carrying value of the Company's investment in the San Juan project in California to the purchase price set forth in the Company's agreement to sell the project to another gold mining company. No similar write-downs were recorded in 1993. Additional asset write-downs may occur if the Company determines that the carrying values attributed to individual assets are not recoverable given reasonable expectations for future market conditions, although no write-downs are currently anticipated.
General and Administrative Costs
As a result of cost reduction efforts initiated in 1992, the Company's general and administrative expenses have decreased to $17.5 million in 1993 from $17.9 million in 1992 and from $21.1 million in 1991. Included in these expenses are $6.7 million, $6.3 million and $8.2 million, respectively, attributable to the general and administrative costs incurred by the Company's majority-owned subsidiaries. Absent material changes in the Company's manner of operation, general and administrative expenses are not expected to significantly change in the foreseeable future.
Other
Interest income increased to $4.6 million in 1993 from $1.8 million in 1992. This increase resulted from greater levels of cash available arising primarily from the proceeds of the Company's 1993 convertible preferred stock offering (see "-- Liquidity and Capital Resources -- Financing"). The 1992 amount represents a decrease from $4.4 million in 1991 which can be attributed to lower interest rates and lower levels of cash available for investment. Future declines in interest income are expected for the near term because of lower levels of cash available as a result of continuing major capital investments and debt service requirements.
Gross interest expense, including amounts capitalized, amounted to $15.1 million in 1993, $10.3 million in 1992 and $8.3 million in 1991. Interest expense with respect to borrowings attributable to any given project in the pre-production stage is capitalized until such time as that project begins commercial production. Interest expense charged against income increased in 1993 because interest expense related to the Kori Kollo sulfide project financing has not been capitalized since commencement of commercial operations in February 1993 and since project financing was outstanding for the entire year. Prior to 1993, the majority of interest expense was capitalized and was related primarily to the $100 million of 6 percent convertible subordinated debentures and to amounts outstanding under a committed $150 million revolving credit facility. Should additional borrowings be required to fund acquisitions and mine development, interest expense would be expected to increase accordingly.
Other net income of $5.7 million in 1993 represents an improvement from other net expense of $1.2 million in 1992 and $1.2 million in 1991. The 1993 income resulted from gains of $3.7 million from the sale of an ore deposit at BMG's Plutonic Bore
Exploration project in Western Australia and $2 million from the sale of certain long-term investments held by Niugini Mining.
Exclusive of the taxes provided on cumulative effects of accounting changes for the periods presented, income tax provisions resulted in a $4.1 million benefit in 1993, and a $12.2 million benefit in 1992 compared with income tax expense of $1 million in 1991. The changes in the tax provisions are primarily attributable to changes relative to the level of income or losses before taxes. It is anticipated that the Australian income tax, which had no material impact on the Company's income in 1993 or previous years, will not materially affect the Company's future results of operations. Earnings from the Company's wholly- owned Australian subsidiary are subject to a 15 percent Australian withholding tax and U.S. Federal income tax to the extent such earnings are paid as a dividend to the parent company.
The results of operations for BMG's majority-owned subsidiaries Inti Raymi and Niugini Mining are consolidated with the Company's results. Minority interest of $(4.7) million in 1993, $(1.2) million in 1992 and $5.4 million in 1991 represents the minority shareholders' share of combined net (income) loss for these subsidiaries during the respective periods.
For 1992, the Company's Consolidated Statement of Income reflects an accrued charge of $5.3 million (net of $1.4 million in income tax benefits) and a credit of $3.9 million, representing the cumulative prior periods' effects of the adoption of SFAS No. 106 and SFAS No. 109, respectively.
Recently Issued Accounting Standards
See Notes 4, "Marketable Securities" and 7, "Benefits Plans," of Notes to Consolidated Financial Statements for a discussion of the impact that recently issued accounting standards will have on the Company's consolidated financial statements when adopted.
Liquidity and Capital Resources
As of December 31, 1993, the Company had net working capital of $140.3 million and a current ratio of 4.5 to 1 as compared with net working capital of $36 million and a current ratio of 1.7 to 1 at December 31, 1992. The increase in working capital resulted primarily from $111 million in net proceeds received from a convertible preferred stock offering, less subsequent debt repayment of $59.9 million. An increase in accounts receivable of $21.1 million was attributable primarily to accruals for certain tax refunds, especially in Bolivia, and the timing of shipments to customers. Product inventory decreased by $10.1 million, reflecting the timing of customer shipments. An $11.2 million increase in materials and supplies inventories reflected the start-up of the Kori Kollo sulfide mine. For 1993, cash from operations totaled $30.1 million, and borrowings aggregated $36.9 million. Uses of cash included $50.4 million for capital expenditures, excluding capitalized interest, $7.6 million for investment in the Crown Jewel project, $6.6 million of direct expenditures for project exploration and evaluation, annual interest payments, which were capitalized, of $6 million on the $100 million principal amount of convertible subordinated debentures due
2005 and dividends on common and preferred stock of $4 million and $3.7 million, respectively.
Financing
On May 20, 1993, BMG completed an offering of 2.3 million shares of its convertible preferred stock valued at $115 million. The net proceeds of the offering were approximately $111 million. The preferred stock carries a $50 per share liquidation preference and, subject to Board vote, provides for annual cumulative dividends of $3.25 per share, which are payable in quarterly installments. Each share of the stock is convertible at any time at the option of the holder into 4.762 shares of BMG's common stock. It is also redeemable at the option of BMG solely for shares of BMG's common stock beginning May 15, 1996. BMG has used a portion of the proceeds of this offering to repay all amounts outstanding under its revolving credit facilities. The remainder is being used for working capital and for general corporate purposes, which include capital expenditures and may include potential future acquisitions relating to the businesses in which the Company currently engages.
As of February 9, 1994, BMG has effective a registration statement under the Securities Act of 1933 for what is commonly referred to as a "universal shelf" filing covering up to $200 million of its debt securities, preferred stock, depositary shares, common shares and warrants, which BMG may elect to offer from time to time and in any combination.
BMG can borrow funds under a committed revolving credit agreement, which is scheduled to expire on December 31, 1996. Scheduled $9.4 million quarterly reductions in commitments under the agreement began on March 31, 1993, and will continue until the agreement expires. As of December 31, 1993, the remaining availability under this agreement was $112.5 million. This agreement contains certain financial covenants as well as restrictions on additional dispositions of major assets and the payment of dividends. These restrictions are not expected to affect planned operations. BMG may borrow an additional $15 million through a separate uncommitted revolving credit facility. As of February 17, 1994, no borrowings were outstanding under either of these facilities.
BMG's majority owned Bolivian subsidiary, Inti Raymi, has borrowed funds from three international agencies, the Overseas Private Investment Corporation ("OPIC") ($40 million), the International Finance Corporation ("IFC") ($40 million) and the Corporacion Andina de Fomento ("CAF") ($15 million) under three separate but coordinated financing facilities. These facilities provided most of the funding necessary for the development of the Kori Kollo mine. Each of these facilities imposes restrictions on dividend payments and loan repayments by Inti Raymi to its shareholders, and limits additional fixed asset purchases or dispositions, debt and liens. As of February 17, 1994, Inti Raymi owed an aggregate of $92.4 million under these facilities. This amount includes $3.8 million previously owed by Inti Raymi to OPIC. The IFC facility includes a $5 million convertible loan payable on March 1, 2002, which may be converted at any time, at IFC's option, into a 3.98 percent ownership interest in Inti Raymi. Other than the convertible portion, loans under the facilities are to be repaid in semi-annual installments which commenced in December 1993 and will continue through June 2000. Certain prepayments would be required in the event of substantial Kori Kollo reserve losses or significantly
improved gold prices. Having met certain prerequisite physical and financial completion tests set forth in the facility agreements, Inti Raymi has applied for project completion by submitting certain certifications to the lenders. Under the terms of the facilities, BMG has agreed to provide financial support to Inti Raymi to the extent necessary for Inti Raymi to meet its financial obligations until the lenders approve the application for project completion, which is expected to occur during the first half of 1994.
Of the Company's $140.3 million net working capital at December 31, 1993, $48.4 million was attributable to Niugini Mining and $24.6 million to Inti Raymi. Inti Raymi is currently restricted in its ability to pay dividends or otherwise advance funds to BMG under the terms of Inti Raymi's project financing agreements, as described above. Upon project completion, as defined in the facility agreements, Inti Raymi may pay dividends and debt repayments subject to compliance with loan covenants. BMG does expect to receive dividends from Inti Raymi in 1994. In addition, the Company does not expect Niugini Mining to pay dividends currently because of Niugini Mining's other business commitments and plans for its working capital (see "Development Projects".)
In December 1993, Niugini Mining issued 5.8 million of its common shares at A$5 per share in a public offering which provided net proceeds of approximately $19.1 million U.S. equivalent. These proceeds are to be used to partially fund the acquisition of an additional 16 percent ownership interest in the Lihir project in Papua New Guinea ("PNG"). See discussion under "Development Projects - Lihir Project" further herein. As a result of this stock offering, BMG's ownership interest in Niugini Mining decreased from 56.5 percent to 52.6 percent. In December 1993, the Company recorded a $2.1 million adjustment to reduce the carrying value of its investment in Niugini Mining to reflect the reduction in ownership interest. This adjustment was charged to shareholders' equity and not charged against net income because the Company believed the carrying value of the investment to be fully recoverable. After giving effect to potential dilution for the exercise of outstanding Niugini Mining stock options, BMG retains a majority ownership position.
