10-Q/A 1 d01-35037.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A |X| Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly Period Ended March 31, 2001 |_| Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______ to ________ Commission File Number 1-8736 HOMESTAKE MINING COMPANY A Delaware Corporation IRS Employer Identification No. 94-2934609 1600 Riviera Avenue, Suite 200 Walnut Creek, California 94596-3568 Telephone: (925) 817-1300 http://www.homestake.com Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The number of shares of common stock outstanding as of October 30, 2001 was 263,380,225.* * Includes 3,017,393 Homestake Canada Inc. exchangeable shares that may be exchanged at any time for Homestake common stock on a one-for-one basis. HOMESTAKE MINING COMPANY AND SUBSIDIARIES FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2001 INDEX PART 1. FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Statements of Consolidated Operations For the Three Months Ended March 31, 2001 and 2000.....................................................3 b) Condensed Consolidated Balance Sheets As of March 31, 2001 and December 31, 2000...................4 c) Condensed Statements of Consolidated Cash Flows For the Three Months Ended March 31, 2001 and 2000...........5 d) Notes to Condensed Consolidated Financial Statements.........6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................19 PART 2. OTHER INFORMATION Item 1. Legal Proceedings.................................................26 Item 5. Other Information.................................................27 Item 6. Exhibits and Reports on Form 8-K..................................28 Item 7. Signatures........................................................29 2 HOMESTAKE MINING COMPANY AND SUBSIDIARIES PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS A. CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED) (In thousands, except per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements. 3 HOMESTAKE MINING COMPANY AND SUBSIDIARIES B. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 HOMESTAKE MINING COMPANY AND SUBSIDIARIES C. CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (In thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements. 5 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) 1. GENERAL INFORMATION AND RESTATEMENT The condensed consolidated financial statements include Homestake Mining Company and its majority owned subsidiaries, and their undivided interests in joint ventures (collectively, "Homestake" or the "Company") after elimination of intercompany amounts. The information furnished in this report reflects all normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results for the interim periods. Results of operations for interim periods are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto, which include information as to significant accounting policies, in the Company's Annual Report, which is incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. After issuing Homestake's 2000 financial statements and filing the Form 10-K with the Securities and Exchange Commission ("SEC"), and following extensive discussion with the Staff of the SEC and the Company's independent accountants, management determined it was necessary to revise its financial statements to expense previously capitalized costs associated with its Veladero project in Argentina, to revise its depreciation and reclamation calculations at the Plutonic and Lawlers mines in Western Australia, and to revise the financial statement footnote presentation of Homestake's segment information. Because the level of engineering and other exploration work completed at the Veladero project does not meet the criteria for a full feasibility study, Homestake has reclassified its previously stated Veladero reserves as mineralized material. As a result of this reclassification, Homestake has revised its financial statements to expense previously capitalized Veladero project development expenditures incurred during the period April 1, 2000 through March 31, 2001. See Note 11 for the principal effects of this restatement. Management also determined that it is necessary to revise the Company's depreciation and reclamation calculations for the Plutonic and Lawlers mines. In accordance with US GAAP only proven and probable reserves may be used in depreciation and reclamation calculations. The Company had used its best estimate of future gold production as the base for its depreciation and reclamation charges at the Plutonic and Lawlers mines, since their acquisition in 1998. The Company's decision to use its best estimate of future gold production for depreciation and reclamation calculations at these mines reflected the fact that, at the time of their acquisition, only a relatively small proportion of the total inventory of mineralized material at these mines had been upgraded to the reserves category. Homestake has revised its financial statements to use only proven and probable reserves for calculating depreciation and reclamation charges for these mines. See Note 11 for the principal effects of this restatement. In addition, Homestake determined that it is necessary to revise the financial statement footnote presentation of its segment information because discrete operating and financial information is reported to the Chief Operating Officer for each mine. The Company previously had aggregated each mine within each geographic segment for segment disclosure purposes because each mine was considered by management to have similar economic characteristics. However, as ore grades and other operating factors can vary significantly by 6 HOMESTAKE MINING COMPANY AND SUBSIDIARIES mine, with resulting material variations in unit operating costs, management has determined that each mine should be reported separately for segment disclosure purposes. Refer to Note 7 for revised segment information. All amounts are in United States dollars unless otherwise indicated. 2. OTHER LOSS

In the 2001 first quarter, Homestake recorded a non-recurring gain of $2.4 million related to the sale of mining information in conjunction with an agreement to sublease its Just-in-Case property in Western Australia for a ten-year period. Homestake received a payment of $2.4 million (A$5.0 million) for the sale of the mining information, and subject to receiving government approvals, will receive lease payments of $3.6 million (A$7.5 million) and $6.0 million (A$12.5 million) no later than December 31, 2006 and December 31, 2008, respectively. Accordingly, lease revenue of $9.6 million (A$20.0 million) will be accrued over the ten-year lease term. Homestake will also receive a 3.5% net smelter return royalty (NSR) on all production from the Just-in-Case sublease, and in addition, is entitled to a payment of up to $6.3 million (A$13.0 million) in the event that production from the sublease does not reach a specified cumulative level by contracted dates. This payment is creditable against the NSR. 7 HOMESTAKE MINING COMPANY AND SUBSIDIARIES 3. COMPREHENSIVE LOSS

