UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
| ¨ | 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 1-33119
ALLIED NEVADA GOLD CORP.
(Exact name of Registrant as specified in its charter)
| | |
| Delaware | | 20-5597115 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
9604 Prototype Court, Reno Nevada 89521
(775) 358-4455
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of Class | | Name of Each Exchange on Which Registered |
| Common Stock, $0.001 Par Value | | American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of voting Common Stock held by non-affiliates as of June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was $127,422,137 based on the last reported sale price of the Common Stock on the American Stock Exchange on that date.
Number of shares outstanding of the registrant’s Common Stock as of March 3, 2008: 42,974,150
Documents Incorporated by Reference:
To the extent specifically referenced in Part III, portions of the registrant’s definitive Proxy Statement on Schedule 14A for the 2008 Annual Meeting of Stockholders are hereby incorporated by reference into this report. See Part III.
TABLE OF CONTENTS
EXPLANATORY NOTES
Formation of Allied Nevada
Initial Corporate Organization
Allied Nevada Gold Corp. commenced operations in May 2007. We were incorporated under the laws of Delaware on September 14, 2006 and until May 10, 2007 we were a wholly-owned subsidiary of Vista Gold Corp., a corporation incorporated under the laws of the Yukon Territory, Canada. Vista is engaged in the evaluation, acquisition, exploration and advancement of gold exploration and potential development projects, with current holdings in California, Idaho and Colorado (and, prior to May 10, 2007, also in Nevada) in the United States, as well as Bolivia, Mexico, Indonesia and Australia.
We commenced our operations on May 10, 2007, following Vista’s transfer to us of its Nevada-based mining properties and related assets, along with cash, and the transfer to us by Carl Pescio and Janet Pescio (the “Pescios”) of their interests in certain Nevada mining properties and related assets. These transfers to us were made in exchange for shares of our common stock and cash, under the terms of an Arrangement and Merger Agreement that we entered into with Vista and the Pescios on September 22, 2006, as amended (the “Arrangement Agreement”) as summarized below. In this document, we sometimes use the terms “Vista Nevada Assets” and “Pescio Nevada Assets” to refer to, respectively, Vista’s Nevada-based mining properties and related assets, and the Pescios’ interests in certain Nevada mining properties and related assets that were transferred to us pursuant to the Arrangement Agreement. We have now begun to conduct our new business of evaluation, acquisition, exploration and advancement of gold exploration and development projects in the state of Nevada. Before the Arrangement Agreement transactions were completed, we had no properties or property interests, were not yet conducting business operations and had no shareholders other than Vista.
Arrangement Agreement
Pursuant to the terms of the Arrangement Agreement, the parties completed a transaction that resulted in Vista’s transfer of the Vista Nevada Assets to Allied Nevada along with cash, and the Pescios’ transfer to Allied Nevada of the Pescio Nevada Assets, all pursuant to an arrangement (which we refer to as the “Arrangement” in this document) under the provisions of theBusiness Corporations Act(Yukon Territory).
Among other things, pursuant to the Arrangement Agreement:
| | • | | Vista reorganized its business to split the Vista Nevada Assets from its other properties and related assets and ensured that all of the Vista Nevada Assets were held by its wholly-owned subsidiary, Vista Gold Holdings Inc. (“Vista U.S.”) or subsidiaries wholly-owned by Vista U.S.; |
| | • | | Vista subsequently transferred all issued and outstanding shares of Vista U.S. and $25 million in cash to Allied Nevada (less approximately $615,000 owed to Vista in connection with loans that Vista made to Vista U.S. pursuant to the Arrangement Agreement, which amount was subsequently reduced to $483,000) in return for the number of shares of Allied Nevada common stock equal to 27,500,000 less the number of Option Shares (as defined in the Plan of Arrangement); and |
| | • | | The Pescios transferred their interests in the Pescio Nevada Assets to Allied Nevada Gold Holdings LLC, a limited liability company incorporated under the laws of Nevada with Allied Nevada as its sole member, in return for 12,000,000 shares of Allied Nevada common stock and $15 million in cash from Allied Nevada. |
As part of the transaction, Vista shareholders exchanged each of their Vista common shares and received, subject to applicable withholding taxes, (i) one new Vista common share and (ii) a pro rata portion of (A) the number of shares of Allied Nevada common stock received by Vista as part of the Arrangement less (B) the number of Allied Nevada shares retained by Vista to facilitate payment of any taxes payable in respect of the
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Arrangement. Holders of Vista options exchanged their options for options to acquire Allied Nevada shares and options to acquire newly created Vista shares, and holders of Vista warrants had their warrants adjusted in accordance with the terms of the warrants.
Accordingly, upon closing of the Arrangement, Allied Nevada issued 38,933,055 shares of common stock as part of the transaction, of which 12,000,000 were issued to the Pescios as partial consideration for the acquisition of the Pescio Nevada Assets and 26,933,055 were issued to Vista in accordance with the Arrangement. Of the 26,933,055 Allied Nevada shares issued to Vista, 25,403,207 shares were distributed to shareholders of Vista, less any applicable withholding taxes, and Vista retained approximately 1,529,848 shares to facilitate the payment of any taxes payable by Vista in respect of the Arrangement. The new common shares of Vista and the shares of Allied Nevada common stock began trading on May 10, 2007, on the AMEX and the TSX.
Also pursuant to the terms of the Arrangement Agreement, Vista transferred $25 million in cash to Allied Nevada in connection with the closing of the Arrangement. Of this amount, Allied Nevada paid $15 million to the Pescios as partial consideration for the acquisition of the Pescio Nevada Assets. Accordingly, our initial working capital was approximately $10 million, less amounts required to pay amounts owing to Vista in connection with loans that Vista made to Vista U.S. pursuant to the Arrangement Agreement. The aggregate loan amount was approximately $483,000. Under the Arrangement Agreement, we agreed to use our commercially reasonable efforts to complete an equity financing of no less than $15 million as soon as practical after closing. On July 16, 2007, we met this requirement with the completion of a non-brokered private placement financing in which we sold and issued a total of 3,696,000 units for total gross proceeds of CDN$17,000,000, or approximately $16.3 million based on the U.S./Canadian dollar exchange rate on the closing date. Each unit consisted of one share of common stock and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one share of common stock of Allied Nevada at any time prior to the close of business on July 16, 2009 at a price of CDN$5.75 per share. We also issued as a finder’s fee 114,850 warrants, each such warrant exercisable for one unit at any time prior to the close of business on July 16, 2009 at an exercise price of CDN$4.60, and paid cash finder’s fees totaling $507,000 to the two entities that served as finders in the private placement financing. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Position, Liquidity and Capital Resources—Financing Activities”.
The issuance of securities by Vista and Allied Nevada to Vista security holders pursuant to the Arrangement was not registered under the Securities Act or the securities laws of any state of the United States and was effected in reliance upon the exemption from registration under the Securities Act provided by Section 3(a)(10) thereof. Section 3(a)(10) of the Securities Act exempts from registration a security that is issued in exchange for outstanding securities where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange have the right to appear, by a court or by a governmental authority expressly authorized by law to grant such approval. The Supreme Court of the Yukon Territory, an authorized court, approved the Arrangement by a Final Order granted on November 29, 2006. The Final Order accordingly constituted a basis for the exemption from the registration requirements of the Securities Act with respect to the issuance of the securities of Vista and Allied Nevada to Vista security holders pursuant to the Arrangement.
Financial Information Included in This Document
This Annual Report on Form 10-K includes financial and other information for the years ended December 31, 2003-2007. Prior to May 10, 2007, we were still a wholly-owned subsidiary of Vista. Consistent with our past filings with the SEC, the financial statements, related discussion and analysis and other financial information in this document were prepared as relates to the subsidiaries of Vista that held Nevada-based mining properties and related assets that were transferred to Allied Nevada as part of the Arrangement. In our filings prior to the completion of the Arrangement, we referred to these subsidiaries as “Vista Gold Corp.—Nevada exploration properties” or “Vista Nevada”. Our financial statements do not include any historical financial
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information on the property interests acquired by Allied Nevada from the Pescios, because that acquisition was considered an asset purchase and not a purchase of a business. Consequently, financial information relating to the property interests acquired from the Pescios is not incorporated into these statements. This assessment is based on the fact that no separate entity was acquired but rather a group of interests in mineral properties assembled over time by the Pescios. Accordingly, the financial statements for periods prior to the completion of the Arrangement as presented in this Annual Report on Form 10-K are those of Vista Nevada, as so termed, and are not indicative of results of operations of Allied Nevada as it is now constituted.
For further information concerning financial information included in this document, please see “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes to Consolidated Financial Statements—Note 1.
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FORWARD-LOOKING STATEMENTS
We make “forward-looking statements” in “Part I—Item 1. Business”, “Part I—Item 1A. Risk Factors”, “Part I—Item 2. Properties”, “Part I.—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” sections and elsewhere throughout this Annual Report on Form 10-K. All statements, other than statements of historical facts, included in this Annual Report on Form 10-K and in press releases and public statements by our officers or representatives, that address activities, events or developments that management of Allied Nevada expects or anticipates will or may occur in the future, are forward-looking statements, including but not limited to such things as future business strategy, plans and goals, competitive strengths, expansion and growth of our business, plans for reactivation of the Hycroft Brimstone Open Pit Mine (which we also refer to as the “Hycroft Mine” in this Annual Report on Form 10-K) including anticipated scheduling and production estimates and duration of production, as well as estimated capital and other costs, technical risks associated with the Hycroft reactivation project, timing of reclamation bond approval, the availability of outside contractors, including a mining contractor or the availability of a mining fleet to complete the pre-strip, scheduling and results of exploration drilling programs currently underway at Hycroft, current estimates of oxide gold reserves and mineralized material, potential for upgrading and expanding oxide gold reserves and mineralized material and extension of life of the oxide project, results of evaluation of underlying sulfide mineralization at Hycroft and current estimates of sulfide gold mineralized material, plans for metallurgical testing of the sulfide material, scheduling and results of planned pre-feasibility study to evaluate the sulfide project, plans for expansion of the Hycroft drilling program, estimates of mining, processing, and general and administrative costs if production is resumed at Hycroft, anticipated strip ratio and recovery rates at Hycroft, future gold prices, availability and timing of capital for financing the planned reactivation of the Hycroft Mine, anticipated cash flows, estimates of internal rates of return, net present value and payback period for capital costs, if production is resumed, estimated completion dates, estimated exploration and other expenditures, estimated royalty payments, operations, proven or probable reserves, mineralized material, current working capital and cash operating costs.
The words “estimate”, “plan”, “anticipate”, “expect”, “intend”, “believe” “target”, “budget”, “may”, “schedule” and similar words or expressions identify forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause our actual results, performance or achievements, including anticipated scheduling and production estimates in connection with our proposed reactivation of the Hycroft Mine, to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on current expectations. The anticipated timing and cost of reactivation of the Hycroft Mine as well as the expected production from the mine are based on the following assumptions: capital cost estimates are based on recent estimates of construction and mining costs. These estimates were developed by independent consultants and Allied personnel. Production estimates are based upon the actual gold recovery achieved on Brimstone ores. Ore tonnage estimates and gold grades are based on the mine plans and production schedules developed by an independent consultant. Although our management believes that its expectations are based on reasonable assumptions, we can give no assurance that these expectations will prove correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others:
| | • | | Business-related risks including: |
| | • | | Risks related to our status as a newly formed independent company and our lack of operating history; |
| | • | | Risks relating to the planned reactivation of the Hycroft Brimstone Open Pit Mine including: |
| | • | | risks of delays in receipt of reclamation bond approval and delays in completion of construction; |
| | • | | uncertainties relating to availability and timing of capital for financing the planned reactivation; |
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| | • | | risks relating to availability of outside contractors including a mining contractor or the availability of a mining fleet to complete the pre-strip; |
| | • | | risks of shortages of equipment or supplies; |
| | • | | uncertainties relating to obtaining approvals and permits from governmental regulatory authorities including timing of required reclamation bond approval; and |
| | • | | risks of inability to achieve anticipated production volume or manage cost increases; |
| | • | | Risks that our acquisition, exploration and evaluation activities will not be commercially successful; |
| | • | | Risks relating to fluctuations in the price of gold; |
| | • | | The inherently hazardous nature of mining activities; |
| | • | | Uncertainties concerning estimates of reserves and mineralized material; |
| | • | | Uncertainty of being able to raise capital on favorable terms or at all; |
| | • | | Risks relating to intense competition within the mining industry; |
| | • | | Our dependence on outside sources to place mineral properties into production; |
| | • | | Potential effects on our operations of U.S. federal and state governmental regulation, including environmental regulation and permitting requirements; |
| | • | | Risks of significant cost increases; |
| | • | | Uncertainties concerning availability of equipment and supplies; |
| | • | | Risks relating to our dependence on third parties that are responsible for exploration and development on some of our properties; |
| | • | | Risks that we may lose key personnel or fail to attract and retain personnel; |
| | • | | Risks that we may experience difficulty in managing our growth; |
| | • | | Potential challenges to title in our mineral properties; and |
| | • | | Risks that our principal stockholders will be able to exert significant influence over matters submitted to stockholders for approval. |
| | • | | Risks related to our common stock, including: |
| | • | | Potential volatility in the trading price of our common stock; |
| | • | | Risks inherent in accurately valuing our common stock; and |
| | • | | Potential adverse effect of future sales of our common stock on the trading price of our common stock. |
Please see “Part I—Item 1A. Risk Factors” for more information about these and other risks. Potential investors are cautioned against attributing undue certainty to forward-looking statements. Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that our forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in the statements. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
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GLOSSARY
“AMR” means advance minimum royalty.
“AOI” means an area of interest.
“Assay” means to test ores or minerals by chemical or other methods for the purpose of determining the amount of valuable metals contained.
“Breccia” means rock consisting of fragments, more or less angular, in a matrix of finer-grained material or of cementing material.
“Claim” means a mining interest giving its holder the right to prospect, explore for and exploit minerals within a defined area.
“Cut-off grade” means the grade below which mineralized material or ore will be considered waste.
“Deposit” means an informal term for an accumulation of mineral ores.
“Development Stage” project is one which is undergoing preparation of an established commercially mineable deposit for its extraction but which is not yet in production. This stage occurs after completion of a feasibility study.
“Diamond drill” means a rotary type of rock drill that cuts a core of rock and is recovered in long cylindrical sections, two centimeters or more in diameter.
“EIS” means Environmental Impact Statement.
“Exploration Stage” prospect is one which is not in either the development or production stage.
“Fault” means a fracture in rock along which there has been displacement of the two sides parallel to the fracture.
“Heap leach” means a gold extraction method that percolates a cyanide solution through ore heaped on an impervious pad or base.
“Mineralization” means the concentration of metals within a body of rock.
“Mineralized material” is a mineralized body which has been delineated by appropriately spaced drilling and/or underground sampling to support a sufficient tonnage and average grade of metal(s). Such a deposit does not qualify as a reserve, until a comprehensive evaluation based upon unit cost, grade, recoveries, and other material factors conclude legal and economic feasibility.
“NI 43-101” means “National Instrument 43-101—Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators.”
“NSR” means net smelter return royalty.
“opt” means ounces per Ton and one ounce per Ton is equal to 34.2857 grams per Tonne.
“Ore” means material containing minerals that can be economically extracted.
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“Oxide” means mineralized rock in which some of the original minerals have been oxidized (i.e., combined with oxygen). Oxidation tends to make the ore more porous and permits a more complete permeation of cyanide solutions so that minute particles of gold in the interior of the minerals will be more readily dissolved.
“Probable reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
“Production Stage” project is actively engaged in the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product.
“Proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well-established.
“Pulp” means a whole or split portion of a rock or drill sample derived from the crushing process that is pulverized using a ring mill to produce a final pulverized sample for assay. The size of the split to be pulverized is determined according to the tester’s needs and is based upon the pulverizing procedure that is selected. For assay purposes the particle size in the final pulverized sample, the pulp, must meet certain criteria, namely that >85% of the sample be less than 75 microns.
“RCR” means reverse circulation rotary.
“Recovery” means that portion of the metal contained in the ore that is successfully extracted by processing, expressed as a percentage.
“Reserves” or “ore reserves” mean that part of a mineral deposit, which could be economically and legally extracted or produced at the time of the reserve determination.
“Sampling” means selecting a fractional, but representative, part of a mineral deposit for analysis.
“Sediment” means solid material settled from suspension in a liquid.
“Stockwork” means a rock mass interpenetrated by small veins of mineralization.
“Strike”, when used as a noun, means the direction, course or bearing of a vein or rock formation measured on a level surface and, when used as a verb, means to take such direction, course or bearing.
“Strike length” means the longest horizontal dimension of an orebody or zone of mineralization.
“Stripping ratio” means the ratio of waste to ore in an open pit mine.
“Sulfide” means a compound of sulfur and some other element.
“Tailings” means material rejected from a mill after most of the valuable minerals have been extracted.
“Ton” means a short ton (2,000 pounds) and one Ton is equal to 0.907 Tonnes.
“Tonne” means a metric ton (2,204.6 pounds) and one Tonne is equal to 1.1023 Tons.
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“Vein” means a fissure, fault or crack in a rock filled by minerals that have traveled upwards from some deep source.
“Volcaniclastic” means derived by ejection of volcanic material from a volcanic vent.
“Waste” means rock lacking sufficient grade and/or other characteristics of ore.
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PART I
History of Allied Nevada
Allied Nevada Gold Corp. was incorporated under the laws of Delaware on September 14, 2006. Until May 10, 2007 we were a wholly-owned subsidiary of Vista Gold Corp. (“Vista”), a corporation incorporated under the laws of the Yukon Territory, Canada.
We commenced our operations on May 10, 2007, following Vista’s transfer to us of its Nevada-based mining properties and related assets, along with cash, and the transfer to us by Carl Pescio and Janet Pescio, (together, the “Pescios”) of their interests in certain Nevada mining properties and related assets. These transfers to us were made in exchange for shares of our common stock and cash, under the terms of an Arrangement and Merger Agreement that we entered into with Vista and the Pescios on September 22, 2006, as amended (the “Arrangement Agreement”). See “Explanatory Notes—Formation of Allied Nevada—Arrangement Agreement”. In this document, we sometimes use the terms “Vista Nevada Assets” and “Pescio Nevada Assets” to refer to, respectively, Vista’s Nevada based mining properties and related assets, and the Pescios’ interests in certain Nevada mining properties and related assets that were transferred to us pursuant to the Arrangement Agreement. We have now begun to conduct our new business of evaluation, acquisition, exploration and advancement of gold exploration and development projects in the state of Nevada. Before the Arrangement Agreement transactions were completed, we had no properties or property interests, were not yet conducting business operations and had no shareholders other than Vista.
Pursuant to the terms of the Arrangement Agreement, the parties completed a transaction that resulted in Vista’s transfer of the Vista Nevada Assets to Allied Nevada along with cash, and the Pescios’ transfer to Allied Nevada of the Pescio Nevada Assets, all pursuant to an arrangement (which we refer to as the “Arrangement” in this document) under the provisions of theBusiness Corporations Act(Yukon Territory). Allied Nevada issued 38,933,055 shares of common stock as part of the transaction, of which 12,000,000 were issued to the Pescios as partial consideration for the acquisition of the Pescio Nevada Assets and 26,933,055 were issued to Vista in accordance with the Arrangement. Of the 26,933,055 Allied Nevada shares issued to Vista, 25,403,207 shares were distributed to shareholders of Vista, less any applicable withholding taxes, and Vista retained 1,529,848 shares to facilitate the payment of any taxes payable by Vista in respect of the Arrangement. The new common shares of Vista and the shares of Allied Nevada common stock began trading on May 10, 2007, on the American Stock Exchange and the Toronto Stock Exchange.
Of the $25 million in cash received by Allied Nevada in connection with the closing of the Arrangement, Allied Nevada paid $15 million to the Pescios as partial consideration for the acquisition of the Pescio Nevada Assets. Under the Arrangement Agreement, we agreed to use our commercially reasonable efforts to complete an equity financing of no less than $15 million as soon as practical after closing. On July 16, 2007, we met this requirement with the completion of a private equity placement for gross proceeds of approximately $16.3 million. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Position, Liquidity and Financial Resources—Financing Activities”.
General Description of the Business of Allied Nevada
Allied Nevada is engaged in the evaluation, acquisition, exploration and advancement of gold exploration and development projects in the state of Nevada. Our main activities in the near future will focus on the reactivation of our Hycroft Brimstone Open Pit Mine and the exploration drilling program we are currently conducting at Hycroft to increase oxide reserves and to test sulfide gold and silver mineralization. See “—Business Strategy—Hycroft Brimstone Open Pit Mine Reactivation” and “—Hycroft Exploration Drilling Program.” In addition, our management will look for opportunities to improve the value of the gold projects that we own or control through exploration drilling, introducing technological innovations and developing properties into operating mines. We expect that emphasis on gold project acquisition and development will continue in the future.
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We own the Hycroft Brimstone Open Pit Mine, Maverick Springs, Mountain View, Hasbrouck, Three Hills and Wildcat projects, the Nevada properties previously owned by Vista through the acquisition of F.W. Lewis, Inc., and the interests previously held by the Pescios in 58 properties, including royalty and/or other interests in Beowawe, Cobb Creek, Dixie Flats, Dome, Wild Horse, Eden, Elder Creek, NAD, North Carlin, North Mill Creek, Pony Creek and Elliot Dome, Switch and Six Mile, Toy, Tusk, Rock Creek, Santa Renia, South Silver Cloud, Tonka and Woodruff properties. All of these properties are located in Nevada. See “Part I—Item 2. Properties”.
We do not produce gold in commercial quantities and do not expect to generate revenue from this source until the last quarter of 2008 at the earliest. We are currently dependent on cash from our working capital, potential funding from external sources and cash flow from royalty payments received with respect to the interests acquired from the Pescios as part of the Pescio Nevada Assets.
Business Strategy
Our business plan was developed with the overriding goal of maximizing shareholder value through the exploration and development of our mineral properties, utilizing the extensive mining-related background and capabilities of our management and employees, and also through strategic partnerships. To achieve this goal, our business plan focuses on five strategic areas:
| | • | | Hycroft Brimstone Open Pit Mine Reactivation |
| | • | | Hycroft Exploration Drilling Program |
| | • | | Increase of Oxide Reserves |
| | • | | Testing of Sulfide Gold and Silver Mineralization |
| | • | | Advanced Exploration Properties |
| | • | | Other Exploration Properties |
| | • | | Mergers and Acquisitions |
Until we start generating sufficient cash flow from gold production and production royalties, we are dependent on our working capital, funding from external sources and cash from advanced minimum royalty (“AMR”) payments received with respect to interests in certain Nevada-based mining properties acquired as part of the Pescio Nevada Assets.
| | • | | Hycroft Brimstone Open Pit Mine Reactivation |
The Hycroft Brimstone Open Pit Mine, which we also refer to as the “Hycroft Mine” in this Annual Report on Form 10-K, is located 54 miles west of Winnemucca, Nevada along the border of Humboldt and Pershing Counties, and covers approximately 25,320 acres of mineral rights. On September 11, 2007 our Board of Directors approved the proposal to restart the operations at the Hycroft Mine. The Hycroft reactivation project involves reopening the Hycroft Brimstone Open Pit Mine which was in production from 1994 until 1998. In 1998, the Hycroft Mine was closed and put on a care and maintenance program due to low gold prices.
While in production the Brimstone deposit contributed 175,000 ounces of gold production to the Hycroft total production of approximately one million ounces of gold. The Hycroft Mine is expected to produce 375,000 ounces of gold over its first five years of operation. Allied Nevada anticipates that an updated reserve calculation estimate for the Hycroft Mine will be completed in the second half of 2008. The start-up expenditures required to attain this production in 2008 are expected to be approximately $26.6 million, of which $22.3 million would be spent on over-burden pre-stripping and leach pad construction. Assuming that the requisite financing is obtained, virtually all of these funds are expected to be spent in 2008, with a target of achieving production in the fourth quarter of 2008.
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We anticipate that, as the Hycroft Mine reaches scheduled production levels, the project will eventually generate significant cash flow towards funding the planned programs of Allied Nevada.
See “Part I—Item 2. Properties—Development Properties—Hycroft Brimstone Open Pit Mine—Planned Reactivation of Mine”.
| | • | | Hycroft Exploration Drilling Program |
Increase of Oxide Reserves
One of the objectives of the Hycroft exploration drilling program is to confirm and expand the existing oxide reserves on the Hycroft property.
Allied Nevada has begun an oxide ore reserve delineation program at Hycroft. The drill program is designed with the goal of increasing the current proven and probable ore reserves. This drill program includes the drilling of 70 holes to a depth of approximately 300 to 400 feet. The planned holes are located immediately west of the Hycroft Brimstone Open Pit Mine. The drilling program is scheduled for completion in the first half of 2008 and management anticipates that the revised oxide ore reserves would be announced in the second half of 2008.
Testing of Sulfide Gold and Silver Mineralization
The second objective of the Hycroft exploration drilling program is to test the economic viability of the sulfide gold and silver mineralization on the Hycroft property. The sulfide exploration program started in late August 2007 with one reverse circulation drill and has been expanded to three reverse circulation drills and three core drills. Allied Nevada has drilled approximately 51,000 feet in 2007. We expect to drill approximately 30,000 feet per month in the first quarter of 2008.
Between 1985 and 1999, a total of 3,123 exploration drill holes were drilled, totaling 943,822 feet. These historical Hycroft drill hole and assay databases are being reviewed to determine if a sulfide gold resource can be defined through the historic drilling. The databases will also be used to guide the sulfide and oxide drilling programs. Based on the data analyzed to date, the drill programs will be concentrated in and around the existing pits for the first half of 2008 to determine the thickness and grade of the sulfides exposed in the pits and to increase the oxide reserves. Diamond drilling in 2007 was designed to test the extensions of sulfide zones out from the existing pits, as indicated by geophysical studies that we completed in 2007. This program will continue as part of the exploration program during the last half of 2008.
The distribution of silver mineralization across the Hycroft property is not fully understood because historic drill holes were not assayed for the silver. Pulp samples from approximately 200 historic holes, distributed throughout the property, are in the process of being assayed for silver and gold.
Results of the Hycroft induced polarization geophysical survey completed in late October 2007 are being evaluated. High chargeability zones were seen to continue south and north from the Central Fault and East Fault (Brimstone) zones, and underlie other parts of the property. The survey was designed to better define the higher concentrations of sulfides within the greater sulfide envelope underlying the property.
Upon completion of the 2008 sulfide exploration drill program, Allied Nevada intends to revise the sulfide mineralized material calculation estimate. We plan to start metallurgical test work during 2008. This test work will focus on estimating gold and silver recovery that could be obtained from the sulfide material.
Management intends to continue exploration drilling on the sulfide system in 2009. We plan to conduct metallurgical testing as well as additional engineering work in 2009. We intend to complete a pre-feasibility study evaluating the economic viability of the sulfide project and anticipate completion of the study in 2010.
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Any expansion of the Hycroft Mine necessary to exploit any additional reserves that may be established through our Hycroft exploration drilling program that are not located within our current mine plan, will require us to obtain all permits, approvals and consents of regulatory agencies responsible for the use and development of mines in Nevada.
For further discussions concerning these programs, see “Part I—Item 2. Properties—Development Properties—Hycroft Brimstone Open Pit Mine—Hycroft Exploration Drilling Program”.
| | • | | Advanced Exploration Properties |
Our Advanced Exploration Properties portfolio consists of five advanced properties (Maverick Springs, Mountain View, Hasbrouck, Three Hills and Wildcat). Evaluation of these properties will be completed to determine each property’s economic potential. Based on this evaluation, future exploration programs will be developed to advance the most prospective properties towards a development decision.
For further discussions concerning our advanced exploration properties, please see information concerning each property under “Part I—Item 2. Properties”.
| | • | | Other Exploration Properties |
Our Other Exploration Properties comprise 109 earlier-stage exploration properties. We are currently conducting a number of activities in connection with our earlier-stage exploration properties. The evaluation of over 20 property groups in the Battle Mountain segment of the Battle Mountain/Eureka Trend is nearing completion and evaluation has begun of the various properties in the Walker Lane lineament. The evaluation includes compilation of all geologic data and land information for the properties in a geological information system data base.
During 2007, an additional 307 unpatented mining claims were staked in the Contact (Salmon River) base metal/silver and gold district, located in northeast Elko County. The new unpatented claims are contiguous to our 110 patented claims in the district as well as contiguous to patented and unpatented claims held by International Enexco Ltd. Data is being compiled and a field evaluation involving mapping and sampling is planned to better understand the economic potential of the district.
| | • | | Mergers and Acquisitions |
We routinely review merger and acquisition opportunities. An appropriate merger and acquisition opportunity must be accretive to the overall value of Allied Nevada. Our primary focus will be on those opportunities involving precious metal production or near-term production with a secondary focus on other resource-based opportunities. Potential acquisition targets would include private and public companies or individual properties. Although our preference would be for candidates located in the United States, Allied Nevada will consider opportunities located in other countries where the geopolitical risk is acceptable.
Employees
Allied Nevada has thirteen employees, of whom six are currently employed at the Hycroft Brimstone Open Pit Mine. Allied Nevada uses consultants with specific skills to assist with various aspects of its project evaluation drill program management, due diligence, acquisition initiatives, corporate governance and property management. If we complete our planned reactivation of the Hycroft Mine as currently proposed, we anticipate that our total workforce will be approximately 70 persons at the time of reactivation. See “Part I—Item 2. Properties—Development Properties—Hycroft Brimstone Open Pit Mine—Planned Reactivation of Mine”.
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Competition
Allied Nevada competes with other mining companies in connection with the acquisition of gold properties. There is competition for the limited number of gold acquisition opportunities, some of which is with companies having substantially greater financial resources than Allied Nevada. As a result, Allied Nevada may have difficulty acquiring attractive gold projects at reasonable prices.
Management of Allied Nevada believes that no single company has sufficient market power to affect the price or supply of gold in the world market.
Please see “Part I—Item 1A. Risk Factors—Risks Relating to Our Company—We face intense competition in the mining industry”, for additional discussion related to our current and potential competition.
Government Regulation of Mining-Related Activities
Property Interests and Mining Claims
Our exploration activities are conducted in the state of Nevada. Mineral interests may be owned in this state by (a) the United States, (b) the state itself, or (c) private parties. Where prospective mineral properties are owned by private parties, or by the state, some type of property acquisition agreement is necessary in order for Allied Nevada to explore or develop such property. Generally, these agreements take the form of long term mineral leases under which we acquire the right to explore and develop the property in exchange for periodic cash payments during the exploration and development phase and a royalty, usually expressed as a percentage of gross production or net profits derived from the leased properties if and when mines on the properties are brought into production. Other forms of acquisition agreements are exploration agreements coupled with options to purchase and joint venture agreements. Where prospective mineral properties are held by the United States, mineral rights may be acquired through the location of unpatented mineral claims upon unappropriated federal land. If the statutory requirements for the location of a mining claim are met, the locator obtains a valid possessory right to develop and produce minerals from the claim. The right can be freely transferred and, provided that the locator is able to prove the discovery of locatable minerals on the claims, is protected against appropriation by the government without just compensation. The claim locator also acquires the right to obtain a patent or fee title to his claim from the federal government upon compliance with certain additional procedures.
Mining claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims are self-initiated and self-maintained and therefore, possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of the public real estate records and, therefore, it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. If the validity of a patented mining claim is challenged by the BLM or the U.S. Forest Service on the grounds that mineralization has not been demonstrated, the claimant has the burden of proving the present economic feasibility of mining minerals located thereon. Such a challenge might be raised when a patent application is submitted or when the government seeks to include the land in an area to be dedicated to another use.
Reclamation
We generally are required to mitigate long-term environmental impacts by stabilizing, contouring, resloping and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts will be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies.
Allied Nevada’s principal reclamation liability is at the Hycroft Mine. On December 28, 2006, Vista put in place a new bond of $7.5 million through its insurance backed financial assurance program that includes a mine
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reclamation policy and a pollution legal liability policy, which is expected to cover anticipated reclamation costs for the existing disturbance at the Hycroft Mine. The estimated additional bond costs for future activities have been calculated at $3 million.
Government Regulation
Mining operations and exploration activities are subject to various national, state, provincial and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We have obtained or have pending applications for those licenses, permits or other authorizations currently required to conduct our exploration and other programs. We believe that Allied Nevada is in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in Nevada and the United States and in any other jurisdiction in which we will operate. We are not aware of any current orders or directions relating to Allied Nevada with respect to the foregoing laws and regulations.
Environmental Regulation
Our gold projects are subject to various federal and state laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. It is our policy to conduct business in a way that safeguards public health and the environment. We believe that Allied Nevada’s operations are and will be conducted in material compliance with applicable laws and regulations.
Changes to current state or federal laws and regulations in Nevada, where we operate currently, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.
During 2006 and 2007, there were no material environmental incidents or non-compliance with any applicable environmental regulations on the properties now held by Allied Nevada. Allied Nevada did not incur material capital expenditures for environmental control facilities during 2006 or 2007.
An investment in our common stock involves a high degree of risk. The risks described below are not the only ones facing us or otherwise associated with an investment in our common stock. Additional risks not presently known to us or which we currently consider immaterial may also adversely affect our business. We have attempted to identify the major factors under the heading “Risk Factors” that could cause differences between actual and planned or expected results, and we have included these material risk factors. If any of the following risks actually happen, our business, financial condition and operating results could be materially adversely affected. In this case, the trading price of our common stock could decline, and you could lose part or all of your investment. See “Forward-Looking Statements” above.
Risks Relating to Our Company
We are at an early stage of development and have minimal operating history as an independent company. Our future revenues and profits are uncertain.
