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 1995 to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages as of March 1, 1996, 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. Mr. Elers has been employed with the Company since April 1988 and has served in his current capacity since April 1990. Mr. Werneburg has been employed with the Company since November 1989 and has served in his current capacity since April 1990. Messrs. Mazur, Quinn and Reisbick have been employed with the Company since July 1985. Mr. Reisbick previously served as General Manager, North America Exploration until November 1992. Mr. 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.
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 5, 1996, the Company had 19,237 record holders of Common Stock.
Cash dividends of $0.025 per share were paid in each half of fiscal 1995 and 1994. 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 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's ability to pay dividends to BMG, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and Note 5 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
The following table presents significant financial data related to the Company's results of operations for the years ending December 31:
* Includes mining, milling and other plant costs directly related to a mine site and stripping cost adjustments but excludes third party smelting costs, transportation costs, royalties, depreciation, depletion and amortization and taxes.
Revenues - Gross revenue increased in 1995 compared with 1994 primarily because of increased sales volumes. Sales volumes increased at all of the Company's mines in 1995 compared with 1994 with the largest increases coming from the Kori Kollo mine, the Battle Mountain Complex mines and the Red Dome mine. Production volumes increased at the Kori Kollo mine in 1995 because of increased mill throughput. Production volumes at the Red Dome mine and the Battle Mountain Complex increased in 1995 because 1995 was the first full year of production from the new mine areas at these sites.
Gross revenue increased in 1994 compared with 1993 because of increased sales volumes, primarily from the Kori Kollo and San Cristobal mines, and an increase in the average realized price of gold. Volumes from the Kori Kollo mine increased in 1994 compared with 1993 because 1994 was the first full year of operation of that mine's new milling facilities and because of increased recoveries. Upgrading of the crushing facilities at the San Cristobal mine was the main factor contributing to the increase in that mine's sales volume in 1994. The increases at Kori Kollo and San Cristobal in 1994 compared with 1993 were partially offset by a significant decrease in sales volumes at the Red Dome mine, which was caused primarily by the majority of the mining efforts at that mine being directed at a push back of the existing mine pit. Additionally, a pit wall slippage delayed startup of production from the push back of the mine pit and also delayed access to higher grade ore. The Battle Mountain Complex experienced a decrease in production volumes in 1994 compared with 1993 primarily because the Basin Leach facility which was the complex's main operation during 1993 was nearing the end of its production cycle. This decrease in production at the complex was partially offset by production from the start-up of the Reona Leach facility in October 1994.
Selling and Operating Costs - Freight, allowances and royalties increased in total and decreased slightly on a cost per equivalent ounce of gold sold basis in 1995 compared with 1994. These costs increased in total because of increased sales volumes and decreased on a cost per equivalent ounce basis because of reduced shipping costs for concentrate shipped from the Red Dome mine. Freight, allowances and royalties decreased in total and on a cost per equivalent ounce of gold sold basis in 1994 compared with 1993 due to fewer concentrate sales from the Red Dome mine in 1994. Shipments from the Red Dome mine carry relatively high shipping costs.
Cash production costs increased in total in 1995 compared with 1994 but remained approximately the same on the basis of cost per equivalent ounce produced. The increase in total cash production costs is directly related to the increase in production from all of the Company's mines as previously discussed.
Cash production costs decreased in total and on a per equivalent ounce of gold produced in 1994 compared with 1993. These costs decreased on a per equivalent ounce of gold produced basis because of an increased percentage (from approximately 41 percent in 1993 to approximately 52 percent in 1994) of volumes being produced at the Kori Kollo mine which has lower cash production costs per equivalent ounce than the rest of the mines. Cash operating costs per equivalent ounce of gold sold at the Kori Kollo mine were lower in 1994 compared with 1993 because of increased recoveries. The San Cristobal mine costs decreased on an equivalent ounce of gold sold basis because of the addition of more efficient crushing equipment. Lower per equivalent ounce cash production costs at the Battle Mountain Complex, the San Luis mine and the Pajingo mine also contributed to the decrease in cash production costs on a per ounce and total basis for 1994.
Depreciation, depletion and amortization increased 38 percent in total and 11 percent on a per equivalent ounce of gold produced basis for 1995 compared with 1994. These costs have increased on an equivalent ounce basis primarily because of the high capital costs incurred to develop new areas at the Pajingo Complex and the Red Dome mine relative to the amount of production expected from these new areas. Depreciation, depletion and amortization increased 24 percent in total and remained approximately the same on a per equivalent ounce of gold produced basis for 1994 compared with 1993. The increase in total was caused primarily by increased sales volumes.
Exploration Costs - Exploration and evaluation expenses increased 24 percent in 1995 compared with 1994 and 53 percent in 1994 compared with 1993. In 1995 and 1994, the Company expanded its exploration activities in Australia, Indonesia and Bolivia, and also in the vicinity of currently operating mines. (See "-- Liquidity and Capital Resources -- Investing Activities").
Write-off of Property, Plant and Equipment - In June 1995, management decided that the Company would dismantle portions of the milling facility used for the milling of ore from the depleted Fortitude mine in Nevada rather than renovate it for use in the Phoenix project or other possibilities. Consequently, the net carrying value of this mill and related facilities was written off during June 1995 and resulted in a charge to operations of approximately $2.2 million. Spare parts related to
this milling facility were rendered obsolete due to this decision and, therefore, $.9 million was charged to milling and other plant costs to expense these now obsolete parts. No further write-downs are currently anticipated, and none were recorded in 1994 or 1993.
General and Administrative Costs - The Company's general and administrative costs are presented on a consolidated basis without reduction for minority interest and include the following (in thousands):
As a result of evaluations of peer group operational and reporting practices, in 1995 management instituted alternative reporting of certain costs to allocate to mine operations certain costs which previously were recorded as general and administrative costs. The amounts for 1994 and 1993 have been reclassified for comparability to the 1995 treatment of these costs. These reclassifications resulted in a reduction in general and administrative costs in the amount of $4.7 million in 1994 and $4.6 million in 1993.
Other - Interest income decreased in 1995 compared with 1994 because of lower interest rates and lower average balances of invested cash. Interest income increased in 1994 compared to 1993 primarily due to an increase in invested cash balances and higher interest rates.
Gross interest expense, including amounts capitalized, increased in 1995 compared with 1994 and in 1994 compared with 1993. Gross interest expense increased in 1995 because of increased borrowings. Niugini Mining borrowed $30 million under a bridge financing in order to purchase an additional interest in the Lihir project. This borrowing was repaid in December 1995. All of the interest expense related to this borrowing was capitalized as part of the Lihir investment. Gross interest expense also increased because of borrowings under the Company's new revolving credit facility during the fourth quarter of 1995. All interest related to the latter borrowings was capitalized as part of the Crown Jewel project.
Gross interest expense, including amounts capitalized, increased in 1994 because of generally higher interest rates on Inti Raymi's variable rate debt which was somewhat offset by recoveries from interest rate cap contracts. The increase in gross interest expense due to increases in interest rates was partially offset by a decrease in outstanding debt.
Interest with respect to borrowings attributable to any given project in the pre-commercial production stage is capitalized. The interest associated with the 6 percent convertible subordinated debentures has been and continues to be capitalized as part of the Lihir investment. Interest expense would be expected to increase when any acquisitions or mine development investments reach the operational stage.