4. INVENTORIES

8 HOMESTAKE MINING COMPANY AND SUBSIDIARIES 5. LONG-TERM DEBT AND CAPITAL LEASES

6. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments as part of an overall risk-management strategy. These instruments are used as a means of hedging exposure to precious metals prices and foreign currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS 138"). The adoption of SFAS 133, as amended by SFAS 138, had no impact on the Company's results for the period. However, gains of $35.0 million relating to gold and silver hedging contracts previously closed out, have been reclassified on adoption from deferred gains to other accumulated comprehensive loss. SFAS 133 requires that derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the fair value of derivatives in each period are to be accounted for either in current earnings or other comprehensive income depending on the use of the derivatives and whether they are designated as, and qualify for, hedge accounting. The Company uses combinations of put and call options to hedge its exposure to foreign currency exchange rates. In accordance with SFAS 133, the Company has elected not to designate its foreign currency options as hedges and, accordingly, gains and losses resulting from changes in the fair value of these contracts will continue to be recorded in earnings each period. At January 1, 2001 and March 31, 2001, the Company's hedging contracts used to reduce exposure to precious metal prices, consisted entirely of forward sales contracts. The Company settles these contracts through the physical delivery of production from its operations at the contract settlement dates. Therefore, the forward sales contracts meet the criteria for the normal purchases and normal sales exemption of SFAS 133, as amended by 9 HOMESTAKE MINING COMPANY AND SUBSIDIARIES SFAS 138. Accordingly, recognition of the forward sales contracts will continue to be deferred until settlement. Foreign Currency Contracts Under the Company's foreign currency protection program, the Company has entered into a series of foreign currency option contracts to minimize the effects of a strengthening of either the Canadian or Australian currencies in relation to the United States dollar. In July 2000, the Company discontinued its foreign currency protection program. Contracts outstanding at March 31, 2001, are expected to remain in place until maturity. At March 31, 2001, the Company had foreign exchange currency option contracts outstanding as follows:

(1) Assuming exercise by the counterparty at the expiration date, the Company would exchange US dollars for Canadian or Australian dollars at the put exchange rate. The counterparty would be expected to exercise the option if the spot exchange rate was below the put exchange rate. (2) Assuming exercise by the Company at the expiration date, the Company would exchange US dollars for Canadian or Australian dollars at the call exchange rate. The Company would exercise the option if the spot exchange rate was above the call exchange rate. (3) Assuming exercise by the Company at the expiration date, the Company would exchange Canadian or Australian dollars for US dollars at the put exchange rate. The Company would exercise the option if the spot exchange rate was below the put exchange rate. Precious Metal Contracts Homestake's hedging policy provides for the use of forward sales contracts to hedge up to 30% of each of the following ten year's expected annual gold production, and up to 30% of each of the following five year's expected annual silver production, at prices in excess of certain targeted prices. The policy also provides for the use of combinations of put and call option contracts to establish minimum floor prices. 10 HOMESTAKE MINING COMPANY AND SUBSIDIARIES At March 31, 2001, the unamortized portion of the gain resulting from the early settlement of certain gold forward sales and option contracts prior to the adoption of SFAS 133, maturing in the years 2001, 2002 and 2003 was $32.0 million which has been recorded in accumulated other comprehensive loss and will be reclassified into income as the originally designated production is sold. Of this amount, $11.9 million will be recognized in income in the twelve month period to March 31, 2002. In March 2000, the Company closed out and financially settled its remaining US dollar denominated silver forward sales contracts covering 3.6 million ounces maturing in 2000 and 2001. At March 31, 2001, the unamortized pretax portion of this gain of $619,000, realized on this transaction has been recorded in other comprehensive loss and will be reclassified in income as the originally designated production is sold. In the condensed consolidated balance sheet contained in our first quarter 2001 press release, the unamortized portion of gains from the early settlement of certain gold and silver derivatives, as discussed above, were classified as liabilities. At March 31, 2001, the Company had gold forward sales contracts outstanding as follows:

(1) Expressed in US dollars at the March 31, 2001 exchange rate of A$ = US$ 0.4858 7. SEGMENT INFORMATION (RESTATED) The Company is primarily engaged in gold mining and related activities. Accordingly, the Company's operating mines are considered segments for financial reporting purposes. The Company's Round Mountain, Homestake, McLaughlin and Ruby Hill mines are located in the United States, the Eskay Creek and Hemlo mines are located in Canada and the Kalgoorlie, Plutonic, Darlot and Lawlers mines are located in Australia. 11 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Segment information for the three months ended March 31, 2001 and 2000 are as follows:

