UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------
COMMISSION FILE NUMBER 1-9025
VISTA GOLD CORP.
(Exact name of registrant as specified in its charter)
Continued under the laws of the Yukon Territory (Not Applicable)
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 3000
370 Seventeenth Street
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
(303) 629-2450
(Registrant's telephone number, including area code)
--------------
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
90,715,040
----------
Common Shares, without par value, outstanding at November 8, 1999
--------------
VISTA GOLD CORP.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
(i) Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 3
(ii) Consolidated Statements of Earnings (Loss) for the 4
nine months ended September 30, 1999 and September 30, 1998
(iii) Consolidated Statements of Deficit for the nine months ended 4
September 30, 1999 and September 30, 1998
(iv) Consolidated Statements of Cash Flows for the nine
months ended September 30, 5 1999 and September 30, 1998
(v) Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
In this Report, unless otherwise indicated, all dollar amounts are
expressed in United States dollars.
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 December 31
(U.S. DOLLARS IN THOUSANDS) 1999 1998
--------------------------- ---- ----
(Unaudited) (Audited)
ASSETS:
Cash and cash equivalents $ 1,536 $ 4,786
Marketable securities 76 90
Accounts receivable 4,831 3,958
Gold inventory 3,703 7,318
Supplies and other 1,852 1,849
-------------------------
Current assets 11,998 18,001
Property, plant and equipment, net 56,595 61,093
Investment in and advances to Zamora Gold Corp. - 571
Other assets 1,076 1,213
-------------------------
Long-term assets 57,671 62,877
-------------------------
Total assets $ 69,669 $80,878
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 1,761 $ 2,425
Accrued liabilities and other 1,763 1,772
Deferred hedging gains - 1,150
Current portion of long-term debt - Note 2 3,636 2,372
-------------------------
Current liabilities 7,160 7,719
Long-term debt - Note 2 12,971 13,217
Accrued reclamation and closure costs 5,252 6,384
Other liabilities 20 28
-------------------------
Long-term liabilities 18,243 19,629
-------------------------
Total liabilities 25,403 27,348
Capital stock, no par value per share:
Preferred - unlimited shares authorized;
no shares outstanding
Common - unlimited shares authorized;
shares outstanding:
1999 - 90,715,040; 1998 - 90,715,040 121,146 121,146
Deficit (75,400) (66,076)
Currency translation adjustment (1,480) (1,540)
-------------------------
Total shareholders' equity 44,266 53,530
-------------------------
Total liabilities and shareholders' equity $ 69,669 $80,878
=========================
Commitments and contingencies - Note 3
Approved by the Board of Directors
/S/ DAVID R. SINCLAIR /S/ KEITH STEEVES
- ------------------------- -------------------------
David R. Sinclair Keith Steeves
Chairman Director
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Gold sales $ 4,742 $ 7,816 $ 16,014 $ 29,987
Other revenues 12 14 67 3,285
------------------------ ------------------------
Total revenues 4,754 7,830 16,081 33,272
COSTS AND EXPENSES:
Mining operations 5,044 6,270 17,211 21,014
Depreciation, depletion and amortization (159) 1,148 3,263 5,196
Provision for reclamation and closure costs 91 591 182 2,162
Operating leases - 171 44 1,091
Mineral exploration, property
evaluation and holding costs 997 67 2,188 357
Corporate administration 153 369 693 1,022
Investor relations 38 20 231 173
Interest expense 342 108 913 410
Loss (gain) on disposal of assets - (13) 5 (198)
Equity in loss and impairment of
Zamora Gold Corp. - - 601 -
Other expense (income) (2) 52 22 311
------------------------ ------------------------
Total costs and expenses 6,504 8,783 25,353 31,538
Net earnings (loss) before taxes (1,750) (953) (9,272) 1,734
Income taxes 38 16 52 23
------------------------ ------------------------
Net earnings (loss) $ (1,788) $ (969) $ (9,324) $ 1,711
======================== ========================
Weighted average shares outstanding 90,715,040 89,152,540 90,715,040 89,152,540
------------------------ ------------------------
Net earnings (loss) per share $ (0.02) $ (0.01) $ (0.10) $ 0.02
======================== ========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF DEFICIT
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Deficit, beginning of period $(73,612) $(61,756) $(66,076) $(64,436)
Net earnings (loss) (1,788) (969) (9,324) 1,711
---------------------- ----------------------
Deficit, end of period $(75,400) $(62,725) $(75,400) $(62,725)