Development Projects
At present, the Company has interests in five projects which have matured beyond advanced stages of evaluation.
Lihir Project - BMG holds an interest in the Lihir project through its 52.6 percent ownership of Niugini Mining. In March 1992, the PNG government extended, until March 1994, the Prospecting Authority for the Lihir project in which Niugini Mining currently holds a 20 percent interest and a subsidiary of RTZ Corporation, plc ("RTZ") holds an 80 percent interest. RTZ is the manager of the Lihir project. Also, in March 1992, the Lihir joint venture submitted a Proposal for Development of the Lihir project for government approval.
On August 9, 1993, the Company announced that Niugini Mining had reached an agreement with RTZ to acquire an additional 16 percent of the Lihir Joint Venture for $3 million cash per percentage point, or $48 million. This agreement anticipates that the PNG government will acquire a 30 percent contributing interest in the project and that following the acquisition by the government and consummation of Niugini Mining's purchase of the additional interest from RTZ, Niugini Mining would have a 30 percent interest in the
project and RTZ would retain a 40 percent interest. The transaction is contingent on, among other things, PNG government approval of the transaction, the purchase by the PNG government of a 30 percent interest and the granting of a Special Mining Lease by the PNG government. It is anticipated that Niugini Mining would finance the acquisition by a combination of working capital, debt and proceeds from the 1993 issuance of common stock. No funding would be required by BMG.
On September 25, 1993, an agreement in principle was reached between the joint venture partners and the PNG government for the government to acquire a 30 percent interest in the project and for the parties to pool their respective Lihir joint venture interests into a newly formed, single purpose company tentatively named Lihir Gold Limited ("LGL"). The new company would therefore be initially owned 30 percent by Niugini Mining, 40 percent by RTZ and 30 percent by the PNG government. Related to this proposed restructuring, the carried interest arrangement between Niugini Mining and RTZ would be terminated with no further rights or obligations continuing to either party. LGL would enter into a management contract with RTZ whereby RTZ would manage the administration, financing, construction and subsequent operation of the project. The project is expected to be funded through the offering of an estimated 25 to 40 percent of the equity of LGL common stock to the public. Niugini Mining's interest in LGL would thereby be expected to be reduced to between 18 percent and 22.5 percent. On this basis, BMG's attributable interest in the Lihir project would be between 9 and 11 percent. Any additional funding required for the project is expected to be provided in the form of debt financing by LGL.
The capital costs for Lihir project development are presently estimated by the manager of the project at $625 million. These capital costs are based on the planned use of mining contractors for the first five years of operations. Over the first 15 years of operations, the manager's estimate of total cash operating costs is $209 per ounce and, over the expected 37 year life of the mine, is $228 per ounce. The estimate of minable sulfide reserves has been revised from 89.3 million metric tons, or 13.7 million contained gold ounces, to 104 million metric tons, or 14.6 million contained gold ounces, with the average grade changing from 4.77 to 4.37 grams of gold per metric ton.
The PNG government is expected to issue the Special Mining Lease for the project after landowner negotiations are completed and all necessary statutory approvals are obtained. As soon as practical after the Special Mining Lease is granted, preliminary development work would commence. This preliminary work is expected to be funded by the joint venture partners until LGL is formed and financing is arranged, after which LGL would be responsible. It is anticipated that Niugini Mining will fund its share of the preliminary development costs from its working capital.
As of December 31, 1993, the carrying value of the Company's investment in the Lihir project was approximately $135 million. If the Lihir project does not proceed as contemplated, the Company may be required to write down part or all of its investment in the Lihir project.
Red Dome Expansion - Niugini Mining is proceeding with the expansion of the existing Red Dome pit. It is estimated that the total cost of the expansion will be approximately $24.5 million, of which $17.3 million had been spent through December 31, 1993. The proposed expansion, to be completed by mid-1994, is expected to extend the life
of the mine through 1996 and increase the reserves at Red Dome by approximately 227,000 contained ounces of gold and 28 million pounds of copper. The new reserves are based on an additional 2.7 million tons of ore at an average grade of .09 ounce of gold per ton and containing .52 percent copper with a cutoff grade of .05 ounce of gold per ton. Niugini Mining received all requisite permits and commenced the pit expansion in mid-1993.
Crown Jewel Project - BMG is continuing to seek permits for the Crown Jewel project in Washington state. BMG expects to construct a 3,000 ton per day milling facility with start-up possible in fall of 1996, depending on the length of the permitting process, the effect of possible legal challenges by project opponents and the potential impact of proposed legislation to amend or replace state and federal laws and regulations affecting mining projects. The delays in obtaining permits for the Crown Jewel project relate primarily to delays in regulatory approvals for certain site data collection activities and the time taken for agency development of certain wildlife studies.
To acquire a 51 percent ownership interest in the project, BMG will have to fund all expenditures for exploration, evaluation and development of the project through commencement of commercial production. Under the terms of the joint venture agreement, the minority partner will not reimburse BMG for any portion of funding provided through the commencement of commercial production. These expenditures, including acquisition costs, are currently estimated to be approximately $95.3 million, of which $33.1 million ($24.6 million of which has been capitalized) has been incurred through December 31, 1993. Management expects that BMG should be able to more than recover its total investment in the project from its 51 percent interest in the project's operating cash flows based on current market conditions and current expectations of the timing of obtaining permitting. To maintain BMG's right to earn a 51 percent interest in the project, BMG could be required to make payments to the co-venturer in amounts of $1 million per quarter for the period commencing with the third quarter of 1993 through commencement of commercial production. BMG believes that it is entitled under "force majeure" provisions of the joint venture agreement to suspend application of these quarterly payment requirements because of delays in the permitting process. The Company's financial position as of December 31, 1993, does not reflect a liability for any such payments. An arbitration proceeding has been initiated between BMG and the co- venturer and the $1 million payments are being deposited in an escrow account pending resolution of the dispute.
Reona Project - BMG has announced a decision to develop the Reona project, including construction of a heap leach facility, in the Copper Canyon area of the Battle Mountain complex. The cost of developing the project is estimated to be approximately $13.8 million, of which $2.1 million has been spent through December 31, 1993. The project contains reserves of approximately 13.5 million tons of ore at an average ore grade of .028 ounce of gold per ton, equivalent to approximately 370,000 contained ounces of gold. The project also contains approximately 2.3 million contained ounces of silver. The cutoff grade used in determining reserves was .013 ounce of gold per ton with an estimated gold recovery factor of approximately 66 percent. On January 12, 1994, the local Bureau of Land Management ("BLM") issued a Finding of No Significant Impact (based on an Environmental Assessment ("EA")) and a Record of Decision approving BMG's Plan of Operations ("POO") for the project. The Company has commenced development activities pursuant to the approved POO. The local BLM decision is subject to appeal by certain third parties through February 1994 and is subject to reversal by the Secretary of the Interior
and the Director of the BLM. Third party comments on the draft EA have requested that an Environmental Impact Statement be prepared for the Reona project. The project could be in production in 1994 assuming the POO approval is not appealed or reversed. The project could also be impacted by proposed federal legislation to amend or replace the General Mining Law. (See "Government Regulation".)
Cindy Project - In Queensland, Australia, BMG is proceeding with the $3.4 million development of the Cindy ore deposit, containing approximately 42,500 ounces of gold, adjacent to BMG's Pajingo mine. Ore from the Cindy deposit is to be processed at the existing Pajingo milling facility beginning in September 1994 and is expected to extend the productive life of the Pajingo district to October of 1995.
New Reserve Potential
BMG is currently evaluating the feasibility of mining and milling deposits of low grade sulfide mineralization known as the Phoenix milling project (formerly called the Fortitude Extension) located in the Copper Canyon area of the Battle Mountain complex. Feasibility evaluation of this mineralization is expected to be completed in 1994.
Niugini Mining has recently announced the discovery of significant mineralization at its Mungana project in the Red Dome area. Prefeasibility studies are underway there to determine the existence of sufficient ore to warrant proceeding with feasibility and permitting activities.
An additional 220,000 contained ounces of gold reserves have been recently defined at Niugini Mining's San Cristobal mine. Niugini Mining will be conducting an intensive drilling program in the area of the San Cristobal mine during 1994 to evaluate an associated gold resource.
Government Regulation
All of the Company's mining and processing operations are subject to reclamation requirements. The Company believes it is making sufficient accruals for known reclamation obligations. Such accruals, amounting to an aggregate of $9.5 million at December 31, 1993, are included as long-term liabilities in the Company's consolidated balance sheet. At the Battle Mountain complex, assuming the Reona project is developed as currently permitted and the Phoenix project proceeds, aggregate reclamation expenditures required to be spent in the area are expected to amount to approximately $7.7 million, of which $4.7 million remained accrued at December 31, 1993. Estimated reclamation obligations and related amounts accrued as of December 31, 1993, respectively, for each of the Company's other operating mines are as follows: San Luis $3.3 million and $1.0 million, Pajingo $2.6 million and $.8 million, Kori Kollo $10.0 million and $.4 million, Red Dome $4.2 million and $2.6 million. Reclamation expenditures for the Company's San Cristobal mine are not expected to be material.