(a) Primarily intercompany financing. (b) Operating earnings represent total revenues and other income less production costs and depreciation, depletion and amortization. 7. CONTINGENCIES Environmental Contingencies The Comprehensive Environmental Response, Compensation and Liability Act of 1980 imposes heavy liabilities on any person who discharges hazardous substances. The Environmental Protection Agency publishes a National Priorities List ("NPL") of known or threatened releases of such substances. Homestake's former uranium millsite near Grants, New Mexico is listed on the NPL. Pursuant to the Energy Policy Act of 1992, the United States Department of Energy ("DOE") is responsible for 51.2% of past and future costs of reclaiming the Grants site in accordance with Nuclear Regulatory Commission license requirements. At March 31, 2001, Homestake 12 HOMESTAKE MINING COMPANY AND SUBSIDIARIES had received $33.0 million from the DOE and had a receivable of $4.1 million for the DOE's share of reclamation expenditures made by Homestake through March 31, 2001. On April 25, 2001, the Company received $2.5 million from DOE. In 1983, the state of New Mexico filed claims against Homestake for natural resource damages resulting from the Grants Site. To date, the state of New Mexico has taken no action to enforce its claims. Other Contingencies In addition to the above, the Company is party to legal actions and administrative proceedings and is subject to claims arising in the ordinary course of business. The Company believes the disposition of these matters will not have a material adverse effect on its financial position or results of operations. 8. HOMESTAKE CANADA INC. ("HCI") In connection with the 1998 acquisition of the minority interests in Prime Resources Group Inc., HCI issued 11.1 million HCI exchangeable shares. Each HCI exchangeable share is exchangeable for one Homestake common share at any time at the option of the holder and has essentially the same voting, dividend (payable in Canadian dollars), and other rights as one Homestake common share. A share of special voting stock, which was issued to the transfer agent in trust for the holders of the HCI exchangeable shares, provides the mechanism for holders of the HCI exchangeable shares to receive their voting rights. Homestake, through a wholly owned subsidiary, owns all the common shares outstanding of HCI. At March 31, 2001, HCI had 3.3 million HCI exchangeable shares outstanding, which were held by the public. Following the 1999 business combination with Argentina Gold, Homestake's investment in Argentina Gold was transferred to HCI in exchange for a Canadian dollar-denominated intercompany note payable by HCI to its parent company of approximately C$282 million (US$191 million). In accordance with United States generally accepted accounting principles, the assets, liabilities and shareholder's equity of Argentina Gold have been recorded in HCI's financial statements at their historical cost basis. The difference between the historical cost basis of Argentina Gold shareholder's equity and its fair value at the date of transfer has been recorded as a reduction to HCI's shareholders' equity. 13 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Summarized consolidated financial information for HCI is as follows:

14 HOMESTAKE MINING COMPANY AND SUBSIDIARIES 9. WRITE-DOWNS AND OTHER UNUSUAL CHARGES On September 11, 2000, the Company announced a restructuring of the operations of the Homestake mine in South Dakota. The mine is expected to complete operations by December 2001. In connection with the restructuring, the Company recorded a $23.0 million provision for employee termination benefits and other exit costs in the third quarter of 2000. The workforce will be reduced from the current level of 366 employees, to approximately 40 employees who will oversee the reclamation and other closure procedures by no later than December 2001. The classifications of the affected employees include mining engineers, geologists, administrative employees and mine workers. The following table presents a roll-forward of the liability accrued in connection with the Homestake mine restructuring plan:

11. RESTATEMENT After issuing Homestake's 2000 financial statements and filing the Form 10-K with the Securities and Exchange Commission ("SEC"), and following extensive discussion with the Staff of the SEC and the Company's independent accountants, management determined it was necessary to revise its financial statements to expense previously capitalized costs associated with its Veladero project in Argentina, to revise its depreciation and reclamation calculations at the Plutonic and Lawlers mines in Western Australia, and to revise the financial statement footnote presentation of Homestake's segment information. Because the level of engineering and other exploration work completed at the Veladero project does not meet the criteria for a full feasibility study, Homestake has reclassified its previously stated Veladero reserves as mineralized material. As a result of this reclassification, Homestake has revised its financial statements to expense previously capitalized Veladero project development expenditures incurred during the period April 1, 2000 through March 31, 2001. Management also determined that it is necessary to revise the Company's depreciation and reclamation calculations for the Plutonic and Lawlers mines. In accordance with US GAAP only proven and probable reserves may be used in depreciation and reclamation calculations. The Company had used its best estimate of future gold production as the base for its depreciation and reclamation charges at the Plutonic and Lawlers mines, since their acquisition in 1998. The Company's decision to use its best estimate of future gold production for depreciation and reclamation calculations at these mines reflected the fact that, at the time of their acquisition, only a relatively small proportion of the total inventory of mineralized material at these mines had been upgraded to the reserves category. Homestake has revised its financial statements to use only proven and probable reserves for calculating depreciation and reclamation charges for these mines. In addition, Homestake determined that it is necessary to revise the financial statement footnote presentation of its segment information because discrete operating and financial information is reported to the Chief Operating Officer for each mine. The Company previously had aggregated each mine within each geographic segment for segment disclosure purposes because each mine was considered by management to have similar economic 15 HOMESTAKE MINING COMPANY AND SUBSIDIARIES characteristics. However, as ore grades and other operating factors can vary significantly by mine, with resulting material variations in unit operating costs, management has determined that each mine should be reported separately for segment disclosure purposes. Refer to Note 7 for restated segment information. The following sets forth the effects of the restatements on Homestake's accompanying consolidated balance sheets and the consolidated statements of operations and cash flows: STATEMENTS OF CONSOLIDATED OPERATIONS (IN THOUSANDS)