====================== ======================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
-4-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(1,788) $ (969) $(9,324) $ 1,711
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS)
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation, depletion and amortization (159) 1,148 3,263 5,196
Amortization of deferred stripping - - - 1,169
Deferral (amortization) of hedging gains - (892) (1,150) 2,766
Amortization of deferred hedging costs - - - 276
Provision for reclamation and closure costs 91 591 182 2,162
Reclamation and closure costs (379) (92) (1,314) (726)
Loss (gain) on sale of assets - (13) 5 (198)
Equity in loss and impairment of
Zamora Gold Corp. - - 601 -
Loss (gain) on currency translation 2 (35) 60 (98)
Other non-cash items (3) (3) (9) (2)
--------------------- ---------------------
(2,236) (265) (7,686) 12,256
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Marketable securities - - 14 132
Accounts receivable (818) 896 (873) (2,993)
Gold inventory 394 1,655 3,615 4,204
Realization of hedging gains acquired 463 - 2,969 -
Supplies and other 177 451 68 1,028
Accounts payable (87) 1,244 (664) (1,444)
Accrued liabilities and other 39 199 (8) (963)
--------------------- ---------------------
Net cash provided by (used in) operating
activities (2,068) 4,180 (2,565) 12,220
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (273) (1,603) (1,897) (4,212)
Proceeds from disposal of assets - 682 86 3,023
Investment in and advances to
Zamora Gold Corp. - (152) (30) (152)
Other assets 126 - 137 2
--------------------- ---------------------
Net cash provided by (used in) investing
activities (147) (1,073) (1,704) (1,339)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt - - 1,500 -
Repayment of debt (93) (4,700) (481) (10,500)
--------------------- ---------------------
Net cash provided by (used in) financing
activities (93) (4,700) 1,019 (10,500)
Net increase (decrease) in cash and
cash equivalents (2,308) (1,593) (3,250) 381
Cash and cash equivalents, beginning of period 3,844 3,773 4,786 1,799
--------------------- ---------------------
Cash and cash equivalents, end of period $ 1,536 $ 2,180 $ 1,536 $ 2,180
===================== =====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands unless specified otherwise)
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements of Vista Gold Corp. (the "Corporation")
for the nine months ended September 30, 1999 have been prepared by the
Corporation without audit. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to fairly present
the interim financial information set forth herein, have been made. The
results of operations for interim periods are not necessarily indicative of
the operating results of a full year or of future years.
2. LONG-TERM DEBT
Mineral Ridge Resources Inc. ("MRRI"), a wholly-owned subsidiary of the
Corporation, has outstanding bank loans of $15.2 million. During the nine
months ended September 30, 1999, MRRI repaid $0.3 million under the terms of
the loans. The interest rate on the loans is LIBOR plus two percent and the
loans, which are not guaranteed by the Corporation, are collateralized by the
assets of MRRI including $5.0 million of mining equipment contributed by
Vista Gold. At September 30, 1999, LIBOR was 5.4 percent and the current
portion of the MRRI long-term debt was $3.1 million.
In April 1999, Hycroft Resources & Development, Inc. ("Hycroft"), a
wholly-owned subsidiary of the Corporation, entered into a debt agreement
with Finova Capital Corporation through which Hycroft received $1.5 million
in cash. The interest rate on the loan is 10.61 percent and the loan is
collateralized by certain mobile equipment assets at Hycroft. The repayment
terms of the loan require 36 equal monthly instalments commencing in May
1999. At September 30, 1999, Hycroft had repaid $0.2 million of the debt, and
the current portion of the Hycroft long-term debt was $0.5 million.
3. COMMITMENTS AND CONTINGENCIES
As part of its gold hedging program, the Corporation enters into agreements
with major financial institutions to deliver gold. Realization under these
agreements is dependent upon the ability of those financial institutions to
perform in accordance with the terms of the agreements. As of September 30,
1999, the Corporation's hedging program consisted of forward sales contracts
totalling 100,000 ounces where the Corporation is required to deliver gold at
an average price of $307 per ounce. The forward sales contracts have various
expiration dates up to January 2000. The Corporation has the ability to defer
the date of sale that the related gold is ultimately delivered.
