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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
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[_] 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 1-8542
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ECHO BAY MINES LTD.
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(Exact name of registrant as specified in its charter)
Incorporated under the laws
of Canada None
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 540, 6400 S. Fiddlers Green Circle
Englewood, CO 80111-4957
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 714-8600
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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
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Title of Class Shares Outstanding as of
---------------------------- May 4, 2001
Common Shares ----------------------------
without nominal or par value 140,607,145
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ECHO BAY MINES LTD.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements (Unaudited)....................................................... 1
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................................ 24
ITEM 6. Exhibits and Reports on Form 8-K................................................................. 24
SIGNATURE.................................................................................................. 25
i
ECHO BAY MINES LTD.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEET March 31 December 31
thousands of U.S. dollars 2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 14,569 $ 14,269
Short-term investments 2,079 2,186
Interest and accounts receivable 3,729 3,022
Inventories (note 2) 38,896 39,443
Prepaid expenses and other assets 8,411 14,031
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67,684 72,951
Plant and equipment (note 3) 137,405 138,527
Mining properties (note 3) 57,304 63,499
Long-term investments and other assets 20,818 20,868
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$ 283,211 $ 295,845
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 26,751 $ 26,073
Income and mining taxes payable 5,208 5,780
Debt and other financings (note 4) 22,750 26,500
Deferred income (note 5) 6,617 9,651
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61,326 68,004
Debt and other financings (note 4) 6,017 6,032
Deferred income (note 5) 45,180 50,698
Other long-term obligations 49,814 49,632
Deferred income taxes 3,518 4,694
Commitments and contingencies (notes 1, 10 and 11)
Common shareholders' equity:
Common shares, no par value, unlimited number authorized;
140,607,145 shares issued and outstanding 713,343 713,343
Capital securities (note 6) 144,601 140,076
Deficit (712,217) (711,680)
Foreign currency translation (28,371) (24,954)
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117,356 116,785
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$ 283,211 $ 295,845
============================================================================================================================
See accompanying notes to interim consolidated financial statements.
1
ECHO BAY MINES LTD.
CONSOLIDATED STATEMENT OF OPERATIONS Three months ended
thousands of U.S. dollars, March 31
except for per share data 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Revenue $ 64,461 $ 51,797
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Expenses:
Operating costs 44,623 30,209
Royalties 1,303 1,562
Production taxes 113 525
Depreciation and amortization 10,898 11,698
Reclamation and mine closure 1,643 2,269
General and administrative 1,603 1,586
Exploration and development 851 6,023
Interest and other (note 7) 290 2,023
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61,324 55,895
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Earnings (loss) before income taxes 3,137 (4,098)
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Income tax expense (recovery):
Current 184 75
Deferred (840) (1,500)
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(656) (1,425)
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Net earnings (loss) $ 3,793 $ (2,673)
=============================================================================================================================
Net loss attributable to common shareholders (note 6) $ (537) $ (6,298)
=============================================================================================================================
Earnings (loss) per share $ -- $ (0.04)
=============================================================================================================================
Weighted average number of shares outstanding (thousands) 140,607 140,607
=============================================================================================================================
CONSOLIDATED STATEMENT Three months ended
OF DEFICIT March 31
thousands of U.S. dollars 2001 2000
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Balance, beginning of period $(711,680) $(714,844)
Net earnings (loss) 3,793 (2,673)
Interest on capital securities, net of nil tax effect (note 6) (4,330) (3,625)
-----------------------------------------------------------------------------------------------------------------------------
Balance, end of period $(712,217) $(721,142)
=============================================================================================================================
See accompanying notes to interim consolidated financial statements.
2
ECHO BAY MINES LTD.
CONSOLIDATED STATEMENT Three months ended
OF CASH FLOW March 31
thousands of U.S. dollars 2001 2000
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Cash provided from (used in):
OPERATING ACTIVITIES
Net cash flows provided from (used in) operating activities $10,494 $(4,133)
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INVESTING ACTIVITIES
Mining properties, plant and equipment (6,744) (4,662)
Long-term investments and other assets 10 (395)
Proceeds on the sale of plant and equipment 216 44
Other 74 1,267
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(6,444) (3,746)
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FINANCING ACTIVITIES
Debt borrowings -- 10,000
Debt repayments (3,750) (3,125)
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(3,750) 6,875
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Net increase (decrease) in cash and cash equivalents 300 (1,004)
Cash and cash equivalents, beginning of period 14,269 3,401
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Cash and cash equivalents, end of period $14,569 $ 2,397
=============================================================================================================================
See accompanying notes to interim consolidated financial statements.
3
ECHO BAY MINES LTD.
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated balance
sheet, consolidated statement of operations, consolidated statement of deficit,
and consolidated statement of cash flow contain all adjustments, consisting only
of normal recurring accruals, necessary to present fairly in all material
respects the consolidated financial position of Echo Bay Mines Ltd. (the
Company) as of March 31, 2001 and December 31, 2000 and the consolidated results
of operations and cash flow for the three months ended March 31, 2001 and 2000.
For further information, refer to the financial statements and related footnotes
included in the Company's annual report on Form 10-K for the year ended December
31, 2000.
Basis of Presentation
The Company's term and revolving credit facility matures in August 2001. The
Company is in discussions with lenders to arrange a new borrowing facility but
has not yet entered into a final agreement. The Company's ability to borrow is
constrained by conditions in the gold mining industry and its recent and
currently expected future operating results. Should the Company be unable to
arrange a new borrowing facility to replace its maturing facility, it is
unlikely that the Company would be able to settle its existing loan with cash
from operations or other sources. As a result of these conditions, there is
substantial doubt about the Company's ability to continue its operations in the
normal course of business. These financial statements are prepared on a going
concern basis, which assumes that the Company will continue to realize its
assets and discharge its liabilities in the normal course of business for the
foreseeable future. Consequently, they do not include any adjustments to the
carrying amounts and classifications of assets and liabilities, which may be
necessary should the Company not be able to continue to operate in the normal
course of business. Management is continuing to discuss replacement financing
with its lenders and is confident that a satisfactory agreement will be reached
prior to the maturity date of the existing credit facility.