BMG has been issued a water pollution control permit for the Battle Mountain complex project facilities from the Nevada Division of Environmental Protection. The permit provides the framework for the development of a "final closure plan". BMG has applied for reclamation and stormwater runoff permits covering the Battle Mountain
complex area. Activity expected to be performed as part of the development and operation of the Reona and Pheonix projects would eliminate certain possible reclamation costs. If one or both of these projects does not proceed, reclamation expenditures would be expected to be up to $4 million higher than current estimates. BMG is currently conducting further site characterization studies for the Battle Mountain complex area and is communicating with the Nevada Division of Environmental Protection to determine the ultimate permit requirements. Potentially adverse site characterization results or the imposition by regulatory authorities of unanticipated reclamation standards could substantially increase future reclamation requirements and expenditures. Laws and regulations applicable to these permits have been amended during the past few years, and it is difficult to ascertain the exact terms and conditions which will be required thereunder. Based on data collected to date, management does not expect that potential future adverse site characterization results will have a material adverse effect on the Company's financial condition. Reclamation obligations could also be impacted by proposed federal legislation to amend or replace the General Mining Law.
The Company's Crown Jewel and Lihir development projects are dependent upon securing requisite permits and approvals and the impacts of legal challenges, as would be the Phoenix and Mungana projects if a development decision is made. Although the Company believes the requisite permits and approvals for its development properties can be obtained in due course, the requisite permitting efforts are complex, time consuming and subject to legal challenge. At this time, the Company does not believe that the impact of existing permitting requirements or existing environmental laws and regulations will have a material adverse effect on the Company's business, financial condition or results of operations. There can be no assurance that future changes in laws and regulations and legal challenges to regulatory actions would not result in additional expense, capital expenditures, restrictions and delays associated with the development and operation of the Company's properties.
Legislation has been passed by the U.S. Senate ("S.775") and the U.S. House of Representatives ("H.R.322") which would amend or replace the General Mining Law under which the Company holds claims on public lands. A compromise bill is expected to be developed by a conference committee in 1994. As written, S.775 proposes a 2 percent royalty on the value of minerals measured at the point of extraction and H.R.322 proposes an 8 percent royalty on, effectively, gross revenue. H.R.322 also proposes new environmental standards, additional reclamation requirements and extensive new procedural steps which could result in delays and additional expenditures for all phases of mining activity. Approximately 40 percent of the Reona reserves and 80 percent of the Crown Jewel ore body are on public lands and could be subject to the proposed royalties. These projects, as well as reclamation and closure activities at the Battle Mountain complex, could be subject to extensive additional permitting and environmental requirements. The Company has applied for patents covering the unpatented portion of the Crown Jewel ore body but has not yet received the "first half" of the final certificate. While the extent to which existing law might change is not yet known it is expected to be unfavorable in most respects. The Company cannot yet predict the impact of any such change on its U.S. activities. However, the adoption of either version of the new mining law, as currently written, is not expected to render uneconomic any of the Company's existing operating mines or development projects, assuming current gold prices.
Exploration and Capital Expenditures
The Company currently estimates that it will spend approximately $14 million on its 1994 exploration programs to identify potential additional mineral deposits. Of this amount, 16 percent is budgeted to be spent in North America, 28 percent in Latin America and the Caribbean, 24 percent in Australia and the South Pacific and 25 percent in various countries by Niugini Mining. Seven percent of the budgeted amount is as yet undesignated. During 1993, the Company spent approximately $9.7 million on exploration and evaluation activities.
The Company has budgeted $56.7 million for capital expenditures for 1994 which includes $13.8 million for construction and development of the Reona project, $7.8 million for the Red Dome expansion, lesser amounts for development of the Crown Jewel, Phoenix, Cindy, Lihir and Kori Kollo expansion projects and $14.1 million for additions and replacements. Of the total 1994 budget, 35 percent is expected to be spent in North America, 28 percent in Latin America and the Caribbean, 32 percent in various countries by Niugini Mining and 5 percent in the South Pacific. The Company spent $57.1 million for capital expenditures in 1993. The Company routinely evaluates additional capital project, acquisition and merger opportunities.
Forward Sales and Hedging
In order to minimize exposure to decreasing prices for portions of its gold production, the Company has in the past and may in the future, from time to time, hedge future gold production by entering into contracts, such as spot deferred sales contracts, fixed forward sales contracts and put options.
Fixed forward sales contracts require the future delivery of gold at a specified price on a specified delivery date. Spot deferred sales contracts allow the Company to defer the delivery of gold under the contract to a later date at the original contract price plus the prevailing premium at the time of deferral, as long as certain conditions are satisfied. Although spot deferred sales contracts could limit amounts realizable during a period of rising prices, the Company may "roll forward" its spot deferred contracts to future periods in order to realize current market increases, while maintaining future downside protection. Various factors influence the decision to close a spot deferred sales contract or to roll the contract forward to a later date. Purchased put options give the Company the right, but not the obligation to sell gold at a predetermined price on a predetermined date thereby allowing full participation by the Company in favorable price movements.
As of December 31, 1993, the following table summarized the Company's hedging transactions:
Gains and losses related to these hedging transactions are recognized in revenues when the related production is sold. In addition, costs associated with the purchase of certain of the hedge instruments, amounting to $.6 million for open put options and $1.5 million for Inti Raymi's open spot deferred sales contracts as of December 31, 1993, are also deferred and recognized concurrently with the revenues related to the hedged production.
The aggregate amount by which the net market value of the Company's open fixed forward and spot deferred sales contracts is less than $390 per ounce of gold, which was the spot price as of December 31, 1993, is $19.4 million, of which $6.2 million is attributable to minority interests.
In January 1994, the Company allowed options contracts covering 22,500 ounces of gold to expire. At the December 31 market price of $390 per ounce of gold, the Company would allow all remaining open put option contracts (covering 157,500 ounces of gold) to expire. Open spot deferred sales contracts would be evaluated to determine if it would be in the best long-term interests of the Company to either "roll the contracts forward" or deliver against them. Delivery against spot deferred sales contracts in a period in which current market prices exceed contract prices will result in recognition of revenues at prices below current market conditions.
In future periods, the Company may continue to employ selective hedging strategies, where appropriate, to protect cash flow for specific needs.
Foreign Operations
The Company continues to expand and geographically diversify its resource base through the exploration, acquisition, development and exploitation of foreign gold reserves. The Company's identifiable assets attributable to foreign mining as of December 31, 1993, were approximately $488 million and foreign mining operations represented approximately 77 percent of the total gross revenues of the Company for the year ended
December 31, 1993. As a result, the Company is exposed to risks normally associated with foreign operations, including political, economic, social and labor instabilities, as well as foreign exchange controls and currency fluctuations. Foreign operations and investments may also be subject to laws and policies of the United States affecting foreign trade, investment and taxation which could affect the conduct or profitability of those operations.
Dividends
Effective with the calendar year 1993, BMG reduced its annual dividend on common stock by 50 percent, by replacing its quarterly $.025 per share dividend payment with semi-annual payments of $.025 per share. Each semi-annual payment totals approximately $2 million. BMG's dividend policy is subject to periodic review by BMG's Board of Directors.
During the third quarter of 1993, BMG commenced quarterly dividend payments to its preferred stockholders. Each such quarterly payment totals approximately $1.8 million.
Conclusion
During the year ended December 31, 1993, BMG raised $111 million in net proceeds from the sale of its convertible preferred stock. The Company expects the cash currently remaining from this offering along with cash flows from operations and financing facilities currently in place, to be adequate to meet its cash needs at least through 1994. Funding may also be provided from offerings of additional securities under the Company's $200 million universal shelf registration statement, assuming any such offering could be completed under satisfactory terms.
Proposed Incentive Plan
Management intends to propose to the Board of Directors adoption in 1994 of a new long-term incentive executive compensation plan under which 4 million shares of common stock of BMG would be reserved for grant. The proposed plan, subject to shareholder approval, would provide for grants of the following types of executive compensation awards: stock options, stock appreciation rights, stock grants and cash.
Inflation and Changing Prices
Gold production costs and corporate expenses are subject to normal inflationary pressures, which, to date, have not had a significant impact on the Company. The Company's results of operations and cash flows may also be affected by fluctuations in the market prices of gold, silver and copper, and to a lesser extent by changes in foreign currency exchange rates. While gold prices for the last three years have remained, on average, well below 1990 levels, prices have recently strengthened. Changing gold prices, in conjunction with operating costs incurred by the Company for its operations, affect the net margins realized by the Company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Battle Mountain Gold Company:
We have audited the accompanying consolidated balance sheets of Battle Mountain Gold Company (a Nevada corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These consolidated financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of Niugini Mining Limited and subsidiaries, which statements reflect assets and net sales of 17 percent and 29 percent, respectively, of the consolidated totals as of and for the year ended December 31, 1993, and 15 percent and 35 percent, respectively, of the consolidated totals as of and for the year ended December 31, 1992. We did not audit the financial statements of Niugini Mining Limited and subsidiaries or Empresa Minera Inti Raymi S.A., which statements reflect assets and net sales of 29 percent and 29 percent, respectively, of the consolidated totals as of and for the year ended December 31, 1991. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Battle Mountain Gold Company and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
As explained in Note 6 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for income taxes with the adoption of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." Also, as explained in Note 7 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting
for postretirement benefits other than pension plans with the adoption of Financial Accounting Standards Board Statement No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions."