4. GEOGRAPHIC AND SEGMENT INFORMATION
The Corporation operates in the gold mining industry in the United States,
and has exploration and development properties in Latin America. Its major
product and only identifiable segment is gold, and all gold revenues and
operating costs are derived in the United States.
PROPERTY, PLANT AND EQUIPMENT, NET, BY GEOGRAPHIC REGION
SEPTEMBER 30 December 31
(U.S. DOLLARS IN THOUSANDS) 1999 1998
---------------------------- ---- ----
(Unaudited) (Audited)
U.S. $21,882 $26,628
Latin America 34,713 34,465
-----------------------
Total property, plant and equipment, net $56,595 $61,093
=======================
-6-
5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The significant differences between generally accepted accounting principles
("GAAP") in Canada and in the United States are as follows:
(A) Under Canadian corporate law, the Corporation underwent a capital
reduction in connection with the amalgamation of Granges Inc.
(predecessor of the Corporation) and Hycroft whereby share capital and
contributed surplus were reduced to eliminate the consolidated
accumulated deficit of Granges as of December 31, 1994, after giving
effect to the estimated costs of the amalgamation. Under U.S. corporate
law, no such transaction is available and accordingly is not allowed
under U.S. GAAP.
(B) Under Canadian GAAP, the amalgamation of Granges and Hycroft was
treated in a manner similar to a pooling of interests. Under U.S. GAAP,
the amalgamation did not meet the conditions for a pooling of interest.
Accordingly, the transaction is treated as a purchase under U.S. GAAP,
with the excess of purchase price over the net book value of Hycroft's
net assets allocated to mineral properties.
(C) In 1995, the United States Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 requires that
long-lived assets and associated intangibles be written down to their
fair values whenever an impairment review indicates that the carrying
value cannot be recovered on an undiscounted cash flow basis.
In 1996, under U.S. GAAP, the carrying value of the Hycroft mine,
including the excess of proceeds over the net book value from (B)
above, did not exceed the undiscounted cash flow. Accordingly, the
Hycroft mine carrying value was written down to fair value using the
discounted cash flow method following U.S. GAAP.
(D) In 1997, the carrying values of certain long-lived assets exceeded
their respective undiscounted cash flows. Following Canadian GAAP, the
carrying values were written down using the undiscounted cash flow
method. Under U.S. GAAP, as discussed in (C) above, the carrying values
were written down to their fair values using the discounted cash flow
method, giving rise to a difference in the amounts written down.
Amortization of the remaining carrying values in subsequent periods
following Canadian GAAP must be reduced to reflect the difference in
the amounts written down following U.S. GAAP.
(E) Under U.S. GAAP, items such as foreign exchange gains and losses and
unrealized gains and losses on marketable securities are required to be
shown separately in the derivation of comprehensive income.
-7-
The significant differences in the consolidated statements of earnings (loss)
relative to U.S. GAAP were as follows:
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- --------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net earnings (loss) - Canadian GAAP $(1,788) $(969) $(9,324) $1,711
Amortization reduction (D) 135 698 633 2,692
Other comprehensive income (E) - 52 22 (17)
------------------- ----------------------
Net earnings (loss) - U.S. GAAP (1,653) (219) (8,669) 4,386
Other comprehensive income (E) - (52) (22) 17
------------------- ----------------------
Comprehensive income (loss) - U.S. GAAP $(1,653) $(271) $(8,691) $4,403
=================== ======================
Basic earnings (loss) per share - U.S. GAAP $ (0.02) $0.00 $ (0.09) $ 0.05
=================== ======================
The significant differences in the consolidated balance sheets relative to
U.S. GAAP were:
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 December 31, 1998
------------------ -----------------
PER CDN. PER U.S. Per Cdn. Per U.S.