We are an exploration-stage venture with minimal operating history as an independent company. We were incorporated in September 2006 and commenced operations in May 2007 with properties and other mineral assets formerly held by Vista and the Pescios. See “Explanatory Notes—Formation of Allied Nevada”. None of these properties is currently producing gold in commercial quantities and there can be no assurance that these properties, or others that may be acquired by us in the future, will produce gold in commercial quantities or
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otherwise generate operating earnings. Although our properties include the Hycroft Mine, operations at the Hycroft Mine were suspended in December 1998, and the site was placed on care and maintenance and remains at this status today. As discussed in this Annual Report on Form 10-K, our Board of Directors recently approved the reactivation of the Hycroft Brimstone Open Pit Mine, and we have started planning and conducting activities for the proposed reactivation. Even if we re-commence mining activities at the Hycroft Mine or commence development activity on other properties, we may continue to incur losses beyond the period of commencement of such activity. There is no certainty that we will produce revenue, operate profitably or provide a return on investment in the future. If we are unable to generate revenues or profits, investors might not be able to realize returns on their investment in our common stock or keep from losing their investment. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
The reactivation of the Hycroft Brimstone Open Pit Mine is subject to risks including delays in completion and we may be unable to achieve anticipated production volume or manage cost increases.
Completion of the reactivation of our Hycroft Mine is subject to various factors, including the availability and performance of our engineering and construction contractors, mining contractors, suppliers and consultants and receipt of required governmental approvals. Any delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which we depend, or delay or failure to receive required governmental approvals, could delay or prevent the reactivation of the Hycroft Mine as currently planned. There can be no assurance:
| | • | | when or whether the Hycroft Mine will be reactivated and start-up will re-commence; |
| | • | | that we will be able to timely obtain sufficient funds to finance reactivation and development activities; |
| | • | | that available personnel and equipment will be available to us, including availability of a mining contractor to complete the prestrip and availability of a contractor to construct the leach pad; |
| | • | | that we will timely obtain necessary reclamation bond approvals; |
| | • | | whether the resulting operations will achieve the anticipated production volume; or |
| | • | | that the reactivation costs and ongoing operating costs associated with the development of the Hycroft Mine will not be higher than anticipated. |
Although most of our executive management team has experience in developing and operating mines, Allied Nevada, as a newly-formed independent company, has never developed or operated a mine or managed a significant mine development project. We cannot assure you that the reactivation of the Hycroft Mine will be completed at the cost and on the schedule predicted, or that gold grades and recoveries, production rates or anticipated capital or operating costs will be achieved.
Although we believe that we will be able to obtain sufficient funds to complete the reactivation of the Hycroft Mine we cannot provide assurance of this. Furthermore, if the actual cost to complete the project is significantly higher than currently expected, there can be no assurance that we will have sufficient funds to cover these costs or that we will be able to obtain alternative sources of financing to cover these costs. Unexpected cost increases, reduced gold prices or the failure to obtain necessary additional financing on acceptable terms to complete the reactivation of the Hycroft Mine on a timely basis, or to achieve anticipated production capacity, could have a material adverse effect on our future results of operations, financial condition and cash flows.
We cannot be certain that our acquisition, exploration and evaluation activities will be commercially successful.
Although we have recently commenced activities in connection with our planned reactivation of the Hycroft Mine, we currently have no properties that produce gold in commercial quantities. Substantial expenditures are required to acquire existing gold properties, to establish ore reserves through drilling and analysis, to develop metallurgical processes to extract metal from the ore and, in the case of new properties, to develop the mining
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and processing facilities and infrastructure at any site chosen for mining. We cannot provide assurance that any gold reserves or mineralized material acquired or discovered will be in sufficient quantities to justify commercial operations or that the funds required for development can be obtained on a timely basis. Whether income will result from the Hycroft Mine depends on the successful re-establishment of mining operations. Factors including costs, actual mineralization, consistency and reliability of ore grades and commodity prices affect successful project development. The reactivation and efficient operation of processing facilities, the existence of competent operational management and prudent financial administration, as well as the availability and reliability of appropriately skilled and experienced consultants also can affect successful project development which, in turn, could have a material adverse effect on our future results of operations.
The price of gold is subject to fluctuations, which could adversely affect the realizable value of our assets and potential future results of operations and cash flow.
Our principal assets are gold reserves and mineralized material. We intend to attempt to acquire additional properties containing gold reserves and mineralized material. The price that we pay to acquire these properties will be, in large part, influenced by the price of gold at the time of the acquisition. Our potential future revenues are expected to be, in large part, derived from the mining and sale of gold from these properties or from the outright sale or joint venture of some of these properties. The value of these gold reserves and mineralized material, and the value of any potential gold production therefrom, will vary in proportion to variations in gold prices. The price of gold has fluctuated widely, and is affected by numerous factors beyond our control, including, but not limited to, international, economic and political trends, expectations of inflation, currency exchange fluctuations, central bank activities, interest rates, global or regional consumption patterns and speculative activities. The effect of these factors on the price of gold, and therefore the economic viability of any of our projects, cannot accurately be predicted. Any drop in the price of gold would adversely affect our asset values, cash flows, potential revenues and profits.
Mining exploration, development and operating activities are inherently hazardous.
Mineral exploration involves many risks that even a combination of experience, knowledge and careful evaluation may not be able to overcome. Operations in which we have direct or indirect interests will be subject to all the hazards and risks normally incidental to exploration, development and production of gold and other metals, any of which could result in work stoppages, damage to property and possible environmental damage. The nature of these risks is such that liabilities might exceed any liability insurance policy limits. It is also possible that the liabilities and hazards might not be insurable, or, that we could elect not to insure Allied Nevada against such liabilities due to high premium costs or other reasons, in which event, we could incur significant costs that could have a material adverse effect on our financial condition.
Reserve calculations are estimates only, subject to uncertainty due to factors including metal prices, inherent variability of the ore and recoverability of metal in the mining process.
There is a degree of uncertainty attributable to the calculation of reserves and corresponding grades dedicated to future production. Until reserves are actually mined and processed, the quantity of ore and grades must be considered as an estimate only. In addition, the quantity of reserves and ore may vary depending on metal prices. Any material change in the quantity of reserves, mineralization, grade or stripping ratio may affect the economic viability of our properties. In addition, there can be no assurance that gold recoveries or other metal recoveries in small-scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production.
We may be unable to raise additional capital on favorable terms.
The exploration and development of our development properties, specifically our planned reactivation of the Hycroft Mine and other construction of mining facilities and commencement of mining operations, will require substantial additional financing. Significant capital investment is required to achieve commercial production
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from each non-producing property. We will have to raise additional funds from external sources in order to reactivate the Hycroft Mine, maintain and advance our existing property positions and to acquire new gold projects. There can be no assurance that additional financing will be available at all or on acceptable terms and, if additional financing is not available to us, we may have to substantially reduce or cease operations.
We face intense competition in the mining industry.
The mining industry is intensely competitive in all of its phases. As a result of this competition, some of which is with large established mining companies with substantial capabilities and with greater financial and technical resources than ours, we may be unable to acquire additional attractive mining claims or financing on terms we consider acceptable. This, in turn, may adversely affect our financial condition and our future results of operations. We also compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for qualified employees, our exploration and development programs may be slowed down or suspended. In addition, we compete with other gold companies for capital. If we are unable to raise sufficient capital, our exploration and development programs may be jeopardized or we may not be able to acquire, develop or operate gold projects.
We will depend on outside sources to place our mineral deposit properties into production.
Our ability to place our properties into production will be dependent upon using the services of appropriately experienced personnel or contractors and purchasing equipment, or entering into agreements with other major resource companies that can provide such expertise or equipment. There can be no assurance that we will have available to us the necessary expertise or equipment when and if we place our mineral deposit properties into production. If we are unable to successfully retain such expertise and equipment, our development and growth could be significantly curtailed.
In connection with the planned reactivation of our Hycroft Mine, important requirements for us to achieve gold production as currently scheduled include the availability of a mining contractor or the availability of a mining fleet to complete the prestrip. There can be no assurance that these contractors will be available to us on a timely basis or on terms acceptable to our management. If we are unable to secure such contractors, our development and growth could be significantly curtailed.
Our operations are subject to numerous governmental permits which are difficult to obtain and we may not be able to obtain or renew all of the permits we require, or such permits may not be timely obtained or renewed.
In the ordinary course of business we are required to obtain and renew governmental permits for our operations, including the reactivation, operation and expansion of the Hycroft Mine. Obtaining or renewing the necessary governmental permits is a complex and time-consuming process involving costly undertakings by Allied Nevada. The duration and success of our efforts to obtain and renew permits are contingent upon many variables not within our control including the interpretation of applicable requirements implemented by the permitting authority. We may not be able to obtain or renew permits that are necessary to our operations, or the cost to obtain or renew permits may exceed our estimates. Failure to comply with applicable environmental and health and safety laws and regulations may result in injunctions, fines, suspension or revocation or permits and other penalties. There can be no assurance that we have been or will at all times be in full compliance with all such laws and regulations and with our environmental and health and safety permits or that we have all required permits. The costs and delays associated with compliance with these laws, regulations and permits and with the permitting process could stop us from proceeding with the operation or development of the Hycroft Mine or increase the costs of development or production and may materially adversely affect our business, results of operations or financial condition.
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Our exploration and development operations are subject to environmental regulations, which could result in the incurrence of additional costs and operational delays.
All phases of our operations are subject to environmental regulation. Environmental legislation is evolving in some countries or jurisdictions in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect our projects. We will be subject to environmental regulations with respect to our properties in Nevada, under applicable federal and state laws and regulations. In connection with the planned reactivation of our Hycroft Mine, we will be dependent upon receipt of environmental approvals including reclamation bond approval, the timing of which will be critical to our ability to restart production as currently scheduled.
Our properties in Nevada occupy private and public lands. The public lands include unpatented mining claims on lands administered by the U.S. Bureau of Land Management (BLM) Nevada State Office. These claims are governed by the laws and regulations of the U.S. federal government and the state of Nevada.
U.S. Federal Laws
The BLM requires that mining operations on lands subject to its regulation obtain an approved plan of operations subject to environmental impact evaluation under the U.S. National Environmental Policy Act. Any significant modifications to the plan of operations may require the completion of an environmental assessment or Environmental Impact Statement prior to approval. Mining companies must post a bond or other surety to guarantee the cost of post-mining reclamation. These requirements could add significant additional cost and delays to any mining project Allied Nevada undertakes.
Under the U.S. Resource Conservation and Recovery Act, mining companies may incur costs for generating, transporting, treating, storing, or disposing of hazardous waste, as well as for closure and post-closure maintenance once they have completed mining activities on a property. Our mining operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, storage facilities, and the use of mobile sources such as trucks and heavy construction equipment which are subject to review, monitoring and/or control requirements under the Federal Clean Air Act and state air quality laws. Permitting rules may impose limitations on our production levels or create additional capital expenditures in order to comply with the rules.
The U.S. Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA) imposes strict joint and several liability on parties associated with releases or threats of releases of hazardous substances. The groups who could be found liable include, among others, the current owners and operators of facilities which release hazardous substances into the environment and past owners and operators of properties who owned such properties at the time the disposal of the hazardous substances occurred. This liability could include the cost of removal or remediation of the release and damages for injury to the surrounding property. We cannot predict the potential for future CERCLA liability with respect to our properties.
Nevada Laws
At the state level, mining operations in Nevada are also regulated by the Nevada Department of Conservation and Natural Resources, Division of Environmental Protection. Nevada state law requires the Hycroft Mine to hold Nevada Water Pollution Control Permits, which dictate operating controls and closure and post-closure requirements directed at protecting surface and ground water. In addition, we are required to hold Nevada Reclamation Permits required under NRS 519A.010 through 519A.170. These permits mandate concurrent and post-mining reclamation of mines and require the posting of reclamation bonds sufficient to guarantee the cost of mine reclamation. Other Nevada regulations govern operating and design standards for the
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construction and operation of any source of air contamination and landfill operations. Any changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for example, required changes to operating constraints, technical criteria, fees or surety requirements.
Legislation has been proposed that would significantly affect the mining industry.
Members of the U.S. Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law of 1872. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on unpatented mining claims. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Although it is impossible to predict at this point what any legislated royalties might be, enactment could adversely affect the potential for development of such mining claims and the economics of existing operating mines on federal unpatented mining claims. Passage of such legislation could adversely affect our financial performance.
Increased costs could affect our financial condition.
We anticipate that costs at the Hycroft Mine, as well as other properties that we may explore or develop, will frequently be subject to variation from one year to the next due to a number of factors, such as changing ore grade, metallurgy and revisions to mine plans in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities such as fuel and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. A material increase in costs at any significant location could have a significant effect on our profitability.
A shortage of equipment and supplies could adversely affect our ability to operate our business.
We are dependent on various supplies and equipment to carry out our mining exploration and development operations. The shortage of such supplies, equipment and parts could have a material adverse effect on our ability to carry out our operations and therefore limit or increase the cost of production.
We are dependent on third parties that are responsible for exploration and development on some of our properties.
Our success may be dependent on the efforts and expertise of third parties with whom we have contracted. A large number of the properties in which Allied Nevada holds interests are subject to third party contracts. Third parties are responsible for exploration and discovery with respect to certain of Allied Nevada’s mineral properties and related assets. Such third parties are not under Allied Nevada’s control or direction. We are dependent on such third parties for accurate information with respect to our mining properties and related assets and the progress and development of such properties and assets. The third parties control the time of exploration and, if warranted, the development of certain of Allied Nevada’s mining properties and related assets. A third party may be in default of its agreement with Allied Nevada, without our knowledge, which may put the property and related assets at risk.
If we lose key personnel or are unable to attract and retain additional personnel, we may be unable to establish and develop our business.
Our development in the future will be highly dependent on the efforts of key management employees, namely, Robert Buchan, our Executive Chairman, Scott Caldwell, our President and Chief Executive Officer, Hal Kirby, our Vice President and Chief Financial Officer, Mike Doyle, our Vice President of Technical Services, and Rick Russell, our Vice President of Exploration, and other key employees that we hire in the future. Although we have entered into employment agreements with key employees, except for Robert Buchan, as determined by Allied Nevada, we do not have and currently have no plans to obtain key man insurance with
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respect to any of our key employees. As well, we will need to recruit and retain other qualified managerial and technical employees to build and maintain our operations. If we are unable to successfully recruit and retain such persons, our development and growth could be significantly curtailed.
Our lack of operating experience may cause us difficulty in managing our growth.
As a newly-independent entity, Allied Nevada is establishing operating procedures for evaluating, acquiring and developing properties, and negotiating, establishing and maintaining strategic relationships. Our ability to manage our growth, if any, will require us to improve and expand our management and our operational and financial systems and controls. If our management is unable to manage growth effectively, our business and financial condition would be materially harmed. In addition, if rapid growth occurs, it may strain our operational, managerial and financial resources.
There may be challenges to our title to our mineral properties.
Our U.S. mineral properties consist of private mineral rights, leases covering state and private lands, leases of patented mining claims, and unpatented mining claims. Many of our mining properties in the U.S. are unpatented mining claims to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper posting and marking of boundaries and possible conflicts with other claims not determinable from descriptions of record. Since a substantial portion of all mineral exploration, development and mining in the U.S. now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry.
The present status of our unpatented mining claims located on public lands allows us the exclusive right to mine and remove valuable minerals, such as precious and base metals. We also are allowed to use the surface of the land solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the U.S. We remain at risk that the mining claims may be forfeited either to the U.S. or to rival private claimants due to failure to comply with statutory requirements.
There may be challenges to title to the mineral properties in which we hold a material interest. If there are title defects with respect to any properties, we might be required to compensate other persons or perhaps reduce our interest in the affected property. Also, in any such case, the investigation and resolution of title issues would divert our management’s time from ongoing exploration and development programs.
Our principal stockholders will be able to exert significant influence over matters submitted to stockholders for approval, which could delay or prevent a change in corporate control or result in the entrenchment of management or the board of directors, possibly conflicting with the interests of our other stockholders.
Carl and Janet Pescio own approximately 21.6% of the issued and outstanding shares of Allied Nevada. In addition to being a major stockholder, Mr. Pescio is a director of Allied Nevada. Because of the Pescios’ major shareholding and Mr. Pescio’s position on the Allied Nevada Board, the Pescios could exert significant influence in determining the outcome of corporate actions requiring stockholder approval and otherwise control our business. This control could have the effect of delaying or preventing a change in control of us or entrenching our management or the board of directors, which could conflict with the interests of our other stockholders and, consequently, could adversely affect the market price of our common stock.
If we fail to comply with the Sarbanes-Oxley Act of 2002, our business may be adversely affected.
As a new reporting company under the Securities Exchange Act of 1934 (the “Exchange Act”), we are subject to certain provisions of the Sarbanes-Oxley Act of 2002. This Act, and related rules and regulations adopted by the SEC and stock exchanges, affects corporate governance, securities disclosure, compliance
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practices, disclosure controls and procedures, and financial reporting and accounting systems. Section 404 of the Sarbanes-Oxley Act of 2002, for example, requires companies subject to the reporting requirements of the United States securities laws to do a comprehensive evaluation of their internal controls over financial reporting. Beginning with our Annual Report on Form 10-K for the year ending December 31, 2009, we will need to document and test our internal control procedures, our management will need to assess and report on our internal control over financial reporting and our independent accountants will need to issue an opinion on the effectiveness of those controls. If we fail to comply with Section 404 when we are required to comply, or if we or our independent auditors identify issues in our compliance with requirements relating to internal controls, we may be prevented from providing the required financial information in a timely manner (which could materially and adversely impact our business, financial condition and the trading price of our common stock), or be prevented from otherwise complying with the standards applicable to Allied Nevada as a public company, which could subject us to adverse regulatory consequences.
Some of our directors may have conflicts of interest as a result of their involvement with other natural resource companies.
Some of our directors are directors or officers of other natural resource or mining-related companies, or may be involved in related pursuits that could present conflicts of interest with their roles at Allied Nevada. Robert Buchan is Chairman of Extract Resources Limited and a director of Quest Capital Corp. W. Durand Eppler is CEO and a director of Coal International PLC, a director of Vista, a director of Augusta Resource Corporation and director and non-executive Chairman of NEMI Northern Energy & Mining Inc. Terry M. Palmer is a director of Apex Silver Mines Limited. Michael B. Richings is Executive Chairman and Chief Executive Officer and a director of Vista and is a director of Zaruma Resources Inc., which holds interests in mining properties. John Ivany is a director of Breakwater Resources Ltd. Cameron Mingay is a director of Silver Bear Resources Inc. Robert G. Wardell is Vice-President, Finance and Chief Financial Officer of Victory Nickel Inc. and a director of Katanga Mining Limited. Carl Pescio is a director of Tornado Gold International Corp. As well, Mr. Pescio may pursue ventures with mining properties other than those held by Allied Nevada. As a condition to completion of the Arrangement, Mr. Pescio entered into non-competition and professional service agreements with us. See “Part III – Item 13. Certain Relationships and Related Transactions, and Director Independence—Transactions with Promoters”. These associations may give rise to conflicts of interest from time to time. In the event that any such conflict of interest arises, a director who has such a conflict is required to disclose the conflict to a meeting of the directors of the company in question and to abstain from voting for or against approval of any matter in which such director may have a conflict. In appropriate cases, we will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict.
Risks Relating to Our Common Stock
Our common stock has only recently begun trading and the market price of our shares may fluctuate widely.
Our common stock only began trading in May 2007 and there can be no assurance that an active trading market for Allied Nevada common stock will develop or be sustained in the future. We cannot predict the prices at which Allied Nevada common stock may trade. The market price of the common stock may fluctuate widely, depending upon many factors, some of which may be beyond the control of Allied Nevada including, but not limited to, fluctuations in the price of gold; announcements by us or competitors of significant acquisitions or dispositions; and overall market fluctuations and general economic conditions. Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.
Investors may be unable to accurately value our common stock.
Investors often value companies based on the stock prices and results of operations of other comparable companies. Currently, no other public gold exploration company exists that is directly comparable to our size and scale. Further, the Pescios’ assets had previously been privately held. Prospective investors, therefore, have
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limited historical information about certain of the properties held by Allied Nevada upon which to base an evaluation of Allied Nevada’s performance and prospects and an investment in our common stock. As such, investors may find it difficult to accurately value our common stock, which may cause the common stock price to trade in a range that does not reflect Allied Nevada’s true value.
Future sales of our common stock in the public or private markets could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.
Future sales of substantial amounts of our common stock or equity-related securities in the public or private markets, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. As of March 4, 2008, 42,974,150 shares of our common stock were outstanding, of which 25,403,207 were issued to Vista shareholders pursuant to the Arrangement in reliance on the exemption from registration under the Securities Act pursuant to Section 3(a)(10) thereof and are freely transferable by persons other than affiliates of Allied Nevada or Vista without restriction or registration under the Securities Act and 1,529,848 shares were retained by Vista to facilitate payment of taxes by Vista. As well, 12,000,000 shares were issued to the Pescios who subsequently transferred an aggregate of 2,700,000 of those shares to two transferees. The Allied Nevada shares held by the Pescios and their transferees are “restricted securities” within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including an exemption contained in Rule 144 under the Securities Act. We were obligated to register 35% of these shares, or 4,200,000, for resale and accordingly filed with the SEC a registration statement on Form S-1 to register those shares for resale. The registration statement was declared effective by the SEC on August 7, 2007. With that registration statement we also registered for resale 3,696,000 shares of common stock that we issued in July 2007 as part of a private placement of 3,696,000 units, each comprised of one share of common stock and one common share purchase warrant. We also agreed to register for resale the shares issuable on warrant exercise at a later date and we also plan to register for resale an aggregate of 229,700 shares underlying the finder warrants we issued as partial compensation to one of the finders in the transaction. We cannot predict the effect, if any, that future sales of our common stock, or the availability of our shares for future sale, will have on the trading price of our common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock. We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases. Our Board of Directors retains the discretion to change this policy.
| Item 1B. | Unresolved Staff Comments |
None.
We classify our mineral properties into three categories: “Development Properties”, “Advanced Exploration Properties”, and “Other Exploration Properties”. Development Properties are properties where a decision to develop the property into a producing mine has been made. We currently have one Development Property, namely the Hycroft Brimstone Open Pit Mine as discussed below. Advanced Exploration Properties are those properties where we retain a significant ownership interest or joint venture and where there has been sufficient drilling and analysis to identify and report proven and probable reserves or other mineralized material. Other Exploration Properties are those that do not fall into the other categories. Please see below for information about our Development Properties, Advanced Exploration Properties and Other Exploration Properties.
14
Other than the Hycroft Brimstone Open Pit Mine, we cannot be certain that any mineral deposits will be discovered in sufficient quantities and grade to justify commercial operations. Whether a mineral deposit will be commercially viable depends on a number of factors, including the particular attributes of the deposit; metal prices, which are highly cyclical; the cost to extract and process the mineralized material; and government regulations and permitting requirements. We may be unable to upgrade our mineralized material to proven and probable reserves in sufficient quantities to justify commercial operations and we may not be able to raise sufficient capital to develop our properties.Estimates of reserves and mineralization herein are subject to the effect of changes in metal prices, and to the risks inherent in mining and processing operations.
We acquired our properties as part of the Arrangement. See “Business—History of Allied Nevada” for further information.
Development Properties
Technical Report
The information that follows relating to the Hycroft Brimstone Open Pit Mine (other than the information under the heading “Hycroft Exploration Drilling Program”) is derived, for the most part, from, and in some instances is an extract from, the technical report dated January 16, 2008 (the “Hycroft Technical Report”) authored by Scott Wilson, C.P.G. of Scott E. Wilson Consulting, Inc. (“Wilson Consulting”) in respect of the Hycroft Mine and its reactivation. At the time of the preparation of the Hycroft Technical Report, Mr. Wilson was independent of the Company and was a “qualified person”, as that term is defined in NI 43-101.
Portions of the following information are based on assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the Hycroft Technical Report which has been filed with certain Canadian securities regulatory authorities pursuant to NI 43-101 and is available for review at www.sedar.com. Alternatively, a copy of the Hycroft Technical Report may be inspected during distribution of the Shares being offered under this Prospectus and for 30 days thereafter during normal business hours at Allied Nevada’s head office and at the offices of Allied Nevada’s Canadian legal counsel, Cassels Brock & Blackwell LLP.
Hycroft Brimstone Open Pit Mine
We currently have one Development Property, the Hycroft Brimstone Open Pit Mine, which we also refer to as the “Hycroft Mine” in this prospectus. This mine and related facilities are located 54 miles west of Winnemucca, Nevada. Winnemucca (population 15,000) is a commercial community on Interstate 80, 164 miles northeast of Reno, Nevada. The town is served by a transcontinental railroad and has a small airport. Access to the Hycroft Mine from Winnemucca, Nevada is by means of State Road No. 49 (Jungo Road), a good-quality, unpaved road. Access is also possible from Imlay and from Lovelock by dirt roads intersecting Interstate 80. There is access to adequate supplies of water and power. In the past, the majority of employees lived in the Winnemucca area.
The mine is situated on the eastern edge of the Black Rock Desert and on the western flank of the Kamma Mountains between Winnemucca and Gerlach, Nevada. There are no streams, rivers, or major lakes in the general area. Elevations in the mine area range between 4,500 and 5,500 ft above sea level.
The climate of the region is arid, with precipitation averaging 7.6 inches per year. Temperatures during the summer range from 50°F to 90°F and winter temperatures range from 20°F to 40°F.
One small and two large open pit operations comprise the Hycroft Mine. The Hycroft Mine was formally known as the Crofoot Lewis open pit mine. Mining began in the area in 1983 with a small heap-leach operation known as the Lewis mine. Lewis mine production was followed by production from the Crofoot property in the
15
Bay, South Central, Boneyard, Gap and Cut 4 pits along the Central fault, and finally the north end of the Brimstone pit and continued until it was halted in December 1998 due to low gold prices of below $300 per ounce.
The Lewis mine was acquired by Vista in early 1987 from F.W. Lewis, Inc. and the Crofoot mine was acquired by Vista in April 1988. The leasehold interest in the Lewis property was purchased by Vista on December 13, 2005 in consideration of the payment of $5.1 million and the elimination of the 5% NSR royalty on gold and 7.5% NSR royalty on silver produced from the property.
The Crofoot property was originally held under two leases and is now owned by Allied Nevada subject to a 4% net profits interest retained by the former owners. All advance royalty payments are credited against the 4% net profits royalty.
The Hycroft Mine produced over one million ounces of gold from the commencement of mining operations in 1987, until the operations were suspended, as a result of low gold prices in December of 1998.
Gold production from the leaching and rinsing of the heap leach pads, continued in 2000 and 2001. In 2002, 2003, 2004 and 2005, the amount of gold recovered was not material. The mine is currently on care and maintenance.
Geology and Ore Reserves
The Hycroft Brimstone Open Pit Mine is located on the western flank of the Kamma Mountains. The deposit is hosted in a volcanic eruptive breccia and conglomerates associated with the Tertiary Kamma Mountain volcanics. The volcanics are mainly acidic to intermediate tuffs, flows and coarse volcaniclastic rocks. Fragments of these units dominate the clasts in the eruptive breccia. Volcanic rocks have been block-faulted by dominant north-trending structures, which have affected the distribution of alteration and mineralization. The Central Fault and East Fault control the distribution of mineralization and subsequent oxidation. A post-mineral range-front fault separates the orebody from the adjacent Pleistocene Lahontan Lake sediments in the Black Rock Desert. The geological events have created a physical setting ideally suited to the open-pit, heap-leach mining operation at the Hycroft Mine. The heap leach method is widely used in the southwestern United States and allows the economical treatment of oxidized low-grade ore deposits in large volumes.
The known gold mineralization within the Crofoot and Lewis properties extends for a distance of three miles in a north-south direction by 1.5 miles in an east-west direction. Mineralization extends to a depth of less than 330 feet in the outcropping to near-outcropping portion of the deposit on the northwest side to over 990 feet in the Brimstone deposit in the east. Not all the mineralization is oxidized and the depth of oxide ore varies considerably over the area of mineralization.
The Crofoot and Lewis properties together comprise approximately 12,230 acres. An additional 13,090 acres of ground were staked by Vista in the fall of 2006 around and contiguous to the original Crofoot and Lewis properties. The Crofoot property, originally held under lease, is owned by Hycroft Resources & Development, Inc. subject to a 4% net profits interest retained by the former owners, and covers approximately 3,544 acres. The Lewis property, which virtually surrounds the Crofoot property, covers approximately 8,686 acres and was purchased by Vista as part of the acquisition of F.W. Lewis, Inc. in December 2005. The mine is accessible by road and has access to adequate supplies of water and power.
Planned Reactivation of Mine
Our Board of Directors approved the reactivation of the Hycroft Brimstone Open Pit Mine in September 2007, and the Hycroft Technical Report was commissioned to assess the costs of reactivation in light of current market conditions. Once reactivated, the Hycroft Mine is expected to produce 375,000 ounces of gold over its
16
first five years of operation. Gold production is targeted to begin in the fourth quarter of 2008 and is estimated to average 95,000 ounces per year from 2009-2011, and 82,000ounces in 2012.
Wilson Consulting issued the Hycroft Technical Report on January 16, 2008, in accordance with NI 43-101 guidelines. The report and verification of the data employed in the report was undertaken under the supervision of Mr. Scott Wilson, C.P.G., a “qualified person” under NI 43-101 independent of Allied Nevada.
The scope of the Hycroft Technical Report included a review of pertinent technical reports and data in possession of Allied Nevada relative to the general setting, geology, project history, exploration activities and results, methodology, quality assurance, interpretations, and the resource and reserve data. Each scope element was addressed in the context of the company’s target concepts, recent results, and proposed activities.
All of the permits required to reactivate the Hycroft Mine are valid and the revised reclamation bond calculation has been submitted to Federal and State regulatory agencies. Regulatory approval of the revised reclamation bond is expected to be received in the first quarter of 2008. The basic infrastructure required to resume operations is in good condition, including the Merrill Crowe processing plant, maintenance shop, warehouse and the Brimstone heap leach pad. Immediately upon receipt of approval for the revised bonding, leaching of the ore that currently sits the historic Brimstone heap leach pad will begin.
Allied Nevada is evaluating whether to retain a mining contractor or acquire a used mining fleet to conduct to perform its mining operations. We have awarded the design and construction contract for the refinery and the contract for the redesign of the leach pad to provide additional capacity. Work is scheduled to begin under these contracts in the second quarter of this year.
We plan to utilize outside funding sources to provide the necessary capital required to re-open the Hycroft Mine, including the proceeds from the equity offering being made pursuant to this prospectus. Current cash expenditures for the project are being funded by Allied Nevada’s existing working capital. The Company may also rely on other forms of financing including debt financing. On March 3, 2008, the Board of Directors ratified the signing of an indicative letter of intent concerning a proposed CDN$30 million secured bridge credit facility with Quest Holdings Ltd. (“Quest Holdings”). The terms of the facility are not yet final and are subject to the normal due diligence by Quest Holdings and its counsel, the preparation of definitive documentation, the granting of security and such other steps as are usual to transactions of this nature. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Subsequent Events”.
The Hycroft Technical Report indicates approximately $40 million is required to fund the reactivation of the Hycroft Mine, as described below.
| | |
Activity | | Amount of
Net Proceeds
from the
Offering ($) |
Reactivation of Hycroft Brimstone Open Pit Mine | | |
Mining of overburden | | 12,690,000 |
Leach pad construction | | 9,600,000 |
Refinery construction | | 1,000,000 |
Mobile equipment and site repairs | | 1,770,000 |
Other capital expenditures | | 1,540,000 |
| Subtotal: | | 26,600,000 |
| |
Working Capital and Reclamation Bonding in Connection with Reactivation | | |
Reclamation Bonding | | 5,000,000 |
Working Capital | | 8,400,000 |
| TOTAL: | | 40,000,000 |
17
We plan that gold and silver will be produced utilizing a run-of-mine heap leach process and the Merrill Crowe gold recovery plant currently on-site. Selected operating unit rates utilizing a mining contractor for the project are estimated to be:
| | |
Mining cost per ton mined | | $1.52 |
Mining cost per ton of ore processed | | $3.83 |
Processing and other costs per ton of ore processed | | $1.18 |
General and administrative cost per ton of ore processed | | $0.20 |
Life of mine average strip ratio | | 1:52 to 1 |
Life of mine heap leach recovery | | 56.6% |
The estimated pre-tax internal rate of return of the project is 40% with an estimated net present value of $42.8 million, assuming a gold selling price of $650/oz. and a silver selling cost of $12/oz. The payback period for the capital costs is expected to be 41 months from January 1, 2008 without interest.
The Company is also evaluating the purchase of a used mining fleet. If the purchase price for the fleet was $15 million, this would be expected to reduce the unit mining costs by up to 25%.
On January 16, 2008, Allied Nevada announced the following developments related to the planned reactivation of the Hycroft Mine:
Allied Nevada has submitted a revised reclamation bond calculation reflecting the cost to mitigate current and future disturbance at the Hycroft Mine to the appropriate federal and state regulators. Management expects to receive approval of the final reclamation bond calculation in the first quarter of 2008. Promptly following receipt of this approval, Allied Nevada intends to begin leaching of historic mined and placed Brimstone ore. In addition, construction activities will begin in the field as required.
Allied Nevada has awarded the contract to design and construct the new gold and silver refinery to Summit Valley Engineering of Salt Lake City, Utah. The contract for the detailed design and quality assurance and quality control work for the expanded leach pad has been awarded to SRK of Reno, Nevada.
Allied Nevada personnel will operate the process facilities and provide technical, health and safety, environmental and general management support. Our total labor force is expected to be approximately 70 persons if contract mining is utilized. Approximately 140 employees would be required if we purchase our own mining fleet.
The critical constraints to achieving the scheduled gold production schedule include the timing of reclamation bond approval.