2. INVENTORIES
March 31 December 31
2001 2000
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Precious metals -- bullion $ 15,598 $ 18,357
-- in-process 9,716 8,293
Materials and supplies 13,582 12,793
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$ 38,896 $ 39,443
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3. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment March 31 December 31
2001 2000
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Cost $ 652,834 $ 653,653
Less accumulated depreciation 515,429 515,126
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$ 137,405 $ 138,527
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Mining properties March 31 December 31
2001 2000
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Producing mines' acquisition and development costs $ 277,671 $ 276,951
Less accumulated amortization 251,405 248,792
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26,266 28,159
Development properties' acquisition and development costs 18,169 13,532
Deferred mining costs 12,869 21,808
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$ 57,304 $ 63,499
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4
ECHO BAY MINES LTD.
4. DEBT AND OTHER FINANCINGS
March 31 December 31
2001 2000
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Currency loans $22,750 $26,500
Capital securities (note 6) 6,017 6,032
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28,767 32,532
Less current portion 22,750 26,500
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$ 6,017 $ 6,032
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5. DEFERRED INCOME
March 31 December 31
2001 2000
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Modification of hedging contracts $34,526 $39,336
Premiums received on gold and silver option contracts 16,920 20,310
Other 351 703
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51,797 60,349
Less current portion 6,617 9,651
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$45,180 $50,698
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6. CAPITAL SECURITIES
In 1997, the Company issued $100.0 million of 11% capital securities due in
April 2027. The Company has the right to defer interest payments on the capital
securities for a period not to exceed 10 consecutive semi-annual periods.
During a period of interest deferral, interest accrues at a rate of 12% per
annum, compounded semi-annually, on the full principal amount and deferred
interest. The Company, at its option, may satisfy its deferred interest
obligation by delivering common shares to the indenture trustee for the capital
securities. The trustee would sell the Company's shares and remit the proceeds
to the holders of the securities in payment of the deferred interest obligation.
Deferred interest obligations not settled with proceeds from the sale of shares
remain an unsecured liability of the Company. Since April 1998, the Company has
exercised its right to defer its interest payments to holders of the capital
securities. Interest deferred to date amounts to $50.6 million at March 31,
2001 and is payable no later than April 1, 2003 together with any additional
compounded or deferred interest up to that date. Although the Company has the
contractual right to issue shares in settlement of this obligation, market
conditions in 2003 will determine the Company's ability to settle through the
delivery and sale of common shares.
7. INTEREST AND OTHER
Three months ended
March 31
2001 2000
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Interest income $(358) $ (232)
Interest expense 795 1,408
Other (147) 847
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$ 290 $2,023
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8. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
U.S. GAAP financial statements
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in Canada. These differ in some
respects from those in the United States, as described below and in the
footnotes to the financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 2000.
5
ECHO BAY MINES LTD.
The effects of the GAAP differences on the consolidated statement of operations
would have been as follows.
Three months ended
March 31
2001 2000
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Net earnings (loss) under Canadian GAAP $ 3,793 $(2,673)
Change in market value of foreign exchange contracts (1,479) 286
Change in market value of option contracts (1,008) --
Transition adjustment on adoption of FAS 133 (3,090) --
Additional interest expense on capital securities (4,330) (3,625)
Amortization of deferred financing on capital securities (158) (158)
Unrealized loss on gold call options sold -- (3)
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Net loss under U.S. GAAP $(6,272) $(6,173)
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Loss per share under U.S. GAAP $ (0.04) $ (0.04)
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The effects of the GAAP differences on the consolidated balance sheet would have
been as follows.
Canadian Capital Derivative U.S.
March 31, 2001 GAAP Securities Contracts Other GAAP
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Short-term investments $ 2,079 $ -- $ -- $ 1,021 $ 3,100
Long-term investments and other assets 20,818 633 (14,997) -- 6,454
Gold and other financings 28,767 93,983 -- -- 122,750
Deferred income 51,797 -- (51,797) -- --
Other long-term obligations 49,814 50,618 2,061 -- 102,493
Common shares 713,343 -- -- 36,428 749,771
Capital securities 144,601 (114,601) -- -- --
Deficit 712,217 (633) 2,198 36,400 750,182
Shareholders' equity 117,357 (143,968) 34,739 1,049 9,177
----------------------------------------------------------------------------------------------------
The following statement of comprehensive income (loss) would be disclosed in
accordance with U.S. GAAP.
Three months ended
March 31
2001 2000
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Net loss under U.S. GAAP $(6,272) $(6,173)
Other comprehensive income (loss), after a nil income tax effect:
Unrealized gain (loss) arising during period 289 --
Gain realized in net income (2,297) --
Foreign currency translation adjustments (3,417) (296)
Transition adjustment on implementation of FAS 133 39,234 --
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Other comprehensive income (loss) 33,809 (296)
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Comprehensive income (loss) $27,537 $(6,469)
---------------------------------------------------------------------------------------------------------------------------
Additionally, under U.S. GAAP, the equity section of the balance sheet would
present a subtotal for accumulated other comprehensive income (loss), as
follows.
March 31 December 31
2001 2000
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Unrealized gain/(loss) on share investments $ 1,021 $ 732
Modification of derivative contracts 36,937 --
Foreign currency translation (28,371) (24,954)
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Accumulated other comprehensive income (loss) $ 9,587 $(24,222)
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6
ECHO BAY MINES LTD.
Derivative instruments and hedging activities
On January 1, 2001, the Company implemented FASB Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities" and Statement No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
The statement requires all derivative instruments to be recognized at fair value
on the balance sheet. The changes in fair value are accounted for through
earnings unless the instrument qualifies for special hedge accounting treatment.
The Company has not designated any derivative contracts as hedges. The Company
enters into derivative contracts to reduce the risk of changes in the price of
gold, silver and foreign currencies. The majority of these contracts are
forward sales that qualify for exception from Statements No. 133 and 138 under
the normal purchase and sales provision. Derivative instruments held by the
Company that do not qualify for the normal purchase and sale exception would be
recognized at fair value on the balance sheet with changes in fair value
recorded in earnings. Gains and losses on the early termination or other
restructuring of gold, silver and foreign currency hedging contracts would be
deferred in accumulated other comprehensive income until the formerly hedged
items are recorded in earnings. The transition adjustment recorded under U.S.