(U.S. DOLLARS IN THOUSANDS) GAAP ADJ. GAAP GAAP Adj. GAAP
- --------------------------- -------- -------- --------- -------- -------- ---------
Current assets $ 11,998 $ - $ 11,998 $ 18,001 $ - $ 18,001
Property, plant and
equipment (D) 57,671 (13,694) 43,977 62,877 (14,327) 48,550
-------------------------------- ---------------------------------
$ 69,669 $(13,694) $ 55,975 $ 80,878 $(14,327) $ 66,551
================================ =================================
Current liabilities $ 7,160 $ - $ 7,160 $ 7,719 $ - $ 7,719
Long-term debt 12,971 - 12,971 13,217 - 13,217
Provision for reclamation
and future closure costs 5,272 - 5,272 6,412 - 6,412
-------------------------------- ---------------------------------
25,403 - 25,403 27,348 - 27,348
Common shares (A, B) 121,146 76,754 197,900 121,146 76,754 197,900
Contributed surplus (A) - 2,786 2,786 - 2,786 2,786
Retained deficit (A, B, C, D) (75,400) (93,089) (168,489) (66,076) (93,744) (159,820)
Accumulated comprehensive
income - (145) (145) - (123) (123)
Currency translation
adjustment (1,480) - (1,480) (1,540) - (1,540)
-------------------------------- ---------------------------------
$ 69,669 $(13,694) $ 55,975 $ 80,878 $(14,327) $ 66,551
================================ =================================
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in thousands, unless specified otherwise)
This discussion should be read in conjunction with the consolidated financial
statements of Vista Gold Corp. (the "Corporation") for the nine months ended
September 30, 1999 and 1998 and the notes thereto, which have been prepared
in accordance with accounting principles generally accepted in Canada.
INTRODUCTION
During the nine months ended September 30, 1999, the Corporation had two
producing gold mines located in Nevada and one development project located in
Bolivia.
At the Hycroft mine, mining activities were suspended in December 1998
because of the continued depression in gold prices. Gold processing and
recovery at the Hycroft mine will continue from inventoried ore during 1999
and into 2000. Hycroft gold production for 1999 is estimated to be
approximately 40,000 ounces.
In October 1998, the Corporation acquired the Mineral Ridge mine. Prior to
the acquisition, the mine had been shut down since December 1997. The
Corporation recommenced mining and processing activities at the Mineral Ridge
mine and gold production is expected to reach planned levels before year end.
Mineral Ridge gold production for 1999 is estimated to be 30-32,000 ounces.
The Corporation completed an optimized internal feasibility study on the
Amayapampa and Capa Circa project located in Bolivia in early 1999. The
Corporation suspended discussions with various lenders regarding project
financing when gold prices fell below $260 per ounce. At that time, the
Corporation minimized the project's holding costs in an effort to preserve
the Bolivian assets. Recently, gold prices have returned to levels sufficient
to again pursue project financing and the Corporation has recommenced its
efforts to advance the project.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998.
Net losses for the three months ended September 30, 1999 were $1.8 million as
compared to net losses of $1.0 million for the same period in 1998. The
primary reasons for the increase in net losses were lower gold prices,
reduced gold production, and continued holding costs for the Corporation's
Bolivian property.
Gold sales of $4.7 million for the three months ended September 30, 1999
decreased $3.1 million, or 39 percent, from the same period in 1998. The
decrease in gold sales was directly related to a 33 percent decrease in gold
production combined with a 10 percent decrease in the average gross realized
price. Gold production and gold prices were as follows:
Three Months Ended
1999 1998
---- ----
Hycroft mine gold production (ounces) 8,065 24,579
Mineral Ridge mine gold production (ounces) 8,502 -
------ ------
16,567 24,579
Average gross realized price per ounce $286 $318
Average spot price per ounce $259 $290
At the Hycroft mine, the decrease in gold production was attributable to the
suspension of mining activities in December 1998. All subsequent Hycroft gold
production has been, and will be, from previously mined and inventoried ore.
As the mine continues to produce gold, the remaining unrecovered gold ounces
in inventory will decrease. During this process, the rate of gold production
will decline until all inventoried gold ounces have been recovered.
-9-
After acquiring the Mineral Ridge mine, the Corporation recommenced mining
and processing activities during the fourth quarter of 1998. The initial
start-up period lasted approximately four months and the Corporation expects
to reach planned gold production levels before year end.