Other income (expense), net in 1995 included approximately $5.5 million in gains from the sale of various exploration prospects, primarily a $4.2 million gain on the sale of the Plutonic Bore exploration project in Australia. It also includes $1.3 million in royalties received from the owner of the Triple P ore deposit which was sold by the Company in 1993.
Other income (expense), net in 1994 included approximately $.8 million in royalties from the owner of the Triple P ore deposit and a gain of $.7 million from the sale of a prospect in Chile. This income was offset by foreign currency losses of approximately $1.2 million attributable to Papua New Guinea kina cash deposits. The 1993 income resulted primarily from gains of $3.7 million from the sale of the Triple P ore deposit and $2 million from the sale of certain other long-term investments held by Niugini Mining.
The Company's effective income tax benefit rate was 23 percent in 1995 compared with an income tax expense rate of 21 percent in 1994 and an income tax benefit rate of 48 percent in 1993. The effective income tax rate for 1995 was affected by the recognition of deferred tax assets related to foreign tax credits. The Company previously treated foreign taxes paid as deductions for U.S. income tax purposes; however, the Company has determined that it is more likely than not that it will be able to utilize foreign tax credits because of Inti Raymi's projected net income and its ability to remit earnings in the form of dividends to BMG.
The effective income tax rate for 1994 was influenced by a reduction in the Company's deferred tax valuation allowance. In 1994, the Company determined that it was more likely than not that additional deferred tax benefits would be realized as a result of the Company's profitability in 1995.
Income tax expense in 1994 resulted primarily from the accrual of withholding taxes on income from the Company's majority owned subsidiary Inti Raymi. The income tax benefit in 1993 resulted from the net operating loss generated in 1993.
Net income attributable to minority interests increased in 1995 compared with 1994 and decreased in 1994 compared with 1993. Net income attributable to minority interest increased in 1995 because of increased profits generated by the Company's majority owned subsidiaries Inti Raymi and Niugini Mining. Minority interest in net income decreased in 1994 because of net losses incurred by Niugini Mining, as calculated under BMG's accounting policies which are in accordance with U.S. GAAP, compared with net income from Niugini Mining in 1993.
Net income - Net income increased in 1995 compared with 1994 in spite of reduced operating income because of the gains generated on the sale of exploration prospects and the income tax benefit derived from the recognition of foreign tax credits as described above. Operating income decreased in 1995 principally because of the write-off of assets at the Battle Mountain Complex as described above and increased exploration expenditures.
The Company generated net income in 1994 primarily because of the increased profitability of its Kori Kollo mine in Bolivia and higher realized gold, silver and copper prices. Production
increases and decreased operating costs per equivalent ounce of gold were the main factors contributing to Kori Kollo's profitability.
During 1993, the Company completed the transition of its primary production stream from the Fortitude mine in Nevada to the 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 Battle Mountain Complex 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 sold for 1993. These factors all contributed to the net loss incurred by the Company in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Summary - At December 31, 1995, the Company had cash and cash equivalents of $46.1 million, of which $6.1 million was held by BMG, $29.4 million was held by Niugini Mining, and $10.6 million was held by Inti Raymi.
Operating Activities - The Company generated cash flow of $90.6 million, $83.1 million and $30.1 million from operating activities for the years ended December 31, 1995, 1994 and 1993, respectively. The increase in cash flow from operating activities in 1995 compared with 1994 and 1994 compared with 1993 resulted primarily from the increased production and sales. In 1994, the recovery of approximately $8.1 million of refundable value added taxes from the Bolivian government paid in years prior to 1994 related to the construction of the Kori Kollo sulfide mining facilities contributed to the increase for that year. These increases were partially offset by increased outlays for materials and supplies in 1994 which increased inventories of materials and supplies by $4.6 million. Inventories of materials and supplies increased at the expanding Kori Kollo mine operations in Bolivia due to an increase in the quantities of the materials which must be retained at that mine site due to its remote location.
Investing Activities - Cash used for investing activities increased to $132.7 million in 1995 from $100.8 million in 1994 and $60.3 million in 1993. Capital and exploration expenditures were the most significant components contributing to the increase in cash flows used for investing activities. The Company has spent approximately $67 million on the Lihir project during 1995. Expenditures in 1995 include the acquisition by Niugini Mining of an additional interest in the Lihir joint venture (see "Investing Activities - Lihir Project" below). In 1995, the Company spent a total of approximately $25 million at the Kori Kollo mine on capital expenditures which included approximately $6.3 million for the recovery enhancement system and $1.4 million for the tailings treatment facility. The remaining amount of approximately $17 million was spent at the Kori Kollo mine primarily on various dewatering system projects and on the purchase of haul trucks and other mining equipment. The Company has spent a total of approximately $15.1 million on the recovery enhancement system and approximately $5.9 million on the tailings treatment facility. The new recovery enhancement system at Kori Kollo began operating in start-up mode in January 1996. Based on the varied results to date from partial system operation, a metallurgical review is under way in order to optimize the operating mode. Other throughput efforts to date have increased the recovery rate for sulfide ore by 6 percent compared to feasibility study levels and the objective of
current plan review is to determine how much additional recovery is possible from the gravity concentrator.
The Company has included $47 million for capital expenditures in its 1996 business plan. The plan includes $10.5 million for development of the Phoenix project and $8.4 million for development of the Crown Jewel project. Of the total 1996 projected expenditures, 39 percent is expected to be spent in North America, 24 percent in Latin America, 8 percent in Australia and 29 percent in various countries by Niugini Mining.
Phoenix Project - BMG has announced its decision to develop the Phoenix project, subject to permitting. The project, which is expected to be in operation in the first half of 1998, includes the construction of a milling facility and is located in the Copper Canyon area of the Battle Mountain Complex. The cost of developing the project is estimated to be approximately $142 million excluding capitalized interest and escalation, of which $7.2 million has been spent through December 31, 1995. The cost of the project has increased substantially primarily because the scope of the project has increased. The new project envisages a milling operation of 14,000 tons per day compared with the original plan of 10,000 tons per day. The project contains reserves of approximately 34.7 million tons of millable ore at an average ore grade of .05 ounces of gold per ton, and 11.9 million tons of heap leach ore with an average grade of .03 ounces of gold per ton, for a total of approximately 1.9 million contained ounces of gold. The project also includes approximately 10.1 million contained ounces of silver. The reserves were determined using cutoff grades ranging from .01 to .024 ounces of gold per ton and an assumed gold price of $385 per ounce. The estimated recovery factor was approximately 86 percent for the mill ore and 65 percent for the leach ore.
Crown Jewel Project - BMG expects to construct a 3,000 ton per day milling facility with start-up possible in the spring of 1998, depending on the time it will take to complete the permitting process. A Draft Environmental Impact Statement was issued at the end of June 1995. The issuance of the Final Environmental Impact Statement is currently expected by the end of 1996.
To earn a 54 percent ownership interest in the Crown Jewel project, BMG has agreed to fund all expenditures for exploration, evaluation and development of the project through commencement of commercial production. The minority partner will not reimburse BMG for any portion of funding provided through the commencement of commercial production. These expenditures, plus acquisition costs, are currently estimated to be approximately $108 million excluding capitalized interest and escalation, of which, as of December 31, 1995, $54 million ($45.2 million of which has been capitalized) has been incurred. Management expects that BMG should be able to recover more than its total investment in the project from its 54 percent interest in the project's operating cash flows based on current market conditions and current expectations of the timing to obtain permitting.
