10-Q 1 a10-q.txt 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 [ ] 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 1-9666 BATTLE MOUNTAIN GOLD COMPANY (EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER) Nevada 76-0151431 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Clay Street, 42nd Floor, Houston, Texas 77002 (Address of principal executive offices, including Zip Code) (713) 650-6400 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year if changed since last report) 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 ----- ------ Number of shares of Common Stock outstanding as of the latest practicable date, July 31, 2000: 131,903,759. In addition, as of such date, there were outstanding 98,010,538 Exchangeable Shares of Battle Mountain Canada Ltd. which are exchangeable at any time into Common Stock on a one-for-one basis, entitle their holders to dividend and other rights economically equivalent to those of the Common Stock, and through a voting trust, vote at meetings of stockholders of the Registrant. =============================================================================== BATTLE MOUNTAIN GOLD COMPANY INDEX

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BATTLE MOUNTAIN GOLD COMPANY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 1 BATTLE MOUNTAIN GOLD COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 2 BATTLE MOUNTAIN GOLD COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 3 BATTLE MOUNTAIN GOLD COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. General Information The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include all normal recurring adjustments which are, in the opinion of the management of Battle Mountain Gold Company, necessary for a fair presentation. Certain information and footnote disclosures required by generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements include the accounts of Battle Mountain Gold Company and its wholly-owned and majority-owned subsidiaries ("Battle Mountain") and should be read in conjunction with the consolidated financial statements which are included in Battle Mountain's Annual Report on Form 10-K/A for the year ended December 31, 1999. Battle Mountain restated its 1999 financial statement presentation of its former interest in Niugini Mining Limited, which merged with Lihir Gold Limited in February 2000, to reflect the full consolidation of Battle Mountain's investment in its Niugini Mining subsidiary. The more significant effects of this restatement on the 1999 information presented in the accompanying financial statements compared to amounts previously reported were a $0.7 million increase in net loss for the first six months of 1999 (no impact on loss per share), a $54.7 million increase in cash, a $61.7 million decrease in assets held for sale, a $68.4 million increase in total investments and a $59.1 million increase in minority interest. In addition, cash flows from operations increased $2.1 million during the first half of 1999 compared with amounts previously reported. Certain other amounts for prior periods have been reclassified in order to conform to the current reporting presentation. The restatements had no impact on Battle Mountain's 1999 annual net loss, loss per share or total net assets, and also had no impact on Battle Mountain's June 30, 2000 cash balance. Note 2. Merger Announcement On June 21, 2000, Battle Mountain and Newmont Mining Corporation entered into a merger agreement under which Battle Mountain will become a wholly-owned subsidiary of Newmont Mining subject to the satisfaction or waiver of the conditions set forth in the merger agreement. Under the agreement, each of Battle Mountain's 131.9 million shares of common stock and Battle Mountain Canada Ltd.'s 98.0 million exchangeable shares will be exchanged for the right to receive 0.105 shares of Newmont common stock. In addition, each of Battle Mountain's 2.3 million shares of convertible preferred stock will be exchanged for one share of Newmont convertible preferred stock having substantially identical terms and conditions. It is expected that the transaction will be accounted for as a pooling of interests and will be completed in the fall of 2000, following regulatory approvals and approval by Battle Mountain and Battle Mountain Canada shareholders. Noranda Inc., a 28% shareholder of Battle Mountain, has agreed to vote in favor of the merger. Battle Mountain incurred $0.7 million of merger related expenses in the second quarter of 2000. Note 3. Niugini Mining and Lihir Niugini Mining and Lihir merged on February 2, 2000. As a result, Battle Mountain, which held a 50.45% interest in Niugini Mining prior to the merger, received 111.3 million shares of Lihir, representing a 9.74% equity interest in Lihir. Battle Mountain, through its investment in Niugini Mining, held a 7.52% equity interest in Lihir at December 31, 1999. As a result of the merger, Battle Mountain no longer owns shares of Niugini Mining. The post-merger investment in the Lihir shares has been classified as marketable securities, available for sale, in the condensed consolidated balance sheet. The