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14 (a)(2) are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These financial statement schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, based on our audits and the reports of other auditors, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Houston, Texas February 18, 1994
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Battle Mountain Gold Company and the Board of Niugini Mining Limited:
We have audited the consolidated balance sheet of Niugini Mining Limited (a company incorporated in Papua New Guinea) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993 and the consolidated financial statement schedules which are not presented separately in the Battle Mountain Gold Company December 31, 1993 Form 10-K. Battle Mountain Gold Company is the Company's majority shareholder. Those financial statements and the financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on those financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Niugini Mining Limited and subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND
Sydney, Australia January 22, 1994
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Battle Mountain Gold Company Houston, Texas, U.S.A.
We have audited the balance sheets of Empresa Minera Inti Raymi S.A. as of December 31, 1991, and the related statements of income, retained earnings and cash flows for the year then ended, expressed in United States dollars (not presented herein). 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 in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The financial statements have been prepared to enable the Company's majority shareholder, Battle Mountain Gold Company, to prepare consolidated financial statements. Accordingly, the financial statements are prepared utilizing accounting principles that conform to the accounting policies of Battle Mountain Gold Company rather than the Company's adopted accounting policies.
In our opinion, the financial statements referred to above, prepared for the purposes described in the preceding paragraph, present fairly, in all material respects, the financial position of Empresa Minera Inti Raymi S.A. at December 31, 1991 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles accepted in the United States of America as adopted by Battle Mountain Gold Company.
Our audit of the financial statements of Empresa Minera Inti Raymi S.A. also included an audit of the related financial statement schedules (not presented herein) listed in Item 14(a) of Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
MORENO MUNOZ Y CIA.
La Paz, Bolivia January 17, 1992
BATTLE MOUNTAIN GOLD COMPANY CONSOLIDATED STATEMENT OF INCOME
- -------------------------------------------------- The accompanying notes are an integral part of these financial statements.
BATTLE MOUNTAIN GOLD COMPANY CONSOLIDATED BALANCE SHEET
- -------------------------------------------------- The accompanying notes are an integral part of these financial statements.
BATTLE MOUNTAIN GOLD COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- -------------------------------------------- The accompanying notes are an integral part of these financial statements.
BATTLE MOUNTAIN GOLD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------- The accompanying notes are an integral part of these financial statements.
BATTLE MOUNTAIN GOLD COMPANY Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation -
The accompanying consolidated financial statements include the accounts of the Battle Mountain Gold Company ("BMG"), its wholly-owned and majority-owned subsidiaries and corporate joint ventures in which the Company owns a majority share ("the Company"). The accounts of Niugini Mining Limited, a Papua New Guinea precious metals exploration, development and production company ("Niugini Mining"), have been consolidated with the Company's from January 1, 1989 (See Note 8). The accounts of Empresa Minera Inti Raymi S.A., a Bolivian gold mining company ("Inti Raymi"), have been consolidated with the Company's from April 1, 1990 (See Note 8). All significant intercompany transactions have been eliminated in consolidation. Majority-owned, non-corporate joint ventures are proportionately consolidated. Non-corporate joint ventures in which the Company owns less than a majority interest and has the ability to exercise significant influence are proportionately consolidated, while such corporate joint ventures are accounted for by the equity method. All other joint ventures are carried at cost. The issuance of stock by subsidiaries is accounted for as a capital transaction in the consolidated financial statements. Certain prior-period items have been reclassified in the consolidated financial statements in order to conform with current year presentation.
Inventories -
Inventories, consisting of gold, silver and copper, are reported at the lower of cost, using the first-in, first-out method, or market.
Property, Plant and Equipment -
Property, plant and equipment are stated at cost. Expenditures for development of new mines and major development expenditures at existing mines, which are expected to benefit future periods, are capitalized and amortized, generally, on the units of production method. Exploration and development costs expended to maintain production at operating mines are charged to expense as incurred.
Other property, plant and equipment includes capitalized lease costs and mine development in progress. Capitalized exploration lease costs are apportioned to expense in interim periods through a provision for abandonment of unproductive projects. Actual abandonments of unproductive projects are charged against the allowance. The balance in the allowance for abandonment is then evaluated on an annual basis and adjusted as necessary.
Generally, depreciation, depletion and amortization of mining properties and related assets are determined using the units of production method based upon estimated recoverable ore reserve tonnages at the beginning of the year. However, assets having an estimated life of less than the estimated life of the mineral deposits are depreciated on the straight-line method based on the expected life of the asset. Write-downs and write-offs of depreciable properties are included in accumulated depreciation, depletion and amortization.
Exploration and Evaluation Expenditures -
With the exception of lease acquisition costs incurred to acquire mineral rights, the Company charges all exploration and predevelopment evaluation expenditures to expense as incurred.
Capitalization of Operating Results During Mine Development -
During the start-up period for each developing mine, operating costs may exceed revenues earned from the sale of precious metals produced. In these instances, all costs incurred during this precommercial production period, net of revenues earned, are capitalized as property costs.
Capitalization of Interest -
Interest expense incurred in connection with borrowings attributable to pre-production stage projects is capitalized until those projects commence commercial production.
Reclamation -
Reserves for estimated future costs for reclamation of the Company's operating sites are accrued on a units of production basis over the estimated lives of the respective mines. These costs are charged to milling and other plant costs as accrued (See Note 14).
Revenue Recognition -
Revenue is recognized when the dore (a combination of gold and silver) or concentrates are delivered against sales agreements or contracts and risk of loss passes to the buyer.
Currency Translation -
Foreign currency financial statements are translated into U.S. dollars using current exchange rates and translation gains and losses are accumulated in the balance sheet caption "Cumulative Foreign Currency Translation Adjustment," a separate component of shareholders' equity.
Earnings (Loss) Per Share -
Earnings (loss) per share is computed by dividing net income (loss) attributable to common stock by the weighted average number of shares outstanding for the year, adjusted for common stock equivalents, if dilutive. The effects of common stock equivalents and other dilutive securities are not included in the computation of the 1993, 1992 or 1991 losses per share because of their antidilutive effect.
Statement of Cash Flows -
At December 31, 1993, cash and cash equivalents included $44.7 million and $9.3 million attributable to Niugini Mining and Inti Raymi, respectively. Cash and cash equivalents at December 31, 1992, included $29.6 million and $7.3 million held by Niugini Mining and Inti Raymi, respectively. At December 31, 1993 and December 31, 1992, other
assets included $1.3 million and $1.4 million, respectively, of restricted cash held by Niugini Mining.
For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
For the years ended December 31, 1993, 1992, and 1991, the Company paid $.7 million, $3.2 million and $7 million respectively, for income taxes. The Company paid $6.8 million, $1.4 million and $1.5 million in interest, net of amounts capitalized, during 1993, 1992, and 1991, respectively.
For 1993 and 1992, the Company's investing activities included no significant non-cash transactions. During 1991, non- cash investing activities included the issuance of 8,233,788 shares of BMG's common stock (market value of $65.9 million) to increase BMG's equity interest in Inti Raymi to 85 percent.
Hedging Transactions -
To hedge the effect of price changes on a portion of its production, the Company periodically sells metals products under fixed forward and spot deferred sales contracts. Spot deferred sales contracts allow the Company to defer the delivery of gold under the contract to a later date at the original contract price plus the prevailing premium at the time of deferral, as long as certain conditions are satisfied. Although spot deferred sales contracts could limit amounts realizable during a period of rising prices, the Company may "roll forward" its spot deferred contracts to future periods in order to realize current market price increases, while maintaining future downside protection. It also purchases put option contracts on metals products. Gains, losses or expenses related to these transactions are netted against revenue when the hedged production is sold (See Note 15).
Note 2. Asset Impairments
During the third quarter of 1992, the Company recognized charges totalling approximately $23.3 million, net of $11 million in income tax benefits for the impairment in value of certain of the Company's assets. The charges included (1) a write- down of $17.6 million, net of a $9 million income tax benefit, of the Company's investment in the San Luis mine in Colorado to reduce the carrying value of the investment to a level which the Company believed would be recoverable under then existing and expected future market conditions (lower gold prices, compared with those at the time of project conception, and greater than anticipated capital expenditures resulting from a difficult start-up period led to the write-down), (2) a write-off of $4 million, net of a $2 million income tax benefit, of the Company's investment in the previously closed Canyon Placer facility, which was abandoned because of a persistently weak gold market, and (3) an impairment of $1.7 million, included as other income (expense), net, to adjust to current market the carrying value of certain marketable equity security investments acquired upon the previous disposition of a discontinued project. The Company did not recognize any similar charges for asset impairments during 1993.