Lihir Project - BMG holds an indirect interest in the Lihir project through its 50.5 percent ownership of Niugini Mining, which in turn now owns 17.15 percent of Lihir Gold Limited ("LGL"). With a wholly-owned subsidiary of RTZ Corporation, plc ("RTZ") as operator, LGL is now developing and constructing the Lihir Project in Papua New Guinea ("PNG"). Financing for
the project involved bank debt facilities and an initial public offering of common stock of LGL. The initial public offering was completed on October 6, 1995. The following paragraphs describe the series of now completed transactions related to the financing of the Lihir Project and the restructuring of its ownership.
In March 1995, the Special Mining Lease ("SML") for the Lihir project was executed by the PNG government and final landowner agreements were executed in April 1995. The SML provided Niugini Mining, and subsidiaries of RTZ and the PNG government, as joint venture partners, the right to develop and operate the Lihir gold project. In connection with the execution of the SML, an entity of the PNG government acquired an intermediate 30 percent joint venture interest, pro rata from RTZ's 80 percent position and Niugini Mining's 20 percent position. In June 1995, Niugini Mining acquired an additional 16 percent of the Lihir joint venture from a subsidiary of RTZ for $54.1 million, which included payment of Niugini Mining's share of joint venture costs and interest dating back to January 1, 1994. Niugini Mining then temporarily owned, pending the planned initial public offering described below, a 30 percent interest in the Lihir joint venture.
Niugini Mining, and subsidiaries of RTZ and the PNG government (the "Sponsoring Parties") formed LGL for the sole purpose of ownership of the Lihir project. Initially, upon transfer of the joint venture interests of the respective owners, LGL was owned 30 percent by Niugini Mining, 40 percent by a subsidiary of RTZ and 30 percent by an entity of the PNG government. On October 6, 1995, LGL completed a planned initial public offering of common stock raising approximately $450 million to be used for the construction, development and initial operation of the Lihir project. Prior to consummation of the offering, the joint venture assets related to the Lihir project were contributed by the Sponsoring Parties to LGL. Additional funding required for the project is to be provided in the form of debt financing by LGL. In connection with the LGL debt financing, Niugini Mining has guaranteed, until project completion, 30 percent of LGL's obligations under the facility (which obligations include up to $300 million of senior facility debt, up to $10 million of subordinated debt incurred to fund the purchase of instruments required in connection with hedging activities and up to $50 million of potential liabilities under hedging arrangements). Neither BMG nor its non- Niugini Mining subsidiaries have any obligation or liability under this guarantee. In addition, Niugini Mining has pledged its LGL shares as security under the facility until project completion.
The initial public offering was the final transaction in the series of transactions which restructured and reduced BMG's participation in the Lihir project. As a result of the initial public offering, Niugini Mining now owns a 17.15 percent interest in LGL and BMG's attributable interest is 8.7 percent. In the fourth quarter of 1995, the Company recorded the effects of this series of transactions. An increase in Niugini Mining's shareholders' equity of approximately $57 million related to the issuance of the common stock by LGL at a value in excess of Niugini Mining's carrying value per share in LGL was recorded. This increase was recorded as a credit to additional paid-in capital consistent with the Company's accounting policy with regard to transactions of this nature. An offsetting increase in the carrying value of Niugini Mining's investment in LGL was recorded. The Company attributed $28 million of this increase to minority interest in its consolidated financial statements; the remainder was credited to additional paid in capital. Also, as a result of these transactions, the Company amortized approximately $35 million of its investment
in Niugini Mining, which has been attributed to the investment in LGL. This amortization was recorded as a charge to the Company's additional paid in capital. The net result of these transactions in the Company's Consolidated Financial Statements was an increase in the carrying value of the LGL investment of approximately $22 million, an increase in minority interest of approximately $28 million and a net decrease in additional paid in capital of approximately $6 million. As of December 31, 1995, the carrying value of the Company's investment in the Lihir project was approximately $225 million. Niugini Mining's interest in LGL is being accounted for using the equity method of accounting.
The capital costs for the Lihir project were estimated by the manager of the project at $673 million. The manager's estimate of total cash operating costs, which exclude royalties and sales costs, is $234 per ounce over the expected life of the project. The estimate of minable sulfide reserves is 114.6 million tons, or 14.6 million contained gold ounces, with an average grade of .13 ounces of gold per ton.
Exploration - The Company currently estimates that it will spend approximately $18.3 million on its 1996 exploration programs in search of potential additional mineral deposits. Of this amount, 10 percent is budgeted to be spent in North America, 30 percent in Latin America, 31 percent in Australia and the South Pacific and 23 percent in various countries by Niugini Mining. The remaining six percent of the budgeted amount is earmarked for evaluation of exploration and acquisition opportunities worldwide. During 1995, the Company spent approximately $18.8 million on exploration and evaluation activities and related capital expenditures.
Financing Activities - On November 6, 1995, the Company completed a new committed non-reducing revolving credit agreement with a syndicate of six banks, led by Citibank N.A. as agent. In connection with the new revolving credit agreement the Company terminated its previously existing committed revolving credit agreement. The new facility provides for unsecured borrowings of up to $75 million, of which $17 million was outstanding as of December 31, 1995. Interest rates under the facility are based on the facility agent's base rate, LIBOR, applicable certificate of deposit rates or gold funding rates plus an applicable margin which is subject to adjustment in case of certain changes in BMG's credit rating and certain financial ratios. Additionally, interest charges increase when outstanding borrowings under this facility exceed $25 million and, again, when such borrowings exceed $50 million. The revolving credit agreement imposes certain financial covenants upon the Company which include covenants relating to leverage, net worth, contained production, mineral reserves and working capital, as well as certain restrictions on liens, investments, additional debt, lease obligations, and the acquisition or disposition of assets. 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 December 31, 1995, no borrowings were outstanding under this facility; however, letters of credit amounting to approximately $2.2 million had been issued.
BMG's majority-owned Bolivian subsidiary, Inti Raymi, 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 22, 1996, Inti Raymi owed an aggregate of $65.6 million under these facilities. This amount includes $2.6 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 1994 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.
In 1994, Inti Raymi successfully obtained lender acceptance of project completion status under the Kori Kollo project financing agreements. Accordingly, BMG is no longer required to provide financial support to Inti Raymi under the terms of these agreements. Subject to other restrictions in the financing agreements and general operating needs, Inti Raymi may generally pay dividends up to the amount of Inti Raymi's net income for the preceding fiscal year, which ends September 30. In 1995, Inti Raymi paid dividends of $20 million to its shareholders ($17.6 million to BMG). In both 1994 and 1995, dividends paid by Inti Raymi to its shareholders were less than amounts permitted under the financing agreements because available cash was required to fund Kori Kollo plant modifications. Permitted but unpaid amounts of dividends in one year are available for dividend declarations in future years and it is expected that future Inti Raymi dividends will be declared and paid based, in part, on such availability.