market value of the Lihir shares decreased $17.8 million and $0.1 million in the first and second quarters of 2000, respectively. This decrease was recorded as a part of 4 comprehensive loss in shareholders' equity in the condensed consolidated balance sheet. Impairment charges of $11.0 million and $12.4 million ($9.2 million net of minority interest) were recorded in the first and second quarters of 1999, respectively, as a result of decreases in the market value of the Lihir shares then held by Niugini Mining. The investment in Lihir was accounted for under the equity method in 1999 and the decrease in value was considered to be other than temporary. Note 4. Loss per Common Share Battle Mountain's outstanding common stock options, convertible debentures and convertible preferred stock were anti-dilutive and therefore not included in the calculations of basic and diluted loss per share amounts presented in the condensed consolidated statement of operations. Note 5. Comprehensive Loss Battle Mountain's comprehensive loss follows:

Note 6. Debt In the first and second quarters of 2000, $10.0 million and $2.0 million, respectively, of the Canadian Imperial Bank of Commerce debt was repaid. These early repayments were required because the market value of the Lihir shares held by Battle Mountain declined to less than the level required by the loan agreement. Further declines in the market value of the shares of Lihir may result in additional principal repayments. As of June 30, 2000, a $5.0 million short-term borrowing, due July 3, 2000, was outstanding with an Australian bank. This borrowing was extended until July 11, 2000 at which time Battle Mountain established a $10.0 million, variable interest rate-based credit facility with the bank and rolled the existing $5.0 million borrowing into the credit facility. The credit facility, expiring May 10, 2001, contains certain financial and operational covenants, which include the maintenance of various financial ratios, and restrictions on liens and dividend payments. Note 7. Derivative Financial Instruments Gold contracts outstanding at June 30, 2000 were as follows:

5 The put options are the minimum price Battle Mountain will receive, while the call options, having a higher price, allow participation in a rising gold market. All ounces sold through the forwards will be at the stated prices. The above derivatives have no margin requirements nor do they subject Battle Mountain to lease rate exposure. The above ounces represent between 3% and 46% of estimated production for each period from June 30, 2000 through March 31, 2004, with a weighted average of approximately 20% of total estimated production for those periods combined. During the six months ended June 30, 2000, Battle Mountain delivered or financially settled put options for 44,376 ounces of gold at an average price of $314 per ounce and forward sales contracts for 9,376 ounces of gold at an average price of $316 per ounce. No such settlements were made during the same period in 1999. Put options for 6,250 ounces and call options for 78,626 ounces of gold expired during the first six months of 2000. The estimated fair value of put and call options outstanding at June 30, 2000, net, was $0.1 million. The estimated fair value of the forwards outstanding at June 30, 2000 was $(0.5) million. In addition to the aforementioned gold contracts outstanding, as part of its overall financial planning, Battle Mountain Canada had committed to deliver 45,000 ounces of gold valued at approximately $13.2 million at an average price of $294 per ounce pursuant to pricing provisions as set forth in certain customer forward sales contracts outstanding as of June 30, 2000. This gold was on deposit at a refinery. All such contracts mature on or before February 28, 2001. From time to time, Battle Mountain Canada also enters into gold leasing transactions prior to delivery of gold held in inventory related to these commitments. Battle Mountain, at times, is a party to these leasing transactions and will sell the leased gold into the spot market. Whenever a spot sale of this type is made, a forward purchase contract is entered into to assure delivery of the gold at the end of the lease. Battle Mountain Canada had lease contracts outstanding with Battle Mountain for 37,500 ounces of gold at June 30, 2000. All such contracts mature on or before February 28, 2001. Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This standard was amended by Accounting Standard No. 137, which deferred the effective date of implementation to the first quarter of fiscal years beginning after June 15, 2000, and also by Accounting Standard No. 138, which contains certain other modifications. Accounting Standard No. 133 requires companies to record derivative financial instruments on the balance sheet as assets or liabilities, as appropriate, at fair value. Gains or losses resulting from changes in the fair values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Battle Mountain is evaluating the impact that implementation of these standards may have on consolidated results of operations, financial position and liquidity. 6 Note 8. Geographic and Segment Information Financial information by segment for the applicable periods presented in the condensed consolidated financial statements follows:

7 Note 9. Other Matters SAN LUIS. Battle Mountain's Annual Report on Form 10-K/A for the year ended December 31, 1999 contained a description of closure and reclamation efforts and technical long-term water quality issues at the San Luis mine in Colorado, which ceased operations in November 1996. In 1998, Battle Mountain provided notice to the requisite regulatory agencies and undertook implementation of a response plan triggered by the identification of elevated levels of naturally occurring constituents detected in a monitoring well located downgradient from the West Pit. The Colorado Mined Land Reclamation Board held a formal public hearing to consider the matter on January 26, 1999 and determined that no violation had occurred and ordered Battle Mountain to implement the response plan. Battle Mountain has received final approval of a technical revision to the facility's permit which sets forth the response measures contemplated for the facility and has implemented all of the approved response measures. On August 20, 1999, the Colorado Department of Public Health and Environment issued a Notice of Violation and Cease and Desist Order to Battle Mountain, alleging discharges to waters not permitted under the Colorado Water Quality Control Act. Battle Mountain filed an Answer to the Notice denying that such a violation has occurred, has commenced treatment and discharge operations as authorized by an October 1999 Amendment of the Notice and is awaiting final approval of a Colorado Discharge Permit System permit for discharges from the long-term operation of a water treatment facility at the site. Battle Mountain has negotiated a settlement with the Colorado Department of Public Health and Environment which, if approved, will resolve the violations alleged in the Notice of Violation. Under applicable law, the settlement agreement will not become final until final imposition of the terms of the agreement by the Colorado Department of Public Health and Environment. It is not possible to predict the nature or scope of any further action that might be taken by regulatory authorities, which actions could include seeking injunctive relief, mandating the posting of additional financial assurances, requiring further on-site response actions and the imposition of additional monetary penalties. Battle Mountain has in place certain environmental and reclamation financial assurances related to the San Luis property and additional financial assurances could be required over time. There can be no guarantee that Battle Mountain will be able to maintain and/or put in place the necessary assurances. An environmental remediation charge of $9.5 million was recorded in the third quarter of 1999 based upon Battle Mountain's best estimate of costs to address technical long-term water quality issues at the San Luis property. It is reasonably possible that this estimate may change in future reporting periods as further information becomes available. OTHER. Battle Mountain is party to a number of other legal actions arising in the ordinary course of business. While the final outcome of these other actions cannot be predicted with certainty, it is the opinion of management that none of these actions when resolved will have a material adverse effect on results of operations, financial position or cash flows. Battle Mountain believes cash requirements over the next twelve months will be funded through a combination of current cash, future cash flows from operations, proceeds from potential asset sales, short-term lines of credit and/or contributions from Newmont following the merger. Significant additional capital will be required in the foreseeable future in order to continue the development of current and future mining projects, including the Phoenix project. Without the merger with Newmont, Battle Mountain's ability to raise capital is highly dependent upon the commercial viability of its projects and the availability of new capital, which in turn is dependent upon the price of gold. Because of continued low gold prices and their effect on Battle Mountain's financial condition, short-term liquidity and our ability to raise additional capital for long-term development projects may be impaired in the absence of the merger with Newmont. In the event that cash balances decline to a level that cannot support planned activities, management will defer planned capital and exploration expenditures as needed to conserve cash. 8 Note 10. Summarized Financial Information The following summarized information of Battle Mountain Canada is presented in accordance with the Securities and Exchange Commission's reporting requirements as they pertain to the Battle Mountain Canada Exchangeable Shares:

Summarized financial information of Lihir follows. Information for the 2000 period is not presented, as the investment in Lihir is classified as marketable securities effective as of the date of the merger of Niugini Mining and Lihir.