Based on historic drill data reviewed by Wilson Consulting, utilizing the guidelines prescribed by NI 43-101, proven and probable mineral reserves were determined within a design pit based on a $450 per ounce gold price employing a Lerchs-Grossman optimization. Gold recovery by heap leach is estimated at 56.6% for both proven and probable reserves.
| | | | | | | | | | |
Category | | Tons | | Oz Au/ton | | Contained ounces Au | | Total Waste tons | | Strip Ratio |
| | | (1000’s) | | | | | | (1000’s) | | |
Mineralized materials* | | 53,000 | | 0.014 | | | | | | |
Proven | | 11,954 | | 0.022 | | 261,000 | | | | |
Probable | | 21,366 | | 0.019 | | 401,800 | | | | |
Totals | | 33,320 | | 0.020 | | 662,800 | | 50,808 | | 1.52 |
| * | Represents the potential gold which would be recovered by using a cyanide process. It differs from a fire assay grade which is the total contained gold including cyanide soluble gold. The cyanide soluble gold varies by material type, but is approximately 70% of the fire assay grades for oxide mineralization. |
18
The sulfide exploration program started in late August 2007 with one reverse circulation drill and was expanded to three reverse circulation drills and three core drills for the remainder of 2007 as part of this program. Allied Nevada drilled approximately 51,000 feet in 2007.
This drill program consists of wide spaced drilling (approximately 500 feet between drill holes) along the entire strike length of the major sulfide zones that are exposed beneath the historic mine workings at the Hycroft Mine. The combined strike length of these zones is over six miles. The current program envisions drilling approximately 150,000 feet. Drilling will be a combination of reverse circulation and core. Samples will be collected and assayed by one of two independent labs.
As of February 28, 2008, one hundred forty-three (143) drill holes have been completed at Hycroft since the program was initiated in August 2007, including 109 reverse circulation drill holes and 34 core holes for a total of 114,847 feet drilled. The holes were drilled to an average depth of approximately 800 feet.
Central Zone
| | | | | | | | | | | | |
Hole | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
opt |
| HY-06-01 | | 490 | | feet of mineralization | | | | | | |
(-50 deg., west) | | 260 | | 360 | | 100 | | 0.019 | | 0.6 | | 0.030 |
| | 395 | | 785 | | 390 | | 0.012 | | 0.1 | | 0.014 |
including | | 445 | | 485 | | 40 | | 0.036 | | 0.7 | | 0.050 |
| | | | | |
| H07R-3075 | | 430 | | feet of mineralization | | | | | | |
(vertical) | | 205 | | 420 | | 215 | | 0.012 | | 0.3 | | 0.017 |
| | 465 | | 540 | | 75 | | 0.019 | | 0.3 | | 0.025 |
| | 1020 | | 1160 | | 140 | | 0.017 | | 0.1 | | 0.020 |
| | | | | |
| H07R-3076 | | 220 | | feet of mineralization | | | | | | |
(-60 deg., west) | | 260 | | 395 | | 135 | | 0.019 | | 1.0 | | 0.037 |
| | 470 | | 500 | | 30 | | 0.013 | | 1.3 | | 0.037 |
| | 985 | | 1040 | | 55 | | 0.018 | | 0.0 | | 0.018 |
| | | | | |
| H07R-3080 | | 80 | | feet of mineralization | | | | | | |
(-75 deg., east) | | 235 | | 315 | | 80 | | 0.03 | | 3.6 | | 0.097 |
| | | | | |
| H07R-3082 | | 65 | | feet of mineralization | | | | | | |
(vertical) | | 380 | | 445 | | 65 | | 0.015 | | 0.2 | | 0.019 |
| | | | | |
| H07R-3085 | | 125 | | feet of mineralization | | | | | | |
(-60 deg., west) | | 345 | | 470 | | 125 | | 0.017 | | 0.1 | | 0.019 |
| | | | | |
| H07D-3086 | | 305 | | feet of mineralization | | | | | | |
(-45 deg., west) | | 295 | | 600 | | 305 | | 0.022 | | 1.3 | | 0.045 |
including | | 425 | | 535 | | 110 | | 0.049 | | 3.3 | | 0.111 |
including | | 445 | | 501.5 | | 56.5 | | 0.085 | | 6.3 | | 0.200 |
| | | | | |
| H07D-3087 | | 240 | | feet of mineralization | | | | | | |
| | 290 | | 315 | | 25 | | 0.016 | | 0.6 | | 0.028 |
| | 435 | | 480 | | 45 | | 0.014 | | 0.5 | | 0.023 |
including | | 445 | | 465 | | 20 | | 0.022 | | 0.7 | | 0.034 |
| | 665 | | 835 | | 170 | | 0.013 | | 0.2 | | 0.017 |
19
| | | | | | | | | | | | |
Hole | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
opt |
| H07R-3088 | | 400 | | feet of mineralization | | | | | | |
(-75 deg., east) | | 115 | | 515 | | 400 | | 0.019 | | 0.2 | | 0.023 |
including | | 115 | | 330 | | 215 | | 0.022 | | 0.3 | | 0.028 |
| | | | | |
| H07R-3092 | | 215 | | feet of mineralization | | | | | | |
(vertical) | | 285 | | 500 | | 215 | | 0.016 | | 0.2 | | 0.020 |
including | | 320 | | 360 | | 40 | | 0.026 | | 0.8 | | 0.040 |
| | | | | |
| H07R-3093 | | 155 | | feet of mineralization | | | | | | |
| | 855 | | 940 | | 85 | | 0.011 | | 0.0 | | 0.012 |
| | 1295 | | 1365 | | 70 | | 0.008 | | 0.2 | | 0.012 |
| | | | | |
| H07R-3095 | | 160 | | feet of mineralization | | | | | | |
(-60 deg., west) | | 890 | | 980 | | 90 | | 0.013 | | 0.1 | | 0.014 |
| | 1080 | | 1150 | | 70 | | 0.013 | | 0.1 | | 0.015 |
| | | |
| H07R-3098 | | 55 | | feet of mineralization | | (premature end due to stuck rods) |
(-75 deg., east) | | 265 | | 320 | | 55 | | 0.038 | | 0.4 | | 0.045 |
| | | | | |
| H07R-3099 | | 360 | | feet of mineralization | | | | | | |
(-70 deg., west) | | 415 | | 710 | | 295 | | 0.012 | | 0.9 | | 0.029 |
including | | 415 | | 475 | | 60 | | 0.021 | | 4.3 | | 0.100 |
| | 990 | | 1055 | | 65 | | 0.014 | | 0.3 | | 0.019 |
| | | | | |
| H07R-3103 | | 120 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 20 | | 140 | | 120 | | 0.020 | | 0.1 | | 0.022 |
| | 20 | | 45 | | 25 | | 0.034 | | 0.1 | | 0.037 |
| | | | | |
| H07R-3105 | | 75 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 75 | | 95 | | 20 | | 0.013 | | 0.3 | | 0.018 |
| | 880 | | 935 | | 55 | | 0.020 | | 0.4 | | 0.027 |
| | | | | |
| H07R-3108 | | 140 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 0 | | 85 | | 85 | | 0.016 | | 0.1 | | 0.018 |
| | 905 | | 960 | | 55 | | 0.018 | | 0.3 | | 0.023 |
| | | | | |
| H07R-3110 | | 415 | | feet of mineralization | | | | | | |
| | 0 | | 80 | | 80 | | 0.014 | | 0.4 | | 0.022 |
| | 650 | | 780 | | 130 | | 0.010 | | 0.2 | | 0.013 |
| | 855 | | 930 | | 75 | | 0.012 | | 0.1 | | 0.014 |
| | 1065 | | 1195 | | 130 | | 0.016 | | 0.3 | | 0.022 |
Including | | 1070 | | 1105 | | 35 | | 0.021 | | 0.6 | | 0.033 |
| | | | | |
| H07R-3112 | | 260 | | feet of mineralization | | | | | | |
| | 35 | | 265 | | 230 | | 0.012 | | 0.2 | | 0.015 |
| | 745 | | 775 | | 30 | | 0.013 | | 0.4 | | 0.021 |
20
Brimstone Zone
| | | | | | | | | | | | |
Hole | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
Opt |
| H07R-3071 | | 885 | | feet of mineralization | | | | | | |
(vertical) | | 130 | | 1015 | | 885 | | 0.017 | | 0.9 | | 0.034 |
including | | 135 | | 515 | | 380 | | 0.024 | | 1.8 | | 0.057 |
| | | | | |
| H07R-3072 | | 735 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 155 | | 180 | | 25 | | 0.014 | | 0 | | 0.014 |
| | 200 | | 215 | | 15 | | 0.044 | | 0 | | 0.044 |
| | 260 | | 955 | | 695 | | 0.019 | | 0.5 | | 0.028 |
| | | | | |
| H07D-3073 | | 200 | | feet of mineralization | | | | | | |
(vertical) | | 260 | | 305 | | 45 | | 0.027 | | 0.0 | | 0.028 |
| | 1005 | | 1060 | | 55 | | 0.014 | | 0.7 | | 0.027 |
| | 1165 | | 1265 | | 100 | | 0.015 | | 0.0 | | 0.015 |
| | | | | |
| H07R-3074 | | 335 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 185 | | 250 | | 65 | | 0.022 | | 1.4 | | 0.048 |
| | 295 | | 330 | | 35 | | 0.029 | | 0.4 | | 0.036 |
| | 380 | | 545 | | 165 | | 0.016 | | 0.3 | | 0.022 |
| | 755 | | 825 | | 70 | | 0.016 | | 0.9 | | 0.033 |
| | | | | |
| H07R-3077 | | 535 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 375 | | 910 | | 535 | | 0.012 | | 0.5 | | 0.021 |
| | | | | |
| H07D-3078 | | 516 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 463 | | 979 | | 516 | | 0.015 | | 0.5 | | 0.023 |
including | | 519 | | 564 | | 45 | | 0.015 | | 2.1 | | 0.055 |
& | | 624 | | 694 | | 70 | | 0.025 | | 0.4 | | 0.033 |
| | | | | |
| H07R-3081 | | 235 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 215 | | 360 | | 145 | | 0.022 | | 0.1 | | 0.024 |
including | | 240 | | 275 | | 35 | | 0.046 | | 0.1 | | 0.048 |
| | 395 | | 485 | | 90 | | 0.021 | | 1.1 | | 0.041 |
| | | | | |
| H07R-3084 | | 180 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 685 | | 795 | | 110 | | 0.013 | | 0.6 | | 0.024 |
| | 890 | | 960 | | 70 | | 0.018 | | 0.1 | | 0.019 |
| | | | |
| H07R-3090 | | no mineralized intercept | | | | | | |
(vertical) | | | | | | | | | | | | |
| | | | | |
| H07R-3091 | | 565 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 305 | | 870 | | 565 | | 0.012 | | 1.2 | | 0.034 |
including | | 570 | | 865 | | 295 | | 0.016 | | 2.3 | | 0.058 |
| | | | |
| H07R-3094 | | no mineralized intercept | | | | | | |
(-60 deg., east) | | | | | | | | | | | | |
21
| | | | | | | | | | | | |
Hole | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
Opt |
| H07R-3096 | | 225 | | feet of mineralization | | | | | | |
(-60 deg., west) | | 400 | | 625 | | 225 | | 0.014 | | 0.5 | | 0.023 |
including | | 440 | | 505 | | 65 | | 0.032 | | 0.9 | | 0.049 |
| | | | | |
| H07R-3102 | | 520 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 205 | | 725 | | 520 | | 0.019 | | 0.3 | | 0.024 |
including | | 215 | | 275 | | 60 | | 0.063 | | 0.0 | | 0.064 |
& | | 340 | | 365 | | 25 | | 0.033 | | 0.4 | | 0.040 |
& | | 570 | | 620 | | 50 | | 0.030 | | 0.3 | | 0.035 |
| | | | | |
| H07R-3104 | | 230 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 0 | | 230 | | 230 | | 0.019 | | 0.5 | | 0.029 |
including | | 65 | | 135 | | 70 | | 0.026 | | 0.6 | | 0.038 |
| | | | | |
| H07R-3107 | | 40 | | feet of mineralization | | | | | | |
(-60 deg., east) | | 40 | | 80 | | 40 | | 0.029 | | 0.3 | | 0.034 |
| | | | | |
| H07R-3113 | | 95 | | feet of mineralization | | | | | | |
| | 210 | | 305 | | 95 | | 0.013 | | 0.4 | | 0.020 |
|
| Brimstone Pit Area |
| | | | | | |
Drill Hole Equivalent | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
opt |
| | | | | |
| H07D-3079 | | 550 | | feet of mineralization | | | | | | |
| | 435 | | 985 | | 550 | | 0.018 | | 0.6 | | 0.030 |
including | | 555 | | 604 | | 49 | | 0.028 | | 1.3 | | 0.053 |
| | | | | |
| H07R-3102 | | 520 | | feet of mineralization | | | | | | |
| | 205 | | 725 | | 520 | | 0.019 | | 0.3 | | 0.024 |
including | | 210 | | 620 | | 410 | | 0.022 | | 0.3 | | 0.027 |
| | | | | |
| H07R-3111 | | 190 | | feet of mineralization | | | | | | |
| | 0 | | 190 | | 190 | | 0.017 | | 0.7 | | 0.030 |
| | | | | |
| H07R-3117 | | 250 | | feet of mineralization | | | | | | |
| | 485 | | 640 | | 155 | | 0.018 | | 0.2 | | 0.022 |
including | | 520 | | 570 | | 50 | | 0.026 | | 0.3 | | 0.031 |
| | 700 | | 795 | | 95 | | 0.019 | | 0.2 | | 0.022 |
| | | | | |
| H07R-3118 | | 250 | | feet of mineralization | | | | | | |
| | 260 | | 510 | | 250 | | 0.029 | | 0.9 | | 0.045 |
including | | 260 | | 280 | | 20 | | 0.075 | | 0.7 | | 0.088 |
| | | | | |
| H07R-3120 | | 170 | | feet of mineralization | | | | | | |
| | 375 | | 480 | | 105 | | 0.009 | | 2.8 | | 0.061 |
| | 540 | | 565 | | 25 | | 0.016 | | 0.8 | | 0.031 |
| | 825 | | 865 | | 40 | | 0.016 | | 0.2 | | 0.020 |
22
| | | | | | | | | | | | |
Hole | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
Opt |
| H07R-3122 | | 360 | | feet of mineralization | | | | | | |
| | 385 | | 745 | | 360 | | 0.015 | | 0.6 | | 0.026 |
including | | 455 | | 485 | | 30 | | 0.019 | | 1.2 | | 0.040 |
| | | | | |
| H08R-3125 | | 250 | | feet of mineralization | | | | | | |
| | 360 | | 460 | | 100 | | 0.013 | | 0.3 | | 0.019 |
| | 500 | | 650 | | 150 | | 0.022 | | 0.2 | | 0.025 |
including | | 610 | | 625 | | 15 | | 0.030 | | 0.4 | | 0.037 |
| | | | | |
| H08R-3123 | | 540 | | feet of mineralization | | | | | | |
| | 390 | | 930 | | 540 | | 0.014 | | 0.5 | | 0.024 |
Including | | 515 | | 535 | | 20 | | 0.034 | | 0.2 | | 0.037 |
& | | 675 | | 705 | | 30 | | 0.018 | | 4.9 | | 0.109 |
& | | 875 | | 925 | | 50 | | 0.019 | | 0.7 | | 0.032 |
| | | | | |
| H08R-3126 | | 330 | | feet of mineralization | | | | | | |
| | 245 | | 575 | | 330 | | 0.022 | | 0.6 | | 0.033 |
Including | | 390 | | 455 | | 65 | | 0.044 | | 1.0 | | 0.063 |
& | | 490 | | 515 | | 25 | | 0.033 | | 1.3 | | 0.058 |
| | | | | |
| H08R-3127 | | 315 | | feet of mineralization | | | | | | |
| | 485 | | 800 | | 315 | | 0.011 | | 0.7 | | 0.024 |
Including | | 695 | | 755 | | 60 | | 0.023 | | 1.4 | | 0.050 |
| | | | | |
| H08R-3128 | | 265 | | feet of mineralization | | | | | | |
| | 435 | | 700 | | 265 | | 0.011 | | 0.5 | | 0.021 |
Including | | 585 | | 610 | | 25 | | 0.020 | | 0.6 | | 0.031 |
& | | 655 | | 700 | | 45 | | 0.012 | | 1.5 | | 0.040 |
| | | | | |
| H08R-3131 | | 425 | | feet of mineralization | | | | | | |
| | 220 | | 645 | | 425 | | 0.021 | | 0.7 | | 0.034 |
Including | | 220 | | 265 | | 45 | | 0.083 | | 0.2 | | 0.086 |
| | | | | |
| H08R-3132 | | 285 | | feet of mineralization | | | | | | |
| | 370 | | 410 | | 40 | | 0.018 | | 0.4 | | 0.026 |
| | 515 | | 760 | | 245 | | 0.011 | | 1.1 | | 0.031 |
Including | | 715 | | 740 | | 25 | | 0.009 | | 2.0 | | 0.047 |
| | | | | |
| H08R-3136 | | 220 | | feet of mineralization | | | | | | |
| | 425 | | 530 | | 105 | | 0.019 | | 0.4 | | 0.026 |
| | 1050 | | 1165 | | 115 | | 0.023 | | 0.4 | | 0.030 |
Including | | 1145 | | 1165 | | 20 | | 0.039 | | 0.6 | | 0.050 |
| | | | | |
| H08R-3137 | | 510 | | feet of mineralization | | | | | | |
| | 230 | | 740 | | 510 | | 0.020 | | 0.9 | | 0.037 |
Including | | 700 | | 735 | | 35 | | 0.019 | | 1.4 | | 0.045 |
23
| | | | | | | | | | | | |
Hole | | From | | To | | Interval | | Au
opt | | Ag opt | | AuEu
Opt |
| H08R-3140 | | 170 | | feet of mineralization | | | | | | |
| | 400 | | 435 | | 35 | | 0.017 | | 0.7 | | 0.030 |
| | 485 | | 585 | | 100 | | 0.015 | | 0.9 | | 0.032 |
| | 640 | | 675 | | 35 | | 0.018 | | 0.1 | | 0.019 |
| | | | | |
| H08R-3148 | | 150 | | feet of mineralization | | | | | | |
| | 420 | | 455 | | 35 | | 0.016 | | 0.1 | | 0.017 |
| | 615 | | 730 | | 115 | | 0.016 | | 2.2 | | 0.056 |
| | | | | |
| H08R-3151 | | 510 | | feet of mineralization | | | | | | |
| | 320 | | 730 | | 410 | | 0.017 | | 0.2 | | 0.021 |
Including | | 340 | | 355 | | 15 | | 0.043 | | 0.1 | | 0.046 |
| | 780 | | 880 | | 100 | | 0.044 | | 0.5 | | 0.053 |
Including | | 805 | | 820 | | 15 | | 0.117 | | 1.1 | | 0.136 |
| | | | | |
| H08R-3154 | | 345 | | feet of mineralization | | | | | | |
| | 305 | | 650 | | 345 | | 0.020 | | 0.2 | | 0.023 |
| | | | | |
| H08R-3157 | | 465 | | feet of mineralization | | | | | | |
| | 235 | | 700 | | 465 | | 0.017 | | 0.4 | | 0.025 |
Including | | 525 | | 585 | | 60 | | 0.031 | | 0.7 | | 0.044 |
|
| Fire Zone |
| | | | | |
| H08R-3135 | | 195 | | feet of mineralization | | | | | | |
| | 640 | | 835 | | 195 | | 0.027 | | 0.2 | | 0.031 |
Including | | 705 | | 720 | | 15 | | 0.067 | | 0.4 | | 0.075 |
| | | | | |
| H08R-3138 | | 215 | | feet of mineralization | | | | | | |
| | 225 | | 440 | | 215 | | 0.022 | | 0.6 | | 0.033 |
Including | | 230 | | 310 | | 80 | | 0.040 | | 1.4 | | 0.065 |
| | | | | |
| H08R-3139 | | 170 | | feet of mineralization | | | | | | |
| | 305 | | 475 | | 170 | | 0.014 | | 0.4 | | 0.022 |
| | | | | |
| H08R-3146 | | 180 | | feet of mineralization | | | | | | |
| | 360 | | 540 | | 180 | | 0.018 | | 0.3 | | 0.024 |
| | | | | |
| H08R-3147 | | 260 | | feet of mineralization | | | | | | |
| | 235 | | 425 | | 190 | | 0.019 | | 0.4 | | 0.027 |
Including | | 245 | | 265 | | 20 | | 0.013 | | 2.0 | | 0.051 |
| | 505 | | 575 | | 70 | | 0.013 | | 0.3 | | 0.020 |
| | | | | |
| H08R-3150 | | 45 | | feet of mineralization | | | | | | |
| | 340 | | 385 | | 45 | | 0.016 | | 0.3 | | 0.022 |
| | | | | |
| H08R-3152 | | 40 | | feet of mineralization | | | | | | |
| | 140 | | 180 | | 40 | | 0.025 | | 0.2 | | 0.029 |
| | | | | |
| H08R-3156 | | 65 | | feet of mineralization | | | | | | |
| | 305 | | 370 | | 65 | | 0.012 | | 0.6 | | 0.022 |
24
The analysis of the current drill results and historical geological information suggests that gold and silver mineralization is hosted along north-south trending zones of approximately 14,000 feet in length. These zones are partially defined laterally by post-mineral faults. The following individual zones, from west to east, currently recognized are: Camel, Cove, Central, Boneyard, Albert, Fire, Brimstone and Foothill. The expanded program is also planned to include further exploration of the Fire, Albert, Boneyard, Cove and Camel zones. There has been historic mine production from the Cove, Central and Brimstone zones. The other zones have been defined by historic drill holes and surface mapping.
Upon completion of a drill hole, the hole is surveyed and then plugged. Rock samples are collected from each of the drills on a daily basis. Samples are transported to one of two independent assay labs for sample preparation and the determination of contained gold and silver values. Over-all management of the drill program, sample collection and assay program is being carried out by Allied Nevada. Qualified independent consultants have reviewed all aspects of the exploration program. Qualified independent consultants will conduct regular reviews of the ongoing exploration program.
Historical Drilling
Approximately 3,100 exploration drill holes were completed and assayed for gold from 1985-1999. These holes were drilled along the known six miles of productive (mineralized) strike length on the Hycroft property. The distribution of silver mineralization, which provides significant value to the drill hole intersections, is not yet fully understood as historic drill holes were not assayed for the silver.
The chart below contains selected historical assay results:
SELECTED HISTORIC ASSAY RESULTS
Hycroft mine—Humboldt & Pershing Counties, Nevada, USA
| | | | | | | | | | | | |
| Hole | | | | From | | To | | Interval, ft. | | Au-FA, opt | | Ag-FA, opt |
| 86-325 | | | | 5 | | 50 | | 45 | | 0.200 | | n/a |
| 86-470 | | | | 0 | | 25 | | 25 | | 0.029 | | n/a |
| 85-109 | | | | 0 | | 108 | | 108 | | 0.027 | | n/a |
| 86-508 | | | | 0 | | 110 | | 110 | | 0.025 | | n/a |
| 85-105 | | | | 0 | | 128 | | 128 | | 0.034 | | n/a |
| 86-502 | | | | 5 | | 75 | | 70 | | 0.033 | | n/a |
| 86-507 | | | | 0 | | 110 | | 110 | | 0.027 | | n/a |
| 85-106 | | | | 0 | | 154 | | 154 | | 0.032 | | n/a |
| 86-403 | | | | 5 | | 120 | | 115 | | 0.023 | | n/a |
| 85-102 | | | | 15 | | 165 | | 150 | | 0.021 | | n/a |
| 86-341 | | | | 10 | | 70 | | 60 | | 0.008 | | n/a |
| 86-341 | | & | | 105 | | 120 | | 15 | | 0.019 | | n/a |
| 85-103 | | | | 15 | | 165 | | 150 | | 0.017 | | n/a |
| 86-364 | | | | 0 | | 120 | | 120 | | 0.022 | | n/a |
| 85-57 | | | | 0 | | 113 | | 113 | | 0.023 | | n/a |
| 85-68 | | | | 0 | | 248 | | 248 | | 0.017 | | n/a |
| 85-138 | | | | 0 | | 183 | | 183 | | 0.021 | | n/a |
| 86-493 | | | | 0 | | 125 | | 125 | | 0.032 | | n/a |
| 85-127 | | | | 3 | | 128 | | 125 | | 0.009 | | n/a |
| 86-394 | | | | 0 | | 160 | | 160 | | 0.014 | | n/a |
| SR-2 | | | | 0 | | 210 | | 210 | | 0.028 | | n/a |
| 86-401 | | | | 0 | | 185 | | 185 | | 0.033 | | n/a |
| 86-399 | | | | 0 | | 110 | | 110 | | 0.044 | | n/a |
| 85-130 | | | | 0 | | 153 | | 153 | | 0.012 | | n/a |
25
| | | | | | | | | | | | |
| Hole | | | | From | | To | | Interval, ft. | | Au-FA, opt | | Ag-FA, opt |
| 86-622 | | | | 30 | | 145 | | 115 | | 0.012 | | n/a |
| 90-1405 | | | | 345 | | 395 | | 50 | | 0.018 | | n/a |
| 90-1485 | | | | 210 | | 425 | | 215 | | 0.024 | | n/a |
| 90-1485 | | including | | 285 | | 320 | | 35 | | 0.080 | | n/a |
| 90-1502 | | | | 405 | | 550 | | 145 | | 0.015 | | n/a |
| 90-1503 | | | | 310 | | 395 | | 85 | | 0.021 | | n/a |
| 90-1503 | | including | | 315 | | 335 | | 20 | | 0.041 | | n/a |
| 90-1520 | | | | 350 | | 490 | | 140 | | 0.011 | | n/a |
| 94-2458 | | | | 297 | | 889 | | 592 | | 0.027 | | 1.1 |
| 95-1556 | | | | 228 | | 256 | | 28 | | 0.026 | | n/a |
| 95-1556 | | & | | 450 | | 666 | | 216 | | 0.011 | | n/a |
| 95-2710 | | | | 310 | | 330 | | 20 | | 0.012 | | n/a |
| 95-2724 | | | | 190 | | 400 | | 210 | | 0.025 | | n/a |
| 95-2724 | | including | | 345 | | 385 | | 40 | | 0.097 | | n/a |
| 95-2726 | | | | 210 | | 400 | | 190 | | 0.043 | | n/a |
| 95-2726 | | including | | 230 | | 315 | | 85 | | 0.073 | | n/a |
| 95-2728 | | | | 240 | | 400 | | 160 | | 0.046 | | n/a |
| 95-2728 | | including | | 365 | | 400 | | 35 | | 0.011 | | n/a |
| 95-2788 | | | | 305 | | 340 | | 35 | | 0.005 | | n/a |
| 95-2808 | | | | 230 | | 400 | | 170 | | 0.008 | | n/a |
| 95-2820 | | | | 255 | | 350 | | 95 | | 0.019 | | n/a |
| 95-2824 | | | | 340 | | 500 | | 160 | | 0.010 | | n/a |
| 95-2826 | | | | 220 | | 430 | | 210 | | 0.023 | | n/a |
| 95-2826 | | including | | 260 | | 325 | | 65 | | 0.035 | | n/a |
| 95-2840 | | | | 210 | | 400 | | 190 | | 0.021 | | n/a |
| 95-2840 | | including | | 340 | | 400 | | 60 | | 0.033 | | n/a |
| 95-2842 | | | | 340 | | 495 | | 155 | | 0.011 | | n/a |
| 95-2825 | | | | 400 | | 440 | | 40 | | 0.011 | | n/a |
| 92-1895 | | | | 135 | | 400 | | 265 | | 0.012 | | n/a |
| R99-1504T | | | | 190 | | 655 | | 465 | | 0.019 | | n/a |
| 90-1504 | | | | 255 | | 600 | | 345 | | 0.017 | | n/a |
| 92-1972 | | | | 200 | | 500 | | 300 | | 0.024 | | n/a |
| D99-1972T | | | | 225 | | 360 | | 135 | | 0.05 | | n/a |
| D99-1972T | | & | | 395 | | 550 | | 155 | | 0.014 | | n/a |
| 92-1950 | | | | 225 | | 425 | | 200 | | 0.027 | | n/a |
| D991950T | | | | 190 | | 390 | | 200 | | 0.021 | | n/a |
| 92-1974 | | | | 240 | | 340 | | 100 | | 0.032 | | n/a |
| 89-1414 | | | | 240 | | 370 | | 130 | | 0.022 | | n/a |
| 92-1952 | | | | 390 | | 525 | | 135 | | 0.009 | | n/a |
| 92-1952 | | & | | 445 | | 525 | | 80 | | 0.011 | | n/a |
| 92-1952 | | & | | 555 | | 605 | | 50 | | 0.011 | | n/a |
| 89-1435 | | | | 245 | | 400 | | 155 | | 0.037 | | n/a |
| 05-3038 | | | | 110 | | 220 | | 110 | | 0.024 | | n/a |
| 05-3038 | | & | | 245 | | 280 | | 35 | | 0.012 | | n/a |
| 92-1945 | | | | 210 | | 250 | | 40 | | 0.016 | | n/a |
| 98-TH20 | | | | 70 | | 90 | | 20 | | 0.005 | | n/a |
| 90-1489 | | | | 155 | | 170 | | 15 | | 0.007 | | n/a |
| 98-TH4 | | | | 20 | | 90 | | 70 | | 0.03 | | n/a |
| 98-TH21 | | | | 40 | | 90 | | 50 | | 0.007 | | n/a |
26
Upon completion of the 2008 sulfide exploration drill program, and the review of the historical data, Allied Nevada intends to revise the sulfide mineralized material calculation estimate. We also plan to start metallurgical test work during 2008. This test work will focus on estimating gold and silver recovery that could be obtained from the sulfide material.
Management intends to continue exploration drilling on the sulfide system in 2009. We plan to conduct metallurgical testing as well as additional engineering work in 2009. We intend to complete a pre-feasibility study evaluating the economic viability of the sulfide project and anticipate completion of the study in 2010.
Any expansion of the Hycroft Mine necessary to exploit any additional reserves that may be established through our Hycroft exploration drilling program that are not located within our current mine plan, will require us to obtain all permits, approvals and consents of regulatory agencies responsible for the use and development of mines in Nevada.
Advanced Exploration Properties
Advanced Exploration Properties are those properties where we retain a significant controlling interest or joint ventureand where there has been sufficient drilling and analysis completed to identify and report reserves or other mineralized material. Allied Nevada currently has five properties in this category: Maverick Springs, Mountain View, Hasbrouck, Three Hills, and Wildcat.
We are currently evaluating these properties to determine how to best advance these projects by increasing the identified mineral resources, improving the quality of these mineral resources, or advancing the project to a development decision.
The following table summarizes material information concerning our Advanced Exploration Properties. The reader is directed to the more comprehensive information about these properties starting immediately following the summary table.
Advanced Exploration Properties
Summary Information
| | | | | | | | | | |
Property Name | | Approximate
Acreage | | Original
Ownership
Interest | | Geology | | Exploration/ Mining History | | Mineralization and Other |
| Maverick Springs | | 4,920 acres | | 45%, subject to underlying royalties and annual lease payments of $100,000 (Allied Nevada’s share is 45%) | | Sediment hosted disseminated gold/silver system. | | Prior exploration and drilling by Vista and Silver Standard Resources Inc. and others. | | Mineralized material is estimated at 69.6 million tons grading 0.01 opt gold and 1.0 opt silver at a silver-equivalent cut-off grade of 1.0 opt silver. Allied Nevada in joint venture with SSRI. |
| | | | | |
| Mountain View | | 2,560 acres | | 50%, with an option to acquire additional 50% by paying $250,000, subject to underlying 1.0% and 1.5% royalties | | Severance rhyolite hosts gold mineralization under cover. | | Previously drilled and explored by others, Vista has drilled on the property. | | Estimated 23.2 million tons of gold mineralized material grading 0.013 opt gold at a cut-off grade of 0.006 opt gold. |
27
| | | | | | | | | | |
Property Name | | Approximate
Acreage | | Original
Ownership
Interest | | Geology | | Exploration/ Mining History | | Mineralization and Other |
| | | | | |
| Hasbrouck | | 1,300 acres | | 100%, subject to underlying 2.0% and 1.5% royalties Newmont can back in for 51%. | | Gold is hosted in volcanics below sinter deposits of an epithermal, hot spring environment. | | Previously explored and drilled by other operators. | | Mineralized material above a cut-off of 0.010 opt gold is estimated at 20.3 million tons grading 0.023 opt gold and 0.32 opt silver. |
| | | | | |
| Three Hills | | 201 acres | | Part of Hasbrouck agreement Newmont can back in for 51%. | | Gold occurs in silicification zone where faults cut the volcanics. | | Previously explored and drilled by other operators. | | Gold mineralized material above a cut-off of 0.01 opt gold is estimated at 5.7 million tons grading 0.023 opt gold. |
| | | | | |
| Wildcat | | 2,580 acres | | 100%, subject to underlying 0.4-1.0% royalties | | Structurally controlled epithermal gold and silver in volcanics. | | Historic small scale mining of veins. Extensively drilled by former operators. | | Mineralized material above a cut-off grade of 0.010 opt gold is estimated at 38.1 million tons grading 0.018 opt gold and 0.16 opt silver. |
Maverick Springs
The Maverick Springs project is located in northeast Nevada at the southeast end of the Carlin Trend belt of gold-silver mineralization, approximately half-way between Elko and Ely, Nevada. The property consists of 246 claims with a total area of approximately 4,920 acres.