Note 3. Investments
The Company's long-term investments include the following:
Crown Jewel Joint Venture -
On March 14, 1990, the Company purchased, for $5 million, an option to acquire a 51 percent joint venture interest in Crown Resources Corporation's Crown Jewel gold project and surrounding exploration rights in Washington state. The Company paid an additional $5 million on January 4, 1991, to exercise the option and retain the right to acquire an ownership interest in the project. The Company has spent an additional $23.1 million as of December 31, 1993, evaluating and developing the project. The evaluation expenditures were charged to expense in the periods incurred prior to March 31, 1992, when the Company decided to proceed with the development of the project. Since that time, all evaluation expenditures ($14.4 million) have been capitalized.
To earn a 51 percent undivided interest in the project and certain adjacent mineral claims, the Company would be required to fund an estimated additional $62 million for construction and development of the project through commencement of commercial production.
Other Joint Ventures -
Other joint ventures consist primarily of capitalized lease costs incurred by exploration joint ventures to acquire mineral rights.
Note 4. Marketable Securities
The Company carries any non-current portfolios of marketable securities at the lower of aggregate cost or market. As of December 31, 1993, the Company had sold all of its marketable securities. For 1992, the non-current marketable securities consisted of common stocks and were included in investments (See Note 3).
Net unrealized losses associated with the marketable securities portfolios are charged to shareholders' equity. Net realized gains or losses are charged to other income.
Gross and net realized gains of $2.7 million were included in other income (expense), net, during the year ended December 31, 1993. There were no gains or losses realized during the years ended December 31, 1992 and 1991.
During 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard changes the methods of classifying and accounting for investments in equity securities that have readily determinable fair values and all investments in debt securities. The Company is required to adopt the new accounting and disclosure rules in the first quarter of 1994. Adoption of the standard is not expected to have a material effect on the Company's financial position or on its results of operations.
Note 5. Other Income (Expense), Net
Included in other income (expense), net, are certain non-operating revenues, net of related expenses, consisting of:
Note 6. Federal and International Income Tax
The discussion of income taxes herein does not include the cumulative income tax effects of accounting changes explained in Note 7 to these Consolidated Financial Statements.
Federal and international income tax expense (benefit) consisted of the following:
Consolidated income before income taxes and the cumulative effect of the accounting change includes income (loss) from international operations of $13.8 million, $1.7 million and $(6.5) million in 1993, 1992 and 1991, respectively.
Effective January 1, 1992, the Company adopted the provisions of SFAS No. 109. SFAS No. 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Effective January 1, 1992, the Company recorded a deferred tax liability of $12,611,000, representing the net effect of adopting SFAS No. 109 as of that date. This liability was comprised of a $16,491,000 purchase acquisition liability related to the Westworld acquisition (See Note 8), which was capitalized to property, and a partially-offsetting net $3,880,000 tax benefit which has been reflected in the consolidated statement of income as the cumulative effect of the accounting change.
For the year 1992, loss before cumulative effects of accounting changes includes an additional income tax benefit of approximately $8,741,000 or $.11 per share resulting from the adoption of SFAS No. 109.
The significant components of the deferred tax benefit in 1992 were as follows:
Prior to the adoption of SFAS No. 109, the Company's provision for deferred income tax resulted from timing differences in the recognition of revenue and expense for tax and financial
reporting purposes. For the year ended December 31, 1991, the sources of these differences and the tax effect of each are as follows:
The Company's deferred tax position at December 31, 1993 and 1992, is comprised of the following:
Temporary differences and carryforwards which gave rise to significant portions of deferred tax assets and liabilities at December 31, 1993 and 1992 are as follows:
A reconciliation of income tax at the statutory rate to income tax expense (benefit) follows:
The Omnibus Budget Reconciliation Act of 1993, enacted on August 10, 1993, retroactively increased the federal statutory income tax from 34 percent to 35 percent for periods beginning on or after January 1, 1993. The effect of the rate change was not significant to the Company's net deferred income tax position.
Taxes have been provided on the undistributed earnings of subsidiaries and joint ventures with the exception of Niugini Mining which is in a cumulative loss position.
The Company and its domestic subsidiaries file a consolidated U.S. federal income tax return. Such returns have been closed through the year 1990.
At December 31, 1993, the Company had approximately $5.8 million of alternative minimum tax credits available on an indefinite carryforward basis, and approximately $17.2 million of regular tax net operating losses expiring beginning in 2007, available to offset future U.S. federal income tax.
Note 7. Benefits Plans
Pension Plans -
Substantially all U.S. employees of the Company are covered by non-contributory pension plans. The U.S. plans provide benefits based on participants' years of service and compensation or defined amounts for each year of service. The Company makes annual contributions to the U.S. plans that comply with the minimum funding provisions of the Employee Retirement Income Security Act ("ERISA").
During 1993, the plans for Australian employees were changed from non-contributory defined benefit plans to defined contribution plans.
Pension costs are generally accrued and charged to expense currently. Net periodic pension cost included the following components:
The projected long-term rate of return on U.S. plan assets was 9 percent at December 31, 1993. At December 31, 1992 and 1991, the projected long-term rate of return was 8 percent for the U.S. plans and 9 percent for the Australian plans.
Actual return on U.S. plans' assets was $.3 million for the year ended December 31, 1993, $1.1 million for the year ended December 31, 1992, and $5.3 million for the year ended December 31, 1991. For Australian plans, actual return on plan assets for the years ended December 31, 1992 and 1991 was $(.1) million and $.1 million, respectively.
The following sets forth the plans' funded status and the related amounts as of December 31, 1993 and 1992:
Plan assets include equity securities, common trust funds and various debt securities. Weighted average rate assumptions used in determining estimated benefit obligations were as follows:
Early Retirement Program -
In July 1992, twenty-nine of the Company's salaried employees elected to accept early retirement benefits offered by the Company as part of general cost reduction efforts. In connection with these special benefits, a $1.3 million charge (net of a $.7 million income tax benefit) was taken against 1992 earnings.
Contribution Plans -
The Company has defined contribution plans available for all full-time U.S. salaried employees and all full-time U.S. hourly employees. The plans provide for savings
contributions by employees from 1 to 16 percent of their compensation, subject to ERISA limitations. The Company matches 50 to 100 percent of employee contributions with BMG's common stock, subject to a limit of 6 percent of an employee's compensation during each plan year. The Company began matching of the hourly employees' contributions with BMG's common stock on July 1, 1991.
The Company has defined contribution plans available for all Australian salaried and hourly employees. The Company's contributions to the salaried plan are determined in accordance with the trust deed. The Company's contributions to the hourly plan are determined in accordance with the union award.
All Company contributions to the plans are expensed and funded currently. The cost of such Company contributions was $.7 million in 1993, $.4 million in 1992, and $.8 million in 1991.
Postretirement Health Care and Life Insurance Benefits -
Substantially all of the Company's U.S. employees may become eligible for certain unfunded health care and life insurance benefits when they reach retirement age while working for the Company. Prior to 1992, the cost of retiree health care and life insurance benefits has been minimal and has been recognized as an expense as claims or premiums were paid.
In October 1992, the Company announced its decision to adopt SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions", effective January 1, 1992. This standard requires that the expected cost of these benefits must be charged to expense during the years that the employees render service. As a result of the adoption, the Company's results of operations for the year ended December 31, 1992, reflected an accrued charge of $5.3 million (net of $1.4 million in income tax benefits) representing the cumulative effect of the change in accounting principle for periods prior to 1992. Ongoing postretirement benefit costs recognized under this standard do not differ significantly from those that would have been reported under the previous method.
Net periodic postretirement benefit cost for the years ended December 31, 1993 and 1992, included the following components (in thousands):
The following table presents the plans' status at December 31, 1993 and 1992 (in thousands):
The discount rate used in determining the accumulated postretirement benefit obligation was 7 percent for 1993 and 9 percent for 1992. For 1993 and 1992, the assumed annual rate of increase in the per capita cost of covered health care benefits was 14 percent. In 1993 and 1992, a gradual decrease in the rate is assumed through the years, 1999 and 2001, respectively, when the rate is estimated to reach 7 percent and remain at that level thereafter. A one-percentage-point increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation as of December 31, 1993, by approximately $1.8 million, and the total of the service and interest cost components of net periodic postretirement health care cost for 1993 by approximately $187,000.
Postemployment Benefits -
During 1992, FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits". This standard requires that the expected cost of these benefits must be charged to expense during the periods that employees vest in these benefits. This is a change from the Company's current policy of recognizing these costs as an expense when paid. The Company is required to adopt the new accounting and disclosure rules in the first quarter of 1994. Adoption of the standard will not have a material effect on the Company's financial position or on its results of operations.
Note 8. Acquisitions
Niugini Mining -
In the aggregate, since January 1, 1989, the Company has paid $179.6 million for 47.5 million shares of the common stock of Niugini Mining. In December 1993, Niugini Mining issued 5.8 million of its common shares at A$5.00 per share in a public offering which provided net proceeds of approximately $19.1 million U.S. equivalent. As a result of this stock offering, BMG's ownership interest in Niugini Mining decreased from 56.5 percent to 52.6 percent. In December 1993, the Company recorded a $2.1 million adjustment to reduce the carrying value of its investment in Niugini Mining to reflect the reduction in ownership interest. This adjustment was charged to shareholders' equity and not charged against net income because the Company believed the carrying value of the investment to
be fully recoverable. Based on existing Niugini Mining employee incentive option schemes, the Company ownership could be diluted to as low as 50.03 percent.