9 BATTLE MOUNTAIN GOLD COMPANY SUPPLEMENTAL INFORMATION - (UNAUDITED)(1) (Data reflects BMG attributable interests, except as noted) (Ounces in thousands)

(1) Cash production costs are presented in accordance with guidelines established by The Gold Institute. In addition to mining, milling and plant level general and administrative expenses, cash production costs include royalties, freight, smelting costs and allowances, and production taxes. Credits for by-product silver and copper are offset against these cash production costs. (2) Royalties paid to the Bolivian government for the Kori Kollo mine are treated as income tax for per ounce cost calculations and are therefore not included in these cost calculations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in Battle Mountain's Annual Report on Form 10-K/A for the year ended December 31, 1999 and the unaudited condensed consolidated financial statements and notes preceding this discussion. MERGER ANNOUNCEMENT. On June 21, 2000, Battle Mountain and Newmont Mining Corporation entered into a merger agreement under which Battle Mountain will become a wholly-owned subsidiary of Newmont Mining subject to the satisfaction or waiver of the conditions set forth in the merger agreement. Under the agreement, each of Battle Mountain's 131.9 million shares of common stock and Battle Mountain Canada Ltd.'s 98.0 million exchangeable shares will be exchanged for the right to receive 0.105 shares of Newmont common stock. In addition, each of Battle Mountain's 2.3 million shares of convertible preferred stock will be exchanged for one share of Newmont convertible preferred stock having substantially identical terms and conditions. It is expected that the transaction will be accounted for as a pooling of interests and will be completed in the fall of 2000, following regulatory approvals and approval by Battle Mountain and Battle Mountain Canada shareholders. Noranda Inc., a 28% shareholder of Battle Mountain, has agreed to vote in favor of the merger. Battle Mountain incurred $0.7 million of merger related expenses in the second quarter of 2000. OVERVIEW Low gold prices and foreign currency exchange losses, partially offset by higher production, resulted in net losses of $9.2 million and $12.7 million, respectively, for the three and six month periods ended June 30, 2000. Cash flows from operations increased to $21.2 million for the first six months, compared with $4.7 million for the same period in 1999. Cash and cash equivalents decreased $67.5 million, primarily due to the merger of Niugini Mining and Lihir. Low gold prices, capital expenditures and debt payments also contributed to this decrease. 11 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES. Battle Mountain generated cash flows of $21.2 million from operating activities during the six months ended June 30, 2000 compared with $4.7 million for the same period in 1999. The increase was primarily the result of higher production and improved gold prices. INVESTING ACTIVITIES. Capital expenditures totaled $22.9 million in each of the six month periods ended June 30, 2000 and 1999. Battle Mountain currently expects to invest $40 million to $45 million on capital expenditures in 2000. Niugini Mining and Lihir merged on February 2, 2000. As a result, Battle Mountain, which held a 50.45% interest in Niugini Mining prior to the merger, received 111.3 million shares of Lihir, representing a 9.74% equity interest in Lihir. The effect of the merger on cash and cash equivalents was a decrease of $54.7 million due to the deconsolidation of Niugini Mining. See Note 3 of Notes to Condensed Consolidated Financial Statements in Item 1 for further discussion. In March 1999, an $11.0 million liquidating dividend was paid to Crown Butte Resources Ltd. minority shareholders. FINANCING ACTIVITIES. Battle Mountain made $12.0 million of debt repayments in the first six months of 2000 compared with $39.3 million of debt and short-term borrowing repayments in the same period of 1999. In the first and second quarters of 2000, $10.0 million and $2.0 million, respectively, of the Canadian Imperial Bank of Commerce debt was repaid. These early repayments were required because the market value of the Lihir shares held by Battle Mountain declined to less than the level required by the loan agreement. Further declines in the market value of the shares of Lihir may result in additional principal repayments. A $5.0 million short-term borrowing was made in the second quarter of 2000 with an Australian bank. On July 11, 2000, Battle Mountain established a $10.0 million, variable interest rate-based credit facility with the bank and rolled the existing $5.0 million borrowing into the credit facility. The credit facility, expiring May 10, 2001, contains certain financial and operational covenants, which include the maintenance of various financial ratios, and restrictions on liens and dividend payments. Battle Mountain has an effective registration statement on file with the Securities and Exchange Commission (the "SEC") for the issuance of up to $150.0 million of debt and/or equity securities. As of the date of this report, no securities have been issued nor are there any current plans to issue any securities under this registration statement. Battle