On October 7, 2002, Vista completed the acquisition of a 100% interest in the Maverick Springs gold and silver project from Newmont Mining Corporation (“Newmont”) and the Mountain View gold project (described below) from Newmont’s wholly-owned subsidiary Newmont Capital Limited (“Newmont Capital”). To acquire the interest in Maverick Springs, Vista paid cash of $250,000 and issued 141,243 equity units to Newmont, each unit comprised of one Vista share and one two-year Vista warrant. Newmont retained a 1.5% NSR, and on October 7, 2003, Vista issued to Newmont 122,923 Vista shares and 122,923 Vista warrants. All of the foregoing Vista warrants expired unexercised. In addition, pursuant to acquisition agreement terms Vista completed 34,060 feet of drilling as of October 7, 2004, and was required to complete an additional 15,940 feet of drilling before October 7, 2006; such drilling was completed in August 2006. Allied Nevada may terminate this agreement at any time. After October 7, 2006, Newmont had a one-time right to acquire a 51% interest in the Maverick Springs project, by paying to Allied Nevada twice the amount that Allied Nevada and, historically Vista, have spent on the project, including acquisition costs. In the event that Newmont exercises this right, Newmont would relinquish its 1.5% NSR. This one-time right expired 60 days after receipt of data on the property from Allied Nevada, which data was required to be delivered within 30 days of October 7, 2006.In January 2007, Newmont informed Vista that it would not be exercising this right.
Maverick Springs is subject to a lease agreement, between Newmont and Artemis Exploration Company. The lease was entered into on October 1, 2001, and the key terms include: payment of advance minimum royalties of $50,000 on October 1, 2003 (this has been paid) and advance minimum royalties of $100,000 on October 1, 2004 (this has been paid), $100,000 on October 1, 2005 (this has been paid) and each year thereafter
28
while the agreement is in effect; work commitments of 6,400 feet of exploration drilling, on or before October 1 in each of 2002 (extended by agreement to November 15, 2002), 2003 and 2004 (these commitments have been met), a preliminary economic evaluation to be conducted by October 1, 2004 which was extended to April 7, 2005 (this has been completed); and a net smelter returns royalty based on a sliding scale ranging from 2% to 6%, depending on gold and silver prices at the time of production.
On June 9, 2003, Vista entered into an agreement granting Silver Standard Resources Inc. (“SSRI”) an option to acquire its interest in the silver mineralized material hosted in the Maverick Springs project. Allied Nevada, as successor to Vista, will retain its 100% interest in the gold mineralized material. The agreement with SSRI is subject to the terms of the Newmont purchase agreement. Under the agreement, SSRI was to pay $1.5 million over four years, of which $949,823 was paid to Vista in 2003, $428,481 in 2004 and $144,285 in 2005, completing the $1.5 million obligation. Since SSRI has satisfied the $1.5 million obligation, all costs incurred for Maverick Springs are now being shared by the two corporations as stated below. SSRI and Vista formed a committee to jointly manage exploration of the Maverick Springs project. Allied Nevada, as successor to Vista, has a 45% vote on the committee, and SSRI is the operator and has a 55% vote. Since SSRI has completed its $1.5 million in payments, future costs will be shared by SSRI and Allied Nevada on the same ratio as established for operation of the management committee: Allied Nevada 45% / SSRI 55%, subject to standard dilution provisions.
Prior operators have conducted drilling on the Maverick Springs project. In November 2002, Vista completed a 7-hole reverse circulation drill program totalling 7,020 feet on the Maverick Springs project. The program consisted of seven vertical reverse circulation holes, stepped out 500 feet to 2,200 feet from previously identified mineralization. All seven holes encountered flat-lying mineralization, predominantly oxidized to depths of up to 900 feet. The program outlined continuous mineralization in a 2,200-foot by 1,200-foot area, immediately adjacent to known gold-silver mineralization. With additional in-fill drilling, this newly outlined mineralization has the potential to significantly increase the mineralized material.
In October 2003, Vista completed a 16-hole reverse circulation program totalling 14,015 feet, in October 2004, Vista completed a 13-hole reverse circulation program totalling 13,015 feet and in August 2006, Vista completed a 18-hole reverse circulation drill program totalling approximately 16,000 feet. Intercepts indicate the potential for bulk-mineable gold-silver mineralization.
Geology
Maverick Springs can be classified as a Carlin-type or sediment/carbonate hosted disseminated silver-gold deposit. Sediment hosted deposits are common within northern Nevada, although the systems are usually gold dominated with relatively minor amounts of silver. Silver and gold mineralization at Maverick Springs has been interpreted as a roughly antiformal or arch-shaped zone with an axis that plunges shallowly to the south and seems to flatten to horizontal over the northern half of the deposit. The limbs of the arch dip shallowly to moderately at 10-30o to the east and west. Overall, the mineralized zone is elongate in the north-south direction with a length of over 6,000 feet, a width of up to 3,000 feet, and a thickness of commonly 100-300 feet.
Mineralization consists of micron-sized silver and gold with related pyrite, stibnite and arsenic sulfides. It is usually associated with intense fracturing and brecciation, with or without accompanying whole-rock silicification or stockwork quartz.
Alteration consists of pervasive decalcification, weak to intense silicification and weak alunitic argillization. Massive jasperoid is common in surface exposures and in drill core. Oxidation has affected all sulfides on surface and is pervasive to a depth of at least 400 feet, intermittent to 900 feet, and generally absent below 1,000 feet.
Based on a third-party technical study completed on April 13, 2004, by Snowden Mining Industry Consultants of Vancouver, British Columbia, the Maverick Springs project contains approximately 69.6 million tons of mineralized material with an average grade of 0.01 ounces of gold per ton and 1.0 ounce of silver per ton at a silver-equivalent cut-off grade of 1.0 ounce of silver per ton.
29
On July 30, 2006, Snowden Mining Industry Consultants of Vancouver, British Columbia, issued a technical report describing the work done by it previously, and reporting drilling completed in 2004.
Mountain View
The Mountain View property is located in northwest Nevada near the Blackrock Desert. The property is approximately 15 miles northwest of Gerlach, Nevada in Washoe County; it straddles the boundary between the Squaw Valley and Banjo topographic quadrangles. The property currently consists of 128 claims with a total area of approximately 2,560 acres.
Vista’s acquisition of the Mountain View property was completed along with that of the Maverick Springs property, as described above. To acquire the interest in the Mountain View property, Vista paid cash of $50,000 and issued 56,497 equity units, each unit comprised of one Vista share and a two-year Vista warrant, to Newmont Capital, and Newmont Capital retains a 1.5% NSR. All of these Vista warrants expired unexercised. In addition, Vista completed 8,055 feet of drilling before October 7, 2004, as required by the underlying agreement. Allied Nevada may terminate this agreement at any time. After October 7, 2006, Newmont Capital had a one-time right to acquire a 51% interest in the project, by paying to Allied Nevada twice the amount that Allied Nevada, and historically Vista, have spent on the project, including acquisition costs. In the event that Newmont Capital were to exercise this right, Newmont Capital would relinquish its 1.5% NSR. This one-time right expired 60 days after receipt of data on the property from Allied Nevada, which data was required to be delivered within 30 days of October 7, 2006. In January 2007, Newmont Capital informed Vista that it would not be exercising this right.
Newmont Capital’s interest in the Mountain View property is subject to an underlying lease and two other royalty arrangements, the principal terms of which are: the underlying lease grants a 50% interest to Newmont in all claims, with a few exceptions where a 5% interest is granted; and the lessee may purchase the remaining interest in the claims for $250,000 at any time. The lessee is obligated to purchase the remaining 50% for $250,000 on achieving commercial production. Also, the lessee shall pay a 1% NSR during production, with advance minimum payments of $25,000 per year. Advanced royalties are deductible from the net smelter returns royalty and cease upon purchase of the remaining interest of the underlying lease. A 1% NSR also applies to certain other claims.
Prior operators have conducted drilling on the Mountain View property. Vista completed a five-hole reverse circulation program totalling 4,330 feet in November 2003. The results indicate the presence of a new zone of bulk mineralization approximately 200 feet east of the known core of mineralization. Vista completed a five-hole reverse circulation program totalling 4,070 feet in 2004, and the results indicate potential bulk-mineable gold mineralization and the down-dip extension of higher-grade gold mineralization.
Geology
The dominant rock types in the area are Miocene volcanics and interbedded volcaniclastic sediments. Minor greenschist facies Permo-Triassic strata occur to the northeast and a large body of granodiorite makes up the bulk of the Granite Range to the east and south.
The Miocene lithologies consist of mafic tuffs, rhyolite tuffs and flows, volcaniclastic sediments and basalts. These units are separated from the Granite Range to the east by a range front normal fault that dips steeply to the southwest. The Severance deposit is hosted by a unit known as the Severance rhyolite that is sandwiched between the range front fault to the northeast and older Tertiary tuffs, flows and volcaniclastic sediments to the southwest.
Structure on the property is dominated by northwest and northeast trending faults. Major fault offsets occur along the range-front fault system and these are offset by the northeast trending structures. Recent alluvium is offset by the range front faults.
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Based on a third-party technical study completed December 17, 2002, by Snowden Mining Industry Consultants of Vancouver, British Columbia, the Mountain View project contains approximately 23.2 million tons of gold mineralized material with an average grade of 0.013 ounces of gold per ton at a cut-off grade of 0.006 ounces of gold per ton.
On July 31, 2006, Snowden Mining Industry Consultants of Vancouver, British Columbia, issued a technical report describing the work done by it previously, and reporting drilling completed in 2003 and 2004.
Hasbrouck
The Hasbrouck property is located in southwestern Nevada about 5 miles south-southwest of the town of Tonopah in Esmeralda County, Nevada, adjacent to U.S. Highway 95 and approximately half-way between Reno and Las Vegas. The property consists of 22 patented lode mining claims and 61 unpatented lode claims that cover an area of approximately 1,300 acres.
On May 23, 2003, Vista executed a purchase agreement with Newmont Capital, which includes both the Hasbrouck property and the Three Hills property, which lies approximately 4.5 miles to the north-northwest. Terms of the purchase included a $50,000 cash payment on signing and $200,000 or, at Vista’s discretion, the equivalent in Vista shares one year after signing. In June and July 2004, Vista issued to Newmont Capital an aggregate 50,475 Vista shares at a deemed per share price of $3.96. The value of the Vista shares was based on the average AMEX closing price of the Vista shares over the ten-trading-day period ending one day before the first anniversary of the agreement. Newmont Capital, at its option, will retain either: (a) a 2% NSR in each project together with the right to a $500,000 cash payment at the start of commercial production at either project and a further $500,000 cash payment if, after the start of commercial production, the gold price averages $400 per ounce or more for any three-month period; or (b) the right to acquire 51% of either or both projects. The latter right would be exercisable only after the later of four years or the time when Allied Nevada, and historically Vista, have incurred aggregate expenditures of $1.0 million to acquire, explore and hold the projects and would include Newmont Capital paying to Allied Nevada cash equaling 200% of the expenditures made by Allied Nevada, and historically Vista, on the related property. In this event, Newmont Capital would become operator of a joint venture with Allied Nevada, and both parties would fund the project through to a production decision. Allied Nevada’s contribution to the joint venture during this period is capped at $5.0 million, $3.0 million of which Newmont Capital would finance for Allied Nevada and recover, with interest, exclusively from related project cash flows. Allied Nevada would also grant Newmont Capital a right of first offer with respect to subsequent sale of the projects by Allied Nevada. An additional 1.5% NSR on the Hasbrouck property is held by a private party.
Geology
The property is located on Hasbrouck Mountain, which is thought to lie along the western edge of a caldera. The mountain is underlain by gently dipping ash-flow, air-fall and waterlain tuffs and volcaniclastic sediments of the Miocene Siebert Formation. Several occurrences of chalcedonic sinter deposits occur near the summit of the mountain. Gold and silver mineralization in the Hasbrouck deposit appears to have formed relatively close to the paleo-surface in an epithermal, hot spring environment. The mineralization is concentrated in the Siebert Formation, in units stratigraphically below the chalcedonic sinter deposits that are exposed near the top of Hasbrouck Mountain. Two zones of mineralization are presently defined. The “Main” zone includes the bulk of mineralization at Hasbrouck, while the small “South Adit” zone lies 700 to 1000 feet to the south of the “Main” zone.
A third-party technical study was completed for Vista by MDA of Reno, Nevada on August 29, 2003. The Hasbrouck study was developed using data from 54,339 feet of drilling, principally comprised of 105 reverse circulation holes totaling 44,400 feet and 22 rotary drill holes totaling 8,980 feet. The drilling database was compiled from work performed by FMC Gold Co., Cordex Syndicate and Franco Nevada Inc. between 1974 and 1988. Based on this study, mineralized material above a cut-off of 0.010 ounces of gold per ton is 20.3 million tons with an average grade of 0.023 ounces of gold per ton and 0.32 ounces of silver per ton.
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On August 14, 2006, MDA of Reno, Nevada, issued a technical report describing the work done by it previously.
Three Hills
Three Hills is located in southwestern Nevada about 1 mile west of the town of Tonopah in Esmeralda County, Nevada, and about 4.5 miles northwest of the Hasbrouck property described above. Three Hills consists of 15 unpatented lode claims totalling approximately 201 acres.
On May 23, 2003, Vista executed a purchase agreement with Newmont Capital, which included both the Hasbrouck property and the Three Hills property. The terms of this agreement are detailed under the Hasbrouck description above.
Geology
Three Hills is located in the Walker Lane structural domain of the Basin and Range physiographic province. It is in an area of structural disruption resulting from a series of orogenic events occurring in Paleozoic, Mesozoic and Cenozoic times. Basin and Range high-angle normal faults control the mineralization at Three Hills, where they cut the Siebert Formation. Gold mineralization occurs in a zone of pervasive silicification and in the Siebert Formation and the upper 10 to 30 feet of the Fraction Tuff. The contact between these two units contains consistently higher grades of gold and is more commonly argillized than silicified.
MDA of Reno, Nevada, completed a third-party technical study for Vista on August 29, 2003. The Three Hills study included data from 62,874 feet of drilling, comprised of 183 reverse circulation holes totaling 54,657 feet, 45 air-track and rotary holes totaling 6,320 feet and 9 diamond drill holes totaling 1,897 feet. The drilling was completed by Echo Bay Mines Ltd., Eastfield Resources, Saga Exploration and Cordex Syndicate between 1974 and 1996. Based on this study, gold mineralized material above a cut-off of 0.01 ounces of gold per ton was 5.7 million tons with an average grade of 0.023 ounces of gold per ton.
On August 14, 2006, MDA of Reno, Nevada, issued a technical report describing the work done by it previously.
Wildcat
Wildcat is located about 35 miles northwest of Lovelock and 26 miles south of the Hycroft Brimstone Open Pit Mine in Pershing County, Nevada. The project consists of 125 unpatented claims and 4 patented claims, comprising 2.500 acres.
During September and October 2003, Vista concluded due diligence reviews and executed formal purchase agreements to acquire the Wildcat project and the associated exploration data in three separate transactions. On September 23, 2003, Vista purchased 71 unpatented mining claims from Monex Exploration, a partnership, for $200,000 on signing and $300,000 on August 11, 2004. On commencement of commercial production, Allied Nevada will make a one-time production payment in the amount of $500,000. Thirteen of the claims are subject to an underlying 0.4% NSR, and the remaining 58 claims are subject to an underlying 1% NSR.
On October 12, 2003, Vista purchased a 100% interest in the Vernal unpatented mining claim from David C. Mough and Jody Ahlquist Mough for $50,000 on signing and $50,000 on October 1, 2004, for a total consideration of $100,000.
On October 28, 2003, Vista purchased four patented mining claims and exploration data from Sagebrush Exploration, Inc. (“Sagebrush”) for 50,000 Vista Shares issued and delivered to Sagebrush upon the closing
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of the transaction. The four patented claims are subject to an underlying net smelter returns royalty of 1% for gold production between 500,000 and 1,000,000 ounces, increasing to 2% on production in excess of 1,000,000 ounces.
Geology
Wildcat lies in the Seven Troughs Range which is underlain by Triassic and Jurassic sedimentary rocks and has been intruded by Cretaceous granodiorite. Volcanic domes and plugs of rhyolite, quartz latite, trachyte, and andesite have been emplaced by Tertiary volcanism. Tertiary flows of pyroclastic debris, and vitrophyres of rhyolite, quartz latite, trachyte, and andesite composition blanket much of the area. The property contains structurally controlled epithermal gold and silver mineralization identified in four areas: Hero/Tag, Main, Northeast and Knob 32. The four areas have generally similar geology and mineralization with precious metals mineralization spatially associated with the contact between granodiorite and overlying tuff. Gold mineralization occurs with low-temperature silica, chalcedony and pyrite. The Main, Northeast, and Knob 32 deposits appear to be part of the Hero/Tag deposit, though structurally displaced.
The principal low-grade zone that essentially encompassed all the mineralization is tabular and dips gently to the southeast. There appear to be two main styles of mineralization based on mapping, sampling, and statistics. There is a broad, low-grade zone surrounding higher-grade material. The principal host is the tuff in which the low-grade precious metal mineralization is represented by pervasive and intense silicification. The underlying granodiorite also contains a low-grade disseminated style of mineralization with higher grade silicified breccias occurring generally as stockwork within it. Generally, the granodiorite has higher grade and is not silicified. Any silicification is restricted to adjacent veins and veinlets, occasionally being discrete veins as were exploited historically, but also resulting in a large-tonnage stockwork. All of the tuff was altered by epithermal solutions; however, much of the granodiorite is unaltered. High-grade material includes multi-episodic chalcedonic silica veins and breccias.
On November 11, 2003, MDA of Reno, Nevada completed a third-party technical study for Vista. Using data from one underground channel sample, 245 reverse circulation drill holes and 11 diamond drill holes totaling 95,466 feet, gold mineralized material above a cut-off grade of 0.010 ounces of gold per ton was estimated at 38.1 million tons grading 0.018 ounces of gold per ton and 0.16 ounces of silver per ton.
On August 14, 2006, MDA of Reno, Nevada, issued a technical report describing the work done by it previously.
Other Exploration Properties
Other Exploration Properties are those properties that are not Development Properties or Advanced Exploration Properties. In general, these properties either do not have sufficient work completed to identify and report reserves or other mineralized material or we do not have a significant controlling interest or joint venture on the property.
Most of these properties have been optioned and leased to other exploration companies in return for production royalties averaging approximately 2.6% advance minimum royalties and, on some of the properties, work commitments. The contractual royalty payments are planned to be approximately $4 million in 2008 and contribute funding for our exploration, development and other corporate activities. For the properties under lease, the lessee is also responsible for making the land payments including the U. S. Bureau of Land Management (“BLM”) fees and county property tax payments.
The Contact property is one of the more significant properties within this category. Allied Nevada owns wholly or in fractional interest 110 patented claims in the Contact mining district in northeast Elko County, Nevada. We also staked 307 unpatented claims adjacent to the patented claims in early July 2007. The new
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unpatented claims are contiguous to our 110 patented claims in the district as well as contiguous to patented and unpatented claims held by International Enexco Ltd. Data are being compiled and a field evaluation involving mapping and sampling is planned to better understand the economic potential of the district. There are no royalties associated with our ownership of both the patented and unpatented mining claims.
BLM filing fees and county property tax payments were paid for approximately 10,570 unpatented mining claims held by Allied Nevada. We paid the BLM and county fees for approximately 4,970 claims and strategic partners paid the fees for the remaining 5,600 claims.
Discussions have been initiated with various lessees to renegotiate agreements with terms that are in alignment with our corporate exploration objectives.We will pursue other strategic options that could include exploration joint ventures, royalty agreements, or the sale or release of the mineral property.
The following table summarizes material information concerning our Other Exploration Properties. The reader is directed to the more comprehensive information about the Contact and Pony Creek and Elliot Dome/Carlin Trend properties starting immediately following the summary table.
Other Exploration Properties
Summary Information
| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Contact | | 6,140 acres (unpat. claims) | | 100% | | 100% | | 0 | | 0 | | Cu-Au-Ag in skarns along granodiorite contact | | Old mine workings, 1870s and 1950s Phelps Dodge drilled in 1970s. |
| | | | | | | |
| Pony Creek and Elliot Dome/Carlin Trend | | 17,900 acres | | Sold to Mill City along with 8 other Pescio properties, who optioned 60% to Grandview Gold. | | 3% NSR, reducing to 2% if work commitments met and 1% more can then be bought for $1.5 million | | Escalating from $30,000 in 2004 to $100,000 in 2009 and beyond, unless option terminated. | | Grandview to spend $3.5 million by July 31, 2007, 30,000’ of drilling on Pony Creek and Elliot Dome. | | Gold is related to felsite breccias and probably to felsic intrusions into graben faults. | | Newmont explored and drilled 1980-1989, followed by others off and on through present. |
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| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Beowawe/ Cortez-Battle Mt.-Eureka Trend | | 2,000 acres | | 100%, but subject to option to purchase granted to Atna, which in turn optioned 70% to Apollo Gold Energy; Atna has informed Allied Nevada that they do not intend to proceed with purchase. | | 3% NSR | | $75,000 on or before November 6, 2006 and $100,000 on or before November 6 for each subsequent year. | | 8,000’ of drilling | | Volcanics and sediments cross cut by faults, geothermal system with gold, mercury, barite associated with quartz veins and pyritic breccia. | | Old mine workings, 1983-1996 four companies drilled 39 shallow holes, 3 shallow holes in 2004. |
| | | | | | | |
| Cobb Creek/ Independence Trend | | 1,020 acres | | 49%, subject to lease/purchase with Staccato | | 3% NSR (1% can be bought for $1.5 million) | | 49% of $75,000 in 2007, escalating to 49% of $150,000 | | 5,000’ drilling per year | | Andesitic basalt cut by quartz-calcite gold veins. | | BHP/Utah and Orvana drilled 72 holes 1980s and 1990s. |
| | | | | | | |
| Dixie Flats/ Carlin Trend | | 6,280 acres | | Staccato owns 100% | | 2% NSR (1% can be bought for $1.5 million) | | $65,000 | | | | Webb Formation calcareous sediments. Gold with pyrite and barite associated with brecciated silicified and oxidized alteration. | | Geophysics and geochem, Cordex drilled 10 reverse circulation holes 1996, BHP drilled 17 reverse circulation holes 1996 and 1997. |
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| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Dome/Cortez- Battle Mt.- Eureka Trend | | 380 acres | | 49%, subject to lease to Senator | | 3% NSR (49% to Pescio) (1% can be bought for $750,000
w/in 5 yrs, $2 million after 5 yrs. Additional 1% can be purchased for $3 million) | | 49% of $35,000/yr escalating to $60,000 per year on January 3, 2014 in lease payments | | | | Rhyolite with anomalous mercury and barium and weak gold values. Quartz in minor fractures, argillic alteration. | | Grass roots stage exploration project. |
| | | | | | | |
| Wild Horse/ Between Carlin and Independence Trends | | 440 acres | | Same as Dome | | Included with Dome | | Included with Dome | | | | Pyroclastic volcanic rocks overlain by sinter. Pyrite in banded chalcedony veins, breccias and rarely in silicifed tuffs. | | 1984-1989 four companies explored and 7,360’ reverse circulation drilling. |
| | | | | | | |
| Eden/Sleeper Trend | | 1,360 acres | | Sold to Mill City along with 8 other Pescio properties. Minterra has informed Mill City and Allied Nevada of their intention to terminate the option agreement. Mill City is seeking alternative partners at this time. | | 3% NSR (1% can be bought for $1 million) | | Escalating from $30,000 in 2004 to $100,000 in 2009 and beyond, unless option terminated. | | $5 million in explor. & development over 5 yrs, 100,000’ of drilling — on the 9 properties. Minterra can earn 10% more by completing bankable feasibility study. | | Silicified and strongly argillized zones in sediments along major faults. | | 3 companies have drilled 63 holes. |
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| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Elder Creek/ Cortez-Battle Mt.-Eureka Trend | | 460 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Same as Eden | | Included with Eden | | Gold is associated with faults in Valmy Formation sediments thrust over Devonian carbonates. | | Shallow gold mineralization was mined by Alta Gold/NERCO joint venture in 1988. |
| | | | | | | |
| NAD/Cortez- Battle Mt.- Eureka Trend | | 200 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Included with Elder Creek | | Included with Eden | | Upper-plate siliciclastic rocks host a gold anomaly where the upper plate rocks are exposed. | | Some 47 holes have been drilled by 5 companies. |
| | | | | | | |
| North Carlin/ Carlin Trend | | 720 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Same as Eden | | Included with Eden | | The project is covered by post-mineral rocks. The target would be to drill test favorable rocks beneath cover, estimated at 1,000- 1,665 feet deep. | | Early-stage exploration project. |
| | | | | | | |
| North Mill Creek/Cortez- Battle Mt.- Eureka Trend | | 120 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Included with Elder Creek | | Included with Eden | | Upper plate Valmy Formation sediments host a large geochemical anomaly for arsenic, antimony and mercury. | | 3 adits, 5 bulldozer cuts, 9 reverse circulation drill holes by 4 companies 1995-1998. |
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| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Switch and Six Mile/ Between Cortez-Battle Mt.-Eureka and Carlin Trends | | 480 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Included with Eden | | Included with Eden | | Covered by post-mineral Tertiary volcanics. Claims are along major structures and targets would be at depth beneath the cover. | | Early-stage exploration project. |
| | | | | | | |
| Toy/Cortez- Battle Mt.- Eureka Trend | | 7,820 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Same as Eden | | Included with Eden | | Silicified and argillized upper plate Valmy Formation and igneous dikes with a major structural zone running through the property. | | Unknown number of shallow holes tested upper plate rocks. |
| | | | | | | |
| Tusk/Cortez- Battle Mt.- Eureka Trend | | 1,080 acres | | Same as Eden, including Minterra notice of intent to terminate option | | Same as Eden | | Same as Eden | | Included with Eden | | Covered by gravels and post-mineral tuff. A mineralized structural zone trends onto the property. | | Some past drilling occurred, but no information is available. |
| | | | | | | |
Rock Creek/ Between Cortez-Battle Mt.-Eureka and Carlin Trends | | 920 acres | | 100%, leased to Duncan Park for 20 yrs along with South Silver Cloud | | 3% NSR increasing with gold price (1% can be bought for $1 million) | | $30,000 in 2004 escalating to $150,000 in 2009 and thereafter | | 4,000’ drilling by 2006 and 5,000’/yr thereafter | | Faults control alteration and mineralization in volcanics. Targets would be deeper than tested to date. | | Other companies drilled 122 shallow holes. |
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| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Santa Reina/ Carlin Trend | | 540 acres | | 100% leased to DPHC | | 3% NSR (1% can be bought for $1 million) | | $75,000 in 2007 escalating to $150,000 in 2009 and thereafter | | | | Post mineral tuffaceous sediments cover the target area. A favorable structural setting exists within a projected favorable setting of rock units. | | Very little work has been done on this property. |
| | | | | | | |
South Silver Cloud/ Between Cortez-Battle Mt.-Eureka and Carlin Trends | | 2,440 acres | | Included with Rock Creek | | Same as Rock Creek | | Included with Rock Creek | | Included with Rock Creek | | Partially covered, hot-springs type system exposed. Targets are deeper than tested, for vein-type gold-silver. | | At least 122 mostly shallow holes drilled by previous operators were not successful. |
| | | | | | | |
| Tonka/Carlin Trend | | 240 acres | | 100%, subject to lease to Beaucache. | | 4% NSR (2% can be bought for $4 million) | | $50,000 in 2007, escalating to $200,000 in 2011 and thereafter | | 5,000’ drilling by 2008 and 7,500’/yr thereafter | | Silicified and baratized outcrops of Webb Formation siltstone in a favorable structural setting. | | About 15 holes by previous operators. None are known to have reached current target depths. |
| | | | | | | |
Woodruff/ Carlin Trend | | 360 acres | | 100%, subject to lease to Beaucache. | | 4% NSR (2% can be bought for $4 million) | | $50,000 in 2007, escalating to $200,000 in 2011 and thereafter | | 5,000’ drilling by 2006 and 7,500’/yr thereafter | | Anomalous arsenic, antimony and mercury values around graben faults may indicate gold mineralization in favorable host rocks at depth. | | Several companies have explored the project. Two holes apparently were drilled, one shallow and a deep hole, which deflected and remained in unfavorable rocks. |
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| | | | | | | | | | | | | | |
Property Name/
Trend | | Approximate
Acreage | |
Original
Ownership
Interest | | Allied Nevada Retained
Interest | | Annual
Advance
Minimum
Royalty | | Work
Commitment | | Geology | | Exploration/
Mining
History |
| Marr/W. side Cortez-Battle Mtn.-Eureka Trend | | 1,860 acres | | 100%, subject to lease to Tornado | | 4% NSR (2% can be bought for $4 million) | | $75,000 in 2007, escalating to $200,000 in 2011 and thereafter | | 5000´ drilling by 9/1/08; 7500´/yr thereafter | | Claims located along prominent basement NE-trending structure. | | Geophysics and sampling by previous operator. Series of high resistivity anomalies. |
| | | | | | | |
Brock/S. Cortez-Battle Mtn.-Eureka Trend | | 4,400 acres | | 100%, subject to lease to Tornado | | 4% NSR (2% can be bought for $4 million) | | $75,000 in 2007, escalating to $200,000 in 2011 and thereafter | | 5000´ drilling by 9/1/08; 7500´/yr thereafter | | Claims located along prominent basement
N-trending structure, interpreted as lower plate arch | | Some sampling, and regional geophysics. |
| | | | | | | |
NT Green/Central Cortez/Battle Mtn.-Eureka Trend | | 5,320 acres | | 100%, subject to lease to Tornado | | 4% NSR (2% can be bought for $3 million) | | $50,000 in early 2008, escalating to $100,000 in 2010 and thereafter | | 5000´ drilling by 9/1 each year or pay $10/foot in lieu. | | Property in the Pipeline-Toiyabe Corridor on the west flank of an intrusive. | | Some sampling, and regional geophysics. |
Contact District
Allied Nevada, through the acquisition from Vista of the F. W. Lewis, Inc. properties, owns wholly or in fractional interest 110 patented claims in the Contact mining district in northeast Elko County, Nevada. We also staked 307 unpatented claims adjacent to the patented claims in early July 2007. There are no royalties associated with our ownership of both the patented andunpatented mining claims.
The small settlement of Contact is located approximately 52 miles north of Wells, Nevada and 16 miles south of Jackpot, Nevada. The mining district is immediately west of the town of Contact and extends for several miles west and southwest of town. The mining district, referred to as either the “Contact” or “Salmon River” district, was discovered in the early 1870s and was first worked for gold and silver. However, copper was soon discovered and the vast majority of the historic work in the district has been directed toward the development and production of copper ores. Early work in the district was hampered by the inaccessibility of the area and the resultant high shipping costs for any ore produced. The later construction of the railroad eliminated this problem, but falling copper prices in the 1930s caused the district to cease production. The district saw a renewed period of activity in the 1940s and early 1950s, but little true exploration work was done and most efforts were directed toward mining already known ore deposits. More recently, various companies have looked at the district for precious metals in the 1980s and 1990s, and higher copper and molybdenum prices have recently renewed interest in those prospects.
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Geology
The area is underlain by a granodiorite batholith and related rocks of Mesozoic age which intruded a Late Paleozoic sedimentary sequence of shale and limestone. Contact metamorphism and metasomatism produced skarns and hornfels in the sediments up to a mile away from the contact zone. High-grade precious and base metal mineralization occurs along these contact metamorphic zones. The intrusion of the porphyry and alaskite was apparently centered near the North Contact Zone. This intrusion further metamorphosed the sedimentary rocks and culminated in a wave of copper mineralization that not only affected the contact zones, but mineralized masses of porphyry and alaskite.
Various companies, including Phelps Dodge Company in the early 1970s and Golden Phoenix in the early 1990s and their engineering and geological staffs have estimated the mineralization in the district and published historic mineralization estimates. These estimates are based on drilling primarily in and around the Banner Zone, the center of which is located approximately one mile west-northwest of town. There has been recent drilling in the Zone by another company and Allied Nevada controls patented claims on the west and east ends of the Banner Zone. Although Allied Nevada has not conducted any drilling on the property, our geologic staff is in the process of evaluating the potential of the district and will review business opportunities that might develop.
Pony Creek/Elliot Dome Property
The Pony Creek/Elliot Dome Property is located in the Larrabee mining district of Elko County, Nevada, in the southern half of the Carlin Trend, 28 miles southeast of the town of Carlin and 19 miles south of Newmont Gold Company’s Rain Mine.
The Pony Creek/Elliot Dome Property consists of 895 unpatented lode mining claims (approximately 17,900 acres). The property is located across the crest of the southern part of the Pinyon Range at elevations ranging from 6,600 feet to about 8,000 feet. Access to the property from the west is by traveling the Indian Pony road off State Highway 278, or from the east via the Red Rock Ranch road off a junction with State highway 228.
Pursuant to an agreement with the Pescios, Mill City owns a 100% interest in the property and was to pay the Pescios a NSR of 3%. Escalating annual property payments would have to be made to the Pescios and Mill City may purchase 1.0% of the 3.0% NSR for a total of $1 million. Mill City must also pay annual rentals to the BLM of $125 per claim on or before September 1 of each year and appropriate county filing fees to the Elko County Recorder on or before November 1 of each year.
If the conditions stated in the option agreement signed July 27, 2004 between Grandview, Mill City and the Pescios are satisfied, then the NSR will be reduced to 2% and Grandview will be given the option to purchase 1% of the 2% NSR, up to the time of commencement of production from the property for $1.5 million.
Pursuant to this option agreement with Mill City on July 27, 2004, Grandview Gold Inc. earned an option to purchase a 60% interest in the property and committed to spend a minimum of $3.5 million by July 31, 2007, complete a minimum of 30,000 feet of drilling on the Pony Creek and Elliot Dome properties and assume all BLM and County fees with respect to the property. By an amendment agreement dated December 17, 2004, the Pescios agreed that their right to receive cash payments will cease if the Grandview option agreement is terminated and will remain suspended until the property is re-optioned.
Prior to commencement of any surface disturbance, permits must be obtained from the BLM which permits exploration activities and a reclamation bond must also be posted.