16 HOMESTAKE MINING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)

17 HOMESTAKE MINING COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)

18 HOMESTAKE MINING COMPANY AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNLESS SPECIFICALLY STATED OTHERWISE, THE FOLLOWING INFORMATION RELATES TO AMOUNTS INCLUDED IN THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WITHOUT REDUCTION FOR MINORITY INTERESTS. HOMESTAKE REPORTS PER OUNCE PRODUCTION COSTS IN ACCORDANCE WITH THE "GOLD INSTITUTE PRODUCTION COST STANDARD".) This discussion should be read in conjunction with the Management's Discussion and Analysis included in Homestake Mining Company's ("Homestake" or the "Company") 2000 Annual Report on Form 10-K, for the year ended December 31, 2000, which is incorporated by the reference in the Company's Annual Report. After issuing Homestake's 2000 financial statements and filing the Form 10-K with the Securities and Exchange Commission ("SEC"), and following extensive discussion with the Staff of the SEC and the Company's independent accountants, management determined it was necessary to revise its financial statements to expense previously capitalized costs associated with its Veladero project in Argentina, to revise its depreciation and reclamation calculations at the Plutonic and Lawlers mines in Western Australia, and to revise the financial statement footnote presentation of Homestake's segment information. Because the level of engineering and other exploration work completed at the Veladero project does not meet the criteria for a full feasibility study, Homestake has reclassified its previously stated Veladero reserves as mineralized material. As a result of this reclassification, Homestake has revised its financial statements to expense previously capitalized Veladero project development expenditures incurred during the period April 1, 2000 through March 31, 2001. See Note 7 to the March 31, 2001 condensed consolidated financial statements for the principal effects of this restatement. Management also determined that it is necessary to revise the Company's depreciation and reclamation calculations for the Plutonic and Lawlers mines. In accordance with US GAAP only proven and probable reserves may be used in depreciation and reclamation calculations. The Company had used its best estimate of future gold production as the base for its depreciation and reclamation charges at the Plutonic and Lawlers mines, since their acquisition in 1998. The Company's decision to use its best estimate of future gold production for depreciation and reclamation calculations at these mines reflected the fact that, at the time of their acquisition, only a relatively small proportion of the total inventory of mineralized material at these mines had been upgraded to the reserves category. Homestake has revised its financial statements to use only proven and probable reserves for calculating depreciation and reclamation charges for these mines. See Note 7 to the March 31, 2001 condensed consolidated financial statements for the principal effects of this restatement. In addition, Homestake determined that it is necessary to revise the financial statement footnote presentation of its segment information because discrete operating and financial information is reported to the Chief Operating Officer for each mine. The Company previously had aggregated each mine within each geographic segment for segment disclosure purposes because each mine was considered by management to have similar economic characteristics. However, as ore grades and other operating factors can vary significantly by mine, with resulting material variations in unit operating costs, management has determined that each mine should be reported separately for segment disclosure purposes. See Note 7 to the March 31, 2001 condensed consolidated financial statements for the principal effects of this restatement. 19 HOMESTAKE MINING COMPANY AND SUBSIDIARIES RESULTS OF OPERATIONS SUMMARY Homestake recorded losses from continuing operations of $22.9 million ($0.09 per share) in the quarter ended March 31, 2001, compared with the losses from continuing operations of $21.1 million ($0.08per share) for the first quarter of 2000. The first quarter of 2001 and 2000 results include after-tax foreign currency losses of $14.5 million ($0.06 per share) and $13.0 million ($0.05 per share), respectively, primarily due to the decreases in the values of the Australian and Canadian dollars in relation to the US dollar. The majority of the foreign currency losses in the 2001 first quarter relate to intercompany advances established between the US parent and its Australian and Canadian subsidiaries to finance corporate acquisitions and capital development projects. Excluding the effect of the foreign currency exchange losses, the Company recorded a net loss of $8.4 million ($0.03 per share) for the quarter ended March 31, 2001, compared to a net loss of $8.2 million ($0.03 per share) for the corresponding period in 2000. The current year's results primarily reflect a $21-per-ounce decline in the realized gold price from the prior year's first quarter and higher exploration costs, offset by lower production costs, lower interest expense, lower income taxes and a gain of $2.4 million on the sale of mining information with respect to the Just-in-Case property. GOLD OPERATIONS Revenues from gold and ore sales totaled $165.5 million for both the first quarter of 2000 and 2001. Higher sales volumes in 2001 were offset by lower realized gold prices as reflected in the following table:

20 HOMESTAKE MINING COMPANY AND SUBSIDIARIES The following table details Homestake's gold production and total cash cost per ounce by location:

(a) Eskay Creek's costs per ounce were calculated on a by-product basis. Included as a credit against costs in the 2001 first quarter were revenues from the sale of 3.6 million (3.8 million in 2000) ounces of silver at an average price of $4.62 ($5.09 in 2000) per ounce. If Eskay Creek silver production had been accounted for as a co-product, whereby costs were allocated separately to gold and silver based on their proportion of revenues, total consolidated cash costs would have been $182 and $192 per ounce in the 2001 and 2000 first quarters, respectively. For comparison purposes, costs per ounce include estimated third-party costs incurred by smelter owners and others to produce marketable gold and silver. (b) Homestake acquired an additional 25% interest in the Round Mountain mine effective July 1, 2000 increasing its ownership from 25% to 50%. AUSTRALIA Australian production increased by 2% to 210,800 ounces during the first quarter of 2001 from 207,000 ounces during the first quarter of 2000, due to increases in production at the Kalgoorlie, Darlot and Lawlers mines, partially offset by lower production at the Plutonic mine. 21 HOMESTAKE MINING COMPANY AND SUBSIDIARIES The weighted average total cash cost at the Australian mines was $191 per ounce during the first quarter of 2001 compared to $213 per ounce during the same period in 2000. During the first quarter of 2001, production at Homestake's 50% owned KALGOORLIE mine increased by 2% to 98,200 ounces at a total cash cost of $199 per ounce compared to 96,100 ounces at a total cash cost of $211 during the first quarter a year ago. The improved performance was achieved through increased mill throughput, resulting in higher production, a reduction of production costs due to a weaker Australian dollars and the benefit of operating efficiencies gained from the recent transition from contract to owner mining. Homestake's 100%-owned YILGARN operations, consisting of the Plutonic, Darlot and Lawlers mines, increased production by 2% to 112,600 ounces at a weighted average total cash cost of $185 per ounce during the first quarter of 2001 compared to 110,900 ounces at a weighted average total cash cost of $215 per ounce a year ago, reflecting higher production at the Darlot and Lawlers mines partially offset by lower production at the Plutonic mine. Production at the Plutonic mine totaled 55,900 ounces at a total cash cost of $190 per ounce during the first quarter of 2001 compared to 58,500 ounces at a total cash cost of $214 per ounce during the same period in 2000. The decrease in ounces is largely attributable to a slightly higher in-process gold inventory at March 31, 2001 compared to March 31, 2000. Mill throughput, grade and recovery were comparable in both periods. Cash costs decreased by $24 per ounce primarily due to the weaker Australian dollar. During the first quarter of 2001, the Darlot mine produced 31,800 ounces at a total cash cost of $155 per ounce compared to 30,400 ounces at a total cash cost of $222 per ounce during the first quarter of 2000. The decrease in total cash cost is a result of reduced production costs resulting from the conversion from contract to owner mining and the favorable impact of a weaker Australian dollar. The Lawlers mine produced 24,900 ounces at a total cash cost of $211 per ounce compared to 22,000 ounces at a total cash cost of $209 per ounce a year ago. The increased production resulted from the operations processing 21,100 more tons in the first quarter of 2001 primarily from the lower-grade ore stockpile. CANADA Canadian gold production decreased 10% to 150,800 ounces during the first quarter of 2001 from 166,800 ounces in 2000. During the first quarter of 2001, the weighted average total cash cost per ounce from the Company's Canadian mines increased by 29% to $129 per ounce from $100 per ounce a year ago primarily due to lower silver by-product credits at the Eskay Creek mine and increased unit mining costs as a result of lower ore grades at the Hemlo operations. At the ESKAY CREEK mine, first quarter 2001 production totaled 77,100 ounces at a total cash cost of $51 per ounce compared to 84,500 ounces at a total cash cost of $7 per ounce during the same period in 2000. The decrease in production was as a result of lower grades in the direct shipment ore. The increase in total cash costs reflected reduced silver by-product credits due to lower silver production and a lower silver price compared to the first quarter of 2000. Higher fuel, transportation and mining costs have also contributed to the increased total cash costs. At the HEMLO operations, Homestake's 50% share of the first quarter of 2001 production from the combined Williams and David Bell mines totaled 73,700 ounces at an average total cash cost of $211 per ounce compared to 82,300 ounces at an average total cash cost of $195 per ounce for the same quarter of 2000. The reduction in gold production and the increase in total cash costs during the first quarter of 2001 is mainly due to greater quantities of lower grade material sourced from the open pit, and production from the lower grade stopes. The effect of processing lower grade 22 HOMESTAKE MINING COMPANY AND SUBSIDIARIES material was partially offset by higher mill throughput, which in the first quarter averaged 10,250 tons of ore per day. UNITED STATES United States production increased by 44% to 213,200 ounces during the first quarter of 2001 compared to 148,200 ounces in the corresponding quarter of 2000, primarily