Mountain also has registration statements on file with the SEC and regulatory authorities in Canada which qualify for sale the 65.2 million shares of Battle Mountain common stock effectively held by Noranda Inc. Battle Mountain will not receive proceeds from the sales of any shares that may be sold under the registration statements covering the shares held by Noranda. CONCLUSION. Battle Mountain believes cash requirements over the next twelve months will be funded through a combination of current cash, future cash flows from operations, proceeds from potential asset sales, short-term lines of credit and/or contributions from Newmont following the merger. Significant additional capital will be required in the foreseeable future in order to continue the development of current and future mining projects, including the Phoenix project. Without the merger with Newmont, Battle Mountain's ability to raise capital is highly dependent upon the commercial viability of its projects and the availability of new capital, which in turn is dependent upon the price of gold. Because of continued low gold prices and their effect on Battle Mountain's financial condition, short-term liquidity and our ability to raise additional capital for long-term development projects may be impaired in the absence of the merger with Newmont. In the event that cash balances decline to a level that cannot support planned activities, management will defer planned capital and exploration expenditures as needed to conserve cash. 12 RESULTS OF OPERATIONS Battle Mountain recorded net losses to common shares of $9.2 million ($.04 per share) and $12.7 million ($.06 per share) for the three and six month periods ended June 30, 2000. This compares with net losses to common shares of $17.2 million ($.07 per share) and $31.7 million ($.14 per share), respectively, during the same periods in 1999. Higher gold prices and production in 2000 were partially offset by foreign currency exchange losses in 2000, as compared to foreign currency exchange gains in the 1999 periods. The three and six month periods in 1999 included impairment charges to the investment in Lihir of $12.4 million ($9.2 million net of minority interest) and $23.4 million ($20.2 million net of minority interest), respectively.

Sales increased $5.8 million (11%) and $14.5 million, (14%), respectively, in the three and six month periods ended June 30, 2000 compared with the same periods in 1999. These increases were primarily a result of slightly higher gold prices and higher production, primarily at Vera/Nancy due to higher throughput and at Golden Giant due to higher throughput and decreased in-circuit gold inventory. The average realized price of gold increased slightly in 2000 as a result of higher spot gold prices and gains on hedging contracts.

Royalties paid to the Bolivian government for the Kori Kollo mine are treated as income tax for per ounce cost calculations and are therefore not included in these cost calculations. 13 Total production costs increased in the three and six month periods of 2000 compared with the same periods last year, primarily due to increased gold sales due to higher production, mainly at Vera/Nancy. Also contributing to the increase in production costs was the placing of Niugini Mining's San Cristobal mine on care and maintenance effective January 1, 1999, as San Cristobal's revenues were credited against its production costs, resulting in net credits to production costs of $0.6 million and $1.3 million, respectively, for the 1999 periods. Operations of San Cristobal are not included in Battle Mountain's results in 2000 due to the Niugini Mining and Lihir merger. Consolidated per ounce cash costs decreased in 2000, primarily at Golden Giant and Vera/Nancy due to higher production and decreases in the Canadian and Australian dollar exchange rates. Depreciation, depletion and amortization ("DD&A") increased during the six month period in 2000, primarily as a result of higher production. The overall slight decrease in DD&A during the 2000 quarter was mainly the result of lower production at all of the mines except Vera/Nancy, which carries a lower DD&A per ounce amount than the other mines. Exploration, evaluation and other lease costs decreased in 2000 due to planned decreased expenditures and the sale of exploration rights in 2000, partially offset by Crown Jewel expenditures. Effective January 1, 2000, expenditures at the Crown Jewel project are classified as exploration, evaluation and other lease costs. General and administrative expenses decreased during the periods in 2000 due to overall decreased expenditures, including the closure of the Toronto administrative office in late 1999. Interest expense remained constant, while interest income decreased in the periods in 2000 due to lower levels of cash invested. Equity in losses and impairment of Lihir for the three and six month periods ended June 30, 1999 totaled $14.2 million and $26.4 million, respectively. Impairment charges of $12.4 million and $23.4 million, respectively, were recorded in those periods as a result of decreases in the market value of the Lihir shares then held by Niugini Mining. See Note 3 of Notes to Condensed Consolidated Financial Statements in Item 1 for discussion of the