Newmont Exploration Ltd. (“Newmont Exploration”) conducted regional exploration programs in search of additional gold deposits along the Carlin trend. In 1980 a stream-sediment sampling program identified anomalous gold and arsenic associated with an altered rhyolite body at what is now the Pony Creek Property. Newmont located 100 claims in 1980 to cover the prospect and located 80 more claims in 1982 to cover additional ground. Newmont began drilling in 1981 and conducted drill programs through 1985. Newmont
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conducted additional drilling campaigns in 1987 and 1989 with limited success. An option was acquired by Westmont Mining, Inc. in 1990, and in April of 1993 Quest International Management Services, Inc. (formerly Ramrod Gold, Inc.) acquired Westmont. Quest then joint ventured the property with Uranerz U.S.A., Inc. in 1994. Uranerz drilled a total of 15 holes in 1994-1995 before terminating the JV in 1995. In 1997 Quest purchased Newmont’s remaining interest in the property and signed a JV agreement with Barrick. Four holes were drilled by Barrick before they terminated the agreement in 1998. In 1999, Quest International Resources was acquired by Standard Mining Co. and it abandoned the Pony Creek property. Mr. Pescio acquired Pony Creek by staking claims in the fall of 1999. Homestake optioned the property shortly afterward. A year later, after drilling 5 reverse circulation drill holes, Homestake terminated their agreement with Mr. Pescio. Nevada Contact Inc. optioned the property from the Pescios in 2001 and drilled 8 holes before terminating the agreement in early 2003. In July 2003, Mill City optioned the property from the Pescios.
As part of the Arrangement, Allied Nevada acquired the Pescios’ interest in the Pony Creek Property from the Pescios. Allied Nevada is now the holder of a royalty on the claims, and holds contractual rights that may in certain circumstances require the record owner to transfer ownership of the claims to Allied Nevada.
Geology
Most of the property is comprised of dry, sagebrush- and grass-covered hills with a few juniper and pinyon pines. The climate is favorable for year-round mining and exploration may be done from May through November.
Power for a modern mill can be brought in from the vicinity of Elko, but ranch power is available only a few miles away. Water is not available on the surface, but was encountered in most of the reverse circulation drill holes. Water may also be present in sufficient quantities in the nearby valleys to the east and west. The claims carry with them the surface rights for mining. Although the area is hilly, sufficient flat areas are present in the property area for potential processing plant sites, tailings storage areas, waste disposal areas and leach pads.
The Pony Creek property lies along the axis of a regional Mesozoic anticline that parallels the crest of the Pinyon Range. The project area is within a zone of convergence of two major structural trends which are the boundaries of a north-south series of grabens and half grabens collectively referred to as the Pinyon Graben. A series of Tertiary felsic intrusives have been emplaced at various points along this structural zone.
The lithologies of the region include the allochthonous, eugeoclinal, siliceous western assemblage, the autochthonous, miogeoclinal, eastern carbonate assemblage and the mixed overlap assemblage. The Late Devonian Early Mississippian Roberts Mountain Thrust and the post Pinyon Anticline, Mesozoic thrust faults have moved the western assemblage and a significant portion of the overlap series over the eastern facies. Other important stratigraphic units of the region are Mississippian through Pennsylvanian clastics of the overlap assemblage which overlie both autochthonous and allochthonous units of the Roberts Mountains Thrust. Younger Late Pennsylvanian to Early Permian clastics disconformably overlie the overlap assemblage.
In the Pinyon Range, high-angle northeast and northwest trending faults and north trending faults, all with oblique displacement, and a younger set of east trending normal faults, are important elements in the structural framework of the region. A Tertiary-age wrench faulting event, characterized by strike-slip faulting and intrusion of felsic rocks into graben faults, probably contributed to the emplacement of gold deposits into the Pinyon Graben.
Gold mineralization in the Bowl area is related to felsite breccias. The porphyritic phase consists of a series of rocks from feldspar porphyry to quartz porphyry and ranges in color from white to medium gray. The fragmental unit contains up to 5% of 1 to 2 mm diameter rounded and embayed quartz phenocrysts and feldspar phenocrysts in a white to light gray, fine-grained, ash-rich, clastic matrix. The dark colored felsite is very similar to the feldspar porphyry except that the aphanitic felsite is often nearly black. Porphyritic felsite appears to be interbedded with the fragmental felsite in gently dipping tabular masses up to 100 thick. In the Pot Holes area a
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lens of fragmental felsite approximately 60 feet thick intersects the low-angle fault that is at the base of the Robinson Thrust plate. The felsite breccias of the Bowl area may be fault breccia to explosion breccias. The breccia fragments are of variable lithology, reportedly including sediment fragments. The matrix, which is generally altered, consists of fragmental felsite and is termed a “sandy” rhyolite. The breccias are mineralized in the Bowl area and possibly are important hosts in other parts of the property.
Alteration within the rhyolite intrusive includes classic quartz-sericite-pyrite (Qsp) associated with north and northeast trending shears. The shear zones are fragmental and brecciated and contain very fine-grained quartz, sericite and pyrite/goethite, both as disseminations and on fractures. Away from the shear zones the rhyolite gradually becomes fresher, grading outward from relict feldspar ghosts into porphyritic rhyolite. In the center of the intrusive along the east flank of Rhyolite Hill, as well as in some other areas, the intrusive has a granular texture and feldspars have been altered, leaving open clay-filled vugs. The sanded rhyolite consists of medium-grained rounded clasts of glassy rhyolite breccia occurring near the margins and at the base of the intrusive, and locally as narrow stockwork zones in the intrusive. The distribution and texture of the sanded rhyolite suggest that the unit formed in vitric chill margins and apparently was partially fluidized by subsequent hydrothermal activity. Sediments along the margins of the intrusive and immediately beneath the rhyolite have been silicified, decalcified and sulfidized and, in and around the mineralized cells, have been extensively oxidized (hypogene). Sediments also occur as xenoliths throughout the rhyolite and can be observed in outcrop and in subsurface. The margins of the xenoliths are usually partially absorbed and most contacts are gradational.
Recent Developments
Madison Enterprise Corp. Exercise of Option to Acquire Company’s Battle Mountain Property
On December 31, 2007 Madison Enterprise Corp. (“Madison”) exercised its option under an Exploration Agreement to acquire our Battle Mountain property consisting of 360 unpatented mining claims in Lander County, Nevada by paying Allied Nevada $2.0 million. Under the terms of the Exploration Agreement, Allied Nevada retained a NSR of 5% for gold and silver and 4% for other minerals. Additionally, Madison is required to pay an AMR of $60,000 annually subject to adjustment for inflation, which amount was paid together with Madison’s option exercise described above. Madison has an option in the Exploration Agreement to purchase the NSR for payment of $4.0 million subject to an annual escalation.
Proposed Sale of Company’s 50% Interest in Hamilton-Treasure Hill Mineral Property
Allied Nevada has accepted an offer to sell its 50% interest in the Hamilton-Treasure Hill mineral property consisting of 106 patented and 112 unpatented mining claims for $1.0 million. Under terms of the agreement, Allied Nevada retained a NSR of 1%, which is subject to a buyout for a payment of $0.5 million in the first 24 months from closing escalating thereafter to a maximum of $3.0 million.
Government Regulation of Mining-Related Activities
Property Interests and Mining Claims
Our exploration activities are conducted in the state of Nevada. Mineral interests may be owned in this state by (a) the United States, (b) the state itself, or (c) private parties. Where prospective mineral properties are owned by private parties, or by the state, some type of property acquisition agreement is necessary in order for Allied Nevada to explore or develop such property. Generally, these agreements take the form of long term mineral leases under which we acquire the right to explore and develop the property in exchange for periodic cash payments during the exploration and development phase and a royalty, usually expressed as a percentage of gross production or net profits derived from the leased properties if and when mines on the properties are brought into production. Other forms of acquisition agreements are exploration agreements coupled with options to purchase and joint venture agreements. Where prospective mineral properties are held by the United States, mineral rights may be acquired through the location of unpatented mineral claims upon unappropriated federal land. If the statutory requirements for the location of a mining claim are met, the locator obtains a valid
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possessory right to develop and produce minerals from the claim. The right can be freely transferred and, provided that the locator is able to prove the discovery of locatable minerals on the claims, is protected against appropriation by the government without just compensation. The claim locator also acquires the right to obtain a patent or fee title to his claim from the federal government upon compliance with certain additional procedures.
Mining claims are subject to the same risk of defective title that is common to all real property interests. Additionally, mining claims are self-initiated and self-maintained and therefore, possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from an examination of the public real estate records and, therefore, it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. If the validity of a patented mining claim is challenged by the BLM or the U.S. Forest Service on the grounds that mineralization has not been demonstrated, the claimant has the burden of proving the present economic feasibility of mining minerals located thereon. Such a challenge might be raised when a patent application is submitted or when the government seeks to include the land in an area to be dedicated to another use.
Reclamation
We generally are required to mitigate long-term environmental impacts by stabilizing, contouring, resloping and revegetating various portions of a site after mining and mineral processing operations are completed. These reclamation efforts will be conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies.
Allied Nevada’s principal reclamation liability is at the Hycroft Mine. On December 28, 2006, Vista put in place a new bond of $7.5 million through its insurance backed financial assurance program that includes a mine reclamation policy and a pollution legal liability policy, which is expected to cover anticipated reclamation costs for the existing disturbance at the Hycroft Mine. The estimated additional bond costs for future activities have been calculated at $3 million.
Government Regulation
Mining operations and exploration activities are subject to various national, state, provincial and local laws and regulations in the United States, which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We have obtained or have pending applications for those licenses, permits or other authorizations currently required to conduct our exploration and other programs. We believe that Allied Nevada is in compliance in all material respects with applicable mining, health, safety and environmental statutes and the regulations passed thereunder in the Nevada and United States and in any other jurisdiction in which we will operate. We are not aware of any current orders or directions relating to Allied Nevada with respect to the foregoing laws and regulations.
Environmental Regulation
Our gold projects are subject to various federal and state laws and regulations governing protection of the environment. These laws are continually changing and, in general, are becoming more restrictive. It is our policy to conduct business in a way that safeguards public health and the environment. We believe that Allied Nevada’s operations are and will be conducted in material compliance with applicable laws and regulations.
Changes to current state or federal laws and regulations in Nevada, where we operate currently, or in jurisdictions where we may operate in the future, could require additional capital expenditures and increased operating and/or reclamation costs. Although we are unable to predict what additional legislation, if any, might be proposed or enacted, additional regulatory requirements could impact the economics of our projects.
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During 2006 and 2007, there were no material environmental incidents or non-compliance with any applicable environmental regulations on the properties now held by Allied Nevada. Allied Nevada did not incur material capital expenditures for environmental control facilities during 2006 or 2007.
None.
| Item 4. | Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise during the fourth quarter of the year ending December 31, 2007.
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is listed on the AMEX and the TSX under the symbol “ANV”, and commenced trading on each of these exchanges on May 10, 2007. The following table sets out the reported high and low sale prices on the AMEX and on the TSX for the periods indicated as reported by the exchanges.
| | | | | | | | | | |
| | | | | American
Stock
Exchange
($) | | The Toronto
Stock
Exchange
(CDN$) |
| | | | | High | | Low | | High | | Low |
| 2007 | | 2nd quarter (commencing May 10) | | 6.06 | | 4.00 | | 6.50 | | 4.20 |
| | 3rd quarter | | 6.15 | | 3.80 | | 6.39 | | 4.09 |
| | 4th quarter | | 9.85 | | 4.84 | | 8.80 | | 4.85 |
On March 4, 2008, the last reported sale price of our common stock on the AMEX was $5.82 and on the TSX was CDN$5.78. As of March 4 , 2008, there were 42,974,150 shares of our common stock issued and outstanding, and we had 279 registered shareholders of record.
We have never paid dividends. While any future dividends will be determined by our directors after consideration of our earnings, financial condition and other relevant factors, it is currently expected that available cash resources will be utilized in connection with the ongoing acquisition, exploration and evaluation programs and development projects of Allied Nevada.
See “Part III—Item 11. Executive Compensation” for information relating to our equity compensation plans.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference in such filing.
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The following graph compares the performance of Allied Nevada common stock with the performance of the S&P 500 and the PHLX Gold/Silver Sector IndexSM, assuming reinvestment of dividends on December 31, 2007. The graph assumes $100 invested at the per share closing price on AMEX in Allied Nevada and each of the indices on December 31, 2007. Because Allied Nevada’s common stock commenced trading on May 10, 2007, the sole measurement point is on the last trading day of the year ended December 31, 2007.
Recent Sales of Unregistered Securities
Reference is made to Note 9 to the Consolidated Financial Statements for information concerning Allied Nevada’s equity private placement financing completed in July 2007, as previously reported in reports filed with the Commission. During the quarter ended December 31, 2007, one holder resident in the U.S. exercised 25,000 common stock purchase warrants issued in our July 2007 private placement, at an exercise price of CDN$5.75 per share, for proceeds to Allied Nevada of $146,000. Also during the quarter, Quest Securities exercised the 114,850 Finder’s Warrants received as partial compensation for services provided as a finder in our July 2007 private placement, at an exercise price of CDN$4.60 per Finder’s Warrant, for proceeds to Allied Nevada of $529,000. Each Finder’s Warrant was exercisable for one unit consisting of one share of common stock of Allied Nevada and one common stock purchase warrant with a two-year exercise period and an exercise price of CDN$5.75 per share. The warrant exercise by the U.S. subscriber was made pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. Each subscriber in the United States was an “accredited investor” under the Securities Act, and the Units were sold without any general solicitation by the Company or its representatives. The issuance of the Finder’s Warrants was an offshore offer and sale made in reliance on the exclusion from registration requirements of the Securities Act pursuant to Rule 903 of Regulation S promulgated thereunder.
| Item 6. | Selected Financial Data |
Set forth below are selected consolidated financial data for each of the five fiscal years ended December 31, 2003-2007. For all periods prior to the effective date of the Arrangement, the financial statements from which these data are derived reflect the financial position and results for subsidiaries of Vista that held Nevada-based mining properties and related assets that were transferred to Allied Nevada as part of the Arrangement (“Vista
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Nevada”) and do not include any historical information on the properties that were acquired by Allied Nevada from the Pescios, as such acquisition is considered an asset purchase and not the purchase of a business. Please see “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —The Separation of Allied Nevada from Vista—Basis of Presentation” for further information on the derivation of these financial statements. Accordingly, for periods prior to May 10, 2007, the financial statements of Allied Nevada as presented herein are not indicative of results of operations of Allied Nevada as it is now constituted.
We selected the statement of loss data for the years ended December 31, 2006, 2005 and 2004 and the balance sheet data as of December 31, 2006, 2005 and 2004 from Vista Nevada’s audited Consolidated Financial Statements included herein. See “Part II—Item 8. Financial Statements and Supplementary Data.” We derived the statement of loss data for the year ended December 31, 2003 and the balance sheet data as of December 31, 2003 from Vista’s unaudited financial statements which are not included herein. You should read the information presented below in conjunction with “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements of Allied Nevada and Vista Nevada and related notes included herein. See “Part II—Item 8. Financial Statements and Supplementary Data.”
Selected Financial Data
U.S. dollars in thousands
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | |
Results of operations | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
| | | | | | | | | | | | | | | (Unaudited) | |
Net loss | | $ | (11,265 | ) | | $ | (2,465 | ) | | $ | (2,286 | ) | | $ | (2,803 | ) | | $ | (1,423 | ) |
| | | | | |
Financial position | | December 31,
2007 | | | December 31,
2006 | | | December 31,
2005 | | | December 31,
2004 | | | December 31,
2003 | |
| | | | | | | | | | | | | | | (Unaudited) | |
Current assets | | $ | 21,320 | | | $ | 212 | | | $ | 162 | | | $ | 454 | | | $ | 851 | |
Property, plant and equipment | | | 77,431 | | | | 9,889 | | | | 10,174 | | | | 3,773 | | | | 4,052 | |
Total assets | | | 106,514 | | | | 17,303 | | | | 16,863 | | | | 10,729 | | | | 6,587 | |
Current liabilities | | | 1,579 | | | | 162 | | | | 168 | | | | 103 | | | | 58 | |
Total liabilities | | | 6,758 | | | | 4,848 | | | | 4,287 | | | | 4,266 | | | | 4,202 | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
General
Allied Nevada commenced operations on May 10, 2007, following Vista’s transfer to us of the Vista Nevada Assets, along with cash, and the transfer to us by the Pescios of the Pescio Nevada Assets. These transfers to us were made in exchange for shares of our common stock and cash, under the terms of the Arrangement Agreement. See “Part I—Item 1. Business—History of Allied Nevada”. We are now conducting our new business of evaluation, acquisition, exploration and advancement of gold exploration and development projects in the state of Nevada. Before the Arrangement was completed, we had no properties or property interests, were not yet conducting business operations and had no shareholders other than Vista. For periods prior to the effective date of the Arrangement, the financial statements, related discussion and analysis and other financial information in this document were prepared as relates to the subsidiaries of Vista that held Nevada-based mining properties and related assets that were transferred to Allied Nevada as part of the Arrangement. In our SEC filings prior to the completion of the Arrangement, we referred to these subsidiaries as “Vista Gold Corp—Nevada exploration properties” or “Vista Nevada”. Also see “Part I—Item 1.—Business” for discussion of the history and a general description of the business of Allied Nevada and the Company’s business strategy.
The following discussion and analysis is made of the financial position and results for Allied Nevada and Vista Nevada, as defined above. For periods prior to the effective date of the Arrangement, these financial
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statements have been prepared under generally accepted accounting principles (“GAAP”) in the United States as if Vista Nevada had been a stand-alone company and should be read in conjunction with the consolidated financial statements and the related notes thereto included herein. These consolidated financial statements do not include any historical financial information on the property interests acquired by Allied Nevada from the Pescios (the “Pescio Nevada Assets”). Based on guidelines provided in Rule 11-01 of Regulation S-X of the SEC, the U.S. GAAP guidance provided in Emerging Issues Task Force (EITF) 98-3 (concerning whether assets or a business are being acquired) and in the Financial Accounting Standards Board Statement No. 141, “Business Combinations,” the acquisition of the Pescio Nevada Assets is considered an asset purchase and not a purchase of a business, consequently, financial information relating to the property interests acquired from the Pescios is not incorporated into these statements for periods prior to the effective date of the Arrangement. This assessment is based on the fact that no separate entity was acquired but rather a group of interests in mineral properties assembled over time by the Pescios. None of the properties is in the operating stage; consequently, although certain of the property interests generate cash from advanced minimum royalty (“AMR”) payments, none of the properties produces any revenue from operations. In addition, as the Pescio Nevada Assets have nothing in the nature of physical facilities, employees, market distribution systems, sales forces, customer bases, production techniques, trade names or operational or resource management processes consistent with a business operation, none of the foregoing attributes were acquired through the acquisition of these assets. The $70,518,000 cost of these assets was determined as the estimated fair value of the consideration paid of $15 million cash and 12 million shares of common stock of Allied Nevada. Accordingly, for periods prior to May 10, 2007, the historical financial statements of Allied Nevada as presented herein are not indicative of results of operations of Allied Nevada as it is now constituted.
The discussion and analysis of the consolidated operating results and financial condition of Allied Nevada for the year ended December 31, 2007 has been prepared based on information available to us as of March 6, 2008. This discussion should be read in conjunction with the consolidated financial statements of Allied Nevada for the three years ended December 31, 2007 and the related notes thereto, which have been prepared in accordance with U.S. GAAP. All amounts stated herein are in U.S. dollars, unless otherwise noted.
Outlook
Gold prices started 2007 at $636 per ounce and finished the year at $836 per ounce as quoted on the London Exchange. This rise of approximately 32% during 2007 reflected factors such as oil prices, global instability, real and threatened terrorism activities, the war in Iraq, the decline in the value of the U.S. dollar and the rise and demand for investment and jewelry. Current price levels are near a 25-year high and no assurance can be given that such prices will be sustained.
At the end of 2007, Allied Nevada owned or controlled six properties containing mineralized material. We believe that through exploration drilling and engineering studies, additional value can be added to most of the projects by advancing them closer to a production decision. As discussed below, in September 2007, our Board of Directors approved the proposal to restart the Hycroft Brimstone Open Pit Mine. See also “Part I—Item 2. Properties—Development Properties—Hycroft Brimstone Open Pit Mine—Planned Reactivation of Mine”.
Allied Nevada does not currently generate operating cash flows. Subject to sustained gold prices, Allied Nevada expects to generate revenues and cash flows in the future. We may generate revenues and cash flows from our portfolio of gold projects by several means, including but not limited to options or leases to third parties, joint venture arrangements with other gold producers, outright sales for cash and/or royalties, or project development and operation. Until we start generating sufficient cash flow, we will be dependent on our working capital, potential funding from external sources and cash from AMR payments received with respect to interests in certain Nevada-based mining properties. See “Part I—Item 1. Business—General Description of the Business of Allied Nevada”.
At present, we anticipate raising funds to meet potential long-term obligations and planned expenditures through private or public offerings of either debt or equity securities, or joint venture efforts or sale of properties
49
currently controlled. On July 16, 2007, we completed a non-brokered private placement financing in which we sold and issued a total of 3,696,000 units for total gross proceeds of CDN$17,000,000, or approximately $16.3 million based on the U.S./Canadian dollar exchange rate on the closing date. Net cash proceeds to Allied Nevada were approximately $15.5 million. Each unit consisted of one share of common stock and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one share of common stock of Allied Nevada at any time prior to the close of business on July 16, 2009 at a price of CDN$5.75 per share. We also issued as a finder’s fee 114,850 warrants, each such warrant exercisable for one unit at any time prior to the close of business on July 16, 2009 at an exercise price of CDN$4.60, and paid cash finder’s fees totaling $507,000 to the two entities that served as finders in the private placement financing. See “—Financial Position, Liquidity and Capital Resources—Financing Activities” and Note 9 to the Consolidated Financial Statements. In subsequent years, we anticipate that Allied Nevada will need to raise additional capital to meet property purchase installment obligations and scheduled payments on those properties that we decide to retain under option. Further, additional capital would be necessary to acquire properties and conduct exploration drilling and re-engineering studies on current and newly acquired properties. However, there can be no assurance that Allied Nevada will be successful in efforts to raise additional capital.
On September 11, 2007, our Board of Directors approved the proposal to restart the operations at the Hycroft Brimstone Open Pit Mine. The Hycroft reactivation project involves reopening the Brimstone oxide open pit mine which has been on a care and maintenance program since 1998. This oxide open pit mine was in production from 1994 until 1998 when the entire Hycroft Mine was put on care and maintenance due to low gold prices.
On March 3, 2008, the Board of Directors ratified the signing of an indicative letter of intent concerning a proposed CDN$30 million secured bridge credit facility with Quest Holdings Ltd. (“Quest Holdings”). The terms of the facility are not yet final and are subject to due diligence by Quest Holdings and its counsel, the preparation of definitive documentation, the granting of security and such other steps as are usual to transactions of this nature. The letter of intent provides that the facility is scheduled to be available for drawdown until July 2008 and must be repaid by March 2009. Borrowings under the proposed credit facility are limited to working capital, operating, and capital expenditures relating to the reopening of the Hycroft Mine. The Company’s interest in the Hycroft mine properties and all of its personal tangible property are expected to be pledged as collateral for the credit facility. The proposed agreement is expected to contain customary covenants for credit facilities of this type including certain negative covenants, which will limit or restrict the Company’s ability to incur additional debt. The Company will incur a standby fee equal to four percent of the amount of the loan facility when it enters into the agreement. Borrowings under the proposed credit facility are subject to payment of a five percent drawing fee payable to Quest Holdings. The interest rate on borrowings are twelve percent per annum compounded monthly. Quest Holdings is a wholly-owned subsidiary of Quest Capital Corp. (Quest Capital). As described in Note 13 to the Consolidated Financial Statements, Robert Buchan, Executive Chairman and director of Allied Nevada, is a director of Quest Capital and A. Murray Sinclair, a former director of Allied Nevada, is a Co-Chairman of Quest Capital.
Once reactivated, the Hycroft Mine is expected to produce 375,000 ounces of gold over its first five years of operation. Allied Nevada anticipates that an updated reserve calculation estimate for the Hycroft Mine will be completed in the second half of 2008. The total expenditures required to attain this production are expected to be approximately $26.6 million, of which $22.3 million will be spent on pre-stripping and leach pad construction. Assuming that the requisite financing is obtained, virtually all of these funds are expected to be spent in 2008, with a target of achieving production in the fourth quarter of 2008. The critical constraints to achieving the gold production schedule include the timing of reclamation bond approval, the availability of a mining contractor or the availability of a mining fleet to complete the prestrip. Allied Nevada has scheduled these activities to begin in May 2008.
Included in the total expenditures required to reopen the mine approximately $14 million of working capital and reclamation bonding. See “Part I—Item 2. Properties—Development Properties—Hycroft Brimstone Open Pit Mine—Planned Reactivation of Mine”.
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The Separation of Allied Nevada from Vista
On July 6, 2006, Vista announced that it had entered into a binding letter of intent, with the Pescios, pursuant to which Vista agreed to transfer its existing Nevada properties into a new publicly-listed company that would, concurrently with the transfer, acquire the Nevada mining property interests of the Pescios. Pursuant to the Arrangement, Vista shareholders were to exchange their current common shares of Vista for shares of common stock of Allied Nevada and new common shares of Vista. As described above under “General”, the Arrangement was completed on May 10, 2007.
Basis of presentation
The consolidated financial statements of Vista Nevada were prepared in connection with the Arrangement. The consolidated financial statements reflect the consolidated historical results of operations, financial position and cash flows of the subsidiaries of Vista that held Nevada mineral properties, for all periods presented prior to the effective date of the Arrangement. For all periods subsequent to the effective date of the Arrangement, the consolidated historical results of operations, financial position and cash flows are those of Allied Nevada. For all periods presented prior to the effective date of the Arrangement, the assets and liabilities have been reflected in these consolidated financial statements on a historical basis; prior to the Arrangement all of these assets and liabilities presented were 100% owned by Vista. Subsequent to the Arrangement, all of the assets and liabilities presented were 100% owned by Allied Nevada.
Prior to the effective date of the Arrangement, corporate overhead and general and administrative expenses were allocated by Vista to Vista Nevada based on the ratio of the carrying amounts of mineral properties transferred to Allied Nevada and management believes such allocations are reasonable. Also, all intercompany payables and receivables outstanding between Vista Nevada and Vista were settled as part of Vista’s net investment in Vista Nevada. The net of these intercompany receivables and payables was deemed to be part of Vista’s net investment and has been included in the Consolidated Balance Sheets accordingly (see Note 13 to the Consolidated Financial Statements). However, the associated expenses recorded by Vista Nevada may not be indicative of the actual expenses that would have been incurred had it been operating as a separate, stand-alone public company for the periods presented and do not reflect its consolidated results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Further, for periods prior to the effective date of the Arrangement, these consolidated financial statements do not include any historical financial information on the properties acquired by Allied Nevada from the Pescios, as discussed above. Accordingly, the financial statements of Vista Nevada as presented herein are not indicative of results of operations of Allied Nevada as it is now constituted.
Critical Accounting Policies and Estimates
Use of Estimates
The Company’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations; environmental, reclamation and closure obligations; estimates of fair value for asset impairments; estimates of the fair value of stock options granted; and the valuation allowances for deferred tax assets. The Company bases its estimates on various assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Allied Nevada Gold Corp. and more-than-50%-owned subsidiaries that it controls. All significant intercompany balances and transactions have been eliminated.
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Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Cash and cash equivalents are invested in a highly liquid money market fund. Restricted cash is excluded from cash and cash equivalents and is included in other current and long-term assets.
Supplies Inventory
Supplies inventory is valued at the lower of average cost or net realizable value. Cost includes applicable taxes and freight.
Property, Plant, and Equipment
Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives, which do not exceed the related estimated mine lives, of such facilities based on proven and probable reserves.
Mineral Exploration and Development Costs
Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, costs incurred prospectively to develop the property are capitalized as incurred and are amortized using the units-of-production (“UOP”) method over the estimated life of the ore body based on estimated recoverable ounces in proven and probable reserves.
Mineral Interests
Mineral property acquisition costs are recorded at cost and are deferred until the viability of the property is determined. We currently have one Development Property, namely the Hycroft Brimstorne Open Pit Mine. See “Part I—Item 2. Properties—Development Properties—Hycroft Brimstone Open Pit Mine” for further information. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties acquired under an option agreement, general overhead, administrative and holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. When proven and probable reserves are determined for a property and a feasibility study is completed, subsequent exploration and development costs on the property would be capitalized. If a project were to be put into production, capitalized costs would be depleted on the unit of production basis.
The Company is party to mineral property agreements that include provisions requiring the reimbursement by another party of its share of a project’s exploration costs to the Company. Costs reimbursed to the Company relate directly to exploration of the project and do not include any margin or mark-up of direct costs incurred. Accordingly, such reimbursements are netted against mineral property exploration costs incurred by the Company on the related project.
Mineral property option payments are made at the discretion of the optionee and accordingly option amounts are accounted for as a reduction in the carrying value of the applicable mineral interest on a cash basis or when receipt is reasonably assured.
Management’s estimates of gold prices, recoverable proven and probable reserves, probable outcomes, operating capital and reclamation costs are subject to risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term that could adversely affect management’s estimate of net cash flows expected to be generated and the need for possible asset impairment write-downs.
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Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior undetected agreements or transfers and title may be affected by such defects.
Long-lived Assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, price trends and related factors), production levels and operating costs of production and capital, all based on life-of-mine plans. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves and other material that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from such exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and operating costs of production and capital are each subject to significant risks and uncertainties.
Reclamation and Remediation Costs (Asset Retirement Obligations)
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The asset retirement obligation is based on when the spending for an existing environmental disturbance and activity to date will occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site in accordance with FASB SFAS No. 143, “Accounting for Asset Retirement Obligations.”
Income Taxes
The Company accounts for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of the Company’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives its deferred income tax charge or benefit by recording the change in either the net deferred income tax liability or asset balance for the year.
The Company’s deferred income tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
Stock Based Compensation
Compensation cost recognized in 2007 includes compensation cost for all share-based payments based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).
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Loss Per Share
Loss per share amounts are only presented for 2007 as Allied Nevada was not a publicly held entity prior to May 10, 2007 and was a wholly-owned subsidiary of Vista . Basic Loss per share amounts are calculated by using the weighted-average number of common shares outstanding during the year. Diluted loss per share amounts reflect the potential dilution that could occur if securities or other contracts that may require the issuance of common shares in the future were converted unless their inclusion would be anti-dilutive. As the Company incurred a net loss in 2007, potential shares to be issued from the assumed exercise of options, warrants, and restricted shares were not included in the computation of diluted loss per share since their result would be anti-dilutive.
Concentration of Risk
Although the Company is currently an exploration stage enterprise (as defined by Industry Guide 7), it expects the principal source of future revenue to be the sale of gold. A significant and sustained decrease in the price of gold from current levels could have a material and negative impact on the Company’s business, financial condition and results of operations.
The Company places its cash investments with a single high quality financial institution. Substantially all of the cash and cash equivalents were uninsured. All cash equivalents were invested in high quality short-term money market instruments, including bankers’ acceptances, bank notes, certificates of deposit, government securities, commercial paper and repurchase agreements of domestic and foreign issuers. At December 31, 2007, we had no funds invested in asset backed commercial paper. The Company has not experienced any losses on its cash investments.
Results from Operations
Year Ended December 31, 2007 Compared with Year Ended December 31, 2006
Allied Nevada had a consolidated net loss in 2007, of $11,265,000 compared to a consolidated net loss of $2,465,000 in 2006. The increase in the consolidated net loss of $8,800,000 is largely due to an increase of $4,643,000 in exploration, property evaluation and holding costs and an increase of $3,682,000 in corporate administration and investor relations costs partially offset by an increase of $457,000 in interest and other income.