due to higher attributable production associated with the increase in Homestake's ownership interest in the Round Mountain mine, and higher production at the Ruby Hill mine. The weighted average United States total cash cost decreased by 19% to $183 per ounce during the first quarter of 2001 compared to $225 per ounce during the first quarter of 2000. During the first quarter of 2001, Homestake's 50% share of production from the ROUND MOUNTAIN mine amounted to 100,400 ounces compared to 36,000 ounces representing its 25% share of production in the first quarter of 2000. In July 2000, the Company increased its ownership in the Round Mountain mine through the purchase of Case Pomeroy & Company's interest. Total cash costs decreased to $173 per ounce during the first quarter of 2001 from $257 per ounce during the same period in 2000. Higher tonnage processed on the leach pads and through the mill contributed to the higher production. Lower cash costs were mainly due to the increase in production. Homestake's wholly-owned RUBY HILL mine produced 30,200 ounces at a total cash cost of $108 per ounce during the first quarter of 2001 compared to 28,300 ounces at a total cash cost of $106 per ounce for the comparable period of 2000. The increase in production was due to higher ore grades during the first quarter of 2001. The Ruby Hill mine will complete mining in December 2002. Production from the HOMESTAKE mine decreased slightly to 47,200 ounces during the first quarter of 2001 from 47,700 ounces during the same period in 2000. Total cash cost during the first quarter of 2001 was $224 per ounce compared to $275 per ounce during the corresponding period of 2000. The reduction in cash costs is mainly due to lower mining costs associated with the planned mine closure. The Homestake mine is gradually reducing its workforce and site costs in accordance with a planned mine-out schedule. During the first quarter of 2001, gold production from the processing of the residual stockpiles at the MCLAUGHLIN mine totaled 29,000 ounces compared to 29,500 ounces during the first quarter in 2000. Total cash cost remained the same at $224 per ounce during the first quarter of 2001 compared to the first quarter of 2000. The Company's share of production from the MARIGOLD mine was 6,400 ounces during the first quarter of 2001 at a total cash cost of $209 per ounce compared to 6,700 ounces at a total cash cost of $196 per ounce during the same period in 2000. SOUTH AMERICA Homestake's share of production at its 51%-owned AGUA DE LA FALDA mine amounted to 4,400 ounces at a total cash cost of $282 per ounce during the first quarter of 2001 compared to 6,100 ounces of gold at a total cash cost of $209 per ounce in the first quarter of 2000. The decline in production and corresponding increase in total cash costs are primarily due to lower recovery rates. Homestake's 60%-owned VELADERO project in northwestern Argentina has completed its 2000-2001 field season. During the second quarter, Homestake will focus on continuing the metallurgical testing, incorporating and interpreting new drill results and updating the mine planning, process design, permitting, capital and operating cost estimates and financial models. During the first quarter of 2001, exploration expenses related to the project were $6.5 million, compared to $3.9 million expenses for the same period in 2000. 23 HOMESTAKE MINING COMPANY AND SUBSIDIARIES OTHER LOSS for the first quarter of 2001 includes foreign exchange losses of $15.5 million, of which $2.8 million related to foreign currency contracts and $12.7 million related to intercompany loans. In addition, other loss includes a gain of $2.4 million for the sale of mining information related to the Just-in-Case property in Western Australia. Other loss in the corresponding period of 2000 includes foreign exchange losses of $14.0 million, of which $8.2 million related to foreign currency contracts and $5.8 million related to intercompany loans. DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE of $35.0 million during the first quarter of 2001 was comparable to $36.6 million in the same quarter of 2000. The lower depreciation expense reflects lower depreciation charges at the Plutonic mine, due to an increase in ore reserves, partially offset by the effects of higher production and an increase in property, plant and equipment resulting from the conversion of certain Australian mines from contract to owner mining. EXPLORATION EXPENSE for the first quarter of 2001 increased to $12.6million compared to $10.0 million a year ago reflecting an increase in exploration expenditures at the Veladero project, partially offset by a reduction in spending in the Company's other exploration activities. INCOME TAX EXPENSE for the first quarter in 2001 was $488,000 compared to $7.0 million for the same quarter in 2000. The current quarter's tax expense reflects the geographic mix of pre-tax income and losses. No tax benefits are recognized on United States, Australian and South American losses. The Company's consolidated effective income tax rate fluctuates depending on the geographic mix of pre-tax income and losses. MINORITY INTERESTS: During the first quarter of 2001, minority interests' share of losses in consolidated subsidiaries increased to $625,000 compared to $155,000 in the first quarter of 2000, primarily due to increased losses at Agua de la Falda. LIQUIDITY AND CAPITAL RESOURCES Cash provided by continuing operations totaled $6.5 million in the first quarter of 2001 compared to $37.6 million in the first quarter of 2000. Working capital at March 31, 2001, amounted to $197.0 million, including