The cost of mining operations decreased $1.2 million to $5.0 million for the
three months ended September 30, 1999. Significant cost reductions resulting
from the suspension of mining activities at the Hycroft mine were partially
offset by operating costs at the Mineral Ridge mine. Mine operating costs
were as follows:
Three Months Ended
1999 1998
---- ----
Hycroft mine operating costs $2,269 $6,270
Mineral Ridge mine operating costs 2,775 -
------ ------
$5,044 $6,270
At the Hycroft mine, mining activities were suspended in December 1998, and
as a result, there were no mining costs during the three months ended
September 30, 1999. Processing and other operating costs decreased
significantly during this period reflecting reduced levels of operating
activities and lower gold production. During the quarter ended September 30,
the direct cash operating cost per ounce was $190 in 1999 as compared to $181
in 1998.
At the Mineral Ridge mine, 1.9 million total tons were mined during the third
quarter of 1999 at an average mining cost of $0.61 per ton, a decrease of
$0.16 per ton from the second quarter. Crushing, processing and other
production costs decreased $140 thousand from the second quarter, reflecting
improved operating efficiencies as the mine approaches planned production
levels. As a result, the cash operating cost per ounce decreased from $432 in
the second quarter to $315 in the current quarter. The Corporation
anticipates the cash operating cost per ounce to continue to decrease as gold
production reaches planned levels. The estimated cash operating cost per
ounce is expected to be $226 when the mine reaches full production.
Depreciation, depletion and amortization ("DD&A") for the third quarter of
1999 included an adjustment for excess amortization taken at the Mineral
Ridge mine during the first half of the year. Excluding the adjustment, DD&A
was unchanged from 1998. At the Hycroft mine, a significant portion of the
property, plant and equipment is amortized using the units of production
method of depreciation based on proven and probable reserves. Those assets
have been fully amortized and, as a result, DD&A at the mine decreased
substantially from 1998. The decrease at the Hycroft mine was offset by DD&A
at the Mineral Ridge mine, before the adjustment to correct DD&A.
The provision for reclamation and closure costs decreased $0.5 million from
1998. At the Hycroft mine, reclamation and closure costs were fully accrued
in 1998 and no further provisions are anticipated. At the Mineral Ridge mine,
$91 thousand was accrued for reclamation and closure costs during the third
quarter of 1999. The provision is charged to earnings over the life of the
mine on a unit-of-production basis. As production levels increase at the
Mineral Ridge mine, the amount of the provision for reclamation and closure
costs will increase accordingly.
Corporate administration and investor relations expenditures decreased 51
percent from the third quarter of 1998, as measures taken in 1998 to reduce
the Corporation's overhead costs continue to be effective. Interest expense
increased from $0.1 million in the third quarter of 1998 to $0.3 million in
the third quarter of 1999. In 1998, the Hycroft mine incurred interest
expense on debt that was subsequently retired during the year. The 1999
interest expense was primarily incurred on Mineral Ridge bank loans, which
are not guaranteed by the Corporation.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998.
Net losses for the nine months ended September 30, 1999 were $9.3 million as
compared to net earnings of $1.7 million for the same period in 1998. The
1998 earnings included a one-time gain from the liquidation of gold forwards
of $3.2 million in other revenues. Excluding the one-time gain, the
Corporation would have incurred a net loss of $1.5 million in 1998. The
primary reasons for the net losses in 1999 include lower gold prices, reduced
gold production at the Hycroft mine, which was partially offset by new
production from the Mineral Ridge mine, and start-up costs at the Mineral
Ridge mine, which were expensed as incurred.
-10-
Gold sales of $16.0 million for the nine months ended September 30, 1999
decreased $14.0 million, or 47 percent, from the same period in 1998. The
decrease in gold sales was directly related to a 43 percent decrease in gold
production combined with lower gold prices. Gold production and gold prices
were as follows:
Nine Months Ended
1999 1998
---- ----
Hycroft mine gold production (ounces) 33,939 94,767
Mineral Ridge mine gold production (ounces) 19,900 -
------ ------
53,839 94,767
Average gross realized price per ounce $297 $316
Average spot price per ounce $273 $295
At the Hycroft mine, the decrease in gold production was attributable to the
suspension of mining activities in December 1998. At the Mineral Ridge mine,
the Corporation recommenced mining and processing activities after acquiring
the mine in October 1998. The Mineral Ridge mine began producing gold on a
regular basis in February 1999 and the Corporation expects to reach planned
gold production levels before year end.