Exploration, property evaluation and holding costs
Exploration, property evaluation and holding costs increased to $6,352,000 in 2007, as compared with $1,709,000 in 2006. The principal variances from 2006 are as follows:
| | • | | We have expensed $3,750,000 of costs related to expanded exploration activities at the Hycroft Mine. These expenses were related to the following activities: |
| | • | | 52 drill holes were completed for a total of approximately 57,000 feet drilled. The holes encountered sulfide and oxide mineralization. Full gold and silver assay determinations on 44 holes and partial assay determinations were received on the remaining holes from an independent assay lab. |
| | • | | Surface mineral samples were collected and assayed for gold and silver in order to identify future drill hole targets. |
| | • | | Geologic field work utilizing gravimetric and induced polarization techniques were employed to identify future drill-hole targets. |
| | • | | Geological mapping and aerial survey mapping were completed during the year. |
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There was no comparable work undertaken in 2006.
| | • | | Approximately 400 additional claims were staked at Hycroft. The cost of staking and registering these claims was $91,000. |
| | • | | On May 10, 2007, upon completion of the Arrangement pursuant to the Arrangement Agreement (Note 5 to the Consolidated Financial Statements), Allied Nevada began operating as a newly independent company and our common stock began trading on the American and Toronto Stock Exchanges. Operating as a separate company required Allied Nevada to employ its own exploration geologists in the corporate office in 2007, while in 2006 we were allocated a portion of the Vista corporate expenses under the application of the continuity of interests method of accounting. Since May 10, 2007, the additional costs of these exploration salaries, benefits and travel expenses were $340,000. |
| | • | | The cost of maintaining the Hycroft Mine site on care and maintenance was $121,000 higher in 2007 when compared to 2006. While higher care and maintenance costs were incurred during the second half of 2007 as we continue maintenance activities to ensure that the property could operate in view of our Company’s recent decision to reactivate the mine, they were offset by the reduced maintenance costs resulting from the reduced solution management requirements earlier in the year. |
Corporate administration and investor relations
Corporate administration and investor relations costs increased to $4,863,000 in 2007, compared to $1,181,000 in 2006. The increase of $3,682,000 for the 2007 period can be attributed to a number of factors:
| | • | | In 2007, we were allocated $383,000 of Vista’s general and administrative (“G&A”) expenses, while in 2006, Vista allocated $1,181,000 of G&A expenses to us. The allocation of G&A expenses by Vista was done based on the relative values of the mineral interests between the Vista Nevada Assets and the properties that were to remain in Vista subsequent to the Arrangement. The decrease of $783,000 in allocated G&A expenses to us is primarily a result of the difference in the allocation periods. In 2006, allocated G&A expenses were for twelve months. Whereas 2007 allocated expenses were from January 1, 2007 through May 10, 2007. |
| | • | | In order to start our operations as a newly independent, publicly-traded entity, there were a number of administrative and set-up costs incurred in order to set up legal structures and to develop the necessary accounting and business systems. These one-time costs were incurred during the second quarter of 2007 and amounted to $275,000. There were no comparable start-up costs incurred in 2006. |
| | • | | In order to maintain the stock listings of Allied Nevada on the Toronto and American Stock Exchanges, year-to-date listing fees, investor relations fees, and shareholder communication costs have amounted to $614,000. There were no comparable direct stock listing fees, investor relation fees, and shareholder communication costs in 2006. |
| | • | | In 2007, we recognized stock based compensation expense of $1,250,000 from the Allied Nevada Stock Option Plan, reflecting grants of options to purchase shares of common stock that we made to directors, employees, and Sierra Partners during 2007, net of forfeitures, as well as a grant of 300,000 Restricted Share Units that we made to the Executive Chairman during the third quarter pursuant to the Allied Nevada Restricted Share Plan (Note 9 to the Consolidated Financial Statements). There were no stock based compensation expenses from either the Allied Nevada Stock Option Plan or the Allied Nevada Restricted Share Plan in 2006. Vista’s stock based compensation allocations to us, which are described above and included in the above allocated expenses, were $65,000 and $254,000 for 2007 and 2006, respectively. |
| | • | | In 2007, we incurred $2,341,000 of other direct G&A expenses including $1,220,000 for compensation, benefits, and related employee costs, $427,000 for legal, accounting, and other |
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| | consulting fees, $346,000 for director fees and expenses, and $348,000 for other costs including office rental, insurance, and miscellaneous costs. In 2006, the Company incurred approximately $3,000 of direct G&A expenses relating primarily to office rental. |
Depreciation and amortization
In 2007, depreciation and amortization expense was $230,000 compared to $199,000 in 2006, substantially all of the increase was attributable to the depreciation of capital assets acquired in 2007.
Asset retirement obligation and closure costs
Allied Nevada recorded accretion expense of $223,000 in 2007 compared to no charge in 2006. The accretion expense in 2007 is based on the risk-free credit adjusted rate of 7.5% used to calculate the asset retirement obligation and the opening asset retirement obligation of $4,663,000.
Impairment of mineral interests
As described in Note 7 to the Consolidated Financial Statements, Allied Nevada incurred an impairment of $678,000 relating to the return of mineral properties to the Company as a consequence of defaults in payment of AMRs by lessees. There were no impairments of mineral interests in 2006.
Other income and expense
Interest income
We earned $1,030,000 in interest income in 2007 compared to $552,000 for 2006. The increase of $478,000 is attributable to an increase in interest earned on our liquid savings accounts of $521,000 and an increase in interest earned on the Hycroft Mine restricted cash account of $43,000, which was partially offset by a reduction of $76,000 in the allocation of interest income from Vista. The increase in interest earned on the liquid savings account is attributable to higher cash balances available to be invested, again reflecting primarily net cash proceeds of $15,378,000 that we realized in connection with our July 2007 private placement, and the increase in interest earned on the Hycroft Mine restricted cash account is due to higher interest rates during 2007 as compared to 2006.
Years Ended December 31, 2006 and 2005
Summary
Vista Nevada’s consolidated net loss for the year ended December 31, 2006 was $2,465,000 compared to the 2005 consolidated net loss of $2,286,000 for a net increase of $179,000. The increase in the consolidated loss of $179,000 in 2006 is primarily the result of increased property evaluation and holding costs of $243,000 and increased corporate administration and investor relations costs of $322,000, which is partially offset by increased interest and other income of $368,000.
Vista Nevada’s 2005 consolidated net loss was $2,286,000 compared to the 2004 consolidated net loss of $2,803,000 for a net decrease of $517,000. The decrease of $517,000 in 2005 is primarily due to decreased property evaluation and holding costs of $801,000 and increased interest and other income of $134,000, which is partially offset by increased corporate administration and investor relations costs of $409,000.
Gold production and income earned during exploration stage
The Hycroft Mine is currently on a care and maintenance program. Mining activities were suspended at Hycroft in 1998 and, as expected, gold production has ceased. Income earned during the exploration stage during 2006 was nil, and $40,000 for 2005. Gold production costs, which are offset by proceeds received from gold
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sales are no longer recorded as production costs, but are accounted for as property evaluation and holding costs. Therefore there were no production costs recorded during the years ended December 31, 2006 and 2005.
Interest and other income
During the year ended December 31, 2006, Vista Nevada realized $552,000 in interest and other income as compared to $184,000 for 2005. The increase of $368,000 is mostly due to an increase in the allocation of interest income from Vista of approximately $274,000 and increased interest earned on the Hycroft restricted cash account (see Note 6 to the Consolidated Financial Statements ) of approximately $88,000. The increased interest earned on the Hycroft restricted cash account during 2006 was the result of higher interest rates during 2006 as compared to 2005. The increase in the allocation of interest income from Vista is due to increased holdings in Vista’s corporate cash accounts.
During 2005, Vista Nevada realized $184,000 in interest income as compared to $50,000 in 2004. The increase of $134,000 in 2005 is primarily attributable to interest earned on the Hycroft restricted cash account of $134,000 in 2005 as compared to $33,000 in 2004. The remaining increases in interest income are due to the allocation of interest earned on corporate cash accounts from Vista to Vista Nevada.
Property evaluation and holding costs
Property evaluation and holding costs increased to $1,709,000 during the year ended December 31, 2006, compared with $1,466,000 for 2005. This increase of $243,000 was mostly due to increased exploration costs at the Maverick Springs Project of approximately $248,000, increased holding costs at the Hycroft Mine of approximately $54,000 and increased holding costs for the F.W. Lewis, Inc. properties of approximately $88,000, offset by a decrease in the allocation of general development costs from Vista of approximately $119,000. The decrease in the allocation of these costs from Vista is due to a decrease in general development costs incurred by Vista during the 2006 period resulting in less costs being allocated to Vista Nevada.
Property evaluation and holding costs decreased by $801,000 from $2,267,000 in 2004 to $1,466,000 in 2005. This decrease is due to decreased holding costs at the Hycroft Mine of approximately $144,000, decreased holding costs at the Wildcat project of $371,000 and decreased holding costs at the Mountain View project of $237,000, offset by an increase in the allocation of general development costs from Vista of approximately $97,000. The increase in the allocation of these costs from Vista is due to an increase in general development costs incurred by Vista during the 2005 period resulting in more costs being allocated to Vista Nevada. Also, with the acquisition of the F.W. Lewis, Inc. properties, Vista Nevada’s mineral properties balance was increased causing a higher percentage of costs to be allocated to Vista Nevada from Vista.
Corporate administration and investor relations
Corporate administration and investor relations costs increased to $1,181,000 during the year ended December 31, 2006, compared to $859,000 for 2005. The entire increase of $322,000 during 2006 can be attributed to an increase in the allocation of corporate administration and investor relations costs from Vista. The increase in the allocation of these costs from Vista is mostly due to an increase in the stock-based compensation allocation. This increase in the stock-based compensation allocation is the result of Vista granting options to directors and employees during August and September 2006.
Corporate administration and investor relations costs increased to $859,000 in 2005 compared to $450,000 in 2004, representing an increase of $409,000. The entire increase for 2005 can be attributed to an increase in the allocation of corporate administration and investor relations costs from Vista. The increase in the allocation of these costs from Vista is the result of Vista Nevada’s acquisition of the F.W. Lewis, Inc. properties which increased the mineral properties balance causing a higher percentage of costs to be allocated to Vista Nevada from Vista.
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Vista estimated the fair value of stock options granted to employees and directors at the grant date using the Black-Scholes option pricing model. The fair value of stock options granted is expensed over the option’s vesting term.
Depreciation and amortization
Depreciation and amortization expense was approximately level with $200,000 in each of 2006 and 2005. In each case, there was no significant change in the depreciation and amortization costs from the previous year.
Financial Position, Liquidity and Capital Resources
Cash used in operations
Cash used in operations was $8,406,000 in 2007, compared to $1,392,000 in 2006. The increase in cash used in operating activities of $7,014,000 for 2007 can be explained by a number of factors:
| | • | | The increase in the consolidated net loss of $8,800,000 for 2007 increased the cash used in operations. As discussed in prior sections, this increased net loss is primarily the result of the increased exploration costs and G&A costs partially offset by $1,250,000 of non-cash stock compensation expense from the Company’s stock option and restricted share plans. The $678,000 impairment of mineral interests had no effect on cash used in operations as it was a non-cash charge. |
| | • | | During 2007, there was a $728,000 reduction in the allocated expenses from Vista that increased the cash used in operations. During 2006, Vista was directly funding the activities of the Vista Nevada Assets that were subsequently transferred to us as part of the Arrangement. Since May 10, 2007 we have been operating as a company independent of Vista and have not received any operational funding from Vista. |
| | • | | During 2007, there was a $325,000 increase in funds provided by a decrease in non-cash working capital compared to 2006. |
Cash used in operations was $1,392,000 for the year ended December 31, 2006, as compared to $790,000 for 2005. The increase of $602,000 can be attributed primarily to changes in working capital of $295,000, a change in the consolidated net loss between 2006 and 2005 of $179,000 and a net change in non-cash items of $129,000.
Cash used in operating activities was $790,000 in 2005 compared to $1,647,000 in 2004. The decrease of $857,000 for the 2005 period is due to an increase in the allocated expenses from Vista and a decreased consolidated net loss.
Investing activities
Net cash used in investing activities in 2007 increased to $13,205,000 from $140,000 in 2006. The increase of $13,065,000 for the period results from the following factors:
| | • | | As discussed in Note 5 to the Consolidated Financial Statements, Allied Nevada acquired the Pescio Nevada Assets in exchange for $15,000,000 in cash and 12.0 million shares. This cash payment explains most of the change in the net cash used in investing activities for 2007 compared to 2006. |
| | • | | In December 2007, the Company’s exploration partner in its Battle Mountain property exercised its option to acquire the property for $2,000,000. This resulted in a $2,000,000 reduction in cash used in investing activities during 2007. |
| | • | | Many of the mineral interests transferred to us are subject to agreements requiring the property holders to pay advanced minimum royalties. These royalty payments are treated as recoveries of the assets acquired in the Arrangement. This resulted in a $298,000 reduction in cash used in investing activities during 2007. |
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| | • | | We started operations as a newly independent business on May 10, 2007 upon completion of the Arrangement pursuant to the Arrangement Agreement. As a new entity, there were a number of assets that needed to be purchased in order to start conducting independent business operations. In 2007, we acquired $278,000 of capital items including several light vehicles, computer servers, and additional computers and office technology. |
Net cash used for investing activities decreased to $140,000 for the year ended December 31, 2006, compared to $5,469,000 for 2005. The decrease of $5,329,000 is primarily due to the acquisition of F.W. Lewis, Inc. during 2005. There were no comparable acquisitions during 2006.
Net cash used for investing activities in 2005 was $5,469,000 compared to $4,928,000 in 2004. The increase of $541,000 in 2005 can be attributed to a decrease of $3,141,000 in expenditures to establish the Hycroft restricted cash account that was established in 2004; a decrease of $1,641,000 primarily due to an insurance premium payment of $1.7 million in 2004 for the Hycroft reclamation bond; and an increase of $5,325,000 for the acquisition of the F.W. Lewis, Inc. properties net of cash acquired. There were no comparable acquisitions in 2004.
Financing activities
The net cash provided by financing activities was $41,709,000 in 2007 compared to $1,529,000 in 2006. The $40,180,000 increase in cash provided by financing activities was the result of the following factors:
| | • | | On July 16, 2007, we completed a CDN$17,000,000 private placement as discussed in Note 8 to the Consolidated Financial Statements. Pursuant to this private placement, we realized gross proceeds of $16,164,000 and incurred financing-related costs of $786,000 to result in a net cash inflow from the private placement of $15,378,000. |
| | • | | In December of 2007, Quest Securities exercised their Finder’s Warrants to acquire 114,850 shares of our common stock (see Note 9 to the Consolidated Financial Statements). The total proceeds received from the exercise of the Finder’s Warrants was $528,000. The Company issued 114,850 shares to Quest Securities in January of 2008. |
| | • | | During the third and fourth quarters of 2007, holders of Allied Nevada special stock options exercised their rights to acquire 188,539 shares of our common stock. The total exercise price of these options was $433,000. |
| | • | | During the second quarter of 2007, pursuant to the Arrangement Agreement, Vista paid $25,000,000 to Allied Nevada, of which $15,000,000 was paid to the Pescios as partial consideration for the Pescio Nevada Assets. The remaining $10,000,000, less costs and expenses and amounts required to pay amounts owing to Vista pursuant to the Arrangement Agreement, is being used to fund our exploration and development projects and ongoing commitments. |
| | • | | Vista reduced its intercompany funding of Allied Nevada by $1,306,000 in 2007 compared to 2006. The reduction in funding resulted because the Arrangement closed in May 2007 and Vista was not required to fund any additional cash requirements after the closing of the Arrangement. Vista provided the funding for all cash requirements of the Vista Nevada Assets during 2006. |
For the years 2005and 2006 presented on the consolidated statements of cash flows, cash received from financing activities was the result of intercompany funding from Vista. Vista provided cash to Vista Nevada to pay for expenditures incurred by Vista Nevada. Any increases or decreases in cash provided were due to increases or decreases in Vista Nevada’s yearly or quarterly, expenditures, as applicable.
Liquidity and capital resources
We anticipate that we will meet our operating cash requirements over the next two years through a combination of our cash on hand, the funds that we anticipate raising from an offering of our common stock,
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royalty payments and operating cash flow from the Hycroft Mine assuming that the reactivation proceeds as currently planned. Additionally, as described in Note 16 to the Consolidated Financial Statements, the Company’s Board of Directors has authorized management to enter into a bridge credit facility of up to CDN$ 30.0 million with a subsidiary of Quest Capital. If we are unable to raise sufficient funds from the foregoing to meet our operating cash requirements, we may need to pursue public financing or curtail our activities.
At December 31, 2007, our total assets increased to $106,514,000 from $17,303,000 at December 31, 2006. Much of this increase was a result of the closing of the Arrangement, which resulted in among other things, Vista’s transfer to us of the Vista Nevada Assets along with cash, the Pescio’s transfer to us of the Pescio Nevada Assets less the cash payment to the Pescios, as well as our private placement completed in July 2007, all as discussed above.
At December 31, 2007, we had working capital of $19,741,000 compared to $50,000 at December 31, 2006, representing an increase of $19,690,000. This increase is primarily related to a $20,098,000 increase in cash and cash equivalents as explained in the previous sections discussing cash used in operating activities, cash used in investing activities, and cash provided by financing activities. Other non-cash current asset items increased by $1,062,000 as a result of the Company’s prepaid mineral property claims fees and prepaid insurance, deposits for drilling services, and professional fees incurred in anticipation of an equity offering. Current liabilities increased by $1,417,000 since December 31, 2006 resulting from trade account payables and accruals related to employee compensation and directors’ fees.
At December 31, 2007, we had cash and cash equivalents totaling $20,105,000. All cash equivalents were invested in high quality short-term money market instruments, including bankers’ acceptances, bank notes, certificates of deposit, government securities, commercial paper and repurchase agreements of domestic and foreign issuers. At December 31, 2007, we had no funds invested in asset-backed commercial paper.
At December 31, 2007, we had no outstanding debt to banks or financial institutions.
At December 31, 2006, our total assets were $17.3 million as compared to $16.9 million and $10.7 million for 2005 and 2004, respectively. At December 31, 2006, we had working capital of $50,000 compared to negative working capital of $6,000 in 2005 and working capital of $351,000 in 2004.
Our immediate cash needs prior to the completion of the Arrangement were met by loans from Vista pursuant to the Arrangement Agreement, which provided that, prior to the closing, Vista could loan money to its wholly-owned subsidiary that would hold Vista’s Nevada assets prior to the closing, namely Vista Gold Holdings Inc. (“Vista U.S.”) in amounts sufficient to undertake certain activities for the benefit of the business to be operated by Allied Nevada after the completion of the Arrangement. These activities include the purchase of mineral properties or property interests, payment of amounts necessary to secure the services of a Chief Executive Officer for us prior to the closing, and purchase of office equipment, software and other miscellaneous items to enable us to commence operations immediately after the closing. These loans were to bear interest at the rate of 6% per annum and all principal and interest owing by Vista U.S. to Vista in respect of such loans was to be paid in full at closing by Allied Nevada on behalf of Vista U.S. As of December 31, 2006 this loan amount was $357,201 which included interest of $3,308. At September 30, 2007, the loan, aggregating $483,000, had been repaid to Vista.
In conjunction with the Arrangement, Vista invested $25 million in Allied Nevada in exchange for common stock of Allied Nevada. Allied Nevada used $15 million of this investment to purchase the Pescio Nevada Assets. The remaining $10 million, less costs and expenses or any amounts required to pay amounts owing to Vista in connection with loans that Vista made to Vista U.S. pursuant to the Arrangement Agreement, is being used to fund exploration and development projects and ongoing commitments. Under the Arrangement Agreement, we agreed to use our commercially reasonable efforts to complete an equity financing of no less than $15 million as soon as practical after the closing. On July 16, 2007, we met this requirement with the completion of a private
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equity placement for gross proceeds of approximately $16.3 million. See “—Financing Activities” and Note 9 to the Consolidated Financial Statements. However, there can be no assurance that we will be able to raise additional capital in the future. Allied Nevada will continue to actively pursue alternatives to monetize Allied Nevada’s assets and attract other investors.
Off-Balance sheet arrangements
Allied Nevada has no off-balance sheet arrangements.
Contractual obligations
Allied Nevada’s contractual obligations at December 31, 2007 (in thousands) are summarized as follows:
| | | | | | | | | | | | | | | |
Contractual Obligations | | Total | | Less than
1 year | | 1 – 3
Years | | 4 – 5
Years | | After
5 Years |
Capital lease obligations | | $ | 23 | | | 11 | | | 12 | | | — | | | — |
Operating lease obligations | | $ | 153 | | | 86 | | | 67 | | | — | | | — |
Remediation and reclamation obligations(1) | | $ | 8,621 | | | 133 | | | 776 | | | 2,579 | | | 5,133 |
Advance Minimum Royalty obligations | | $ | 4,850 | | | 225 | | | 825 | | | 600 | | | 3,200 |
Purchase obligations(2) | | $ | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 13,647 | | $ | 455 | | $ | 1,680 | | $ | 3,179 | | $ | 8,333 |
| (1) | Mining operations are subject to extensive environmental regulations in the jurisdictions in which they operate. Pursuant to these environmental regulations, the Company is required to close its operations and reclaim and remediate the lands that operations have disturbed. The estimated undiscounted cash outflows of these remediation and reclamation obligations are reflected here. For more information regarding remediation and reclamation liabilities, See Note 10 to the Consolidated Financial Statements. |
| (2) | Purchase obligations are not recorded in the Consolidated Financial Statements. Purchase obligations represent obligations for purchase of materials and supplies and drilling services. |
Recent accounting pronouncements
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the Company’s fiscal year ending December 31, 2008. Currently the Company does not hold any of the financial assets or liabilities to which this statement applies.
Staff Accounting Bulletin No. 108
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 requires that public companies utilize a “dual-approach” to assessing the quantitative effects of financial misstatements. This dual approach includes both a statement of operations focused assessment and a balance sheet focused assessment. The Company adopted SAB 108 on May 10, 2007. The adoption of SAB No. 108 had no impact on the Company’s consolidated financial position or results of operations.
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Fair Value Option for Financial Assets and Liabilities
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS 159 are effective for the Company’s year ending December 31, 2008. The Company has determined that the adoption of this statement will have little or no effect on the Company’s consolidated financial position, results of operations, and disclosures. Currently the Company does not hold any of the financial assets or liabilities to which this statement applies.
Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on the consolidated financial position, results of operations, and disclosures.
Noncontrolling Interests
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners. SFAS 160 is effective for the Company as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.
Subsequent events
On January 18, 2008, Allied Nevada filed a Form S-1 registration statement with the Securities Exchange Commission, and on January 21, 2008 filed a preliminary prospectus with Canadian securities regulators relating to a proposed public offering of its common stock. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective, and a preliminary prospectus has been filed with securities regulatory authorities in each of the provinces and territories of Canada, other than Quebec. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. This report shall not constitute an offer to sell or a solicitation of an offer to buy, nor will there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
On March 3, 2008, the Board of Directors ratified the signing of an indicative letter of intent concerning a proposed CDN$30 million secured bridge credit facility with Quest Holdings Ltd. (“Quest Holdings”). The terms of the facility are not yet final and are subject to due diligence by Quest Holdings and its counsel, the preparation of definitive documentation, the granting of security and such other steps as are usual to transactions of this nature. The letter of intent provides that the facility is scheduled to be available for drawdown until July 2008 and must be repaid by March 2009. Borrowings under the proposed credit facility are limited to working capital, operating, and capital expenditures relating to the reopening of the Hycroft mine. The Company’s interest in the
62
Hycroft mine properties and all of its personal tangible property are expected to be pledged as collateral for the credit facility. The proposed agreement is expected to contain customary covenants for credit facilities of this type including certain negative covenants, which will limit or restrict the Company’s ability to incur additional debt. The Company will incur a standby fee equal to four percent of the amount of the loan facility when it enters into the agreement. Borrowings under the proposed credit facility are subject to payment of a five percent drawing fee payable to Quest Holdings. The interest rate on borrowings are twelve percent per annum compounded monthly. Quest Holdings is a wholly-owned subsidiary of Quest Capital Corp. (Quest Capital). As described in Note 13 to the Consolidated Financial Statements, Robert Buchan, Executive Chairman and director of Allied Nevada, is a director of Quest Capital and A. Murray Sinclair, a former director of Allied Nevada, is a Co-Chairman of Quest Capital. Mr. Buchan has disclosed to the Board of Directors that he may participate to the extent of up to CDN$5 million in the proposed Quest Holdings credit facility.
Allied Nevada has accepted an offer to sell its 50% interest in the Hamilton-Treasure Hill mineral property consisting of 106 patented and 112 unpatented mining claims for $1.0 million. Under terms of the agreement, Allied Nevada retained a NSR of 1%, which is subject to a buyout for a payment of $0.5 million in the first 24 months from closing escalating thereafter to a maximum of $3.0 million.
63
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Allied Nevada is engaged in the acquisition of gold projects and related activities including exploration engineering, permitting, the preparation of feasibility studies and the development of mineral properties into operating mines. The value of our properties is related to gold price and changes in the price of gold could affect our ability to generate revenue from our portfolio of gold projects.
Gold prices may fluctuate widely from time to time and are affected by numerous factors, including the following: expectations with respect to the rate of inflation, exchange rates, interest rates, global and regional political and economic circumstances and governmental policies, including those with respect to gold holdings by central banks. The demand for, and supply of, gold affect gold prices, but not necessarily in the same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. The demand for gold primarily consists of jewelry and investments. Additionally, hedging activities by producers, consumers, financial institutions and individuals can affect gold supply and demand. While gold can be readily sold on numerous markets throughout the world, its market value cannot be predicted for any particular time.
Allied Nevada has no debt outstanding, nor do we have any investment in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.
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| Item 8. | Financial Statements and Supplementary Data |
65
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Allied Nevada Gold Corp.
Reno, Nevada
We have audited the consolidated balance sheet of Allied Nevada Gold Corp. and subsidiaries (collectively the Company, an exploration stage company) as of December 31, 2007, and the related consolidated statements of loss, shareholders’ equity, and cash flows for the year then ended, and the related amounts included in the cumulative totals for the period from January 1, 2002 (exploration stage) to December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company as of December 31, 2006 and 2005, and for the years then ended, and for the related amounts included in the cumulative totals for the period from January 1, 2002 (exploration stage) to December 31, 2007 is based solely on the report of other auditors, whose report has been furnished to us and expressed an unqualified opinion on those financial statements.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Nevada Gold Corp. and subsidiaries as of December 31, 2007, and the results of its operations and its cash flows for the year then ended, and the related amounts included in the cumulative totals for the period from January 1, 2002 (exploration stage) to December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
March 6, 2008
Denver, Colorado
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REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Vista Gold Corp.
We have audited the accompanying balance sheets of the Nevada-based business of Vista Gold Corp. as of December 31, 2006 and the related statements of loss and cash flows for each of the two years ended December 31, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Nevada-based business of Vista Gold Corp. at December 31, 2006, and the results of its operations and its cash flows for each of the two years ended December 31, 2006, in conformity with generally accepted accounting principles in the United States.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C.
March 16, 2007
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ALLIED NEVADA GOLD CORP.
(An Exploration Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(US dollars in thousands)
| | | | | | | | |
| | | December 31, | |
| | | 2007 | | | 2006 | |
Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 20,105 | | | $ | 7 | |
Accounts receivable | | | — | | | | 102 | |
Supplies inventory | | | 147 | | | | 97 | |
Prepaids and other—Note 11 | | | 1,068 | | | | 6 | |
| | | | | | | | |
Current assets | | | 21,320 | | | | 212 | |
| | |
Restricted cash—Note 6 | | | 5,586 | | | | 5,320 | |
Mineral properties—Note 7 | | | 76,394 | | | | 8,892 | |
Plant and equipment, net—Note 8 | | | 1,037 | | | | 997 | |
Reclamation premium costs—Note 10 | | | 2,177 | | | | 1,882 | |
| | | | | | | | |
Total assets | | $ | 106,514 | | | $ | 17,303 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Accounts payable | | $ | 964 | | | $ | 9 | |
Capital lease obligations, current portion | | | 11 | | | | 10 | |
Accrued liabilities and other | | | 471 | | | | 143 | |
Asset retirement obligation, current portion | | | 133 | | | | — | |
| | | | | | | | |
Current liabilities | | | 1,579 | | | | 162 | |
| | |
Capital lease obligations, noncurrent portion | | | 12 | | | | 23 | |
Asset retirement obligation and closure costs—Note 10 | | | 5,167 | | | | 4,663 | |
| | | | | | | | |
Total liabilities | | | 6,758 | | | | 4,848 | |
| | | | | | | | |
Shareholders’ Equity: | | | | | | | | |
Parent company’s net investment—Note 9 | | | — | | | | 23,381 | |
Common stock—Note 9 | | | 43 | | | | — | |
Additional paid-in capital | | | 121,904 | | | | — | |
Deficit accumulated during the exploration stage | | | (22,191 | ) | | | (10,926 | ) |
| | | | | | | | |
Total shareholders’ equity | | | 99,756 | | | | 12,455 | |
| | | | | | | | |
Total liabilities and shareholders’ equity | | $ | 106,514 | | | $ | 17,303 | |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
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ALLIED NEVADA GOLD CORP.
(An Exploration Stage Enterprise)
CONSOLIDATED STATEMENTS OF LOSS
(US dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | Cumulative
During
Exploration
Stage | |
| | | 2007 | | | 2006 | | | 2005 | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Property evaluation and holding costs | | $ | 6,352 | | | $ | 1,709 | | | $ | 1,466 | | | $ | 14,420 | |
Corporate administration and investor relations | | | 4,863 | | | | 1,181 | | | | 859 | | | | 7,762 | |
Impairment of mineral properties—Note 7 | | | 678 | | | | — | | | | — | | | | 678 | |
Depreciation | | | 230 | | | | 199 | | | | 207 | | | | 1,097 | |
Asset retirement obligation and closure costs | | | 223 | | | | — | | | | — | | | | 1,271 | |
| | | | | | | | | | | | | | | | |
Total costs and expenses | | | 12,346 | | | | 3,089 | | | | 2,532 | | | | 25,228 | |
| | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | |
Interest income | | | 1,030 | | | | 552 | | | | 184 | | | | 1,823 | |
Interest expense | | | (11 | ) | | | — | | | | — | | | | (11 | ) |
Gain on disposal of assets | | | — | | | | — | | | | 7 | | | | 45 | |
Gain on currency translation | | | — | | | | 11 | | | | — | | | | 11 | |
Gain on disposal of marketable securities | | | 62 | | | | 61 | | | | 15 | | | | 144 | |
Income earned during exploration stage | | | — | | | | — | | | | 40 | | | | 1,025 | |
| | | | | | | | | | | | | | | | |
Total other income | | | 1,081 | | | | 624 | | | | 246 | | | | 3,037 | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (11,265 | ) | | $ | (2,465 | ) | | $ | (2,286 | ) | | $ | (22,191 | ) |
| | | | | | | | | | | | | | | | |
| | | | |
Weighted average shares outstanding | | | 26,955,029 | | | | | | | | | | | | | |
Basic loss per share | | | $(0.42 | ) | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
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ALLIED NEVADA GOLD CORP.
(An Exploration Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Cumulative
during
Exploration
Stage | �� |
| | | 2007 | | | 2006 | | | 2005 | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | |
Net loss for the period | | $ | (11,265 | ) | | $ | (2,465 | ) | | $ | (2,286 | ) | | $ | (22,191 | ) |
| | | | |
Adjustments to reconcile net loss for the period to net cash used in operating activities: | | | | | | | | | | | | | | | | |
Impairment of mineral interests | | | 678 | | | | — | | | | — | | | | 678 | |
Depreciation | | | 230 | | | | 192 | | | | 199 | | | | 1,076 | |
Amortization of reclamation premium costs | | | 119 | | | | 119 | | | | 119 | | | | 475 | |
Asset retirement obligation and closure costs, net | | | 223 | | | | — | | | | — | | | | 1,277 | |
Gain on disposal of assets | | | — | | | | — | | | | (7 | ) | | | (45 | ) |
Allocated expenses from parent company | | | 86 | | | | 814 | | | | 942 | | | | 2,691 | |
Stock based compensation | | | 1,250 | | | | — | | | | — | | | | 1,250 | |
| | | | |
Change in operating assets and liabilities: | | | | | | | | | | | | | | | | |
Accounts receivable | | | 102 | | | | (84 | ) | | | 285 | | | | 179 | |
Supplies inventory | | | (50 | ) | | | 27 | | | | (8 | ) | | | 36 | |
Prepaids and other | | | (1,063 | ) | | | 12 | | | | — | | | | (1,062 | ) |
Accounts payable | | | 955 | | | | (12 | ) | | | (34 | ) | | | 861 | |
Accrued liabilities and other | | | 329 | | | | 5 | | | | — | | | | 330 | |
| | | | | | | | | | | | | | | | |
Net cash used in operating activities | | | (8,406 | ) | | | (1,392 | ) | | | (790 | ) | | | (14,445 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | |
Restricted cash—Note 6 | | | (266 | ) | | | (223 | ) | | | (136 | ) | | | (5,586 | ) |
Additions to mineral properties, net of cost recoveries | | | 2,339 | | | | 94 | | | | — | | | | 1,484 | |
Acquisition of mineral properties—Note 5 | | | (15,000 | ) | | | — | | | | (5,325 | ) | | | (20,325 | ) |
Purchases of plant and equipment | | | (278 | ) | | | (11 | ) | | | (18 | ) | | | (2,016 | ) |
Proceeds on disposal of plant and equipment | | | — | | | | — | | | | 10 | | | | 212 | |
| | | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (13,205 | ) | | | (140 | ) | | | (5,469 | ) | | | (26,231 | ) |
| | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | |
Proceeds on issuance of common stock | | | 42,272 | | | | — | | | | — | | | | 42,272 | |
Offering costs | | | (786 | ) | | | — | | | | — | | | | (786 | ) |
Intercompany funding from Parent company | | | 223 | | | | 1,529 | | | | 6,240 | | | | 18,659 | |
| | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 41,709 | | | | 1,529 | | | | 6,240 | | | | 60,145 | |
| | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 20,098 | | | | (3 | ) | | | (19 | ) | | | 19,469 | |
Cash and cash equivalents, beginning of period | | | 7 | | | | 10 | | | | 29 | | | | 636 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 20,105 | | | $ | 7 | | | $ | 10 | | | $ | 20,105 | |
| | | | | | | | | | | | | | | | |
Supplemental Cash Flow Disclosures: | | | | | | | | | | | | | | | | |
Cash paid for interest | | $ | 11 | | | $ | — | | | $ | — | | | $ | 11 | |
Cash paid for income taxes | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | |
Non-Cash Financing and Investing Activities | | | | | | | | | | | | | | | | |
Common shares issued for Pescio assets—Note 5 | | $ | 55,518 | | | $ | — | | | $ | — | | | $ | 55,518 | |
Common shares issued for Vista assets—Note 5 | | $ | 23,692 | | | $ | — | | | $ | — | | | $ | 23,692 | |
Warrants issued for services | | $ | 182 | | | $ | — | | | $ | — | | | $ | 182 | |
Acquisition of F.W. Lewis, Inc. Properties | | $ | — | | | $ | — | | | $ | 1,218 | | | $ | 1,218 | |
The accompanying notes are an integral part of these consolidated financial statements.
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ALLIED NEVADA GOLD CORP.