cash and equivalents and short-term investments of $193.5 million. Capital expenditures of $17.6 million during the first quarter of 2001 compares to capital expenditures of $16.4 million during the first quarter of 2000. Capital expenditures in 2001 $8.6 million at Round Mountain, primarily for new haul trucks, and $5.6 million at the Yilgarn operations, primarily for capitalized mine development costs and mining equipment resulting from conversion to owner mining. The balance of the 2001 capital expenditures primarily relate to sustaining capital at the Company's other operating mines. Capital expenditures in 2000 of $16.4 million include $6.4 million for underground development work at the Yilgarn operations, $5.9 million for owner mining equipment at Kalgoorlie and $1.5 million for various infrastructure and other capital improvements at the Homestake mine. The balance of the 2000 capital expenditures relate to sustaining capital at the Company's operating mines. Debt repayments during the first quarter of 2001 were $624,000 compared to $977,000 in the prior year's first quarter. Debt repayments in 2001 reflect capitalized lease principal reductions. During the first quarter of 2000, the Company repurchased $475,000 of the 5.5% convertible subordinated notes ("Convertible Notes") and made $502,000 of principal payments 24 HOMESTAKE MINING COMPANY AND SUBSIDIARIES under capitalized leases. In addition, the Company also received $4.8 million of capital lease proceeds related to additional owner-mining equipment at Kalgoorlie. The Company has a cross-border credit facility ("Credit Facility") providing a total availability of $430.0 million. The facility is available through July 14, 2003 and provides for borrowings in United States, Canadian and Australian dollars, or gold, or a combination of these. At March 31, 2001, Canadian dollar borrowings under the Credit Facility of $142.4 million (C$224.7 million) were outstanding. During the first quarter of 2001, the Company made no repayments under the Credit Facility. The Company pays a commitment fee on the unused portion of this facility ranging from 0.15% to 0.35% per annum, depending upon rating agencies' ratings for the Company's senior debt. The credit agreement includes a minimum consolidated net worth test. Interest on the Canadian dollar borrowings is payable quarterly and is based on the Bankers' Acceptance discount rate plus a stamping fee. At March 31, 2001, this rate was 6.46%. FOREIGN CURRENCY, GOLD AND OTHER COMMITMENTS Homestake's precious metals hedging policy provides for the use of forward sales contracts to hedge up to 30% of each of the following ten year's expected annual gold production, and up to 30% of each of the following five year's expected annual silver production, at prices in excess of certain targeted prices. The policy also provides for the use of combinations of put and call option contracts to establish minimum floor prices. Homestake does not hold or issue financial instruments or derivative financial instruments for trading purposes or to create hedge positions in excess of forecast identifiable exposures. During the first quarter of 2001 and 2000, the Company delivered 87,000 and 91,300 ounces of gold under hedge contracts at average prices of $272 and $316 per ounce, respectively, and during the first quarter of 2000, delivered 655,000 ounces of silver at an average price of $6.30 per ounce under maturing forward sales and option contracts. The foregoing hedging activities increased revenues in the three months ended March 31, 2001 and 2000 by approximately $346,000 and $4.0 million, respectively, versus the then prevailing spot prices. During the first quarter of 2001, after scheduled deliveries, Homestake added approximately 500,000 ounces of Australian dollar denominated gold forward sales contracts. The estimated fair value of the Company's remaining gold hedging position at March 31, 2001 is approximately $42.4 million. The Company's gold hedging program at March 31, 2001, covers approximately 10% of its proven and probable reserves and contains no exposure to floating lease rates or margin call requirements. Under the Company's foreign currency protection program, the Company has entered into foreign currency option contracts to minimize the effects of a strengthening of the Canadian or Australian currencies in relation to the United States dollar. In July 2000, the Company discontinued its foreign currency protection program. Contracts outstanding at March 31, 2001, are expected to remain in place until maturity. Realized and unrealized gains and losses on this program are recorded in other income. At March 31, 2001, the Company had a net unrealized loss of $4.5 million on open contracts under this program. 25 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Part II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS In October 1997, HCI and Prime Resources Group Inc. ("Prime") entered into an agreement with Inmet Mining Corporation ("Inmet") to purchase the Troilus mine in Quebec for $110.0 million plus working capital. In December 1997, HCI and Prime terminated the agreement after determining that, on the basis of due diligence studies, conditions to closing the arrangement would not be satisfied. On February 23, 1998, Inmet filed suit against Prime and HCI in the British Columbia Supreme Court, disputing the termination of the agreement, and alleging that Prime and HCI had breached the agreement. Inmet seeks specific performance or, in the alternative, equitable damages. Homestake believes that the agreement with Inmet was terminated properly and that the action by Inmet is without merit. Trial of this action commenced in February 2001 and is ongoing. Homestake is vigorously defending this action. Homestake and its subsidiaries are defendants in various legal actions in the ordinary course of business. In the opinion of management, such matters will be resolved without a material adverse effect on the Homestake's financial condition, results of operations or cash flow. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders held on April 27, 2001, stockholders voted on and approved: (i) the election of three Class II directors for terms expiring in 2004, and (ii) the appointment of PricewaterhouseCoopers LLP as independent accountants for 2001. Stockholder votes were as follows: (i) ELECTION OF THREE CLASS II DIRECTORS: Directors Votes for Votes Withheld ----------------------- --------- -------------- Thomas J. O'Neil 205,858,424 1,323,127 Walter T. Segsworth 205,887,768 1,293,783 Jack E. Thompson 205,927,727 1,253,824 In addition to the aforementioned directors, the following directors continued in office: Gerhard Ammann, Robert H. Clark, Jr., Peter J. Neff, Carol A. Rae, and Jeffrey L. Zelms. On April 27, 2001, Norman Anderson and John Neerhout, Jr. retired as directors and were not replaced. The Board of Directors amended the Company by-laws to adjust the total number of directors to eight. (ii) APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS FOR 2001: Votes for Votes Against Abstain No Vote --------- ------------- ------- ------- 205,500,099 713,808 967,644 Nil 26 HOMESTAKE MINING COMPANY AND SUBSIDIARIES ITEM 5. - OTHER INFORMATION (a) CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained in this Form 10-Q that are not statements of historical facts are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on beliefs of management, as well as assumptions made by and information currently available to management. Forward looking statements include those preceded by the words "believe," "estimate," "expect," "intend," "will," and similar expressions, and include estimates of reserves, future production, costs per ounce, dates of construction completion, costs of capital projects and commencement of operations. Forward looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results. Some important factors and assumptions that could cause actual results to differ materially from expected results are discussed below. Those listed are not exclusive. Estimates of reserves and future production for particular properties and for the Company as a whole are derived from annual mine plans that have been developed based on mining experience, assumptions regarding ground conditions and physical characteristics of ore (such as hardness and metallurgical characteristics), expected rates and costs of production, and estimated future sales prices. Actual production may vary for a variety of reasons, such as the factors described above, ore mined varying from estimates of grade and metallurgical and other characteristics, mining dilution, actions by labor, and government imposed restrictions. Estimates of production from properties and facilities not yet in production are based on similar factors but there is a greater likelihood that actual results will vary from estimates due to a lack of actual experience. Cash cost estimates are based on such things as past experience, reserve and production estimates, anticipated mining conditions, estimated costs of materials, supplies and utilities, and estimated exchange rates. Noncash cost estimates, based on total capital costs and reserve estimates, change based on actual amounts of unamortized capital, changes in reserve estimates, and changes in estimates of final reclamation. Estimates of future capital costs are based on a variety of factors and include past operating experience, estimated levels of future production, estimates by and contract terms with third-party suppliers, expectations as to government and legal requirements, feasibility reports by Company personnel and outside consultants, and other factors. Capital cost estimates for new projects are subject to greater uncertainties than additional capital costs for existing operations. Estimated time for completion of capital projects is based on such factors as the Company's experience in completing capital projects, and estimates provided by and contract terms with contractors, engineers, suppliers and others involved in design and construction of projects. Estimates reflect assumptions about factors beyond the Company's control, such as the time government agencies take in processing applications, issuing permits and otherwise completing processes required under applicable laws and regulations. Actual time to completion can vary significantly from estimates. See the Company's Form 10-K Report for the year ended December 31, 2000, "RISK FACTORS" and "CAUTIONARY STATEMENTS" included under Part I - Item 1, for a more detailed discussion of factors that may impact on expected future results. 27 HOMESTAKE MINING COMPANY AND SUBSIDIARIES ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits A.1 Amended Bylaws of the Corporation, effective as of April 27, 2001. 28 HOMESTAKE MINING COMPANY AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOMESTAKE MINING COMPANY Date: NOVEMBER 9, 2001 By /s/ David W. Peat ---------------- ----------------- David W. Peat Vice President, Finance and Chief Financial Officer (Principal Financial Officer) Date: NOVEMBER 9, 2001 By /s/ Alex G. Morrison ---------------- -------------------- Alex G. Morrison Vice President and Controller (Principal Accounting Officer) 29

HOMESTAKE MINING CO /DE/ 10-Q/A