The acquisition of Niugini Mining has been accounted for under the purchase method of accounting. The Company has allocated its purchase cost to the fair value of its share of Niugini Mining's net assets. The allocation to the individual assets and liabilities acquired was based on the estimated fair value of those assets and liabilities as of the acquisition date. At December 31, 1993, the carrying value attributed to the Company's share of the Lihir gold project exceeded its proportionate share of Niugini Mining's historical cost basis in the project by $132.5 million. Such excess will be amortized based on the estimated recoverable reserves attributable to the Lihir project upon commencement of production.
Interest costs amounting to $6 million in 1993, $6 million in 1992, and $6 million in 1991 were capitalized in connection with the Lihir gold project.
Inti Raymi -
On March 31, 1989, the Company purchased 33.3 percent of the outstanding stock of Inti Raymi. In April 1990, the Company acquired an additional 17.7 percent of the outstanding stock of Inti Raymi to increase the Company's ownership interest to 51 percent. From April 1, 1990, the accounts of Inti Raymi have been consolidated with those of the Company.
On May 28, 1991, the Company completed a merger with Westworld Resources, Inc., a U.S. natural resources company ("Westworld"), and a separate acquisition of additional shares of Inti Raymi from Zeland Mines S.A., a Panamanian mining company ("Zeland"). In combination, these transactions increased the Company's equity ownership of Inti Raymi from 51 percent to 85 percent. As of December 31, 1993, the Company had invested an aggregate of $35.9 million in cash and 9 million of its common shares (valued at approximately $76.3 million) to acquire its 85 percent equity interest in Inti Raymi.
Using the purchase method of accounting, the Company has allocated its Inti Raymi purchase cost to the fair value of its share of Inti Raymi's net assets. At December 31, 1993, the carrying value attributed to the Company's share of the Kori Kollo gold deposit (including a $16.5 million deferred tax charge capitalized in connection with the Westworld purchase acquisition) (See Note 6), exceeded its proportionate share of Inti Raymi's historical cost basis in the deposit by $119.9 million. This excess has been capitalized to property and is being amortized by the units of production method based on the deposit's estimated recoverable reserves. Amortization of the excess cost amounted to $8.6 million in 1993, $3.0 million in 1992 and $1.9 million in 1991.
Interest costs amounting to $.6 million in 1993 and $2.8 million in 1992 were capitalized in connection with the Kori Kollo project.
Pro Forma Financial Information -
The following unaudited pro forma information presents consolidated net sales, net loss and loss per share for the year ended December 31, 1991, as if the Company had acquired its 85 percent equity interest in Inti Raymi at the beginning of that period. This unaudited pro forma information is not necessarily indicative of the actual results of operations that would have been achieved had the acquisition been consummated as of the assumed date.
Note 9. Common Stock and Stock Options
Common Stock -
On May 28, 1991, in a merger agreement with Westworld, which owned 24.5 percent of Inti Raymi's outstanding shares, the Company exchanged 6,004,196 of its common shares (valued at approximately $48 million) with Westworld shareholders for all of Westworld's outstanding shares. Simultaneously, the Company exchanged 2,229,592 of its common shares (valued at approximately $17.9 million) with Zeland for 9.5 percent of Inti Raymi's outstanding shares (See Note 8).
Reference is made to Notes 10 and 11 for discussion regarding the number of shares of common stock reserved for issuance for the conversion of the Company's outstanding convertible preferred stock and convertible subordinated debentures.
Stock Options -
The Company has a stock option plan available to officers and key employees covering non-qualified and incentive stock options. A total of 1,980,000 shares of common stock is reserved for issuance under the plan, of which 8,549 shares remained available for granting at December 31, 1993. At December 31, 1992, there were 868,335 shares available for granting under the plan. During 1993, 71,815 stock option shares expired and were put back into the available pool. Non-employee directors of the Company are granted non-qualified stock options under the Non-qualified Stock Option Plan for Outside Directors, which was approved by the Company's shareholders on April 21, 1992. Under this plan, a total of 250,000 shares of the Company's common stock are reserved for issuance, of which
177,500 shares remained available for granting at December 31, 1993. At December 31, 1992, there were 198,000 shares available for granting under the plan. Options granted under the above plans are exercisable under the terms of the respective option agreements at the market price of the common stock at the date of grant, subject to antidilution adjustments in certain circumstances. Payment of the exercise price may be made in cash or in shares of common stock previously owned by the optionee, valued at current market value.
Under the deferred income stock option plan for officers and directors, each participant may elect to receive a non- qualified stock option in lieu of a portion of his compensation. A maximum of 2,000,000 shares of common stock is issuable under the plan, of which 1,774,641 shares remained available for granting at December 31, 1993. At December 31, 1992, 1,793,758 shares remained available for granting under the plan. Options granted pursuant to the plan become exercisable at the beginning of the calendar year immediately following the year in which the option was granted. They expire no later than 10 years after the date of grant. The amount of deferred compensation is accrued as compensation expense during the period earned.
Additional information for 1993 related to the Company's stock option plans follows:
At December 31, 1993, expiration dates for the outstanding options ranged from July 1, 1996 to August 16, 2003. The weighted average exercise price per share was $8.83.
Additionally, the Company has reserved 950,000 shares for issuance under restricted stock and stock award plans. At December 31, 1993, a total of 707,971 shares remained available for issuance under these plans. Compensation expense related to the plans is accrued ratably over periods vested.
Note 10. Preferred Stock and Stock Rights
The Company's Board of Directors is authorized to divide the preferred stock into series. With respect to each series the Board may determine the dividend rights, dividend rates, conversion rights and voting rights (which may be greater or less than the voting rights of the common stock). The Board may also determine the redemption rights and terms, liquidation preferences, sinking fund rights and terms, the number of shares constituting the series and the designation of each series.
Pursuant to their authority to divide the preferred stock into series, the Board of Directors in 1988 designated 2,000,000 shares of preferred stock as "Series A Junior Participating Preferred Stock" for possible issuance upon the exercise of stock rights as described below.
Stock Rights -
Since November 21, 1988, when the Company's Board of Directors declared a dividend of one right for each outstanding share of the Company's common stock, each share of the Company's outstanding common stock carries with it such right. Each right entitles the holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $1.00 per share, for an exercise price of $60, subject to adjustment. The rights expire on November 10, 1998. They will not be exercisable nor transferable apart from the common stock until such time as a person or group acquires 20 percent of the Company's common stock or initiates a tender offer that will result in ownership of 30 percent of the Company's common stock. In the event that the Company is merged, and its common stock is exchanged or converted, the rights will
entitle the holders to buy shares of the acquiror's common stock at a 50 percent discount. Under certain other circumstances, the rights can become rights to purchase the Company's common stock at a 50 percent discount. The rights may be redeemed by the Company for one cent per right at any time until 10 days following the first public announcement of a 20 percent acquisition of beneficial ownership of the Company's common stock.
Convertible Preferred Stock -
On May 20, 1993, the Company received $111 million in net proceeds from the issuance of 2.3 million shares of its convertible preferred stock with a liquidation preference of $50 per share plus any accrued and unpaid dividends. Each share of preferred stock will pay an annual cumulative dividend of $3.25 and is convertible at any time at the option of the holder into 4.762 shares of Battle Mountain Gold Company common stock. The preferred stock is redeemable at the option of the Company solely for shares of the Company's common stock beginning May 15, 1996. There are 11 million shares of the Company's common stock reserved for issuance upon conversion of the preferred stock.
Note 11. Debt
Long-term debt outstanding as of December 31:
On January 4, 1990, the Company received net proceeds of $97.4 million upon the completion of a $100 million Euromarket issue of 6 percent convertible subordinated debentures, due January 4, 2005. The debentures are convertible into shares of the Company's common stock at a conversion price of $20 5/8 per share, subject to adjustment in case of certain events. The debentures are redeemable at the Company's option at any time after January 4, 1993 (except that they may not be redeemed prior to 1995 unless the closing market price of the common stock has been at least 130 percent of the conversion price during a specified period prior to redemption). There are 4.8 million shares of the Company's common stock reserved for issuance upon conversion of the debentures. Interest payments are due annually on the anniversary date of the issuance. Proceeds from the issuance were added to working capital and used for general corporate purposes, including mineral acquisitions and development of properties. There are no sinking fund requirements
imposed under the debenture agreement. As of February 17, 1994 and 1993, the market value of the debentures represents a discount to face value of approximately 5 and 30 percent, respectively.