(An Exploration Stage Enterprise)
Consolidated Statements of Shareholders’ Equity
(US dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | Years Ended December 31, | | | Cummulative
During
Exploratio
Stage | |
| | | 2007 | | | 2006 | | | 2005 | | |
Common share capital | | | | | | | | | | | | | | | | |
Balance, January 1, | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Shares issued to Vista Gold Corp. for acquisition of mineral interests and cash | | | 27 | | | | — | | | | — | | | | 27 | |
Shares issued to the Pescios for acquisition of mineral interests | | | 12 | | | | — | | | | — | | | | 12 | |
Shares issued in July 16, 2007 private placement | | | 4 | | | | — | | | | — | | | | 4 | |
Shares issued under Special Stock Option plan | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Balance at the end of the period | | | 43 | | | | — | | | | — | | | | 43 | |
| | | | | | | | | | | | | | | | |
Additional paid-in capital | | | | | | | | | | | | | | | | |
Balance, January 1, | | | — | | | | — | | | | — | | | | — | |
Shares issued to Vista Gold Corp. for acquisition of mineral interests and cash | | | 24,973 | | | | — | | | | — | | | | 24,973 | |
Conversion of Vista Gold Corp.’s net investment into common shares | | | 23,692 | | | | — | | | | — | | | | 23,692 | |
Shares issued to the Pescios for acquisition of mineral interests | | | 55,506 | | | | — | | | | — | | | | 55,506 | |
Shares issued in July 16, 2007 private placement | | | 13,247 | | | | — | | | | — | | | | 13,247 | |
Shares issued under Special Stock Option plan | | | 433 | | | | — | | | | — | | | | 433 | |
Shares issued under July 16, 2007 private placement warrant exercise | | | 166 | | | | — | | | | — | | | | 166 | |
Share issuance costs associated with July 16, 2007 private placement | | | (968 | ) | | | — | | | | — | | | | (968 | ) |
Costs related to employee compensation | | | 1,250 | | | | — | | | | — | | | | 1,250 | |
Warrants issued in July 16, 2007 private placement | | | 2,895 | | | | — | | | | — | | | | 2,895 | |
Warrants issued as finders’ fees from July 16, 2007 private placement | | | 182 | | | | — | | | | — | | | | 182 | |
Shares subscribed under warrant exercise but not issued | | | 528 | | | | — | | | | — | | | | 528 | |
| | | | | | | | | | | | | | | | |
Balance at the end of the period | | | 121,904 | | | | — | | | | — | | | | 121,904 | |
| | | | | | | | | | | | | | | | |
Parent company’s (Vista Gold Corp.) net investment | | | | | | | | | | | | | | | | |
Balance, January 1, | | | 23,381 | | | | 21,037 | | | | 12,638 | | | | — | |
Intercompany funding from parent | | | 311 | | | | 2,344 | | | | 8,399 | | | | 23,692 | |
Conversion of Vista Gold Corp.’s net investment into common shares | | | (23,692 | ) | | | — | | | | — | | | | (23,692 | ) |
| | | | | | | | | | | | | | | | |
Balance at the end of the period | | | — | | | | 23,381 | | | | 21,037 | | | | — | |
| | | | | | | | | | | | | | | | |
Deficit accumulated during the exploration stage | | | | | | | | | | | | | | | | |
Balance, January 1, | | | (10,926 | ) | | | (8,461 | ) | | | (6,175 | ) | | | — | |
Net loss for the period | | | (11,265 | ) | | | (2,465 | ) | | | (2,286 | ) | | | (22,191 | ) |
| | | | | | | | | | | | | | | | |
Balance at the end of the period | | | (22,191 | ) | | | (10,926 | ) | | | (8,461 | ) | | | (22,191 | ) |
| | | | | | | | | | | | | | | | |
Total shareholders’ equity | | $ | 99,756 | | | $ | 12,455 | | | $ | 12,576 | | | $ | 99,756 | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
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ALLIED NEVADA GOLD CORP.
(An Exploration Stage Enterprise)
Notes to Consolidated Financial Statements
The Consolidated Financial Statements of Allied Nevada Gold Corp. (an Exploration Stage Enterprise) and its subsidiaries (collectively, “Allied Nevada” or the “Company”), have been prepared in accordance with generally accepted accounting principles in the United States. The results of operations are not necessarily indicative of the operating results of future years. The Company commenced operations as an independent, newly formed entity on May 10, 2007 upon completion of the transactions pursuant to the Arrangement Agreement, prior to which it had been a wholly-owned subsidiary of Vista Gold Corp (“Vista”) (Note 5). Under the continuity of interest basis of accounting, the financial results include the net Vista Nevada Assets for periods prior to May 10, 2007. However, the associated expenses recorded by the Company prior to May 10, 2007 may not be indicative of the actual expenses that would have been incurred had the Company been operating as a separate, stand-alone public company for the periods presented and do not reflect the Company’s consolidated results of operations, financial position and cash flows had the Company been a stand-alone public company during the periods presented.
Certain amounts for the year ended December 31, 2006 and at December 31, 2005 have been reclassified to conform to the 2007 presentation.
| 2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations; environmental, reclamation and closure obligations; estimates of fair value for asset impairments; estimates of the fair value of stock options granted; and the valuation allowances for deferred tax assets. The Company bases its estimates on various assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Allied Nevada Gold Corp. and more-than-50%-owned subsidiaries that it controls. All significant intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Cash and cash equivalents are invested in a highly liquid money market fund. Restricted cash is excluded from cash and cash equivalents and is included in other current and long-term assets.
Supplies Inventory
Supplies inventory is valued at the lower of average cost or net realizable value. Cost includes applicable taxes and freight.
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Property, Plant, and Equipment
Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives, which do not exceed the related estimated mine lives, of such facilities based on proven and probable reserves.
Mineral Exploration and Development Costs
Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, costs incurred prospectively to develop the property are capitalized as incurred and are amortized using the units-of-production (“UOP”) method over the estimated life of the ore body based on estimated recoverable ounces in proven and probable reserves.
Mineral Interests
Mineral property acquisition costs are recorded at cost and are deferred until the viability of the property is determined. We currently have one Development Property, namely the Hycroft Brimstone Open Pit Mine, which is located approximately 54 miles west of Winnemucca, Nevada. Exploration, mineral property evaluation, option payments, related acquisition costs for mineral properties acquired under an option agreement, general overhead, administrative and holding costs to maintain a property on a care and maintenance basis are expensed in the period they are incurred. When proven and probable reserves are determined for a property and a feasibility study is completed, subsequent exploration and development costs on the property would be capitalized. If a project were to be put into production, capitalized costs would be depleted on the unit of production basis.
The Company is party to mineral property agreements that include provisions requiring the reimbursement by another party of its share of a project’s exploration costs to the Company. Costs reimbursed to the Company relate directly to exploration of the project and do not include any margin or mark-up of direct costs incurred. Accordingly, such reimbursements are netted against mineral property exploration costs incurred by the Company on the related project.
Mineral property option payments are made at the discretion of the optionee and accordingly option amounts are accounted for as a reduction in the carrying value of the applicable mineral interest on the cash basis when receipt is reasonably assured.
Management’s estimates of gold prices, recoverable proven and probable reserves, probable outcomes, operating capital and reclamation costs are subject to risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur in the near term that could adversely affect management’s estimate of net cash flows expected to be generated and the need for possible asset impairment write-downs.
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior undetected agreements or transfers and title may be affected by such defects.
Asset Impairment
Long-lived Assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, price trends and related factors), production levels and operating costs
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of production and capital, all based on life-of-mine plans. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves and other material that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from such exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and operating costs of production and capital are each subject to significant risks and uncertainties.
Reclamation and Remediation Costs (Asset Retirement Obligations)
Reclamation costs are allocated to expense over the life of the related assets and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation and abandonment costs. The asset retirement obligation is based on when the spending for an existing environmental disturbance and activity to date will occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site in accordance with FASB FAS No. 143, “Accounting for Asset Retirement Obligations.”
Income Taxes
The Company accounts for income taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of the Company’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates either a net deferred income tax liability or asset for the Company, as measured by the statutory tax rates in effect. The Company derives its deferred income tax charge or benefit by recording the change in either the net deferred income tax liability or asset balance for the year.
The Company’s deferred income tax assets include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.
Stock Based Compensation
Compensation cost recognized in 2007 includes compensation cost for all share-based payments based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).
Loss Per Share
Loss per share amounts are only presented for 2007 as Allied Nevada was not a publicly held entity prior to May 10, 2007 and was a wholly-owned subsidiary of Vista . Basic loss per share amounts are calculated by using the weighted-average number of common shares outstanding during the year. Diluted loss per share amounts reflect the potential dilution that could occur if securities or other contracts that may require the issuance of common shares in the future were converted unless their inclusion would be anti-dilutive. As the Company incurred a net loss in 2007, potential shares to be issued from the assumed exercise of options, warrants, and restricted shares were not included in the computation of diluted earnings per share since their result would be anti-dilutive.
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Concentration of Risk
Although the Company is currently an exploration stage enterprise (as defined by Industry Guide 7), it expects the principal source of future revenue to be the sale of gold. A significant and sustained decrease in the price of gold from current levels could have a material and negative impact on the Company’s business, financial condition and results of operations.
The Company places its cash investments with a single high quality financial institution. Substantially all of the cash and cash equivalents were uninsured. All cash equivalents were invested in high quality short-term money market instruments, including bankers’ acceptances, bank notes, certificates of deposit, government securities, commercial paper and repurchase agreements of domestic and foreign issuers. At December 31, 2007, we had no funds invested in asset-backed commercial paper. The Company has not experienced any losses on its cash investments.
Allied Nevada evaluates, acquires, explores and advances gold exploration and development projects. As such, the Company is considered an Exploration Stage Enterprise. The Company’s approach to acquisitions of gold projects is to seek projects which have adequate drilling and geological data to support the completion of a third-party review of the geological data and to complete an estimate of the mineralized material. In addition, the Company will look for opportunities to improve the value of gold projects that the Company owns or controls through exploration drilling, developing properties into producing mines, and/or introducing technical innovations.
| 4. | New Accounting Pronouncements |
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the Company’s fiscal year ending December 31, 2008. Currently the Company does not hold any of the financial assets or liabilities to which this statement applies.
Staff Accounting Bulletin No. 108
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 requires that public companies utilize a “dual-approach” to assessing the quantitative effects of financial misstatements. This dual approach includes both a statement of operations focused assessment and a balance sheet focused assessment. The Company adopted SAB 108 on May 10, 2007. The adoption of SAB No. 108 had no impact on the Company’s consolidated financial position or results of operations.
Fair Value Option for Financial Assets and Liabilities
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value, with the objective of improving financial reporting by mitigating volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The provisions of SFAS 159 are effective for the Company’s year ending December 31, 2008. The Company has determined that the adoption of this statement will have little or no effect on the Company’s consolidated financial position, results of operations, and disclosures. Currently the Company does not hold any of the financial assets or liabilities to which this statement applies.
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Business Combinations
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on the consolidated financial position, results of operations, and disclosures.
Noncontrolling Interests
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners. SFAS 160 is effective for the Company as of January 1, 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 160 on the consolidated financial position, results of operations, and disclosures.
| 5. | Arrangement Agreement among the Company, Vista Gold Corp. and Carl and Janet Pescio |
Allied Nevada commenced operations on May 10, 2007, upon the closing of the transactions pursuant to the terms of the Arrangement and Merger Agreement, dated September 22, 2006, as amended (the “Arrangement Agreement”) among Allied Nevada, its then-parent company Vista Gold Corp. (“Vista”) and Carl Pescio and Janet Pescio (the “Pescios”). Pursuant to the Arrangement Agreement, Vista transferred to Allied Nevada its Nevada-based mining properties and related assets (the “Vista Nevada Assets”), along with cash, and the Pescios transferred to Allied Nevada their interests in certain Nevada mining properties and related assets (the “Pescio Nevada Assets”). These transfers to the Company were made in exchange for shares of Allied Nevada common stock and cash, under the terms of the Arrangement Agreement, all pursuant to an arrangement (the “Arrangement”) under the provisions of the Business Corporations Act (Yukon Territory).
Among other things, pursuant to the Arrangement Agreement:
| • | | Vista reorganized its business to split the Vista Nevada Assets from its other properties and related assets and ensured that all of the Vista Nevada Assets were held by its wholly-owned subsidiary, Vista Gold Holdings Inc. (“Vista U.S.”) or subsidiaries wholly-owned by Vista U.S.; |
| • | | Vista subsequently transferred all issued and outstanding shares of Vista U.S. and $25,000 to Allied Nevada (less approximately $483 owed to Vista in connection with loans that Vista made to Vista U.S. pursuant to the Arrangement Agreement) in return for the number of shares of Allied Nevada common stock equal to 27,500,000 less the number of Option Shares (as defined in the Plan of Arrangement); and |
| • | | The Pescios transferred their interests the Pescio Nevada Assets to Allied Nevada Gold Holdings LLC, a limited liability company incorporated under the laws of Nevada with Allied Nevada as its sole member, in return for 12,000,000 shares of Allied Nevada common stock and $15,000 from Allied Nevada. |
Upon closing of the Arrangement, pursuant to the terms of the Arrangement Agreement, Allied Nevada issued 38,933,055 shares of common stock as part of the transaction, of which 12,000,000 were issued to the Pescios as partial consideration for the acquisition of the Pescio Nevada Assets and 26,933,055 were issued to Vista in accordance with the Arrangement. Of the 26,933,055 Allied Nevada shares issued to Vista, 25,403,207
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shares were distributed to shareholders of Vista, less any applicable withholding taxes, and Vista retained 1,529,848 shares to facilitate the payment of any taxes payable by Vista in respect of the Arrangement. Holders of Vista options exchanged their options for options to acquire Allied Nevada shares and options to acquire newly created Vista shares.
The accounting for Vista’s transfer to the Company of the Vista Nevada Assets is made on the basis of the continuity of interests basis of accounting whereby the operations are deemed to be a continuation of the Vista Nevada Assets. Accordingly, the assets are transferred to the new entity at their historical carrying values and accounting gains or losses are not recognized on the transaction.
The acquisition of the Pescio Nevada Assets has been accounted for as a purchase of assets. The total purchase price of the Pescio Nevada Assets was determined as follows:
| | | |
Cash proceeds paid | | $ | 15,000 |
Fair market value of 12,000,000 common shares | | | 55,518 |
| | | |
Total purchase price | | $ | 70,518 |
| | | |
The fair market value of the common shares issued to the Pescios was determined based on the average closing prices of the Company’s common stock during the first five full days of trading on the American and Toronto Stock Exchanges.
For the year ended December 31, 2007, the Company completed a detailed review of the expected values of the exploration properties and the Advanced Minimum Royalties that were transferred to the Company. In determining the updated purchase price allocation for the acquired mineral interests, the Company used an expected value approach that considered a number of factors as follows:
| | • | | the expected present values of Advanced Minimum Royalties (“AMRs”) and Net Smelter Royalties (“NSRs”) for those properties subject to lease agreements. For the Net Smelter Royalty calculations, various assumptions were made concerning mining dilution, process recoveries, gold production profiles, and metal prices. An additional consideration related to the likelihood of the current lessee defaulting in payment of either required AMRs or NSRs and returning the properties to the Company. For all properties under lease, the likelihood of the lessee defaulting was assessed based on market expectations and the payment history of the each lessee. The likelihood of lease default ranged from 30% to 50%. |
| | • | | the current market value of exploration properties in the State of Nevada. |
| | • | | A market premium for those exploration properties with identified resources based upon Canadian National Instrument 43-101 classifications. |
The above review resulted in changes to the preliminary purchase price allocation as reflected in the following table.
| | | | | | | | | | |
| | | May 10,
2007 | | Adjustments | | | December 31,
2007 |
| | | (in thousands) |
Mineral interests, property exploration value | | $ | 55,467 | | $ | (3,295 | ) | | $ | 52,172 |
Mineral interests, advanced minimum royalties | | | 15,051 | | | 3,295 | | | | 18,346 |
| | | | | | | | | | |
Total Purchase Price | | $ | 70,518 | | $ | — | | | $ | 70,518 |
| | | | | | | | | | |
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The table below reflects mineral interest property values ascribed to the 56 Pescio Nevada Assets mineral properties as follows (in thousands):
| | | |
Property Name | | Valuation |
Pony Creek/Elliot Dome | | $ | 22,277 |
East Whistler | | | 4,490 |
CV Claims (Rock Cr) | | | 3,586 |
Dixie Flats | | | 2,606 |
West Cortez | | | 2,566 |
Cobb Creek | | | 2,446 |
Rock Horse | | | 1,536 |
Walti | | | 1,515 |
Golden Cloud | | | 1,486 |
Stargo | | | 1,353 |
Toy | | | 1,295 |
Pipeline South | | | 1,195 |
Brock | | | 1,062 |
Mountain Springs | | | 1,012 |
Other Pescio Nevada Assets | | | 22,093 |
| | | |
Total | | $ | 70,518 |
| | | |
In 2003, Hycroft Resources and Development, Inc. (“Hycroft”) entered into an insurance-backed financial assurance program including a mine reclamation policy and a pollution legal liability policy for the Hycroft mine. As part of the policy, Hycroft paid an insurance premium and put funds in a commutation account used to reimburse reclamation costs and indemnity claims paid by Hycroft. The insurance policy covers reclamation costs in the event Hycroft defaults on payment of its reclamation costs up to an aggregate of $12,000.
The commutation account earns interest at an annual effective rate equal to the one-year constant maturity treasury rate prevailing on the first day of each anniversary year. The balance in the commutation account at December 31, 2007 was $5,586 (2006 - $5,320). The Company earned interest of $266 on this account during the year ended December 31, 2007.
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The following table reflects the Company’s mineral properties and changes for the year ended December 31, 2007.
| | | | | | | | | | | | |
| | | 2006 | | 2007 |
| | | December 31,
balance | | Acquisition
costs | | Cost
recovery | | | Impairment | | | December 31,
balance |
Maverick Springs | | 1,682 | | — | | — | | | — | | | 1,682 |
Mountain View | | 303 | | — | | — | | | — | | | 303 |
Wildcat | | 218 | | — | | — | | | — | | | 218 |
Hasbrouck and Three Hills | | 259 | | — | | — | | | — | | | 259 |
F.W. Lewis, Inc. Properties | | 2,930 | | — | | (2,101 | ) | | — | | | 829 |
Hycroft Royalty | | 3,500 | | — | | — | | | — | | | 3,500 |
Pony Creek/Elliot Dome | | — | | 22,277 | | — | | | — | | | 22,277 |
East Whistler | | — | | 4,490 | | — | | | — | | | 4,490 |
CV Claims (Rock Cr) | | — | | 3,586 | | — | | | — | | | 3,586 |
Dixie Flats | | — | | 2,606 | | — | | | — | | | 2,606 |
West Cortez | | — | | 2,566 | | — | | | (100 | ) | | 2,466 |
Cobb Creek | | — | | 2,446 | | — | | | — | | | 2,446 |
Rock Horse | | — | | 1,536 | | — | | | — | | | 1,536 |
Walti | | — | | 1,515 | | — | | | — | | | 1,515 |
Golden Cloud | | — | | 1,486 | | — | | | — | | | 1,486 |
Stargo | | — | | 1,353 | | — | | | — | | | 1,353 |
Toy | | — | | 1,295 | | — | | | — | | | 1,295 |
Pipeline South | | — | | 1,195 | | — | | | — | | | 1,195 |
Brock | | — | | 1,062 | | — | | | — | | | 1,062 |
Mountain Springs | | — | | 1,012 | | — | | | (40 | ) | | 972 |
Other Pescio Nevada Assets | | — | | 22,093 | | (237 | ) | | (538 | ) | | 21,318 |
| | | | | | | | | | | | |
| | 8,892 | | 70,518 | | (2,338 | ) | | (678 | ) | | 76,394 |
| | | | | | | | | | | | |
During the year ended December 31, 2007, the Company has received $2,000 from the exercise of an option on the Battle Mountain mineral property and has received royalty payments of $237 for mineral properties from the Pescio Nevada Assets. These payments are treated as a cost recovery against the respective assets.
The recoverability of the carrying values of the Company’s mineral properties is dependent upon the successful start-up and commercial production from, or sale, or lease, of these properties and upon economic reserves being discovered or developed on the properties. Development of any of these projects will depend, among other things, on management’s ability to raise additional capital for these purposes. Although Vista has been successful in raising such capital in the past and Allied Nevada completed an equity private placement financing in July 2007 (Note 9), there can be no assurance that Allied Nevada will be able to do so in the future.
On September 11, 2007, the Board of Directors approved the reactivation of the Hycroft Mine. The Hycroft reactivation project involves reopening the Brimstone oxide open pit mine, which had been in production from 1994 until 1998 when the entire Hycroft Mine was closed and put on care and maintenance due to low gold prices.
During 2007, a lessee of fourteen properties failed to make certain payments of advanced minimum royalties and property payments in accordance with applicable property lease agreements. Allied Nevada rescheduled the payments so that all amounts due were to be paid by February 5, 2008. On February 5, 2008 the above lessee failed to make the payments due to Allied Nevada. Allied Nevada has initiated an action to recover the properties and cancel the related property lease agreements. The above lessee’s failure resulted in an
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impairment of $367 as the present value of the advance minimum royalties on the properties exceeded the exploration land value of the property at December 31, 2007. The above impairment of $367 was determined in accordance with the Company’s process for valuing and impairment testing of mineral properties as described in Note 2.
During 2007, another lessee of fourteen properties failed to make payments of advanced minimum royalties in accordance with applicable property lease agreements. Allied Nevada rescheduled the payments so that all amounts due were to be paid by February 5, 2008. On February 5, 2008, the second lessee and the Company came to an agreement the lease would make the payments on two properties and return the remaining twelve properties to Allied Nevada. The return of these twelve properties required Allied Nevada to record an impairment of $311 as the present value of the advance minimum royalties on certain of the properties returned exceeded the exploration land value of the property at December 31, 2007. The impairment of $311 was determined in accordance with the Company’s process for valuing and impairment testing of mineral properties as described in Note 2.
The Company believes that the fair value of its mineral properties exceeds the carrying value; however, events and circumstances beyond the control of management may mean that a write-down in the carrying values of the Company’s properties may be required in the future as a result of evaluation of gold mineralized material and application of a ceiling test which is based on estimates of gold mineralized material, exploration land values, future advanced minimum royalty payments and gold prices.
| | | | | | | | | | | | | | | | | | |
| | | December 31, 2007 | | December 31, 2006 |
| | | Cost | | Accumulated
Depreciation
and Write-
downs | | Net | | Cost | | Accumulated
Depreciation
and Write-
downs | | Net |
Hycroft mine | | $ | 11,989 | | $ | 11,159 | | $ | 830 | | $ | 11,949 | | $ | 10,969 | | $ | 980 |
Corporate Office and other | | | 260 | | | 53 | | | 207 | | | 31 | | | 14 | | | 17 |
| | | | | | | | | | | | | | | | | | |
| | $ | 12,249 | | $ | 11,212 | | $ | 1,037 | | $ | 11,980 | | $ | 10,983 | | $ | 997 |
| | | | | | | | | | | | | | | | | | |
Allied Nevada depreciates its assets using a straight-line basis over the useful lives of the assets that vary from two to ten years. The depreciable base of the assets is determined by reducing the historical acquisition costs by the estimate of salvage values for the assets being depreciated.
Parent company’s net investment
Until May 10, 2007, the Company was a wholly owned subsidiary of Vista. Prior to that date, all operating, investing, and financing cash requirements of the Company were still being provided by Vista. As a result of the Arrangement Agreement (Note 4), Vista’s net investment in Allied Nevada was converted into a common stock investment at the May 10, 2007 historical cost of the net investment of $23,692.
Common Stock
The authorized share capital of Allied Nevada consists of 100,000,000 shares of common stock with a par value of $0.001 per share. As of December 31, 2007, there were 42,842,594 shares of common stock issued and outstanding.
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Arrangement Agreement
On May 10, 2007, pursuant to the Arrangement Agreement, Allied Nevada issued 26,933,055 shares of common stock to Vista in exchange for the Vista Nevada Assets and $25,000. The value of the shares issued to Vista was determined based on Vista’s net investment of $23,692 in the Vista Nevada Assets at May 10, 2007 and the $25,000 in accordance with the Arrangement Agreement.
On May 10, 2007, the Company acquired the Pescio Nevada Assets for a cash payment of $15,000 plus the issuance of 12,000,000 Allied Nevada shares. The fair value of the common shares issued to the Pescios was $55,518 and was determined based upon the average closing price of the Company’s common shares during the first five full days of trading on the American and Toronto Stock Exchanges following the closing of the Arrangement Agreement.
Private Placement Financing
Under the Arrangement Agreement, Allied Nevada agreed to use its commercially reasonable efforts to complete an equity financing of no less than $15,000 as soon as practical after closing of the Arrangement. On July 16, 2007, the Company met this requirement with the completion of a private placement financing in which the Company sold and issued a total of 3,696,000 units for total gross proceeds of CDN$17,001 (the “Offering”), or approximately $16,300 based on the U.S./Canadian dollar exchange rate on the closing date. Net cash proceeds to Allied Nevada were approximately $15,500. Each unit consisted of one share of common stock and one common share purchase warrant. Each warrant entitles the holder thereof to acquire one share of common stock of Allied Nevada for a period of two years from closing at a price of CDN$5.75 per share.
The warrants have a provision for accelerating their expiry date as follows: if the closing price of Allied Nevada’s common stock exceeds CDN$11.50 for twenty (20) consecutive trading days at any time on the Toronto Stock Exchange, the Company may, by written notice to the warrant holders, accelerate the expiry time of the warrants to the date which is thirty (30) days from delivery of such notice, following which the warrants will be cancelled.
Officers and directors of Allied Nevada subscribed for an aggregate of CDN$6,435 of the Offering, as follows: Robert Buchan, Executive Chairman—CDN$4,002; A. Murray Sinclair, (then a Director)—CDN$1,499; Scott A. Caldwell, President Chief Executive Officer and Director—CDN$506; Hal D. Kirby, Vice President and Chief Financial Officer—CDN$230; James M. Doyle, Vice President, Technical Services—CDN$151; and W. Durand Eppler, Director—CDN$46.
In connection with the private placement financing, Allied Nevada paid a cash finder’s fee of $507, being 5% of the gross proceeds raised, to eligible persons that arranged for purchasers (“Finders”). As consideration for its role as Finder in the private placement financing, Quest Securities Corporation (“Quest Securities”), then a wholly-owned subsidiary of Quest Capital Corp. (“Quest Capital”) received a cash fee of $105, and warrants to purchase 114,850 units. These warrants are exercisable by Quest Securities for a period of two years at an exercise price of CDN$4.60 per unit. No commissions were paid to Quest Securities with respect to sales of units to directors or officers of Allied Nevada. Robert Buchan, Executive Chairman and a director of Allied Nevada, then served as Chairman of Quest Capital and A. Murray Sinclair, then an Allied Nevada director, then served as Managing Director of Quest Capital. Effective December 14, 2007, Mr. Sinclair resigned as a director of Allied Nevada to assist Quest Capital in its conversion into a Mortgage Investment Corporation. In connection with this conversion, effective January 1, 2008 Mr. Sinclair was appointed Co-Chairman of Quest Capital and Mr. Buchan resigned as Chairman of Quest Capital and remains a director of Quest Capital.
The other Finder in the private placement financing was Global Resource Investments Ltd. (“Global Resource”) which received a cash finder’s fee of $402. The General Partner of Global Resource is Rule Investments, Inc. (“Rule Investments”). The Rule Family Trust u/d/t 12/17/98 (the “Rule Trust”) owns 100% of
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Rule Investments. Arthur Richards Rule is co-Trustee of the Rule Trust. Mr. Rule and the Trust are indirect beneficial owners of 2,836,629 shares of Allied Nevada common stock owned by Exploration Capital Partners 2000 Limited Partnership (“Exploration Capital 2000”) and by Exploration Capital Partners 2006 Limited Partnership, representing a beneficial ownership interest of 6.5%. However, this ownership includes 1,631,200 shares (including 815,600 share purchase warrants) acquired by Exploration Capital 2000 in connection with the private placement financing. Prior to the financing, Mr. Rule and the Rule Trust were indirect beneficial owners of 1,294,140 shares of Allied Nevada common stock, representing only approximately 3.3% of the common stock then outstanding.
Pursuant to the terms of the Subscription Agreements entered into with each subscriber of the offering, the Company agreed to register for resale, under the Securities Act of 1933, as amended, (i) the 3,696,000 shares of common stock issued in the private placement financing, and, thereafter (ii) the shares of common stock issuable upon exercise of the warrants. This second registration statement was to be filed by the Company within 180 days of the date on which the Securities and Exchange Commission (the “SEC”) declared effective the registration statement with respect to the shares of common stock underlying the units. On July 27, 2007, the Company filed with the SEC a registration statement on Form S-1 to register for resale, the shares of common stock underlying the units as well as 4,200,000 of the shares that had been issued to the Pescios in connection with the Arrangement. This registration statement was declared effective by the SEC on August 7, 2007. The Company also plans to register the shares of common stock underlying the units issuable upon exercise of the Finder Warrants, including shares issuable upon exercise of the warrant component thereof.
The proceeds from the private placement financing are being used for the continued exploration and development of the Company’s Hycroft Mine property located in Nevada, as well as for working capital and other general purposes.
Warrants
As discussed in the previous section “Private Placement Financing”, on July 16, 2007 the Company issued 3,696,000 common stock purchase warrants with a two-year exercise period, a CDN$5.75 exercise price and an acceleration feature when the underlying shares trade at CDN$ 11.50 for 20 consecutive days on the Toronto Stock Exchange. On July 16, 2007, the Company also issued warrants to purchase 114,850 units to Quest Securities for finder services performed in connection with the July 2007 private placement. These warrants are exercisable by Quest Securities for a period of two years at an exercise price of CDN $4.60 per unit. The Company has determined the value of the warrants granted pursuant to the terms of the July 2007 private placement using a Black-Scholes pricing model. The Company has determined that no liability should be recorded for the warrants and that they should be recorded as equity under consideration of FASB Emerging Issues Task Force (EITF) Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”
During 2007, one holder exercised 25,000 common stock purchase warrants from the July 2007 private placement for a total exercise price of $146. The Company issued the 25,000 common shares on November 29, 2007.
On December 7, 2007, Quest Securities exercised 25,000 of its common stock purchase warrants acquired for finder services performed in connection with the July 2007 private placement. On December 18, 2007, Quest Securities exercised the remainder of its warrants for a total of 114,850 units for a total of $528. As of December 31, 2007, the funds were in international collections and the Company had not issued the underlying common shares.
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The following is a summary of the Company’s stock warrants outstanding at December 31, 2007 and changes during the year then ended:
| | | | | | |
| | | Warrants | | | Weighted Average
Exercise Price |
Outstanding on January 1, 2007 | | — | | | $ | — |
Granted | | 3,810,850 | | | | 5.48 |
Canceled | | — | | | | — |
Exercised | | (139,850 | ) | | | 4.82 |
| | | | | | |
Outstanding on December 31, 2007 | | 3,671,000 | | | $ | 5.51 |
| | | | | | |
Exercise prices for all warrants granted during the period have been converted into US dollars as of the grant date from the stated Canadian dollar amounts. Realized exercise prices may vary depending upon the currency conversion rates at the time of exercise.
All outstanding warrants as of December 31, 2007 have a term of two years and will expire on July 16, 2009.
Option Grants under the Allied Nevada 2007 Stock Option Plan
On February 7, 2007, the Board of Directors adopted the Allied Nevada 2007 Stock Option Plan (the “2007 Stock Option Plan”), which provides for grants to directors, officers, employees and consultants of Allied Nevada, or its subsidiaries, of options to purchase Allied Nevada common stock. Options granted under the 2007 Stock Option Plan may be either incentive stock options, as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”), herein referred to as “incentive stock options,” or options which do not meet the requirements of Section 422(b) of the Code, herein referred to as “non-qualified stock options”. Under the 2007 Stock Option Plan as initially adopted, 3,000,000 shares of the Company’s common stock were reserved for issuance under the Plan.
On July 27, 2007, the Board of Directors approved, subject to stockholder and regulatory approval, an amendment to the 2007 Stock Option Plan to, among other things, increase the number of shares of the Company’s common stock available for grants under the 2007 Stock Option Plan by 1,200,000, for an aggregate of 4,200,000 shares. As set forth below, all grants made to date under the 2007 Stock Option Plan are for non-qualified stock options. Grants of incentive stock options under the 2007 Stock Option Plan are contingent on approval of the Plan by the Company’s shareholders, which is expected to be sought at the Company’s first annual meeting of stockholders anticipated to be held in 2008.
During the year ended December 31, 2007, the following grants of options to purchase common stock were made based on the prior authorization of the Board of Directors:
| | | | | | | |
| | | Grant date | | Number of
options granted | | Exercise Price
per option |
Grants to non-employee directors | | July 3, 2007 | | 900,000 | | $ | 4.35 |
Grants to employees and executive chairman | | July 3, 2007 | | 1,650,000 | | | 4.35 |
Grant to Sierra Partners | | July 3, 2007 | | 45,000 | | | 4.35 |
Grants to employees | | September 18, 2007 | | 320,000 | | | 4.30 |
| | | | | | | |
| | | | 2,915,000 | | $ | 4.34 |
| | | | | | | |
The exercise price of these option grants was the closing price of the Company’s common stock on the American Stock Exchange on the grant date pursuant to the terms of the 2007 Stock Option Plan. In all cases, these are 10-year non-qualified options under the 2007 Stock Option Plan. With the exception of the grant to Sierra Partners which fully vested on December 31, 2007, all options will vest in equal one-third installments over three years, until fully vested on the third anniversary of the grant date.
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The Company has determined the value of the options granted pursuant to the terms of the 2007 Stock Option Plan using a binomial option pricing model. The options were valued using the following assumptions: the contractual term of the options was 10 years; suboptimal exercise of the options will occur when the market price reaches twice the exercise price; a volatility factor of 50%; exercise prices based on the grant dates from $4.30 to $4.35; no expected dividends; risk-free interest rates on the grant dates from 4.50% to 5.05%; and an estimated annual forfeiture rate of 3%. The total value of the options granted during the year ended December 31, 2007 was $6,426 and will be expensed over the requisite service periods adjusted for actual forfeitures. On December 19, 2007, 100,000 options were forfeited due to the resignation of a Company director. During the year the Company recognized compensation expense of $1,039 for the options granted pursuant to the 2007 Stock Option Plan.