GAAP at January 1, 2001 would have decreased assets by $18.3 million, decreased
liabilities by $54.4 million, increased accumulated other comprehensive income
by $39.2 million and decreased net earnings by $3.1 million.
9. SEGMENT INFORMATION
The Company's management regularly evaluates the performance of the Company by
reviewing operating results on a minesite by minesite basis. As such, the
Company considers each producing minesite to be an operating segment. In the
first quarter of 2001, the Company had four operating mines: Round Mountain in
Nevada, USA; McCoy/Cove in Nevada, USA; Kettle River in Washington, USA; and
Lupin in the Nunavut Territory of Canada. All of the Company's mines are 100%
owned except for Round Mountain, which is 50% owned.
In making operating decisions and allocating resources, the Company's management
specifically focuses on the production levels and cash operating costs generated
by each operating segment, as summarized in the following tables.
Three months ended
March 31
Gold Production (ounces) 2001 2000
----------------------------------------------------------------------------------------------------------------------------
Round Mountain (50%) 100,368 71,954
McCoy/Cove 22,303 43,146
Lupin 37,954 --
Kettle River 12,845 25,070
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Total gold 173,470 140,170
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Silver Production (ounces) - all from McCoy/Cove 1,558,529 3,842,946
----------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31
Cash Operating Costs per Ounce of Gold Produced 2001 2000
----------------------------------------------------------------------------------------------------------------------------
Round Mountain $ 185 $ 185
McCoy/Cove 257 149
Lupin 217 --
Kettle River 242 227
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Company consolidated weighted average $ 212 $ 171
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7
ECHO BAY MINES LTD.
Three months ended
Reconciliation of Cash Operating March 31
Costs per Ounce to Financial Statements 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Operating costs by minesite:
Round Mountain $ 18,235 $ 11,486
McCoy/Cove 15,018 13,961
Lupin 7,819 --
Kettle River 3,551 4,762
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Total operating costs per financial statements 44,623 30,209
Change in finished goods inventories and other (896) 4,021
Co-product cost of silver produced (6,951) (10,261)
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Cash operating costs $ 36,776 $ 23,969
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Gold ounces produced 173,470 140,170
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Cash operating costs per ounce $ 212 $ 171
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The Company's management generally monitors revenue on a consolidated basis.
Information regarding the Company's consolidated revenue is provided below.
Three months ended
March 31
2001 2000
----------------------------------------------------------------------------------------------------------------------------
Total gold and silver revenue $64,461 $51,797
Average gold price realized per ounce $ 310 $ 320
Average silver price realized per ounce $ 5.28 $ 5.80
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10. HEDGING ACTIVITIES AND COMMITMENTS
Gold commitments
The Company's gold forward sales positions at March 31, 2001 were as follows.
Forward Price of
Sales Forward Sale
(ounces) (per ounce)
---------------------------------------------------------------------------
Remainder of 2001 45,000 $302
2002 60,000 302
2003 60,000 302
2004 60,000 302
2005 15,000 302
---------------------------------------------------------------------------
240,000 $302
---------------------------------------------------------------------------
The Company's gold option positions at March 31, 2001 were as follows.
Call Options Purchased Call Options Sold
----------------------- -----------------
Strike Price Strike Price
Ounces per Ounce Ounces per Ounce
--------------------------------------------------------------------------------
Remainder of 2001 45,000 $360 -- $ --
2002 60,000 360 -- --
2003 60,000 360 -- --
2004 60,000 360 -- --
2005 120,000 395 105,000 340
--------------------------------------------------------------------------------
345,000 $372 105,000 $340
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8
ECHO BAY MINES LTD.
Currency position
At March 31, 2001, the Company had an obligation under foreign currency exchange
contracts to purchase C$15 million in the remainder of 2001 at an exchange rate
of C$1.46 to U.S.$1.00.
Shown below are the carrying amounts and estimated fair values of the Company's
hedging instruments at March 31, 2001 and December 31, 2000.
March 31, 2001 December 31, 2000
--------------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------------
Gold forward sales $ -- $ 6,500 $ -- $ 5,700
Silver forward sales -- -- -- 1,800
Gold options - puts purchased -- -- -- --
- calls sold (3,000) (1,300) (3,000) (2,200)
- puts sold -- -- -- --
- calls purchased 6,200 1,200 6,800 2,400
Silver options - puts purchased -- -- 1,200 1,400
- puts sold -- -- (1,300) (400)
- calls purchased -- -- 700 --
Foreign currency contracts -- (700) -- (300)
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$ 5,700 $ 8,400
--------------------------------------------------------------------------------------------------------------------
Fair values are estimated based upon market quotations of various input
variables. These variables were used in valuation models that estimate the fair
market value.
11. OTHER COMMITMENTS AND CONTINGENCIES
Summa
In September 1992, Summa Corporation commenced a lawsuit against Echo Bay
Exploration Inc. and Echo Bay Management Corporation, indirect subsidiaries of
the Company, alleging improper deductions in the calculation of royalties
payable over several years of production at the McCoy/Cove and Manhattan mines.
The matter was tried in the Nevada State Court in April 1997, with Summa
claiming more than $13 million in damages, and, in September 1997, judgement was
rendered for the Echo Bay companies, with the Nevada State Court finding that
the Echo Bay companies had calculated the royalties correctly, in compliance
with an agreement which the court found unambiguous.