The OPIC and IFC loan agreements require that the current mining plan indicate that production from the Kori Kollo mine extends at least three years beyond the final scheduled principal payment ("Reserve Life Provision"). Failure to meet this Reserve Life Provision results in the suspension of all debt repayments from Inti Raymi to its shareholders and all Inti Raymi dividend payments until such time as compliance with the Reserve Life Provision is achieved by either a pre-payment of a sufficient portion of the debt or an increase in the Kori Kollo mine ore reserves. The IFC and CAF loan agreements contain provisions which entitle their respective agencies to receive principal pre-payments proportionate to those received by OPIC. In the third quarter of 1994, the Company completed a rescheduling of the life of mine production and observed that the new schedule was not in compliance with the Reserve Life Provision due to more accelerated mining and production than originally planned. The then-current plan indicated that production would extend approximately 2.8 years beyond the date of the final scheduled principal payment. To allow continuing payments of dividends and the repayment of intercompany debts, Inti Raymi obtained temporary waivers permitting noncompliance with the Reserve Life Provision until June 30, 1996. Inti Raymi has recently announced reserve additions which the lenders have approved as sufficient to satisfy the Reserve Life Provision.
In December 1995, Niugini Mining completed a bonus issue of options under which its shareholders had received one option for each four shares of Niugini Mining stock held as of June
26, 1995. All the options issued were exercised on December 8, 1995 and each option allowed the holder to purchase one share of Niugini Mining stock for A$2.00. Niugini Mining sold approximately 23.5 million shares of Niugini Mining stock for aggregate proceeds of approximately A$47 million upon exercise of the options. Niugini Mining had agreed to a bridge financing facility of US$30 million which was drawn down in June 1995 to enable consummation of the purchase of the additional interest in the Lihir joint venture (see "Investing Activities" above). The bridge financing was secured by the proceeds of the exercise of the options and therefore a majority of the proceeds from the stock issuance were used to repay the bridge financing.
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.
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 has no current plans to issue securities under this registration statement.
Conclusion - The Company expects the cash currently held along with cash flows from operations and financing facilities currently in place, to be adequate to meet its cash needs at least through the end of 1996.
Government Regulation - All of the Company's mining and processing operations are subject to reclamation and closure requirements. The Company monitors such requirements and periodically revises its cost estimates to meet the legal and regulatory requirements of the various jurisdictions in which it conducts its business. Where possible, plans for ongoing operations and future mine development are implemented in a manner that contributes to the fulfillment of reclamation and closure obligations in a cost effective manner through the conduct of ongoing operating activities. Costs estimated to be incurred in future periods which cannot be addressed in this manner are charged to operations through provisions based on the units of production method such that the estimated cost of ultimate reclamation is fully provided for by the time mineral reserves are depleted. The timing of actual cash expenditures for reclamation may be accelerated or deferred depending on cost and other determinations which may make such decisions prudent in the circumstances. The Company believes that these policies and practices adequately address its reclamation obligations and provide a systematic and rational method of charging such costs to operations consistent with industry practice. Accruals amounting to an aggregate of $8.0 million at December 31, 1995, are included as long-term liabilities in the Company's consolidated balance sheet. At the Battle Mountain Complex, aggregate reclamation expenditures estimated to be spent in future periods are expected to amount to approximately $7.8 million. Actual expenditures made to date have equaled the total amount accrued to date, therefore there is no net accrued liability at December 31, 1995, for this location. Estimated ultimate reclamation obligations and related accrued liability balances at December 31, 1995, respectively, for each of the Company's other operating mines is as follows: San Luis $3.3 million and $1.7 million, Pajingo $2.6 million and
$1.5 million, Kori Kollo $10.0 million and $1.9 million and Red Dome $3.7 million and $2.9 million. Reclamation expenditures for the San Cristobal mine are not expected to be material.
Legislative amendment of the General Mining Law, under which the Company holds claims on public lands in the U.S., could take place in 1996. Among other things, such legislation could impose a royalty on production from public lands. Approximately 40 percent of the Reona reserves, 23 percent of Phoenix project reserves and 80 percent of the Crown Jewel ore body are on public lands. However, a First Half - Mineral Entry Final Certificate has been issued with respect to the unpatented portion of the Crown Jewel ore body and mineral surveys have been completed for the claims constituting the unpatented portion of the Crown Jewel, Reona and Phoenix project reserves. The Company cannot yet predict whether existing law will be amended, the extent of such amendment or the impact of any such change on its U.S. activities. However, the passage of legislation that can be reasonably anticipated is not expected to render uneconomic any of the Company's existing operating mines or development projects, assuming current gold prices.
The Company has investigated the discharge to groundwater of chloride (salt) from the tailings facility at the Battle Mountain Complex. This facility was unlined at the time it was constructed in keeping with then-accepted practice. The Company is currently evaluating mitigation alternatives to achieve applicable water quality standards. The Company currently expects to achieve the applicable standards by utilizing the high chloride water in connection with its proposed Phoenix operation. Additionally, recent groundwater samples were taken from a highly mineralized area near historic copper leach activities. The results indicate that groundwater in this vicinity is acidic and high in metals. Pursuant to the State-issued Water Pollution Control Permit covering the site, the Company has prepared and submitted a work plan for further investigation of groundwater in this area. Due to the preliminary nature of this investigation, it is not possible to estimate what, if any, remediation might be required.
In Bolivia, new environmental regulations to implement federal legislation passed in 1992 became effective in December 1995. The official version of the new regulations is not yet available. Based on the Company's preliminary review of the available unofficial version of such regulations, the new regulations generally will require the preparation of environmental impact studies, set air and water quality discharge standards, provide protocols for dealing with and remediating the effects on the environment of hazardous substances, set site environmental management standards and provide procedures and schedules for existing operations to come into compliance. Such regulations contain new environmental standards and requirements applicable to the Company's Kori Kollo project which, depending on the final form of the regulations and how the regulations are implemented and interpreted, could require expenditures and changes in operations, and it is possible that such expenditures and changes could have a material adverse effect on the Company's financial condition or results of operations. However, based on the Company's initial review of the available version of the regulations and assuming reasonable interpretation and implementation, the Company does not anticipate that compliance will have a material adverse effect on the Company's financial condition or results of operations.
Forward Sales and Hedging - The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate, foreign currency exchange rate and commodity price risks.
Interest rate cap agreements are used to reduce the potential impact of increases in interest rates on floating- rate long-term debt. At December 31, 1995, Inti Raymi was party to three interest rate cap agreements which were effective June 1, 1994, each with a term of three years. The agreements entitle Inti Raymi to receive from counterparties on a quarterly basis the amounts, if any, by which Inti Raymi's interest payments on a portion of its LIBOR based floating-rate Kori Kollo project financing exceed various fixed rates over the term of the caps. The fixed rates in the cap agreements gradually escalate from 5.4 percent in 1995 to 7.2 percent in 1997. Inti Raymi has hedged 50 percent of its net interest rate exposure currently related to the Kori Kollo LIBOR based project financing. The hedge increases to 100 percent of its exposure by June 1996. Inti Raymi has not hedged any of its exposure subsequent to December 1997. The net unamortized cost of the premiums paid for these caps amounting to $.5 million at December 31, 1995, has been included in other assets. Since the interest rate caps were put in place, the Company has amortized approximately $.2 million of such premiums and has received approximately $.2 million in settlement of expiring caps.