Niugini Mining and Lihir merger and the subsequent accounting treatment for changes in the value of the investment in Lihir. Net foreign currency exchange losses totaled $4.4 million and $3.9 million during the three and six month periods ended June 30, 2000, primarily on the U.S. dollar-denominated debt of foreign subsidiaries. This compared with net foreign currency exchange gains of $3.7 million and $6.8 million, respectively, during the same periods in 1999. During the first six months in 2000, the Canadian dollar and Australian dollar exchange rates to the U.S. dollar fell 2% and 9%, respectively. Minority interest in net loss decreased $3.3 million and $3.2 million during the three and six month periods in 2000 compared with 1999 as a result of the minority interest portion of the impairment charges to the investment in Lihir described above. Battle Mountain's provision for income taxes for the three and six months ended June 30, 2000 was $1.9 million and $1.0 million, respectively. The increases in taxes compared with the 1999 periods result from income taxes on Australian earnings from the Vera/Nancy mine and increased earnings of Battle Mountain Canada. Mining taxes decreased in 2000 compared with the same periods in 1999 due to a lower effective tax rate. OTHER See Note 9 of Notes to Condensed Consolidated Financial Statements for a discussion of material contingencies. 14 Various laws require that financial assurances be in place for certain environmental and reclamation obligations and potential liabilities. Battle Mountain has certain environmental and reclamation financial assurances in place and will be required to put additional financial assurances in place in the near future. There can be no guarantee that Battle Mountain will be able to maintain and/or put in place the necessary assurances. Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This standard was amended by Accounting Standard No. 137, which deferred the effective date of implementation to the first quarter of fiscal years beginning after June 15, 2000, and also by Accounting Standard No. 138. See Note 7 of Notes to Condensed Consolidated Financial Statements in Item 1 for further discussion. Unless otherwise discussed below, information about market, foreign currency, interest rate and equity risks for the three month and six month periods ended June 30, 2000 does not differ materially from that discussed under Item 7A of Battle Mountain's Annual Report on Form 10-K/A for the year ended December 31, 1999. See Note 7 of Notes to Condensed Consolidated Financial Statements in Item 1 for discussion of derivative financial instruments. Battle Mountain's profitability is significantly affected by changes in the market price of gold. Gold prices can fluctuate widely and are affected by numerous factors, such as demand, forward selling by producers, central bank gold sales, purchases and lending, currency valuations, investor sentiment and production levels. While Battle Mountain is a low-cost gold producer, a sustained period of low gold prices would have a material adverse effect on results of operations, financial position and cash flows. Substantially all revenues generated during the first six months of 2000 were from mining operations outside the United States, while assets attributable to those operations totaled approximately $272.2 million at June 30, 2000. As a result, Battle Mountain is exposed to risks normally associated with operations located outside the United States, including political, economic, social and labor instabilities, as well as foreign exchange controls, currency fluctuations and taxation changes. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS The U.S. securities laws provide a "safe harbor" for certain forward-looking statements. This report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in such forward-looking statements. Statements regarding the expected commencement dates of mining operations, projected quantities of future production, capital costs, production rates, costs and expenditures, and other operating and financial data are based on expectations that the Company believes are reasonable, but can give no assurance that such expectations will prove to have been correct. Factors that could cause actual results to differ materially include, among others: risks and uncertainties relating to general domestic and international economic and political conditions, the cyclical and volatile prices of gold and silver, political and economic risks associated with foreign operations, unanticipated ground and water conditions, unanticipated grade and geological problems, metallurgical and other processing problems, availability of materials and equipment, the delays in the receipt of or failure to receive necessary governmental permits, the inability to maintain or put in place necessary environmental or reclamation financial assurances, appeals of agency decisions or other litigation, changes in laws or regulations or the interpretation and enforcement thereof, the occurrence of unusual weather or operating conditions, force majeure events, the failure of equipment or processes to operate in accordance with specifications or expectations, labor relations, accidents, delays in anticipated start-up dates, environmental risks and the results of financing efforts and financial market conditions. These and other risk factors are discussed in more detail herein. Many of such factors are beyond Battle Mountain's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. Battle Mountain disclaims any intent or obligations to update these forward-looking statements, whether as a result of new information, future events or otherwise. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Management's Discussion and Analysis of Financial Condition and Results of Operations - "Other" in Item 2 for a discussion. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 20, 1999, the Colorado Department of Public Health and the Environment issued a Notice of Violation and Cease and Desist Order to Battle Mountain, alleging discharges at the San Luis mine to waters not permitted under the Colorado Water Quality Control Act. Battle Mountain filed an Answer to the Notice denying that such a violation had occurred. Battle Mountain has negotiated a settlement with the Colorado Department of Public Health and Environment which, if approved, will resolve the violations alleged in the Notice of Violation. The terms of the settlement are set forth in a Settlement Agreement and Stipulated Order which has been executed by Battle Mountain and the Director of the Colorado Water Quality Control Division. Under applicable law, the Settlement Agreement will not become final until final imposition of the terms of the Agreement by the Colorado Department of Public Health and Environment. See Note 9 of Notes to Condensed Consolidated Financial Statements under Part I for further discussion. On June 22, 2000 and July 10, 2000, putative class action lawsuits, respectively KING V. BATTLE MOUNTAIN GOLD COMPANY, ET AL, and SCHARAN V. BATTLE MOUNTAIN GOLD COMPANY, ET AL, were commenced by different individual purported holders of Battle Mountain common stock against Battle Mountain and its directors and executive officers. The actions were brought on behalf of a putative class consisting of public shareholders of Battle Mountain that held their shares as of June 21, 2000. The complaints in the actions allege, among other things, that the consideration to be paid to holders of Battle Mountain common stock in the proposed merger between Battle Mountain and Newmont Mining Corporation is inadequate and unfair, and that the defendants agreed to the transaction in breach of their fiduciary duties to the public shareholders and in particular, that the defendants failed to adequately consider alternatives to the Newmont transaction. The actions were filed in the District Court of the State of Nevada in and for Clark County. The complaints seek, among other things, injunctive relief against the transaction and damages in an unspecified amount. Battle Mountain believes that the complaints are without merit. Battle Mountain is also party to a number of other legal actions arising in the ordinary course of business. While the final outcome of these other actions cannot be predicted with certainty, it is the opinion of management that none of these actions when resolved will have a material adverse effect on results of operations, financial position or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits *2(a) Agreement and Plan of Merger, dated June 21, 2000, by and among Battle Mountain Gold Company, Newmont Mining Corporation and Bounty Merger Corp. (Exhibit 2.1 to Battle Mountain's Current Report on Form 8-K dated June 21, 2000; File No. 1-9666). *2(b) Arrangement Agreement, dated as of June 21, 2000, made among Battle Mountain Gold Company, Battle Mountain Canada Ltd., Newmont Mining Corporation and Bounty Merger Corp. (Exhibit 2.2 to Battle Mountain's Current Report on Form 8-K dated June 21, 2000; File No. 1-9666). 3 Bylaws of Battle Mountain Gold Company, as amended through June 21, 2000. 16 *4 Amendment No. 4, dated as of June 21, 2000, to the Rights Agreement, dated as of November 10, 1998 (as amended and restated as of July 19, 1996 and as further amended as of November 10, 1998), between Battle Mountain and The Bank of New York (Exhibit 4.2 to Battle Mountain's Current Report on Form 8-K dated June 21, 2000; File No. 1-9666). *10 The Support/Voting Agreement, dated June 21, 2000, among Noranda Inc., Newmont Mining Corporation and Battle Mountain Gold Company (Exhibit 10.1 to Battle Mountain's Current Report on Form 8-K dated June 21, 2000; File No. 1-9666). 11 Computations of Earnings (Loss) per Common Share 27 Financial Data Schedule ----------------- * Incorporated by reference as indicated. (b) Reports on Form 8-K A Current Report on Form 8-K, dated May 1, 2000, was filed containing a first quarter 2000 earnings release issued by Battle Mountain on May 1, 2000. A Current Report on Form 8-K, dated June 23, 2000, was filed containing a merger agreement with Newmont Mining Corporation and certain other related agreements and amendments to Battle Mountain's Bylaws and Rights agreements. 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. BATTLE MOUNTAIN GOLD COMPANY Date: August 8, 2000. /s/ Jeffrey L. Powers ---------------------------------- Jeffrey L. Powers Vice President and Controller (Chief Accounting Officer) 17

BATTLE MOUNTAIN GOLD CO 10-Q