During 1992, the Company's majority-owned subsidiary, Inti Raymi, established separate but coordinated term credit facilities with three multilateral agencies (Overseas Private Investment Corporation ("OPIC"), International Finance Corporation ("IFC") and Corporacion Andina de Fomento ("CAF")) for the development of its Kori Kollo expansion project in Bolivia. Each loan is secured by a lien on the project and is to be repaid in semi-annual installments which commenced in December 1993 and will continue through June 2000, with certain provisions for accelerated repayment in the event of substantial Kori Kollo reserve losses or significantly improved gold market conditions. Through certain ratio tests, each loan may restrict payments by Inti Raymi to the owners of shares of its capital stock. Additional covenants exist which limit fixed asset purchases, additional debt and liens, and require compliance with Bolivian and World Bank environmental standards. During 1993, the project met the prerequisite physical and financial completion tests as set forth in the facility agreements and is waiting to obtain project completion status from the lenders, which the Company expects to receive in the first half of 1994. Until the project obtains completion status, Inti Raymi is restricted from repaying borrowings from the Company or paying dividends and the Company is required to provide financial support to ensure Inti Raymi's ability to meet its obligations.
The OPIC facility provided for borrowings of $40 million. Interest rates under the facility are based on LIBOR plus 2.0 percent. Additionally, $4.1 million of previously existing OPIC loans to Inti Raymi were restructured as loan obligations under the terms of the agreement, with the exception that they are subject to their originally agreed interest rates. As of December 31, 1993 and 1992, Inti Raymi owed $41.0 million and $40.7 million, respectively, under these combined facilities. Interest charges for the years ended December 31, 1993 and 1992, were based on weighted average interest rates of 5.6 percent and 6.2 percent, respectively.
Under the IFC commitment, borrowings of $40 million were made. The interest rate for the non-convertible portion of the loan is based on LIBOR plus 2.375 percent, but Inti Raymi has the right to request an interest rate cap or collar, or may elect at any time to pay a fixed rate of interest. Of the total IFC borrowings, $5 million represents a convertible loan due on March 1, 2002, carrying a fixed annual interest rate of 11 percent with an additional interest rate provision which varies with the price of gold. Interest charges for the years ended December 31, 1993 and 1992 were based on weighted average interest rates of 6.0 percent and 6.2 percent, respectively, for the non-convertible portion of the loan and 12 percent and 11 percent, respectively, for the convertible portion of the loan. The loan may be converted, at IFC's option, into up to a 3.98 percent equity interest in Inti Raymi. Upon the conversion of the convertible loan into equity, the Company and Inti Raymi's minority owner would have their interests in the capital stock of Inti Raymi diluted proportionately. Each share of Inti Raymi common stock issued by Inti Raymi as a result of such conversion will carry a put option which, when exercised by IFC, would require BMG and Inti Raymi's minority shareholder to purchase such share at its fair
market value as determined at the time the put is exercised. As of December 31, 1993 and 1992, Inti Raymi owed $37.5 million and $37.0 million under this facility, respectively.
The CAF facility provided for borrowings of $15 million. Interest rates under the facility are based on LIBOR. These funds were obtained from several sources. CAF charged a supervision and oversight fee and a commitment fee in addition to fees charged by the participants in the funding. As of December 31, 1993 and 1992, Inti Raymi owed $13.9 million and $15 million, respectively, under this facility. Interest charges for the years ended December 31, 1993, and 1992, were based on weighted average interest rates of 4.7 percent and 4.8 percent, respectively.
Due to the generally variable interest rate features of the OPIC, IFC and CAF loans, the Company believes the amounts outstanding under these loans presented on the Company's balance sheet approximate the fair value of this debt as of December 31, 1993 and 1992.
The Company has a revolving credit facility with a syndicate of seven banks, led by Citibank N.A. as agent. At December 31, 1993, the facility would provide unsecured borrowings up to $112.5 million. The facility provides for quarterly reductions in commitments of $9.4 million which are scheduled to continue until the facility termination date of December 31, 1996. As a result of 1992 amendments, the facility permits the Company to pledge its shareholdings in Inti Raymi and restricts the amounts that the Company may borrow under the facility if the Company's financial support for the Kori Kollo project loans extends beyond June 30, 1994, or if the Company does not meet certain net worth criteria. The amendments also impose additional facility costs in the form of amendment arrangement fees and increased interest rates. Interest rates under this facility are based on the facility agent bank's base rate, LIBOR or applicable certificate of deposit rates. Interest charges for the years ended December 31, 1993 and 1992, were based on weighted average interest rates of 3.9 to 6.0 percent and 4.0 to 6.5 percent, respectively. Other costs associated with the facility include commitment fees of one-eighth percent per annum on the unused portion of the facility and facility fees of one-eighth percent per annum of the average daily commitment. The credit agreement imposes certain financial covenants upon the Company which include covenants relating to leverage, net worth and working capital, as well as certain restrictions on liens, additional debt or lease obligations and the acquisition or disposition of major assets. Additionally, the agreement sets forth restrictions limiting the amount of dividends the Company may pay based on the Company's equity position applied on a cumulative basis from the date of the agreement. As of December 31, 1993, cumulative dividend restriction levels exceeded cumulative dividends paid or declared by $123.7 million.
Due to the variable interest rate of this facility, the Company believes the $12.5 million outstanding under this facility on the Company's 1992 balance sheet approximated the fair value of the debt. No amounts were outstanding under this revolving credit facility as of December 31, 1993.
On August 17, 1992, the Company established a $15 million uncommitted revolving credit facility with a major international bank. Interest rates under the facility are
variable, based on either the bank's base rate or a negotiated rate. There are no additional costs or financial restrictions imposed on the Company by this facility. No amounts were outstanding under this revolving credit facility as of December 31, 1993. As of December 31, 1992, $10 million classified as short term debt was outstanding under this revolving credit facility. Interest charges for the years ended December 31, 1993 and 1992, were based on weighted average interest rates of 3.5 to 4.3 percent and 3.4 to 4.5 percent, respectively.
Maturities of the Company's long-term debt over the next five years are as follows: $13.4 million in 1994, $13.4 million in 1995, $13.4 million in 1996, $13.4 million in 1997 and $13.4 million in 1998.
As of February 9, 1994, BMG has effective a registration statement under the Securities Act of 1933, as amended, for what is commonly referred to as a "universal shelf" filing covering up to $200 million of its debt securities, preferred stock, depository shares, common shares and warrants which BMG may elect to offer from time to time and in any combination.
Note 12. Major Customers and Export Sales
During 1993, sales to three separate buyers accounted for $55.3 million, $36.2 million and $25.3 million of total sales, respectively, representing 56.4 percent of total sales. International sales for 1993 were $205.7 million, of which $47.9 million were export sales of U.S. product. In 1992, sales to five separate buyers of $34.9 million, $30.0 million, $28.9 million, $28.6 million and $27.7 million, respectively, accounted for 78.1 percent of total sales. Of the Company's $192.2 million international sales in 1992, $83.6 million were export sales of U.S. product. For 1991, 75.3 percent of the Company's total sales was distributed among four separate buyers who accounted for $46.6 million, $37.7 million, $30.7 million and $17.9 million in sales, respectively. International sales of $176.5 million in 1991 included $102.1 million in export sales of U.S. product. Alternate buyers are available to replace the loss of any of the Company's principal customers.
All sales of the Company's products are made to precious metals smelters, refiners or traders. As such, the precious metals industry has substantial influence over the market for the Company's products.
Note 13. Geographic Segment Information
The following table sets forth certain financial information relating to international and domestic operations:
Note 14. Commitments and Contingencies
Total operating lease rental expenses (exclusive of mineral leases) were $1.4 million, $1.6 million and $1.3 million for 1993, 1992 and 1991, respectively.
Aggregate minimum rentals (exclusive of mineral leases) subsequent to December 31, 1993, under non-cancelable leases for the years ending December 31, 1994 to 1998, are estimated to be $2.3 million, $2 million, $1.9 million, $1.3 million and $.8 million, respectively. Lease commitments beyond 1998 total $2.9 million.
The Company spent $3.2 million in 1993, and has no future commitments, in connection with several unrelated exploration joint ventures.
To maintain BMG's right to earn a 51 percent interest in the Crown Jewel project, BMG could be required to make payments to the co-venturer in the amounts of
$1 million per quarter for the period commencing with the third quarter of 1993 through commencement of commercial production. BMG believes that it is entitled under "force majeure" provisions of the joint venture agreement to suspend application of these quarterly payment requirements because of delays in the permitting process. The Company's financial position as of December 31, 1993, does not reflect a liability for any such payments. An arbitration proceeding has been initiated between BMG and the co- venturer, and the $1 million payments are being deposited in an escrow account pending resolution of the dispute.
Pursuant to pricing provisions as set out in dore customer contracts, as of December 31, 1993, the Company had committed to sell 11,200 ounces of gold contained in dore valued at approximately $4.3 million at prices determined during various pricing periods in 1993, none of which exceeds 45 days. The average price of gold sold under this commitment is approximately $382 per ounce.
The Company has provided a $3.3 million guarantee to ensure that the reclamation of the Company's San Luis mine will be performed as specified in the operating permit issued by the State of Colorado.