The cost of mining operations decreased $3.8 million to $17.2 million for the
nine months ended September 30, 1999. At the Hycroft mine, significant cost
reductions resulted from the suspension of mining activities and from other
processing reductions as production levels decreases the amortization of
deferred stripping. In 1998, the Hycroft mine fully amortized the remaining
$1.2 million of deferred stripping charges. There was no similar cost in
1999. Cost reductions at the Hycroft mine were partially offset by operating
and start-up costs at the Mineral Ridge mine. As discussed above, the
Corporation is expensing all start-up costs as they are incurred. Mine
operating costs were as follows:
Nine Months Ended
1999 1998
---- ----
Hycroft mine operating costs $ 9,696 $21,014
Mineral Ridge mine operating costs 7,515 -
------- -------
$17,211 $21,014
At the Hycroft mine, mining activities were suspended in December 1998 and
there were no mining costs incurred during the first nine months of 1999.
Processing and other operating costs decreased significantly during this
period reflecting reduced levels of operating activities and lower gold
production. As a result, operating costs decreased by 54 percent from 1998
and the direct cash operating cost per ounce was $129 for the nine months
ended September 30, 1999 as compared to $173 in 1998.
At the Mineral Ridge mine, 4.9 million total tons were mined during the first
nine months of 1999 at an average mining cost of $0.71 per ton. Mine
operating costs during the nine months ended September 30, 1999 were at or
below planned levels, however, gold production during the period did not
reach planned levels. As a result, the cash operating cost per ounce was $371
for the period.
Depreciation, depletion and amortization of $3.3 million for the first nine
months of 1999 was $1.9 million less than the same period in 1998. At the
Hycroft mine, the DD&A expense at the mine decreased substantially from 1998
as explained above. The decrease at the Hycroft mine was only partially
offset by the start-up of the Mineral Ridge mine, which recorded $1.8 million
of DD&A expense.
The provision for reclamation and closure costs decreased $2.0 million from
1998. At the Hycroft mine, reclamation and closure costs were fully accrued
in 1998 and no further provisions are required. At the Mineral Ridge mine,
$182 thousand was accrued for reclamation and closure costs during the first
nine months of 1999. The provision is charged to earnings over the life of
the mine on a unit-of-production basis. As production levels increase at the
Mineral Ridge mine, the amount of the provision for reclamation and closure
costs will increase accordingly.
-11-
Corporate administration and investor relations expenditures decreased 23
percent from the first nine months of 1998, as measures taken in 1998 to
reduce the Corporation's overhead costs continue to be effective. Interest
expense for the nine months ended September 30 increased from $0.4 million in
1998 to $0.9 million in 1999. In 1998, the Hycroft mine incurred interest
expense on debt that was subsequently retired during the year. The 1999
interest expense was primarily incurred on Mineral Ridge bank loans, which
are not guaranteed by the Corporation.
YEAR 2000
As the year 2000 approaches, there are uncertainties concerning whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or fail.
A significant portion of the Corporation's computer systems and software are
already configured to accommodate dates beyond the year 2000. The Corporation
believes that the year 2000 will not pose significant operational problems
for the Corporation's computer systems. The Corporation has established and
implemented a plan to identify and resolve potential year 2000 issues. The
plan includes the following five key elements:
- to test and evaluate the hardware components of the Corporation's
computer systems;
- to test and evaluate the software components of the Corporation's
computer systems;
- to test and evaluate any date/time sensitive components of the
Corporation's operating assets and control systems;
- to evaluate and prioritize the potential impact of any third-party
computer systems; and
- to take corrective actions where necessary.
The Corporation has identified potential year 2000 issues and the resolution
of those issues will be dependent on the nature of the issue. However, where
any internal equipment or software is concerned, the Corporation has
responded by modifying, upgrading, or replacing any features that are not
year 2000 compliant. Where possible, the Corporation has attempted to
incorporate redundancy within its computer systems to reduce the likelihood
of any system failures related to year 2000 hardware or software issues. The
Corporation has prepared contingency plans and will implement them at the
appropriate time to minimize the effects of any year 2000 failures.