The decision was appealed by Summa to the Supreme Court of Nevada and on April
26, 2000, the court reversed the decision of the trial court and remanded the
case back to the trial court for "a calculation of the appropriate [royalties]
in a manner not inconsistent with this order". The case was decided by a panel
comprised of three of the seven Justices of the Supreme Court of Nevada and the
Echo Bay defendants petitioned that panel for a rehearing. The petition was
denied by the three member panel on May 15, 2000. The Echo Bay defendants then
filed for a petition for review of the panel decision by the full Court. On
April 3, 2001, the full court issued an order reversing the decision of the
panel. The full court noted, however, that the trial court had failed to
consider the testimony of one of Summa's trial witnesses and remanded the case
to the trial court for a redetermination of the meaning of the contract. The
other defences and arguments put forth by the Echo Bay defendants, which the
trial court originally elected not to consider, may now also be considered. The
Echo Bay defendants disagree that the trial court failed to consider the
testimony in question. The evidence was in fact considered and addressed in an
alternate finding of that court. Accordingly, the Supreme Court is now being
asked to review this one matter and reinstate the decision of the trial court.
It is not known when the Supreme Court will rule on this request.
The Company has $1.5 million accrued related to the Summa matter. If Summa were
ultimately to prevail, the royalty calculation at McCoy/Cove would change and
additional royalties would be payable.
9
ECHO BAY MINES LTD.
Handy and Harman
On March 29, 2000 Handy & Harman Refining Group, Inc., which operated a facility
used by the Company for the refinement of dore bars, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. The outcome of these proceedings is
uncertain at this time. The Company has gold and silver accounts at this
refining facility with an estimated market value of approximately $2.4 million.
Security for reclamation
Certain of the Company's subsidiaries have provided corporate guarantees and
other forms of security to regulatory authorities in connection with future
reclamation activities. Early in 2001, regulators formally called upon two of
the Company's subsidiaries to provide other security to replace corporate
guarantees that had been given in respect of the Round Mountain and McCoy/Cove
operations. The subsidiaries disagree with the regulators' position and believe
that they qualify under the criteria set out for corporate guarantees and will
oppose the regulatory decision. Although the outcome cannot be predicted, the
Company and its counsel believe that the Company will prevail.
10
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 2001
(U.S. dollars)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's profitability is determined in large part by gold and silver
prices. Market prices of gold and silver are determined by factors beyond the
Company's control. The Company's operations continue to be materially affected
by the depressed price of gold, which averaged $279 per ounce in 2000 and $264
per ounce during the first quarter of 2001.
The Company reduces the risk of future gold and silver price declines by hedging
a portion of its production. The principal hedging tools used are gold and
silver loans, fixed and floating forward sales contracts, spot-deferred
contracts, swaps and options.
The Company's hedge position as of March 31, 2001 partially protects the Company
against gold price declines in the years 2001 through 2005. For the remainder
of 2001, this position includes forward sales of approximately 45,000 ounces at
a forward price of $302 per ounce. For the years 2002 through 2005, the Company
has forward sales totaling 195,000 ounces of gold at a forward price of $302 per
ounce. See note 10 to the interim consolidated financial statements.
The Company continues to defer a final construction decision on Aquarius, a
planned gold mine in Ontario, Canada.
The Company's exploration efforts are focused on projects principally located in
North America where the Company already has extensive gold mining
infrastructure.
In March 1997, the Company issued $100.0 million of 11% capital securities due
2027 (see note 6 to the interim consolidated financial statements). The Company
has the right to defer interest payments on the capital securities for a period
not to exceed 10 consecutive semi-annual periods. During a period of interest
deferral, interest accrues at a rate of 12% per annum, compounded semi-annually,
on the full principal amount and deferred interest. The Company, at its option,
may satisfy its deferred interest obligation by delivering common shares to the
indenture trustee for the capital securities. The trustee would sell the
Company's shares and remit the proceeds to the holders of the securities in
payment of the deferred interest obligation. Deferred interest obligations not
settled with proceeds from the sale of shares remain an unsecured liability of
the Company. Since April 1998, the Company has exercised its right to defer its
semi-annual interest payments to holders of the capital securities. The
deferred interest accrued at March 31, 2001, totaling $50.6 million, has been
classified within the equity component of the capital securities obligation on
the balance sheet as the Company has the option to satisfy the deferred interest
by delivering common shares. Although the Company has the contractual right to
issue shares in settlement of this obligation, market conditions in 2003 will
determine the Company's ability to settle through the delivery and sale of
common shares.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided from operating activities was $10.5 million for the first
quarter of 2001 compared to net cash used in operating activities of $4.1
million for the first quarter of 2000. The 2001 results compared to 2000
reflect increased gold and silver cash revenue ($14.2 million), Lupin start-up
costs in 2000 ($4.8 million) and increases in inventories in 2000 ($12.1
million). These factors were partially offset by increased operating costs in
2001 ($14.2 million) related to Lupin operations and increased fuel and related
costs.
11
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 2001
(U.S. dollars)
Net cash used in investing activities was $6.4 million in the first quarter of
2001, primarily related to mining properties, plant and equipment.
Net cash used in financing activities included $3.8 million for loan repayments
in the first quarter of 2001.
At March 31, 2001, the Company had $14.6 million in cash and cash equivalents
and $2.1 million in short-term investments.
At March 31, 2001, the Company's current debt was $22.8 million and its long-
term debt was $6.0 million.
The Company's existing term and revolving credit facilities expire in August
2001. The Company currently has $19.0 million outstanding under its revolving
credit facility. Based on the current trailing 90-day average spot price of
gold, the Company is restricted to a minimal amount of additional borrowing
capacity. However, assuming current spot prices of gold and silver and the
anticipated production from the mines for the rest of 2001, the Company does not
expect to draw on this facility before its maturity in August. The Company
believes it is currently in compliance with the credit facility covenants. The
Company is in discussions with lenders to arrange a new borrowing facility but
has not yet entered into a final agreement. The Company's ability to borrow is
constrained by conditions in the gold mining industry and its recent and
currently expected future operating results. Should the Company be unable to
arrange a new borrowing facility to replace its maturing facility, it is
unlikely that the Company would be able to settle its existing loan with cash
from operations or other sources. As a result of these conditions, there is
substantial doubt about the Company's ability to continue its operations in the
normal course of business.
At March 31, 2001, the fair value of the Company's hedge portfolio was $5.7
million, which is within the predetermined margin limits. Margin deposits could
be required by certain counterparties if the fair value of the hedge portfolio
were less than the predetermined margin threshold.