The Company uses fixed forward sales contracts, spot deferred sales contracts and put options to hedge anticipated sales of gold, silver and copper. The following table summarizes the Company's forward sales contracts at December 31, 1995:
Deferred costs associated with Inti Raymi's forward sales contracts amounted to $1.3 million and $1.5 million at December 31, 1995 and 1994, respectively. Deferred costs associated
with put options amounted to $.2 million at December 31, 1995. There were no put options at December 31, 1994.
The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to its interest rate caps and forward sales contracts, but does not expect any counterparties to fail to meet their obligations. The Company does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit standing of counterparties.
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 operations as of December 31, 1995, were approximately $570 million and foreign operations represented approximately 81 percent of the total gross revenues of the Company for the year ended December 31, 1995. 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, currency fluctuations and taxation changes.
In Bolivia, presidential and congressional elections are scheduled for mid-1997. Under the Bolivian constitution, a sitting president cannot serve consecutive terms. Therefore, a change in administration will occur in 1997. The current administration has initiated far reaching programs to decentralize central government's authority, to decentralize the distributions of the tax revenues, to reform the education and tax system and to promote private ownership of previously state-owned companies. While the Company believes these reforms are beneficial to the Bolivian people and Bolivian economy, it is difficult to predict the ultimate impacts of these, and associated reforms and a change in administration, on the Company's Bolivian operations.
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.
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 are affected by fluctuations in the market prices of gold, silver and copper, and to a lesser extent by changes in foreign currency exchange rates.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants
February 23, 1996
To the Board of Directors and Shareholders of Battle Mountain Gold Company
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Battle Mountain Gold Company and its subsidiaries at December 31, 1995, and the results of their operations and their cash flows for the year in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The consolidated financial statements of Battle Mountain Gold Company and its subsidiaries for the years ended December 31, 1994 and 1993 were audited by other independent accounts whose report dated February 17, 1995 expressed an unqualified opinion on these statements based on their audit and the report of other auditors.
Our audit of the consolidated financial statements also included an audit of the Financial Statement Schedules as of and for the year ended December 31, 1995 as listed on Item 14(a) of this 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 consolidated financial statements.
Price Waterhouse LLP Houston, Texas
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Battle Mountain Gold Company:
We have audited the accompanying consolidated balance sheet of Battle Mountain Gold Company (a Nevada corporation) and subsidiaries as of December 31, 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 18 percent and 23 percent in 1994 and 17 percent and 29 percent in 1993, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the report 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, 1994, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in Item 14 (a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This financial statement schedule has 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 states 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 LLP
Houston, Texas February 17, 1995
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, 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994 and the consolidated financial statement schedules which are not presented separately in the Battle Mountain Gold Company December 31, 1995 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, 1994, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, 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 31, 1995
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") and its wholly-owned and majority-owned subsidiaries (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 10). 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 10). All significant intercompany transactions have been eliminated in consolidation. 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 or market, using the first-in, first-out method.
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. In certain cases, mining costs associated with waste rock removal are deferred as development costs and charged to operations on the basis of the average stripping ratio over the life of the mine.
Other property, plant and equipment includes capitalized lease costs and mine development costs for projects in progress. Capitalized exploration costs are evaluated on an annual basis and costs attributable to unproductive projects are charged directly to abandonment expense.
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 or reserve ounces at the beginning of each quarter. 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. Effective December 31, 1995, the Company adopted SFAS 121, "Impairment of Long-lived Assets". There was no effect on the carrying value of the Company's assets as a result of this adoption.
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 prior to delineation of economic mineralization. Exploration costs incurred subsequent to delineation of economic mineralization are capitalized.
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 pre-commercial production period, net of revenues earned, are capitalized as property costs.
Capitalization of Interest - Interest expense incurred attributable to pre-commercial production stage projects is capitalized until those projects commence commercial production.
Reclamation and Closure Costs - Reserves for estimated future reclamation and closure costs 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.
Effective January 1, 1994, Niugini Mining changed its functional currency from the Papua New Guinea kina to U.S. dollars for financial reporting purposes.
Income (Loss) Per Share - Income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the year, adjusted for common stock equivalents, if dilutive. The effects of common stock equivalents are not included in the computation of income per share for 1993 because of their antidilutive effect. Fully diluted earnings per share are not presented for any year because the effect of other dilutive securities would be antidilutive.
Statement of Cash Flows - At December 31, 1995, cash and cash equivalents included $29.4 million and $10.6 million attributable to Niugini Mining and Inti Raymi, respectively. Cash and cash equivalents at December 31, 1994, included $39.9 million and $15.4 million held by Niugini Mining and Inti Raymi, respectively. At December 31, 1995 and December 31, 1994, other assets included $5.8 million and $ .9 million, respectively, of restricted cash held by Niugini Mining.
For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
During the year ended December 31, 1995, the Company paid foreign withholding taxes of $2.2 million. During the year ended December 31, 1994, the Company received a U.S. income tax refund of $4.3 million and paid foreign withholding taxes of .9 million. During the year ended December 31, 1993, the Company paid $.7 million in U.S. income taxes. The Company paid $10.1 million, $6.4 million and $6.8 million in interest, net of amounts capitalized, during 1995, 1994 and 1993, respectively.
During 1995, the Company's investing activities included the exchange of Niugini Mining's interest in the Lihir Joint Venture for the common stock of Lihir Gold Limited ("LGL"). During 1994, the Company's investing activities included the issuance of 435,897 shares of BMG's common stock (market value of $4.25 million) and payment of $4.25 million cash for the purchase of an additional 3 percent interest in the Crown Jewel Project. During 1993, the Company's investing activities did not include any significant non-cash transactions.
Issuance of Stock by Subsidiaries - The issuance of stock by subsidiaries is accounted for as a capital transaction in the Consolidated Financial Statements.
Forward Sales Contracts, Options and Interest Rate Caps - The Company may enter into fixed forward and spot deferred sales contracts for the sale of its metals as a hedge against changes in prices. Gains, losses or expenses related to these transactions are netted against revenue when the hedged production is sold. The Company may also purchase put options for the sale of its produced metals. The premiums paid for the acquisition of put options are netted against revenue in the period of expiry.
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 the 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.
Premiums paid for purchased interest rate caps are amortized as interest expense over the terms of the interest rate cap agreement. Unamortized premiums are included in other assets in the Consolidated Balance Sheet. Amounts earned under cap agreements are accrued as a reduction of interest expense.
Estimates, risks and uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the related reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management believes that the estimates are reasonable.
Realization of the Company's assets is subject to various risks including permitting of the Company's new mines, reserves estimation, gold prices and environmental factors.
Note 2. Investments
The Company's long-term investments as of December 31 include the following:
Lihir Gold Limited ("LGL"), which is a company created specifically for the development, financing, operating and ownership of the Lihir project in Papua New Guinea, completed an initial public offering of common stock on October 6, 1995. LGL was formed and initially owned by the prior participants in the Lihir Joint Venture which included a 30 percent ownership by Niugini Mining, a 40 percent ownership by a subsidiary of RTZ Corporation, plc and a 30 percent ownership by an entity of the PNG government. As a result of the initial public offering, Niugini Mining now owns a 17.15 percent interest in LGL and BMG's attributable interest is 8.7 percent. Niugini Mining's interest in LGL is accounted for using the equity method of accounting, effective from October 1995, while the Company's investment in the Lihir Joint Venture was previously recorded in property, plant and equipment.