The following is a summary of the Company’s stock options outstanding at December 31, 2007 and changes during the year:
| | | | | | | | | | | |
| | | Stock Options
(000s) | | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term
(years) | | Aggregate
Intrinsic
Value
($000) |
Outstanding on January 1, 2007 | | — | | | $ | — | | | | | |
Granted | | 2,915 | | | | 4.34 | | | | | |
Canceled | | (100 | ) | | | 4.35 | | | | | |
Exercised | | — | | | | — | | | | | |
| | | | | | | | | | | |
Outstanding on December 31, 2007 | | 2,815 | | | $ | 4.34 | | 9.5 | | $ | 5,196 |
| | | | | | | | | | | |
Exercisable on December 31, 2007 | | 45 | | | $ | 4.35 | | 9.5 | | $ | 84 |
| | | | | | | | | | | |
At December 31, 2007, there was approximately $5.2 million of unrecognized stock compensation cost relating to outstanding unvested options. The total fair value of shares vested in 2007 was $99.
Special Stock Option Plan
The Special Stock Option Plan (the “Special Plan”), also adopted by the Board of Directors on February 7, 2007, governs the grant of stock options (the “Special Options”) to purchase shares of Allied Nevada common stock (the “Shares”), pursuant to the Arrangement. The Special Options were granted to holders of options to purchase common shares of Vista (the “Vista Options”) under Vista’s Stock Option Plan as of the closing of the Arrangement. Under the Special Plan, holders of Vista Options exchanged their Vista Options for new options to purchase common shares in the capital of Vista and the Special Options issuable under the Special Plan.
The issuance of the Special Options under the Special Plan has been treated as a modification of the respective original Vista option awards and the Special Option grants were made in accordance with the provisions of the Arrangement Agreement. The exercise prices were determined based on the intrinsic values immediately before the effective date of the agreement and the relative trading values of the Vista and Allied Nevada shares after the effective date. The strike prices were calculated so that the total intrinsic value immediately prior to and after the effective date remained unchanged. The vesting periods and the contractual terms were determined based on the vesting periods and contractual terms of each award being modified and in no case would the contractual term exceed 10 years from the grant date.
Accordingly, effective May 10, 2007, Allied Nevada granted 619,550 Special Options to the participants. These options, which represent all of the Special Options to be issued under the Special Plan, had a weighted average exercise price of $2.73 and a weighted average contractual term of 2.25 years. Since these awards were a modification of existing Vista awards, Vista is responsible for accounting for any additional expenses in accordance with the accounting guidance and Allied Nevada has not recognized an expense pursuant to the issuance of these options.
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During the year ended December 31, 2007, Allied Nevada issued 188,539 common shares pursuant to exercises by seven holders of Special Options. These options had expiry dates from July 8, 2007 to July 30, 2011 and were exercised at a weighted average exercise price of $2.30. During 2007, 3,341 options expired without being exercised.
The following is a summary of the Company’s Special Options outstanding at December 31, 2007 and changes during the year:
| | | | | | |
| | | Special
Options | | | Weighted Average
Exercise Price |
Outstanding on January 1, 2007 | | — | | | $ | — |
Granted | | 619,550 | | | | 2.73 |
Canceled / Expired | | (3,341 | ) | | | 2.10 |
Exercised | | (188,539 | ) | | | 2.30 |
| | | | | | |
Outstanding on December 31, 2007 | | 427,670 | | | $ | 2.98 |
| | | | | | |
Exercisable on December 31, 2007 | | 414,306 | | | $ | 2.92 |
| | | | | | |
Exercise prices for Special Options granted during the period have been converted into US dollars as of the grant date from the stated Canadian dollar amounts as applicable. Realized exercise prices may vary depending upon the currency conversion rates at the time of exercise. The average term for the Special Options outstanding as of December 31, 2007 is 2.4 years.
Adoption of Restricted Share Plan
On July 27, 2007, the Board of Directors adopted, subject to stockholder and regulatory approval, the Company’s Restricted Share Plan (the “RSU Plan”). The RSU Plan carries an effective date of July 3, 2007. As with the 2007 Stock Option Plan, grants under the RSU Plan are contingent on stockholder approval of the RSU Plan, which is expected to be sought at the Company’s first annual meeting of stockholders anticipated to be held in 2008. An RSU is granted subject to a restricted period (“Restricted Period”) as determined by the Compensation Committee upon grant. An RSU is exercised automatically and a share of Allied Nevada common stock is issued for no additional consideration on the later of the end of a Restricted Period and in the case of Canadian residents, a date determined by the eligible participant that is after the Restricted Period and before a participant’s retirement date or termination date (a “Deferred Payment Date”). Participants who reside in Canada seeking to set a Deferred Payment Date must give the Company at least 60 days notice prior to the expiration of the Restricted Period in order to effect such change.
The maximum number of shares of common stock issuable under the RSU Plan is currently set at 1,200,000. The Company granted 300,000 RSUs to Robert Buchan with a grant date of July 3, 2007, in connection with Mr. Buchan’s appointment as Executive Chairman of the Company. The total value of the units granted was $1,305 and will be expensed over the requisite service period of three years. The units will vest annually on the anniversary of the grant date at a rate of one third of the total granted. The total compensation expense recognized under the RSU Plan for the year ended December 31, 2007 is $211. If the stockholders do not approve the RSU Plan, Mr. Buchan will receive alternative rights to acquire 300,000 shares of Allied Nevada common stock purchased in the market by Allied Nevada through a trustee with vesting terms and other terms equivalent to his RSUs.
Preferred stock
The authorized share capital of Allied Nevada includes 10 million shares of undesignated preferred stock with a par value of $0.001 per share. As of December 31, 2007 there are no shares of preferred stock issued or outstanding.
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| 10. | Reclamation and Remediation Obligations and Premium Costs |
Asset retirement obligations arise from the acquisition, development, construction and normal operation of mining property, plant and equipment, due to government controls and regulations that protect the environment on the closure and reclamation of mining properties. The following table provides a reconciliation of the reclamation and remediation obligations for the following periods:
| | | | | | |
| | | 2007 | | 2006 |
Balance, January 1, | | $ | 4,663 | | $ | 4,085 |
Accretion and reclamation expense | | | 223 | | | — |
Addition—change in estimate | | | 414 | | | 578 |
| | | | | | |
Balance, December 31, | | $ | 5,300 | | $ | 4,663 |
Less: current portion | | | 133 | | | — |
| | | | | | |
Noncurrent balance | | $ | 5,167 | | $ | 4,663 |
| | | | | | |
In 2003, Hycroft Resources and Development, Inc. (“Hycroft”) entered into an insurance-backed financial assurance program including a mine reclamation policy and a pollution legal liability policy for the Hycroft mine. As part of the policy, Hycroft paid an insurance premium and put funds in a commutation account used to reimburse reclamation costs and indemnity claims paid by Hycroft (Note 6). The insurance policy covers reclamation costs in the event Hycroft defaults on payment of its reclamation costs up to an aggregate of $12,000. The insurance premium is being amortized over 14 years and the unamortized reclamation premium cost balance at December 31, 2007 is $1,185 (2006 - $1,304).
On December 31, 2007 and 2006, the reclamation and closure estimate for the Hycroft mine was revised by $414 and $578, respectively. The Asset Retirement Cost asset will be amortized over the proven and probable reserves at the Hycroft mine following commencement of commercial production.
| 11. | Supplemental Balance Sheet Disclosure |
The following table presents the balance sheet items that represent greater than 5% of total current assets and total current liabilities:
| | | | | | |
| | | December 31, |
| | | 2007 | | 2006 |
Prepaids and other | | | | | | |
Prepaid insurance | | $ | 92 | | $ | 4 |
Prepaid land fees | | | 517 | | | — |
Other prepaids and deposits | | | 459 | | | 2 |
| | | | | | |
Total prepaids and other current assets | | $ | 1,068 | | $ | 6 |
| | | | | | |
Accrued liabilities and other | | | | | | |
Severance obigation | | $ | — | | $ | 73 |
Accrued electric power | | | — | | | 14 |
Accrued property taxes | | | — | | | 22 |
Accrued compensation payable | | | 360 | | | — |
Accrued vacation expense | | | — | | | 14 |
Accrued directors’ fees | | | 111 | | | — |
Other accruals | | | — | | | 20 |
| | | | | | |
Total accrued liabilities and other | | $ | 471 | | $ | 143 |
| | | | | | |
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Deferred taxes are attributable to the following (in thousands):
| | | | | | | | |
| | | December 31, | |
| | | 2007 | | | 2006 | |
Excess of book over tax basis, property, plant, and equipment | | $ | (1,360 | ) | | $ | (1,293 | ) |
Net operating and capital loss carryforwards | | | 12,449 | | | | 9,720 | |
Accrued reclamation provision | | | 1,508 | | | | 1,632 | |
Other | | | 1,436 | | | | (60 | ) |
| | | | | | | | |
| | | 14,033 | | | | 9,999 | |
Valuation allowance for deferred tax assets | | | (14,033 | ) | | | (9,999 | ) |
| | | | | | | | |
Total | | $ | — | | | $ | — | |
| | | | | | | | |
A reconciliation of income taxes computed at the United States Federal statutory tax rate to income tax expense follows (in thousands):
| | | | | | | | |
| | | Year ended
December 31, | |
| | | 2007 | | | 2006 | |
Income taxed at statutory rates—(Benefit) | | $ | (3,942 | ) | | $ | (863 | ) |
Permanent differences | | | (91 | ) | | | 3 | |
Loss associated with Vista through May 9, 2007 | | | 139 | | | | — | |
Increase in valuation allowance | | | 3,894 | | | | 860 | |
| | | | | | | | |
Income tax provision (benefit) | | $ | — | | | $ | — | |
| | | | | | | | |
Tax loss carryforwards at December 31, 2007 consisted of net operating losses of approximately $35.6 million expiring in varying amounts from 2008 to 2027. Approximately $0.4 million of the above tax loss carryforwards will expire on December 31, 2008.
On January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition issues.
At December 31, 2007, the ultimate deductibility of the majority of tax positions is highly certain. However, there may be uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate or defer the recognition of the expenses.
The Company’s policy is to recognize interest and penalties, if any, related to uncertain tax positions in general and administrative expenses. Neither interest nor penalties related to uncertain tax positions were accrued at December 31, 2007.
As of the implementation of FIN 48, the Company had no material unrecognized tax benefits to report. Additionally, there were no changes in unrecognized tax benefits for 2007.
With limited exception, the Company is no longer subject to U.S. federal income audits by taxing authorities for years through 2003.
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| 13. | Related Party Transactions |
Pre-Arrangement Loans from Vista
On May 10, 2007, Allied Nevada commenced operations following Vista’s transfer to Allied Nevada of its Nevada-based mining properties and related assets, along with cash, and the transfer to Allied Nevada by Carl Pescio and Janet Pescio of their interests in certain Nevada mining properties and related assets. These transfers to Allied Nevada were made in exchange for shares of Allied Nevada’s common stock and cash, under the terms of the Arrangement Agreement (Note 5).
Prior to the completion of the transaction, the immediate cash needs of the Company were met by loans from Vista pursuant to the Arrangement Agreement, which provided that, prior to the date of completion, Vista could loan money to Vista’s wholly-owned subsidiary, Vista Gold Holdings, Inc. (“Vista U.S.”), which was to hold Vista’s Nevada-based mining properties and related assets immediately prior to their transfer to Allied Nevada, in amounts sufficient to undertake certain activities for the benefit of the business Allied Nevada would operate after the completion of the transaction, including purchase of mineral properties or property interests, payment of amounts necessary to secure the services of a Chief Executive Officer, and purchase of office equipment, software and other miscellaneous items to enable Allied Nevada to commence operations immediately after the completion of the transaction. These loans bore interest at the rate of 6% per annum and all principal and interest owing by Vista U.S. to Vista in respect of such loans were to be paid in full at the time of completion by Allied Nevada on behalf of Vista U.S. Upon closing of the transaction on May 10, 2007, $615 was paid to Vista Gold conditional on the subsequent review and approval of the expenditures that constituted this balance. The subsequent review of invoices identified $132 of expenditures that were determined to be recoverable from Vista in accordance with the agreement. This balance was received from Vista on September 28, 2007.
Consulting Agreements
Prior to April 16, 2007, Scott Caldwell provided services to Allied Nevada under a consulting agreement between Mr. Caldwell and Vista, pursuant to which Mr. Caldwell was paid for consulting services rendered to Allied Nevada at the rate of $1,000 per day (calculated based upon an hourly rate of $125 per hour), in addition to reimbursement, at cost, of any reasonable out-of pocket expenses incurred by Mr. Caldwell in connection with the performance of these consulting services. Mr. Caldwell was not entitled to any bonus payments or other cash or non-cash compensation under his consulting agreement with Vista. This agreement was terminated as of April 16, 2007 and was replaced by a formal employment agreement that Allied Nevada entered into with Mr. Caldwell in January 2008. Mr. Caldwell was paid $105 under the provisions of this contract, in his capacity as President and Chief Executive Officer of Allied Nevada.
On January 26, 2007, Allied Nevada entered into a professional service agreement with Hal Kirby, who was not a related person at the time but was appointed Vice President and Chief Financial Officer of Allied Nevada on April 16, 2007. Under the professional service agreement, Mr. Kirby provided financial and accounting services including review of accounting systems and documentation under development for Allied Nevada, and meeting with auditors and planning for scope and plans for future audits. The agreement was to expire no later than December 31, 2007, with amounts paid under the agreement not to exceed $50. Pursuant to the professional service agreement, the Company compensated Mr. Kirby at the rate of $1,000 per day (calculated on an hourly rate of $100 per hour) worked plus reimbursement of his reasonable out-of-pocket expenses at cost. Mr. Kirby was paid $22 under the provisions of this contract. This service contract was terminated on April 16, 2007 upon acceptance by Mr. Kirby of the appointment to the position of Vice President and Chief Financial Officer of the Company, and was replaced by a formal employment agreement that Allied Nevada entered into with Mr. Kirby in January 2008.
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Agreements with Carl Pescio
Carl Pescio was elected as a director of Allied Nevada on March 1, 2007. Allied Nevada and Mr. Pescio were among the parties to the Arrangement Agreement (Note 5). Mr. Pescio may pursue ventures with mining properties other than those held by Allied Nevada. As a condition to completion of the Arrangement, Mr. Pescio was required to enter into a non-competition agreement with Vista Gold Corp. and Allied Nevada on terms satisfactory to all parties, acting reasonably. On February 15, 2007, Allied Nevada entered into a non-competition agreement and a professional service agreement with Mr. Pescio. Both agreements have two-year terms. Under the non-competition agreement, Mr. Pescio has agreed that during the agreement term he will not carry on business in the State of Nevada which is similar to or in any way competitive with the Company’s mineral property-related business. Under the professional service agreement, Mr. Pescio is to provide services as directed by the Company including assistance with technical review of exploration programs and assistance with investor relations activities, for which the Company will compensate him at the rate of $1,000 per day worked plus reimbursement of his reasonable out-of-pocket expenses at cost. Carl Pescio has not been paid any amount under the terms of this contract to date.
Sierra Partners Consulting Agreement
On July 2, 2007, Allied Nevada entered into an Investor Relations Services Agreement with Sierra Partners II LLC (“Sierra”) to assist Allied Nevada with the development and initiation of an investor relations program and to provide consulting and advisory services regarding the North American investor market. During the six month term of the Agreement, Sierra received a monthly retainer of $15 and was granted an option to purchase 45,000 shares of Allied Nevada common stock in accordance with the Allied Nevada Stock Option Plan. This option has a 10-year term, an exercise price per share of $ 4.35 which was determined in accordance with the Allied Nevada Stock Option Plan as the closing price of Allied Nevada’s common stock on the grant date of July 3, 2007, and a total value of $99 based on a binomial option valuation model. The option fully vested on December 31, 2007.
On January 28, 2008, Allied Nevada amended its Investor Relations Services Agreement with Sierra to assist the Company with its investor relations program and to provide consulting and advisory services regarding the North American investor market. Under terms of the amended agreement, Sierra will receive a monthly retainer of $5 and reimbursement of reasonable out of pocket fees and expenses. The amended agreement will expire on December 31, 2008. W. Durand Eppler, an Allied Nevada director, currently serves as President of, and is a partner of, Sierra and, as a result, will benefit from this transaction to the extent of his interest in Sierra.
Provision of Legal Services
Cameron Mingay, an Allied Nevada director who was appointed in March 2007, is a partner at Cassels Brock & Blackwell LLP of Toronto, Ontario, Canada, which since June 2007 has served as outside counsel to Allied Nevada in connection with Canadian corporate and securities law matters. Allied Nevada has paid Cassels Brock an aggregate of $288 for legal services rendered through December 31, 2007.
Private Placement Financing
In connection with the private placement financing completed in July 2007, Allied Nevada paid a cash finder’s fee of $507, being 5% of the gross proceeds raised, to eligible persons that arranged for purchasers (“Finders”). See Note 9. Shareholders’ Equity – Common Stock – Private Placement Financing. As consideration for its role as Finder in the private placement financing, Quest Securities Corporation (“Quest Securities”), a wholly-owned subsidiary of Quest Capital Corp. (“Quest Capital”) received a cash fee of $105, and warrants to purchase 114,850 units. These warrants were exercisable by Quest Securities for a period of two years at an exercise price of CDN$4.60 per unit. No commissions were paid to Quest Securities with respect to sales of units
89
to directors or officers of Allied Nevada. Robert Buchan, Executive Chairman and a director of Allied Nevada, then served as Chairman of Quest Capital and A. Murray Sinclair, then an Allied Nevada director, then served as Managing Director of Quest Capital. Effective December 14, 2007, Mr. Sinclair resigned as a director of Allied Nevada to assist Quest Capital in its conversion into a Mortgage Investment Corporation. In connection with this conversion, effective January 1, 2008 Mr. Sinclair was appointed Co-Chairman of Quest Capital and Mr. Buchan resigned as Chairman of Quest Capital and remains a director of Quest Capital. This transaction was entered into solely for the benefit of Allied Nevada, and was not intended to provide Messrs. Buchan and Sinclair with compensation in lieu of salary or other compensation described herein.
On December 7, 2007, Quest Securities exercised 25,000 of its common stock purchase warrants acquired for finder services performed in connection with the July 2007 private placement. On December 18, 2007, Quest Securities exercised the remainder of its warrants for a total of 114,850 units for a total $529. As of December 31, 2007, the funds were in international collections and the Company had not issued the underlying common shares.
The other Finder in the private placement financing was Global Resource Investments Ltd. (“Global Resource”) which received a cash finder’s fee of $402. The General Partner of Global Resource is Rule Investments, Inc. (“Rule Investments”). The Rule Family Trust u/d/t 12/17/98 (the “Rule Trust”) owns 100% of Rule Investments. Arthur Richards Rule is co-Trustee of the Rule Trust. Mr. Rule and the Trust are indirect beneficial owners of 2,836,629 shares of Allied Nevada common stock owned by Exploration Capital Partners 2000 Limited Partnership (“Exploration Capital 2000”) and by Exploration Capital Partners 2006 Limited Partnership, representing a beneficial ownership interest of 6.5%. However, this ownership includes 1,631,200 shares (including 815,600 share purchase warrants) acquired by Exploration Capital 2000 in connection with the private placement financing. Prior to the financing, Mr. Rule and the Rule Trust were indirect beneficial owners of 1,294,140 shares of Allied Nevada common stock, representing only approximately 3.3% of the common stock then outstanding. Accordingly, Global Resource would not have been a related party to Allied Nevada prior to the financing, but this disclosure is included for purposes of completeness. The Company believes that the finder compensation for Global Resource was on terms at least as favorable as would have been available from unaffiliated third parties.
On March 3, 2008, the Board of Directors ratified the signing of an indicative letter of intent concerning a proposed CDN$30 million secured bridge credit facility with Quest Holdings Ltd. (“Quest Holdings”). The terms of the facility are not yet final and are subject to due diligence by Quest Holdings and its counsel, the preparation of definitive documentation, the granting of security and such other steps as are usual to transactions of this nature. The letter of intent provides that the facility is scheduled to be available for drawdown until July 2008 and must be repaid by March 2009. Borrowings under the proposed credit facility are limited to working capital, operating, and capital expenditures relating to the reopening of the Hycroft mine. The Company’s interest in the Hycroft mine properties and all of its personal tangible property are expected to be pledged as collateral for the credit facility. The proposed agreement is expected to contain customary covenants for credit facilities of this type including certain negative covenants, which will limit or restrict the Company’s ability to incur additional debt. The Company will incur a standby fee equal to four percent of the amount of the loan facility when it enters into the agreement. Borrowings under the proposed credit facility are subject to payment of a five percent drawing fee payable to Quest Holdings. The interest rate on borrowings is twelve percent per annum compounded monthly. Quest Holdings is a wholly-owned subsidiary of Quest Capital Corp. (Quest Capital). Mr. Buchan has disclosed to the Board of Directors that he may participate to the extent of up to CDN$5 million in the proposed Quest Holdings credit facility.
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| 14. | Quarterly Financial Information (Unaudited) |
Summarized quarterly results for the years ended December 31, 2007 and 2006 are as follows:
| | | | | | | | | | | | | | | | |
| | | Quarters | |
2007 | | First | | | Second | | | Third | | | Fourth | |
| | | (in thousands, except per share amounts) | |
Net loss | | $ | (313 | ) | | $ | (1,776 | ) | | $ | (3,387 | ) | | $ | (5,789 | ) |
Basic and Fully diluted net loss per common share | | | N/A | | | $ | (0.08 | ) | | $ | (0.08 | ) | | $ | (0.14 | ) |
| | | | |
2006 | | | | | | | | | | | | |
Net loss | | $ | (587 | ) | | $ | (571 | ) | | $ | (883 | ) | | $ | (424 | ) |
Basic and Fully diluted net loss per common share | | | N/A | | | | N/A | | | | N/A | | | | N/A | |
As discussed in Note 1 to the Consolidated Financial Statements, the Company commenced operations as an independent newly formed and publicly held entity on May 10, 2007. Accordingly, basic and fully diluted net loss per common share is not presented for periods prior to May 10, 2007.
The following table sets forth the computation of basic and fully diluted loss per share.
| | | | | | | | | | | | |
| | | 2005 | | | 2006 | | | 2007 | |
| | | (in thousands, except per share amounts) | |
Net loss available to common shareholders | | $ | (2,286 | ) | | $ | (2,465 | ) | | $ | (11,265 | ) |
Weighted average shares outstanding | | | N/A | | | | N/A | | | | 26,955 | |
Basic and fully diluted loss per share | | | N/A | | | | N/A | | | $ | (0.42 | ) |
As discussed in Note 1 to the Consolidated Financial Statements, the Company commenced operations as an independent newly formed and publicly held entity on May 10, 2007. Accordingly, basic and fully diluted net loss per common share is not presented for periods prior to May 10, 2007.
For the year ended December 31, 2007, there were 3,671,000 warrants outstanding, 2,815,000 options granted under the Allied Nevada Stock Option Plan outstanding, 427,670 options granted under the Allied Nevada Special Stock Option plan outstanding, and 300,000 restricted share units outstanding that were not included in diluted loss per share because inclusion would have been anti-dilutive.
Filing of Registration Statement
On January 18, 2008, Allied Nevada filed a Form S-1 registration statement with the Securities Exchange Commission, and on January 21, 2008 filed a preliminary prospectus with Canadian securities regulators relating to a proposed public offering of its common stock. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective, and a preliminary prospectus has been filed with securities regulatory authorities in each of the provinces and territories of Canada, other than Quebec. These securities may not be sold, nor may offers to buy be accepted, prior to the time the registration statement becomes effective. The filing of the above registration statement shall not constitute an offer to sell or a solicitation of an offer to buy, nor will there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
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Credit Facility
On March 3, 2008, the Board of Directors ratified the signing of an indicative letter of intent concerning a proposed CDN$30 million secured bridge credit facility with Quest Holdings Ltd. (“Quest Holdings”). The terms of the facility are not yet final and are subject to due diligence by Quest Holdings and its counsel, the preparation of definitive documentation, the granting of security and such other steps as are usual to transactions of this nature. The letter of intent provides that the facility is scheduled to be available for drawdown until July 2008 and must be repaid by March 2009. Borrowings under the proposed credit facility are limited to working capital, operating, and capital expenditures relating to the reopening of the Hycroft mine. The Company’s interest in the Hycroft mine properties and all of its personal tangible property are expected to be pledged as collateral for the credit facility. The proposed agreement is expected to contain customary covenants for credit facilities of this type including certain negative covenants, which will limit or restrict the Company’s ability to incur additional debt. The Company will incur a standby fee equal to four percent of the amount of the loan facility when it enters into the agreement. Borrowings under the proposed credit facility are subject to payment of a five percent drawing fee payable to Quest Holdings. The interest rate on borrowings is twelve percent per annum compounded monthly. Quest Holdings is a wholly-owned subsidiary of Quest Capital Corp. (Quest Capital). As described in Note 13 to the Consolidated Financial Statements, Robert Buchan, Executive Chairman and director of Allied Nevada, is a director of Quest Capital and A. Murray Sinclair, a former director of Allied Nevada, is a Co-Chairman of Quest Capital.
Sale of Mineral Interest Property
Allied Nevada has accepted an offer to sell its 50% interest in the Hamilton-Treasure Hill mineral property consisting of 106 patented and 112 unpatented mining claims for $1.0 million. Under terms of the agreement, Allied Nevada retained a NSR of 1%, which is subject to a buyout for a payment of $0.5 million in the first 24 months from closing escalating thereafter to a maximum of $3.0 million.
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| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
| A. | Evaluation of Disclosure Controls and Procedures.The principal executive officer and principal financial officer have evaluated the effectiveness of Allied Nevada’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2007. Based on the evaluation, the principal executive officer and principal financial officer concluded that the disclosure controls and procedures in place are effective to ensure that information required to be disclosed by Allied Nevada, including consolidated subsidiaries, in reports that Allied Nevada files or submits under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable time periods specified by the Securities and Exchange Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. |
| B. | Management’s Annual Report on Internal Control over Financial Reporting |
Allied Nevada’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
| | • | | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| | • | | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| | • | | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, it used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we have concluded that, as of December 31, 2007, the Company’s internal control over financial reporting is effective based on those criteria. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
| C. | Changes in Internal Controls.There has been no change in Allied Nevada’s internal control over financial reporting during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, Allied Nevada’s internal control over financial reporting. |
| Item 9B. | Other Information |
None.
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PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by Items 401, 405, 406, and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be contained in the Company’s 2008 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended December 31, 2007, and is hereby incorporated by reference thereto.
| Item 11. | Executive Compensation |
The information required by Item 402 and paragraph (e)(4) and (e)(5) of Item 407 of Regulation S-K will be contained in the Company’s 2008 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended December 31, 2007, and is hereby incorporated by reference thereto.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by Item 201(d) and Item 403 of Regulation S-K will be contained in the Company’s 2008 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended December 31, 2007, and is hereby incorporated by reference thereto.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by Item 404 and Item 407(a) of Regulation S-K will be contained in the Company’s 2008 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended December 31, 2007, and is hereby incorporated by reference thereto.
| Item 14. | Principal Accounting Fees and Services |
The information required by Item 9(e) of Schedule 14A will be contained in the Company’s 2008 Proxy Statement, to be filed with the SEC within 120 days following the end of the Company’s fiscal year ended December 31, 2007, and is hereby incorporated by reference thereto.
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PART IV
| Item 15. | Exhibits, Financial Statement Schedules |
(a)Financial Statements
Audited Consolidated Financial Statements for the Years Ended December 31, 2007, 2006 and 2005 of Allied Nevada Gold Corp.
Reports of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Loss
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
(b)Index to Exhibits
| | |
Exhibit Number | | Description of Document |
| |
| 2(1) | | Plan of Arrangement (included as part of Exhibit 10.1 hereto) |
| |
| 3.1(1) | | Certificate of Incorporation of the Registrant, dated September 14, 2006 |
| |
| 3.2(1) | | By-laws of the Registrant |
| |
| 4.1(2) | | Form of Common Share Purchase Warrant, dated July 16, 2007, issued by Allied Nevada Gold Corp. to each Holder (as defined therein) |
| |
| 4.2(2) | | Form of Finder’s Warrant to Purchase Units, dated July 16, 2007, issued by Allied Nevada Gold Corp. to Quest Securities Corporation |
| |
| 10.1(1) | | Arrangement and Merger Agreement dated as of September 22, 2006, between Vista Gold Corp., Allied Nevada Gold Corp., Carl Pescio and Janet Pescio |
| |
| 10.2(1) | | Letter Agreement dated September 8, 2006, between Vista Gold Holdings, Inc. and Scott Caldwell |
| |
| 10.3(1) | | Letter Agreement dated May 5, 2006, between Vista Gold Corp. and Quest Capital Corp. |
| |
| 10.4(3) | | Non-Competition Agreement dated February 15, 2007, between Allied Nevada Gold Corp. and Carl Pescio |
| |
| 10.5(3) | | Professional Service Agreement dated February 15, 2007, between Allied Nevada Gold Corp. and Carl Pescio |
| |
| 10.6(3) | | Allied Nevada Gold Corp. Special Stock Option Plan |
| |
| 10.7(4) | | Allied Nevada Gold Corp. 2007 Stock Option Plan, as amended |
| |
| 10.8(3) | | Form of Indemnification Agreements entered into between Allied Nevada Gold Corp. and the directors and officers parties thereto |
| |
| 10.9(5) | | Professional Service Agreement dated January 26, 2007, between Allied Nevada Gold Corp. and Hal Kirby |
| |
| 10.10(6) | | Amendment to Arrangement and Merger Agreement by and among Vista Gold Corp., Allied Nevada Gold Corp., Carl Pescio and Janet Pescio, dated May 8, 2007 |
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| | |
Exhibit Number | | Description of Document |
| 10.11(7) | | Investor Relations Services Agreement by and between Allied Nevada Gold Corp. and Sierra Partners II LLC, dated July 2, 2007 |
| |
| 10.12(2) | | Form of Subscription Agreement for Units, dated July 16, 2007, as amended, by and between Allied Nevada Gold Corp. and each Subscriber (as defined therein) |
| |
| 10.13(2) | | Finder’s Fee Agreement, dated as of July 16, 2007, by and between Allied Nevada Gold Corp. and Global Resource Investments Ltd. |
| |
| 10.14(2) | | Indemnity Agreement, dated as of July 16, 2007, by and between Allied Nevada Gold Corp. and Global Resource Investments Ltd. |
| |
| 10.15(4) | | Allied Nevada Gold Corp. Restricted Share Plan |
| |
| 10.16(4) | | Form of Restricted Share Right Grant Letter under the Allied Nevada Gold Corp. Restricted Share Plan |
| |
| 10.17(4) | | Restricted Share Right Grant Letter for Robert M. Buchan dated as of July 3, 2007 |
| |
| 10.18(8) | | Employment Agreement, dated as of January 11, 2008, by and between Allied Nevada Gold Corp. and Scott A. Caldwell |
| |
| 10.19(8) | | Employment Agreement, dated as of January 11, 2008, by and between Allied Nevada Gold Corp. and Hal Kirby |
| |
| 10.20(8) | | Employment Agreement, dated as of January 11, 2008, by and between Allied Nevada Gold Corp. and Mike Doyle |
| |
| 10.21(8) | | Employment Agreement, dated as of January 11, 2008, by and between Allied Nevada Gold Corp. and Rick H. Russell |
| |
| 21 | | Subsidiaries of the Registrant |
| |
| 23.1 | | Consent of Ehrhardt Keefe Steiner & Hottman PC, independent registered public accounting firm |
| |
| 23.2 | | Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm |
| |
| 23.3 | | Consent of Snowden Mining Industry Consultants Inc. |
| |
| 23.4 | | Consent of Mine Development Associates |
| |
| 23.5 | | Consent of Scott E. Wilson Consulting, Inc. |
| |
| 24 | | Power of Attorney |
| |
| 31.1 | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended |
| |
| 31.2 | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended |
| |
| 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| (1) | Incorporated by reference to the Registrant’s Registration Statement on Form 10, filed January 12, 2007. |
| (2) | Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed July 20, 2007. |
| (3) | Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form 10, filed February 20, 2007. |
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| (4) | Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed July 27, 2007. |
| (5) | Incorporated by reference to Amendment No. 4 to the Registrant’s Registration Statement on Form 10, filed April 23, 2007. |
| (6) | Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed May 16, 2007. |
| (7) | Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed July 3, 2007. |
| (9) | Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed January 15, 2008. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | |
| | | ALLIED NEVADA GOLD CORP. |
| | Registrant |
| | |
| Date: March 6, 2008 | | By: | | /s/ SCOTT A. CALDWELL |
| | | | Scott A. Caldwell |
| | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
/s/ SCOTT A. CALDWELL Scott A. Caldwell | | President, Chief Executive Officer and Director (Principal Executive Officer) | | March 6, 2008 |
| | |
| | |
/s/ HAL D. KIRBY Hal D. Kirby | | Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | | March 6, 2008 |
| | |
| | |
* Robert M. Buchan | | Executive Chairman and Director | | March 6, 2008 |
| | |
| | |
* W. Durand Eppler | | Director | | March 6, 2008 |
| | |
| | |
* John W. Ivany | | Director | | March 6, 2008 |
| | |
| | |
* Cameron A. Mingay | | Director | | March 6, 2008 |
| | |
* Terry M. Palmer | | Director | | March 6, 2008 |
| | |
* Carl Pescio | | Director | | March 6, 2008 |
| | |
* Michael B. Richings | | Director | | March 6, 2008 |
| | |
* D. Bruce Sinclair | | Director | | March 6, 2008 |
| | |
* Robert G. Wardell | | Director | | March 6, 2008 |
| | |
| *By: | | /s/ SCOTT A. CALDWELL |
| | Scott A. Caldwell |
| | Attorney-in-Fact |
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