All of the Company's mining and processing operations are subject to reclamation requirements. The Company believes it is making sufficient accruals for known reclamation obligations and has accrued an aggregate of $9.5 million at December 31, 1993. The accrued reclamation charges are included as long-term liabilities in the Company's consolidated balance sheet. At the Battle Mountain complex, assuming the Reona project is developed as currently permitted and Phoenix project proceeds, aggregate reclamation expenditures required to be spent in the area are expected to amount to approximately $7.7 million, of which $4.7 million remained accrued at December 31, 1993. Activity expected to be performed as part of the development and operation of the Reona and Phoenix projects will eliminate certain reclamation costs. If one or both of these projects does not proceed, reclamation expenditures would be expected to be up to $4 million higher than current estimates. Estimated reclamation obligations and related amounts accrued as of December 31, 1993, respectively, for each of the Company's other operating mines is as follows: San Luis $3.3 million and $1.0 million, Pajingo $2.6 million and $.8 million, Kori Kollo $10.0 million and $.4 million and Red Dome $4.2 million and $2.6 million. Reclamation expenditures for the San Cristobal mine are not expected to be material.
Note 15. Forward Sales and Hedging
In order to minimize exposure to decreasing prices for portions of its gold production, the Company has in the past and may in the future, from time to time, hedge future gold production by entering into contracts, such as spot deferred sales contracts, fixed forward sales contracts and put options.
The Company's hedging transactions included the following at December 31, 1993:
Gains and losses related to these hedging transactions are recognized in revenues when the related production is sold. In addition, costs associated with the purchase of certain of the hedge instruments, amounting to $.6 million for open put options and $1.5 million for open spot deferred sales contracts as of December 31, 1993, are also deferred and recognized concurrently with the revenues related to the hedged production.
The aggregate amount by which the net market value of the Company's open fixed forward and spot deferred sales contracts is less than the current spot price of $390 per ounce of gold as of December 31, 1993, is $19.4 million, of which $6.2 million is attributable to minority interests.
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY RESULTS
- ---------------------------
(1) Restated to give effect to retroactive application of 1992 adoption of SFAS No. 109," Accounting for Income Taxes." The cumulative effect of the adoption of SFAS No. 109 on periods prior to 1992 (a $3.9 million tax benefit or $.05 per share) is included in the first quarter of 1992 as is the cumulative effect of adopting SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions" (a charge of $5.3 million net of related income tax benefit or $.07 per share). (See Notes 6 and 7 of Notes to Consolidated Financial Statements.)
(2) Includes non-cash asset impairments totalling $23.3 million (net of related income tax benefit) or 29 cents per share. (See Note 2 of Notes to Consolidated Financial Statements.)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Nominees" and "Directors with Terms Expiring in 1995 and 1996" set forth under "Election of Three Directors and Director Compensation" in the Company's definitive Proxy Statement for its annual meeting of shareholders to be held April 21, 1994, as filed within 120 days of December 31, 1993, pursuant to Regulation 14A under the Security Exchange Act of 1934, as amended (the "Company's 1994 Proxy Statement"), is incorporated herein by reference. See also "Executive Officers of the Registrant" appearing in Part I of this Annual Report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions "Board Organization and Committees" set forth under "Election of Three Directors and Director Compensation" and "Executive Compensation" (other than the Compensation and Stock Option Committee Report on Executive Compensation)in the Company's 1994 Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Security Ownership" set forth under "Election of Three Directors and Director Compensation" in the Company's 1994 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Supplementary Data. Consolidated financial statements of the Company and its subsidiaries are incorporated under Item 8 of this Form 10-K.
(a)(2) Financial Statement Schedules.
Other schedules of Battle Mountain Gold Company and subsidiaries are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.
(a)(3) Exhibits: See attached exhibit index, page E-1, which also includes the management contracts or compensatory plans or arrangements required to be filed as exhibits to this Annual Report by Item 601 (10)(iii) of Regulation S-K.
(b) Reports on Form 8-K: None.
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.
BATTLE MOUNTAIN GOLD COMPANY
By /s/ R. DENNIS O'CONNELL -------------------------------- R. DENNIS O'CONNELL VICE PRESIDENT -- FINANCE AND CHIEF FINANCIAL OFFICER
Date: March 21, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
BATTLE MOUNTAIN GOLD COMPANY SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET
- -------------------------------------------------- * Eliminated in consolidation
This condensed statement should be read in conjunction with the Consolidated Financial Statements and Notes thereto which are included in Item 8 herein.
S-1 BATTLE MOUNTAIN GOLD COMPANY SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF INCOME
- -------------------------------------------------- * Eliminated in consolidation
** For 1992, includes adoption of SFAS No. 106 ($5,341) and SFAS No. 109 ($2,573).
This condensed statement should be read in conjunction with the Consolidated Financial Statements and Notes thereto which are included in Item 8 herein.
S-2 BATTLE MOUNTAIN GOLD COMPANY SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF CASH FLOWS
* Eliminated in consolidation
This condensed statement should be read in conjunction with the Consolidated Financial Statements and Notes thereto which are included in Item 8 herein.
S-3 SCHEDULE V BATTLE MOUNTAIN GOLD COMPANY CONSOLIDATED PROPERTY, PLANT AND EQUIPMENT
(1) Consists of a Capitalized Deferred Tax Charge in connection with the Westworld purchase resulting from the adoption of SFAS No. 109. (See Note 6 of Notes to Consolidated Financial Statements.)
(2) "Acquisition Premium" reflects the fair value attributed to the Company's share of the Lihir project and the Kori Kollo gold deposit at the date of acquisition in excess of Niugini Mining's and Inti Raymi's historical cost basis, respectively.
(3) Additions at cost for 1993 include $6.7 million in capitalized interest in connection with Niugini Mining's Lihir project and plant construction at Inti Raymi's Kori Kollo mine. Additions at cost also include development of the Reona Project, the Red Dome mine extension, development at the San Cristobal mine, development of the Lihir project and plant construction expenditures for the Kori Kollo mine. (See Note 8 of Notes to Consolidated Financial Statements.)
(4) Additions at cost for 1992 include $8.9 million in interest capitalized in connection with Niugini Mining's Lihir project and plant construction at Inti Raymi's Kori Kollo mine. Additions also include the capitalization of a heap leach facility at the Battle Mountain complex. (See Note 8 of Notes to Consolidated Financial Statements.)
(5) Additions at cost for 1991 include $6.0 million in interest capitalized in connection with Niugini Mining's Lihir project. Additions at cost for 1991 also include the San Luis development, the Red Dome acquisition, additional development at San Cristobal, development of the Kori Kollo mine and the acquisition of an additional 34 percent equity interest in the Kori Kollo mine. The Company issued 8.2 million shares of stock (valued at $65.9 million) for such additional interest. (See Note 8 of Notes to the Consolidated Financial Statements.)
S-4 SCHEDULE VI
BATTLE MOUNTAIN GOLD COMPANY CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(1) Includes write-downs of $12.2 million, for the impairment in value of certain of the Company's assets (See Note 2 of Notes to Consolidated Financial Statements).
(2) Includes write-downs of $20.4 million, for the impairment in value of certain of the Company's assets (See Note 2 of Notes to Consolidated Financial Statements).
S-5 SCHEDULE X
BATTLE MOUNTAIN GOLD COMPANY
SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION
S-6
INDEX OF EXHIBITS
E-1
E-2
E-3
E-4
________________________
* Incorporated by reference as indicated.
+ Represent management contracts or compensatory plans or arrangements required to be filed as exhibits to this Annual Report by Item 601(10)(iii) of Regulation S-K.
. Pursuant to Instruction 2 accompanying paragraph (a) and the Instruction accompanying paragraph (b)(10)(iii)(B)(6) of Item 601 of Regulation S-K, the registrant has not filed each executive officer's individual Executive Supplemental Retirement Income Agreement with the Company as an exhibit hereto; the registrant has agreements substantially identical to Exhibit 10(f)(2) above with each of Karl E. Elers, Kenneth R. Werneburg, Andre Douchane, Joseph L. Mazur, R. Dennis O'Connell, Robert J. Quinn and Fred B. Reisbick except that the monthly benefits for such executive officers under such agreements are $12,917, $10,292, $6,083, $6,125, $6,458, $5,750 and $4,417, respectively. In addition, the registrant has not filed each executive officer's individual Severance Agreement with the Company as an exhibit hereto; the registrant has agreements substantially identical to Exhibit 10(g)(1) above with each of Messrs. Elers, Werneburg, Mazur, Quinn, Douchane and Reisbick.
E-5 APPENDIX TO 10-K
re graphics on page 5
The graphics on page 5 consist of maps depicting the Company's mines and offices in North America, South America and the Austral Pacific. The North America map references the following Company offices: BMG's headquarters in Houston, Texas; BMG's North American Regional Office in Denver, Colorado; BMG's Latin American Exploration Office in Tucson, Arizona; and BMG's U.S. Exploration Office in Reno, Nevada. The North America map also includes the following operating locations: the San Luis Mine in southern Colorado; the Battle Mountain complex in northern Nevada; and the Crown Jewel Project in northeast Washington. The South America map references BMG's South American Regional Office and Inti Raymi's headquarters in La Paz, Bolivia; the Kori Kollo mine in central Bolivia; and the San Cristobal mine in northern Chile. The Austral Pacific map references Niugini Mining's office in Sydney, Australia; BMG's Australian Exploration Office in Perth, Australia; the Red Dome and Pajingo mines in northeastern Australia; and the Lihir Project northeast of mainland Papua New Guinea.