The initial public offering by LGL was the final transaction in a series of planned transactions which restructured and reduced BMG's participation in the Lihir project. The Company recorded the effects of this series of transactions in the fourth quarter of 1995. An increase in Niugini Mining's shareholders' equity of approximately $57 million related to the issuance of the common stock by LGL at a value in excess of Niugini Mining's carrying value per share in LGL was recorded. This increase was recorded as a credit to additional paid-in capital consistent with the Company's accounting policy with regard to transactions of this nature. An offsetting increase in the carrying value of Niugini Mining's investment in LGL was recorded. The Company attributed $28 million of this increase to minority interest in its consolidated financial statements; the remainder was credited to additional paid-in capital. As a result of these transactions, the Company also amortized approximately $35 million of its investment in Niugini Mining attributable to the investment in LGL. This amortization was recorded as a charge to additional paid-in capital. The net result of these transactions in the Company's consolidated financial statements was an increase in the carrying value of the LGL investment of approximately $22 million, an increase in minority interest of approximately $28 million and a net decrease in additional paid-in capital of approximately $6 million.
Interest costs amounting to $7.8 million in 1995 and $6 million per year in 1994 and 1993 each were capitalized in connection with the Company's investment in the Lihir project.
Note 3. Property, plant and equipment
Property, plant and equipment as of December 31 consists of the following:
Note 4. Asset Write-downs
In June 1995, the Company decommissioned and dismantled the milling facility formerly used at the depleted Fortitude mine in Nevada. Accordingly the remaining net carrying value of this mill and related facilities of approximately $2.2 million was charged to operations. In addition, $.9 million was charged to milling and other plant costs, representing the carrying value of spare parts rendered obsolete by the decommissioning of the milling facility. The Company did not recognize any charges for asset write-downs during 1994 or 1993.
Note 5. Debt
The Company had the following long-term debt outstanding as of December 31:
The convertible subordinated debentures are convertible into shares of the Company's common stock at a conversion price of $20 5/8 per share, subject to anti-dilution adjustment in certain circumstances. There are 4.8 million shares of the Company's common stock reserved for
issuance upon conversion of the debentures. The debentures are now redeemable at the Company's option at any time at par value plus accrued interest. There are no sinking fund requirements. Interest is payable annually. Proceeds from the issuance were added to working capital and used for general corporate purposes, including mineral acquisitions and development of properties.
On November 6, 1995, the Company entered into a new committed non-reducing revolving credit agreement with a syndicate of six banks, led by Citibank N.A. as agent. In connection with the new revolving credit agreement the Company terminated its previous existing committed revolving credit agreement. The new facility, which has a termination date of November 6, 2000, provides for unsecured borrowings of up to $75 million. Interest rates under the facility are based on the facility agent's base rate, LIBOR, applicable certificate of deposit rates or gold funding rates plus an applicable margin which is subject to adjustment in case of certain changes in BMG's credit rating and certain financial ratios. Additionally, interest charges increase when outstanding borrowings under this facility exceed $25 million and, again, when such borrowings exceed $50 million. Other costs associated with the new 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 on the average daily commitment, in each case subject to adjustment in case of certain changes in credit rating or ratios. The revolving credit agreement imposes certain financial covenants upon the Company which include covenants relating to leverage, net worth, contained production, mineral reserves and working capital, as well as certain restrictions on liens, investments, additional debt, lease obligations, and the acquisition or disposition of assets. In addition, the agreement sets forth restrictions limiting the amount of dividends that BMG may pay based on $20 million plus 50% of consolidated net income since December 31, 1994, plus 50% of proceeds received from the sale of BMG's capital stock on a cumulative basis from the date of the agreement. The weighted average interest rate for borrowings under this facility for the year ended December 31, 1995, was 6.7 percent. No borrowings were outstanding under the previous facility in 1994. Interest charges applicable to the previous facility for the year ended December 31, 1993, were based on a weighted average interest rate ranging from 3.9 percent to 6.0 percent.
During 1992, Inti Raymi, established separate but coordinated term credit facilities with the 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 of intercompany debt and dividends 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 applicable environmental laws. During 1993, the project met the prerequisite physical and financial completion tests as set forth in the facility agreements and in April 1994 achieved project completion status.
The OPIC and IFC loan agreements require that the current mining plan indicate that production from the Kori Kollo mine extends at least three years beyond the final scheduled principal payment ("Reserve Life Provision"). Failure to meet this Reserve Life Provision results in the suspension of all debt repayments from Inti Raymi to its shareholders and all Inti Raymi dividend payments until such time as compliance with the Reserve Life Provision is achieved by either a prepayment of a sufficient portion of the debt or an increase in the Kori Kollo mine ore reserves. The IFC and CAF loan agreements contain provisions which entitle their respective agencies to receive principal prepayments proportionate to those received by OPIC. In the third quarter of 1994, the Company completed a rescheduling of the life of mine production and observed that the new schedule was not in compliance with the Reserve Life Provision due to more rapid mining and production than originally planned. The then-current plan indicated that production would extend approximately 2.8 years beyond the date of the final scheduled principal payment. To allow continuing payments of dividends and the repayment of intercompany debts, Inti Raymi obtained a temporary waiver, permitting noncompliance with the Reserve Life Provision until June 30, 1996. Inti Raymi has recently announced reserve additions which the lenders have approved as sufficient to satisfy the Reserve Life Provision well in advance of the scheduled expiration of the temporary waiver.
The OPIC facility provided for borrowings of $40 million. Interest rates under the variable rate facility are based on LIBOR plus 2 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. Weighted average interest rates for borrowings under this facility for the years ended December 31, 1995, 1994 and 1993, were 8.5 percent, 6.7 percent and 5.6 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. Weighted average interest rates for borrowings under this facility for the years ended December 31, 1995, 1994 and 1993 were 8.6 percent, 6.9 percent and 6.0 percent, respectively, for the non-convertible portion of the loan and 12.8 percent, 13.7 percent and 12 percent, respectively, for the convertible portion of the loan. The loan may be converted, at IFC's option, into an equity interest of up to a 3.98 percent 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 have an associated put option which, if 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.
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. Weighted average interest rates for borrowings under this facility for the years ended December 31, 1995, 1994 and 1993, were 7.3 percent, 5.5 percent and 4.7 percent, respectively.
The Company has a $15 million uncommitted revolving credit facility with the Union Bank of Switzerland. 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 under this facility. No loans were outstanding under this revolving credit facility as of December 31, 1995 and 1994; however, letters of credit amounting to $2.2 million and $4.8 million had been issued against this facility as of December 31, 1995 and 1994, respectively. The weighted average interest rate for borrowings under this facility for the year ended December 31, 1995, was 6.7 percent. There were no interest charges for the year ended December 31, 1994, since the Company did not borrow against this facility in 1994. Interest charges for the year ended December 31, 1993, were based on weighted average interest rates of 3.5 to 4.3 percent.
Scheduled maturities of the Company's long-term debt for each of the next five years are $13.4 million for 1996 through 1999 and $6.9 million in 2000. In addition, all borrowings then outstanding under the new revolving credit facility are due and payable on November 6, 2000.
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, depositary shares, common shares and warrants which may be offered from time to time.