For the full year 2001, the Company expects to incur $22 million in capital
expenditures, of which $10 million has been incurred in the first quarter of
2001. The Company will rely on its operating cash flow to fund the remainder of
its planned 2001 capital expenditures. The Company continues to monitor its
discretionary spending in view of the depressed gold price and the cost
structure at the Company's operating mines.
Early in 2000, The American Stock Exchange advised the Company that its listing
eligibility was under review. The review was undertaken because the Company had
fallen below two of the Exchange's continued listing guidelines. The Company had
sustained net losses in its five most recent fiscal years (1995 to 1999) and in
the Exchange's view, the Company's shareholders' equity under generally accepted
accounting principles in the United States is inadequate. The Company is
addressing the Exchange's concerns through periodic progress reviews and
currently the matter is in abeyance pending a review of the Company's December
31, 2000 financial statements.
See note 11 to the interim consolidated financial statements, "Other Commitments
and Contingencies".
12
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
FINANCIAL REVIEW
The Company reported first quarter net earnings of $3.8 million compared with a
net loss of $2.7 million in the first quarter of 2000. On a per share basis,
the Company had breakeven net earnings for the quarter compared to a net loss of
$0.04 in 2000. The 2001 results compared to 2000 reflect increased sales volume
($15.4 million), Lupin start-up costs in 2000 ($4.8 million) and lower interest
expense ($1.7 million). These factors were partially offset by increased
operating costs ($14.4 million) and lower gold and silver prices realized ($2.7
million).
Gold production increased 24% to 173,470 ounces in the first quarter of 2001
compared to 140,170 ounces in the first quarter of 2000. Increased production
reflects the contribution of the Lupin mine of 37,954 ounces, higher mill
throughput and leach pad production at Round Mountain, partially offset by the
processing of low-grade stockpiles at McCoy/Cove and lower mill throughput at
Kettle River. Silver production from McCoy/Cove was 1.6 million ounces, 58%
less than the 3.8 million ounces produced in 2000, reflecting the processing of
low-grade stockpiles. Open pit mining was completed at McCoy/Cove in 2000.
Cash operating costs were $212 per ounce of gold in the first quarter of 2001,
versus $171 in the first quarter of 2000. The increase was primarily a result
of lower production at McCoy/Cove and higher fuel and related costs at Round
Mountain. Total production costs were $278 per ounce in the first quarter of
2001, versus $252 per ounce in the first quarter of 2000.
The term ounce as used in this Form 10-Q means "troy ounce".
Revenue
Statistics for gold and silver ounces sold and other revenue data are set out
below.
Three months ended
March 31
Revenue Data 2001 2000
---------------------------------------------------------------------------------------------------------------------------
Gold
----
Ounces sold 172,086 116,794
Average price realized/ounce - revenue basis $ 310 $ 320
Average price realized/ounce - cash basis (1) $ 290 $ 301
Average market price/ounce $ 264 $ 290
Revenue (millions of U.S. $) $ 53.4 $ 37.4
Percentage of total revenue 83% 72%
Silver
------
Ounces sold 2,093,815 2,488,007
Average price realized/ounce - revenue basis $ 5.28 $ 5.80
Average price realized/ounce - cash basis (1) $ 6.02 $ 5.67
Average market price/ounce $ 4.56 $ 5.20
Revenue (millions of U.S. $) $ 11.1 $ 14.4
Percentage of total revenue 17% 28%
---------------------------------------------------------------------------------------------------------------------------
Total revenue (millions of U.S. dollars) $ 64.5 $ 51.8
---------------------------------------------------------------------------------------------------------------------------
(1) Excludes non-cash items affecting gold and silver revenues, such as the
recognition of deferred income or deferral of revenue to future periods for
hedge accounting purposes.
13
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
The effects of changes in sales prices and volume were as follows.
Revenue Variance Analysis
2001 vs. 2000 Three months ended
(millions of U.S. dollars) March 31
-----------------------------------------------------------------------
Lower gold prices $(1.7)
Lower silver prices (1.0)
Change in volume 15.4
-----------------------------------------------------------------------
Increase in revenue $12.7
-----------------------------------------------------------------------
Production Costs
Production cost data per ounce of gold is set out below.
Three months ended
Production Costs per March 31
Ounce of Gold Produced 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Direct mining expense $ 206 $ 192
Deferred stripping and mine development costs 11 (13)
Inventory movements and other (5) (8)
-----------------------------------------------------------------------------------------------------------------------------
Cash operating costs 212 171
Royalties 6 7
Production taxes 1 3
-----------------------------------------------------------------------------------------------------------------------------
Total cash costs 219 181
Depreciation 38 38
Amortization 13 22
Reclamation and mine closure 8 11
-----------------------------------------------------------------------------------------------------------------------------
Total production costs $ 278 $ 252
-----------------------------------------------------------------------------------------------------------------------------
Expenses
Operating costs per ounce vary with the quantity of gold and silver sold and
with the cost of operations. Cash operating costs were $212 per ounce of gold
in the first quarter of 2001 and $171 in the first quarter of 2000. See
"Operations Review."
Reconciliation of Cash Operating
Costs per Ounce to Financial Statements Three months ended
thousands of U.S. dollars, March 31
except per ounce amounts 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 44,623 $ 30,209
Change in finished goods inventory and other (896) 4,021
Co-product cost of silver produced (6,951) (10,261)
-----------------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 36,776 $ 23,969
-----------------------------------------------------------------------------------------------------------------------------
Gold ounces produced 173,470 140,170
-----------------------------------------------------------------------------------------------------------------------------
Cash operating costs per ounce $ 212 $ 171
-----------------------------------------------------------------------------------------------------------------------------
Reserve estimates
The prices used in estimating the Company's ore reserves at December 31, 2000
were $300 per ounce of gold and $5.00 per ounce of silver. The market price for
gold has for more than three years traded, on average, below the level used in
estimating reserves at December 31, 2000. If the market price for gold were to
continue at such
14
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
levels and the Company determined that its reserves should be
estimated at a significantly lower gold price than that used at December 31,
2000, there would be a reduction in the amount of gold reserves. The Company
estimates that if reserves at December 31, 2000 were based on $275 per ounce of
gold, reserves would decrease by approximately 10% at Round Mountain, 3% at
Kettle River and 2% at the Aquarius development property. There would be no
impact on reserves at Lupin and McCoy/Cove. The estimates are based on
extrapolation of information developed in the reserve calculation, but without
the same degree of analysis required for reserve estimation. Should any
significant reductions in reserves occur, material write-downs of the Company's
investment in mining properties and/or increased amortization, reclamation and
closure charges may be required.