Note 6. Shareholders' Equity
Reference is made to Note 5 for information regarding the number of shares of common stock reserved for issuance for the conversion of the Company's outstanding convertible subordinated debentures.
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 acquirer'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 the Company's 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 approximately 11 million shares of the Company's common stock reserved for issuance upon conversion of the preferred stock.
Note 7. Federal and Foreign Income Tax
Federal and foreign income tax (benefit) expense consisted of the following at December 31:
Consolidated income before income taxes includes income from foreign operations of $36.1 million, $32.7 million and $13.8 million in 1995, 1994 and 1993, respectively.
The Company's net deferred tax position at December 31, is comprised of the following:
Temporary differences and carryforwards which gave rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:
A reconciliation of income tax at the U.S. statutory rate to income tax (benefit) expense as of December 31 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, 1994. The effect of the rate change was not significant to the Company's net deferred income tax position.
U.S. 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 1991.
At December 31, 1995, the Company had approximately $71.8 million of regular net operating losses and $9.3 million of alternative minimum tax net operating loss carryforwards expiring beginning in 2007, available to offset future U.S. federal income tax and approximately $4.6 million of alternative minimum tax credits available on an indefinite carryforward basis. Changes in the ownership of a company can result in an annual limitation under IRC section 382 on the amount of the tax net operating loss carryforwards which can be utilized in any one year. The annual limitation is based on the value of the company as of the ownership change date multiplied by the federal long-term tax exempt rate. It is not anticipated that the section 382 limitation will significantly restrict the future utilization of BMG's net operating loss carryforwards.
Note 8. Major Customers and Export Gross Revenues
All sales of the Company's products are made to precious metals smelters, refiners or traders. Accordingly, the precious metals industry has substantial influence over the market for the Company's products.
During 1995, gross revenues from five separate buyers accounted for $83.2 million, $72.9 million, $35.6 million, $25.2 million and $22.5 million of total gross revenues, respectively, representing 80.0 percent of total gross revenues. International gross revenues for 1995 were $299.3 million, of which $58.1 million were from export of U.S. product. In 1994, gross revenues from four separate buyers of $69.0 million, $64.8 million, $36.8 million and $17.1 million, respectively, accounted for 77.3 percent of total gross revenues. Of the Company's $243.0 million international gross revenues in 1994, $46.6 million were from export of U.S. product. For 1993, 80.1 percent of the Company's total gross revenues were distributed among six separate buyers who accounted for $55.3 million, $36.2 million, $25.3 million, $17.4 million, $17.0 million and $14.8 million in gross revenues, respectively. International gross revenues of $207.2 million in 1993 included $47.9 million from export of U.S. product. Alternate buyers are available to replace the loss of any of the Company's principal customers.
Note 9. Other Income (Expense), Net
Included in other income (expense), net, are certain non-operating revenues, net of related expenses, consisting of:
Note 10. Acquisitions
Niugini Mining - In the aggregate, since January 1, 1989, the Company has paid $204.1 million for 59.3 million shares of the common stock of Niugini Mining representing a 50.5 percent ownership interest as of December 31, 1995. 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. In 1995 and 1994, BMG's ownership interest was diluted to 50.6 percent and 51.4 percent, respectively, due to employee stock options that were exercised during the year. In May 1995 and June 1994 the Company recorded adjustments of $2.2 million and $1.2 million, respectively, to reduce the carrying value of its investment in Niugini Mining to reflect these reductions in ownership interest. In December 1995, the Company paid approximately $17 million to purchase 11.9 million additional shares of Niugini Mining through exercise of its share of options issued to Niugini Mining's shareholders in May 1995.
At December 31, 1995, the carrying value attributed to the Company's proportionate share of Niugini Mining's investment in LGL exceeded its proportionate share of Niugini Mining's historical cost basis in LGL by $102 million. Such excess will be amortized against the Company's share of the earnings of LGL based on the estimated recoverable reserves attributable to the Lihir project upon commencement of production (See Note 2).
Inti Raymi - On March 8, 1994, the Company purchased an additional 3 percent of Inti Raymi's outstanding stock for $5.2 million from Zeland Mines, S.A. to increase the Company's ownership interest to 88 percent. As of December 31, 1995, the Company had invested an aggregate of $41.1 million in cash and 9 million of its common shares (valued at approximately $76.3 million) to acquire its 88 percent equity interest in Inti Raymi.
At December 31, 1995, the carrying value, net of accumulated amortization, attributed to the Company's share of the Kori Kollo and Llallagua gold deposits exceeded its proportionate
share of Inti Raymi's historical cost basis in the deposits by $82.8 million. This excess has been capitalized to property and is being amortized by the units of production method based on the deposits' estimated recoverable reserves. Amortization of the excess cost amounted to $10.8 million, $11.1 million and $8.6 million in 1995, 1994 and 1993, respectively.
Interest costs amounting to $.7 in 1995, $.4 million in 1994 and $.6 million in 1993 were capitalized in connection with the Kori Kollo project.
Note 11. Common Stock and Stock Options
Stock Options - Under the Company's 1994 Long-term Incentive Plan and a predecessor stock option plan, 5,980,000 shares of the Company's Common Stock were reserved for issuance as of December 31, 1995. Of this number 3,240,582 shares and 3,641,173 shares, respectively, were available for future grants of stock options, restricted stock, performance shares or other stock awards at December 31, 1995 and 1994, respectively.
Non-employee directors of the Company are granted non-qualified stock options under a separate stock option plan for outside directors. Under this plan, a total of 250,000 shares of the Company's common stock are reserved for issuance, of which 150,000 shares and 160,500 shares are available for future grants at December 31, 1995 and 1994, respectively.
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 anti-dilution 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 a 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 1,729,328 shares and 1,751,391 shares are available for future grants at December 31, 1995 and 1994, respectively. 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 1995 related to the Company's stock option plans follows:
At December 31, 1995, expiration dates for the outstanding options ranged from July 1, 1996, to August 24, 2005. The weighted average exercise price per share was $9.51.
Note 12. 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 BMG's 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:
At December 31, 1995, 1994 and 1993, the projected long-term rate of return on plan assets was 9 percent.
Actual return on the plans' assets was $6.4 million for the year ended December 31, 1995, $1.4 million for the year ended December 31, 1994, and $.3 million for the year ended December 31, 1993.
The following sets forth the plans' funded status and related amounts as of December 31:
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:
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 has defined contribution plans available for all BMG's 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 to the U.S. plans was $ .4 million, $.3 million and $.5 million in 1995, 1994 and 1993, respectively. The cost attributable to the Australian plans was $.8 million, $.7 million and $.6 million in 1995, 1994 and 1993, respectively.
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.
Net periodic postretirement benefit cost included the following components:
The following table presents the plans' status at December 31:
The discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent for 1995 and 8.5 percent for 1994. For 1995 and 1994, the assumed annual rate of increase in the per capita cost of covered health care benefits was 9 and 12 percent, respectively. For 1995 calculations, a gradual decrease in the rate is assumed through the year 2000 when the rate is estimated to reach 6 percent and remain at that level thereafter. For 1994 calculations, a gradual decrease in the rate is assumed through the year 1999 when the rate is estimated to reach 6 percent and remain at that level thereafter. A one percent increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation as of December 31, 1995, by approximately $1.1 million, and would increase the total of the service and interest cost components of net periodic postretirement health care cost for 1995 by approximately $.1 million.
Postemployment Benefits - Effective January 1, 1994, the Company adopted 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. The Company had previously recognized these costs as an expense when paid. Adoption of the standard did not have a material effect on the Company's financial position or on its results of operations. Postemployment benefit costs recognized under this standard do not differ significantly from those that would have been reported under the previous method.
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 $3.4 million, $2.2 million and $1.4 million for 1995, 1994 and 1993, respectively.
Aggregate minimum rentals (exclusive of mineral leases) subsequent to December 31, 1995, under non-cancelable leases for the years ending December 31, 1996 to 2000, are estimated to be $3.1 million, $2.4 million, $1.8 million, $1.0 million and $.6 million, respectively. Lease commitments beyond the year 2000 total $1.8 million.
Pursuant to pricing provisions as set out in dore customer contracts, as of December 31, 1995, the Company had committed to sell 14,300 ounces of gold contained in dore valued at approximately $5.6 million at prices determined during various pricing periods in 1995, none of which exceeds 45 days. The average price of gold sold under this commitment is approximately $389 per ounce.
All of the Company's mining and processing operations are subject to reclamation and closure requirements. The Company monitors such requirements and periodically revises its cost estimates to meet the legal and regulatory requirements of the various jurisdictions in which it conducts its business. Where possible, plans for ongoing operations and future mine development are implemented in a manner that contributes to the fulfillment of reclamation and closure obligations in a cost effective manner through the conduct of ongoing operating activities. Costs estimated to be incurred in future periods which cannot be addressed in this manner are charged to operations through provisions based on the units of production method such that the estimated cost of ultimate reclamation is fully provided for by the time mineral reserves are depleted. The timing of actual cash expenditures for reclamation may be accelerated or deferred depending on cost and other determinations which may make such decisions prudent in the circumstances. The Company believes that these policies and practices adequately address its reclamation obligations and provide a systematic and rational method of charging such costs to operations consistent with industry practice. Accruals amounting to an aggregate of $8.0 million at December 31, 1995, are included as long-term liabilities in the Company's Consolidated Balance Sheet. At the Battle Mountain Complex, aggregate reclamation expenditures estimated to be spent in future periods are expected to amount to approximately $7.8 million. Actual expenditures made to date have equaled the total amount accrued to date, therefore there is no net accrued liability at December 31, 1995 for this location. Estimated ultimate reclamation obligations and related accrued liability balances at December 31, 1995, respectively, for each of the Company's other operating mines is as follows: San Luis $3.3 million and $1.7 million, Pajingo $2.6 million and $1.5 million, Kori Kollo $10.0 million and $1.9 million and Red Dome $3.7 million and $2.9 million. Reclamation expenditures for the San Cristobal mine are not expected to be material.
Note 15. Forward Sales and Hedging
The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. Derivative instruments are used to manage well-defined interest rate, foreign currency exchange rate and commodity price risks.
Interest rate cap agreements are used to reduce the potential impact of increases in interest rates on floating- rate long-term debt. At December 31, 1995, Inti Raymi was party to three interest rate cap agreements which were effective June 1, 1994, each with a term of three years. The agreements entitle Inti Raymi to receive from counterparties on a quarterly basis the amounts, if any, by which Inti Raymi's interest payments on a portion of its LIBOR based floating-rate Kori Kollo project financing exceed various fixed rates over the term of the caps. The fixed rates in the cap agreements gradually escalate from 5.4 percent in 1995 to 7.2 percent in 1997. Inti Raymi has hedged 50 percent of its net interest rate exposure currently related to the Kori Kollo LIBOR based project financing. The hedge increases to 100 percent of its exposure by June 1996. Inti Raymi has not hedged any of its exposure subsequent to December 1997. The net unamortized cost of the premiums paid for these caps amounting to $.5 million at December 31, 1995, has been included in other assets. Since the interest rate caps were put in place, the Company has amortized approximately $.2 million of such premiums and has received approximately $.2 million in settlement of expiring caps.
The Company uses fixed forward sales contracts, spot deferred sales contracts and put options to hedge anticipated sales of gold, silver and copper. The following table summarizes the Company's forward sales contracts at December 31, 1995:
Deferred costs associated with Inti Raymi's forward sales contracts amounted to $1.3 million and $1.5 million at December 31, 1995 and 1994, respectively. Deferred costs associated with put options amounted to $.2 million at December 31, 1995. The Company did not own any put options at December 31, 1994.
At December 31, 1995, the aggregate amount by which the net market value of the Company's open forward sales contracts is greater than the spot price of $387 per ounce of gold, $5.19 per ounce of silver, and $2,815 per tonne of copper, before consideration of the deferred costs referred to above, is $2.6 million, of which $.4 million is attributable to minority interests. Australian dollar contracts were converted to U.S. dollars at the December 1995 month end exchange rate of US$.74 to A$1.
The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to its interest rate caps and forward sales contracts, but does not expect any counterparties to fail to meet their obligations. The Company does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit standing of counterparties.
Note 16. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31:
The carrying amounts of the interest rate caps and debt shown in the table are included in the Consolidated Balance Sheet under Other Assets and Long-Term Debt, respectively.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Cash, cash equivalents, trade receivables, and trade payables - The carrying amounts approximate fair value because of the short maturity of those instruments.
Other assets - The amounts reported relate to the interest rate cap agreements described in Note 15 . The carrying amount comprises the unamortized premiums paid for the contracts. The fair value is estimated using option pricing models.
Debt - The fair value of the Company's convertible subordinated debentures is based on the quoted market price of the debentures at the reporting date. Due to the generally variable interest rate features of the OPIC, IFC and CAF loans, the Company believes the carrying amounts approximate the fair value of this debt at the reporting date.
The Company has issued corporate guarantees totaling $4.5 million to ensure that the reclamation of the Battle Mountain Complex mines will be performed as specified in the operating permits issued by the State of Nevada. In addition, the Company has a letter of credit outstanding for $2.2 million as collateral for surety bonds provided as security for various reclamation obligations. The Company believes the carrying value of these financial instruments approximates their fair market value.
SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY RESULTS
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 1997 and 1998" set forth under "Election of Three Directors and Director Compensation" in the Company's definitive Proxy Statement for its 1996 annual meeting of shareholders, as filed within 120 days of December 31, 1995, pursuant to Regulation 14A under the Security Exchange Act of 1934, as amended (the "Company's 1996 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 1996 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 1996 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.
Schedule I.Condensed Financial Information of Registrant S-1
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/ Karl E. Elers -------------------------------- Karl E. Elers Chairman of the Board and Chief Executive Officer
Date: March 8, 1996
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.
*By /s/ Karl E. Elers ------------------------------ (Karl E. Elers, Attorney in fact)
BATTLE MOUNTAIN GOLD COMPANY SCHEDULE I - 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 I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF INCOME
* 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-2
BATTLE MOUNTAIN GOLD COMPANY SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF CASH FLOWS
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
INDEX OF EXHIBITS
E-1
E-2
E-3
E-4
E-5
E-6
* 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(q)(3) above with each of Karl E. Elers, Kenneth R. Werneburg, Joseph L. Mazur, R. Dennis O'Connell, Robert J. Quinn and Fred B. Reisbick. 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 and Reisbick.
E-7