OPERATIONS REVIEW
Operating data by mine is set out below.
Three months ended
March 31
Operating Data by Mine 2001 2000
----------------------------------------------------------------------------------------------------------------------------
Gold production (ounces)
------------------------
(a) Round Mountain (50%) 100,368 71,954
(b) McCoy/Cove 22,303 43,146
(c) Lupin 37,954 --
(d) Kettle River 12,845 25,070
----------------------------------------------------------------------------------------------------------------------------
Total gold 173,470 140,170
----------------------------------------------------------------------------------------------------------------------------
Silver production (ounces)
--------------------------
(b) McCoy/Cove 1,558,529 3,842,946
----------------------------------------------------------------------------------------------------------------------------
Total silver 1,558,529 3,842,946
----------------------------------------------------------------------------------------------------------------------------
Gold production increased 24% to 173,470 ounces in the first quarter of 2001
compared to 140,170 ounces in the first quarter of 2000. Increased production
reflects the contribution of the Lupin mine of 37,954 ounces, higher mill
throughput and leach pad production at Round Mountain, partially offset by
decreased mill grades and recoveries at McCoy/Cove and lower mill throughput at
Kettle River. Silver production from McCoy/Cove was 1.6 million ounces, 58%
less than the 3.8 million ounces produced in 2000, reflecting decreased grades
and recoveries. For the full year 2001, the Company's production targets are
570,000 gold ounces and 5 million silver ounces.
Three months ended
March 31
Operating Data by Mine 2001 2000
----------------------------------------------------------------------------------------------------------------------------
Cash operating costs (per ounce of gold)
----------------------------------------
(a) Round Mountain $ 185 $ 185
(b) McCoy/Cove 257 149
(c) Lupin 217 --
(d) Kettle River 242 227
----------------------------------------------------------------------------------------------------------------------------
Company average $ 212 $ 171
----------------------------------------------------------------------------------------------------------------------------
Cash operating costs were $212 per ounce of gold in the first quarter of 2001,
versus $171 in the first quarter of 2000. The increase was primarily a result
of lower production at McCoy/Cove and higher fuel and related costs at Round
Mountain. The Company has targeted consolidated cash operating costs of $225
per ounce of gold produced for the full year 2001.
15
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
(a) Round Mountain, Nevada (50% owned)
Three months ended
March 31
OPERATING DATA 2001 2000
-----------------------------------------------------------------------------------------------------------------------------
Gold produced (ounces):
Heap leached - reusable pad (50%) 27,250 17,768
Heap leached - dedicated pad (50%) 40,687 32,373
Milled (50%) 32,431 19,878
Other (50%) -- 1,935
-------- --------
Total (50%) 100,368 71,954
Mining cost/ton of ore and waste $ 0.85 $ 0.83
Heap leaching cost/ton of ore $ 0.70 $ 0.57
Milling cost/ton of ore $ 3.00 $ 2.90
Production cost per ounce of gold produced:
Direct mining expense $ 166 $ 215
Deferred stripping costs 21 (19)
Inventory movements and other (2) (11)
-------- --------
Cash operating costs 185 185
Royalties 11 11
Production taxes 1 1
-------- --------
Total cash cost 197 197
Depreciation 36 46
Amortization 15 18
Reclamation and mine closure 9 9
-------- --------
Total production costs $ 257 $ 270
-------- --------
Heap leached - reusable pad:
Ore processed (tons/day) (100%) 27,762 27,938
Total ore processed (000 tons) (100%) 2,526 2,542
Grade (ounce/ton) 0.038 0.026
Recovery rate (%) 79.8 58.5
Heap leached - dedicated pad:
Ore processed (tons/day) (100%) 147,407 145,275
Total ore processed (000 tons) (100%) 13,414 13,220
Grade (ounce/ton) 0.011 0.011
Recovery rate (1)
Milled:
Ore processed (tons/day) (100%) 9,880 8,063
Total ore processed (000 tons) (100%) 899 734
Grade (ounce/ton) 0.089 0.046
Recovery rate (%) 85.5 84.4
-----------------------------------------------------------------------------------------------------------------------------
(1) Recovery rates on dedicated pads can only be estimated, as actual recoveries
will not be known until leaching is complete. At the Round Mountain mine,
the gold recovery rate on the dedicated heap leach pad is estimated at 50%.
The Company has a 50 percent ownership interest in, and is the operator of, the
Round Mountain mine in Nevada. The mine had a record production quarter, which
is attributable to the benefits of placing more ore on the dedicated pads during
the fourth quarter of 2000, better grades on the reusable pads and higher
tonnage processed through the mill. The Company's share of mine production was
100,368 ounces for the quarter compared with
16
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
71,954 ounces in 2000. Cash operating costs for the quarter were $185 per ounce,
the same as the previous year. The higher production help offset the increase in
fuel and related costs experienced this year.
During the quarter, a new fleet of eight 240-ton haul trucks was commissioned
replacing several older 85-ton and 150-ton haul trucks. These trucks will help
maintain a low cost profile, as the pit becomes deeper and haul distances become
longer.
During the quarter, a $1.2 million exploration program began which includes
further drilling, target identification and other activity in the large area of
mutual interest surrounding Round Mountain
17
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
(b) McCoy/Cove, Nevada (100% owned)
Three months ended
March 31
OPERATING DATA 2001 2000
-------------------------------------------------------------------------------------------------------------------------------
Gold produced (ounces):
Milled 17,978 28,698
Heap leached 4,325 14,448
---------- ----------
Total gold 22,303 43,146
Silver produced (ounces):
Milled 1,495,309 3,615,276
Heap leached 63,220 227,670
---------- ----------
Total silver 1,558,529 3,842,946
Mining cost/ton of ore and waste $ -- $ 0.73
Milling cost/ton of ore $ 6.42 $ 6.79
Heap leaching cost/ton of ore $ -- $ 1.72
Production cost per ounce of gold produced:
Direct mining expense $ 255 $ 166
Deferred stripping costs 7 (11)
Inventory movements and other (5) (6)
---------- ----------
Cash operating costs 257 149
Royalties 1 4
Production taxes -- 3
---------- ----------
Total cash cost 258 156
Depreciation 50 24
Amortization 8 28
Reclamation and mine closure -- 11
---------- ----------
Total production costs $ 316 $ 219
---------- ----------
Average gold-to-silver price ratio (1) 57.7:1 55.8:1
Milled:
Ore processed (tons/day) 11,838 11,200
Total ore processed (000 tons) 1,077 1,019
Gold grade (ounce/ton) 0.043 0.061
Silver grade (ounce/ton) 2.57 5.10
Gold recovery rate (%) 44.6 55.7
Silver recovery rate (%) 64.9 72.3
Heap leached:
Ore processed (tons/day) -- 10,874
Total ore processed (000 tons) -- 990
Gold grade (ounce/ton) -- 0.027
Silver grade (ounce/ton) -- 1.07
Recovery rates (2)
-------------------------------------------------------------------------------------------------------------------------------
(1) To convert costs per ounce of gold into comparable costs per ounce of co-
product silver, divide the production cost per ounce of gold by the period's
average gold-to-silver price ratio.
(2) Recovery rates on dedicated pads can only be estimated, as actual recoveries
will not be known until leaching is complete. At the McCoy/Cove mine, the
gold recovery rate is estimated at 68% for crushed ore and 48% for
uncrushed, run-of-mine ore, while the silver recovery rate is estimated at
35% for crushed ore and 10% for uncrushed, run-of-mine ore.
18
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
At McCoy/Cove in Nevada, gold production was 22,303 ounces for the quarter
compared with 43,146 ounces in 2000 and silver production amounted to 1.6
million ounces compared with 3.8 million ounces in the prior year. Open pit
mining was completed in 2000 and now production comes primarily from a large
stockpile of low-grade ore. Cash operating costs per ounce were $257 compared
with $149 in 2000, reflecting a 48% decrease in gold production and a 58%
decrease in silver production.
Underground mining at Cove South Deep should be completed in the second quarter
of 2001 with total production meeting the target of 40,000 equivalent gold
ounces.
Reclamation on a further 50 acres was completed during the quarter, bringing the
total number of acres on which reclamation is underway to more than 1,600. Re-
contouring waste dumps and seeding, the two key components of surface
reclamation, are expected to continue for another two years.
19
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
(c) Lupin, Nunavut, Canada (100% owned)
Three months ended
March 31
OPERATING DATA 2001 2000
---------------------------------------------------------------------------------------------------------------------
Gold produced (ounces) 37,954 --
Mining cost/ton of ore C$ 44.82 C$ --
Milling cost/ton of ore C$ 14.40 C$ --
Production cost per ounce of gold produced:
Canadian dollars:
Direct mining expense C$ 379 C$ --
Deferred mine development costs C$ (12) C$ --
Inventory movements and other C$ -- C$ --
-------- ------
Cash operating costs C$ 367 C$ --
U.S. dollars
Cash operating costs US$ 217 US$ --
Royalties -- --
Production taxes -- --
-------- ------
Total cash costs 217 --
Depreciation 28 --
Amortization 7 --
Reclamation and mine closure 14 --
-------- ------
Total production costs US$ 266 US$ --
-------- ------
Milled:
Ore processed (tons/day) 1,849 --
Total ore processed (000 tons) 168 --
Grade (ounce/ton) 0.241 --
Recovery rate (%) 93.4 --
---------------------------------------------------------------------------------------------------------------------
Gold production for the quarter was 37,954 ounces with cash operating costs of
$217 per ounce. The cash operating costs include a $0.9 million benefit ($24 per
ounce) from hedging Canadian dollars for Lupin expenditures. A $6.0 million
gain was realized when certain contracts were closed during the first quarter of
1997. The gain was deferred and will be recognized through the third quarter of
2001.
An underground hoisting system (called a winze) was completed in April 2001 and
will provide a more cost effective method of transporting ore to the bottom of
the existing shaft from lower levels of the mine. The winze will also allow for
development and mining of the orebody which is defined to 200 meters below the
bottom of the hoist position.
Ongoing ramping continues to provide encouraging results, and development of
areas below the winze continues to prove up continuity of the ore body in strike
length, width and grades. In addition, ongoing exploration continues in the
upper portion of the mine.
20
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
(d) Kettle River, Washington (100% owned)
Three months ended
March 31
OPERATING DATA 2001 2000
----------------------------------------------------------------------------------------------------------------------------
Gold produced (ounces) 12,845 25,070
Mining cost/ton of ore $ 23.89 $ 22.01
Milling cost/ton of ore $ 12.01 $ 11.84
Production cost per ounce of gold produced:
Direct mining expense $ 211 $ 239
Deferred mine development costs -- --
Inventory movements and other 31 (12)
------- -------
Cash operating costs 242 227
Royalties 13 14
Production taxes 1 1
------- -------
Total cash cost 256 242
Depreciation 8 10
Amortization 40 8
Reclamation and mine closure 15 15
------- -------
Total production costs $ 319 $ 275
------- -------
Milled:
Ore processed (tons/day) 900 1,508
Total ore processed (000 tons) 82 137
Grade (ounce/ton) 0.190 0.219
Recovery rate (%) 82.7 83.3
----------------------------------------------------------------------------------------------------------------------------
Production for the quarter was 12,845 ounces, down from 25,070 ounces in 2000
reflecting the fact that the mill operated for only two of the three months in
the quarter. The mill was shut down for January and power that would have
otherwise been consumed by the mill was sold back to the local power authority.
The Company received approximately $400,000 for the power sale. During the
shutdown, the mine performed preventative maintenance that would have ordinarily
been performed later in the year. Kettle River is anticipated to meet its 2001
production target.
With the lower production and the benefit of the power sale, cash operating
costs per ounce were $242 per ounce compared with $227 per ounce in 2000. The
higher cost per ounce reflects the lower production as actual spending was 55%
less than 2000.
Underground development and additional exploration of the previously reported
north east extension to the K-2 mine is currently being conducted.
21
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
RECENT DEVELOPMENTS
Exploration and development programs
With the ongoing low gold price environment, the Company continues its focused
approach to exploration and development activities primarily within close
proximity to the existing mine sites as well as in the Western United States and
in the Timmins area of Ontario. For the first quarter of 2001, the Company
spent $0.7 million on exploration activities. Exploration costs are expensed as
incurred.
In 1997, the Company deferred final construction decisions on its planned gold
mine, the 100% owned Aquarius in Ontario, Canada. Development holding costs are
expensed as incurred. During the first quarter of 2001, the Company expensed
$0.2 million in holding costs related to Aquarius.
Summa
In September 1992, Summa Corporation commenced a lawsuit against Echo Bay
Exploration Inc. and Echo Bay Management Corporation, indirect subsidiaries of
the Company, alleging improper deductions in the calculation of royalties
payable over several years of production at the McCoy/Cove and Manhattan mines.
The matter was tried in the Nevada State Court in April 1997, with Summa
claiming more than $13 million in damages, and, in September 1997, judgement was
rendered for the Echo Bay companies, with the Nevada State Court finding that
the Echo Bay companies had calculated the royalties correctly, in compliance
with an agreement which the court found unambiguous.
The decision was appealed by Summa to the Supreme Court of Nevada and on April
26, 2000, the court reversed the decision of the trial court and remanded the
case back to the trial court for "a calculation of the appropriate [royalties]
in a manner not inconsistent with this order". The case was decided by a panel
comprised of three of the seven Justices of the Supreme Court of Nevada and the
Echo Bay defendants petitioned that panel for a rehearing. The petition was
denied by the three member panel on May 15, 2000. The Echo Bay defendants then
filed for a petition for review of the panel decision by the full Court. On
April 3, 2001, the full court issued an order reversing the decision of the
panel. The full court noted, however, that the trial court had failed to
consider the testimony of one of Summa's trial witnesses and remanded the case
to the trial court for a redetermination of the meaning of the contract. The
other defences and arguments put forth by the Echo Bay defendants, which the
trial court originally elected not to consider, may now also be considered. The
Echo Bay defendants disagree that the trial court failed to consider the
testimony in question. The evidence was in fact considered and addressed in an
alternate finding of that court. Accordingly, the Supreme Court is now being
asked to review this one matter and reinstate the decision of the trial court.
It is not known when the Supreme Court will rule on this request.
The Company has $1.5 million accrued related to the Summa matter. If Summa were
ultimately to prevail, the royalty calculation at McCoy/Cove would change and
additional royalties would be payable.
Security for reclamation
Certain of the Company's subsidiaries have provided corporate guarantees and
other forms of security to regulatory authorities in connection with future
reclamation activities. Early in 2001, regulators formally called upon two of
the Company's subsidiaries to provide other security to replace corporate
guarantees that had been given in respect of the Round Mountain and McCoy/Cove
operations. The subsidiaries disagree with the regulators' position and believe
that they qualify under the criteria set out for corporate guarantees and will
oppose the regulatory decision. Although the outcome cannot be predicted, the
Company and its counsel believe that the Company will prevail.
22
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
For the three Months Ended March 31, 2001
(U.S. dollars)
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from targeted or projected results.
Such forward-looking statements include statements regarding targets for gold
and silver production, cash operating costs and certain significant expenses,
percentage increases and decreases in production from the Company's principal
mines, schedules for completion of detailed feasibility studies and initial
feasibility studies, potential changes in reserves and production, the timing
and scope of future drilling and other exploration activities, expectations
regarding receipt of permits and commencement of mining or production,
anticipated grades and recovery rates, the ability to secure financing, and
potential acquisitions or increases, divestitures or decreases in property
interests. Factors that could cause actual results to differ materially
include, among others: changes in gold and silver prices; fluctuations in grades
and recovery rates; geological, metallurgical, processing, access,
transportation or other problems; results of exploration activities, pending and
future feasibility studies; changes in project parameters as plans continue to
be refined; political, economic and operational risks; availability of materials
and equipment; regulatory risks, including but not limited to reclamation
security requirements and the timing for the receipt of governmental permits;
force majeure events; the failure of plant, equipment or processes to operate in
accordance with specifications or expectations; accidents, labor relations;
delays in start-up dates for projects; environmental costs and risks; and other
factors described herein or in the Company's filings with the U.S. Securities
and Exchange Commission. Many of these factors are beyond the Company's ability
to predict or control. Readers are cautioned not to put undue reliance on
forward-looking statements.
23
ECHO BAY MINES LTD.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Summa
See note 11 to the interim consolidated financial statements.
Colorado School of Mines
On January 24, 2000, a subsidiary of the Company was served with a complaint in
the case of Colorado School of Mines vs. AK Steel, et al., Civil Action 99-N-
1863 (USDC Colorado). This lawsuit seeks contribution from numerous parties for
environmental cleanup costs at a federal Comprehensive Environmental Response,
Compensation and Liability Act site. In October 2000, the Company's subsidiary
and plaintiff agreed to a settlement. This settlement has been filed with the
Court for approval and in January 2001 the Colorado School of Mines requested
the Court to expedite approval of the settlement agreement. The Company has
$130,000 accrued in relation to this litigation.
Other
The Company is also engaged in routine litigation incidental to its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K Filed on March 19, 2001, related to the deferral
of the April 2001 interest payment on the capital
securities.
24
ECHO BAY MINES LTD.
SIGNATURE
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.
ECHO BAY MINES LTD.
----------------------------------------------
(Registrant)
--------------------------
Date
/s/ David A. Ottewell
----------------------------------------------
DAVID A. OTTEWELL
Controller and Principal
Accounting Officer
25