Additionally, printed and electronic back-ups are kept of all material
transactions, reports, systems and software where the effects of year 2000
failures could adversely impact the Corporation.
The Corporation has completed its assessment of the majority of its systems,
and has assessed the year 2000 status of the major third parties with which
it deals. While it is not possible at this time to completely assess a third
party's ability to adequately address year 2000 issues, the Corporation does
not believe the potential problems associated with the year 2000 will have a
material effect on its financial results.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's consolidated cash balance on September 30, 1999 was $1.5
million, a decrease of $3.3 million from December 31, 1998. Operating
activities used $2.6 million of cash, investing activities used $1.7 million
and financing activities provided $1.0 million of cash.
Net cash provided by (used) for operating activities during the first nine
months of 1999 was as follows:
1999
----
Hycroft mine $ 2,194
Mineral Ridge mine (2,114)
Bolivian holding costs (1,419)
Corporate administration and investor relations (1,226)
--------
$(2,565)
At the Hycroft mine, operating activities for the first nine months of 1999
generated $4.3 million of cash before reclamation expenditures of $1.3
million, accounts payable reductions of $0.4 million and exploration and
other
-12-
expenditures of $0.4 million. The resulting net cash provided by operating
activities was $2.2 million and reflects the low operating costs achieved by
the mine after suspending mining operations in 1998. As gold production rates
are expected to decrease over the remainder of the year, cash flows from
operating activities will similarly decline.
At the Mineral Ridge mine, operating activities for the nine months ended
September 30, 1999 consumed $4.9 million of cash before exploration
expenditures of $0.2 million and cash generated from hedging transactions of
$3.0 million. The resulting net cash used for operating activities of $2.1
million was directly related to lower than planned gold production combined
with low gold prices. The mine plan currently calls for an additional $0.8
million of cash to be generated from hedging transactions before the end of
the year. This cash resource will be used to fund operating shortfalls until
gold production reaches planned levels. The Corporation expects to reach
planned gold production levels before year end.
Investing activities of $1.7 million consisted of Mineral Ridge capital
expenditures of $1.4 million and Bolivian evaluation expenditures of $0.3
million. Mineral Ridge capital expenditures during the first nine months of
1999 were primarily for the planned expansion of the heap leach pad and for
the replacement of a critical ore feeder, which was identified as inadequate
during start-up.
In 1998, the Corporation purchased Mineral Ridge. As part of the transaction,
Mineral Ridge's bank debt agreement was amended. At September 30, 1999, the
amended bank debt was approximately $15.2 million. The interest rate on the
debt is LIBOR plus two percent and the loans, which are not guaranteed by the
Corporation, are collateralized by the assets of Mineral Ridge, including
$5.0 million of mining equipment that was contributed by the Corporation.
During the first nine months of 1999, the Mineral Ridge mine repaid $0.3
million of the outstanding debt balance.
In April 1999, the Hycroft mine entered into a debt agreement with Finova
Capital Corporation through which Hycroft received $1.5 million in cash. The
interest rate on the loan is 10.61 percent and the loan is collateralized by
certain mobile equipment assets at the Hycroft mine. The repayment terms of
the loan require 36 equal monthly installments, which commenced in May 1999,
and through September 30, 1999, the Hycroft mine repaid $0.2 million of the
outstanding debt balance.
At September 30, 1999, the Corporation had forward sales commitments covering
100,000 ounces of gold at an average price of $307 with various expiration
dates up to January 2000. The Corporation has the ability to defer the date
of sale that the related gold is ultimately delivered.
RECLAMATION AND ENVIRONMENTAL COSTS
Management estimates the reclamation and closure costs for the Corporation's
mines as follows:
Hycroft mine $4.5 million
Mineral Ridge mine 1.8 million
------------
$6.3 million
============
These costs are charged to earnings over the lives of the mines and the
provision to date is $5.3 million. In April 1995, the Nevada Bureau of Land
Management ("BLM") approved an amended Hycroft mine reclamation plan that
included the Brimstone deposit, and a surety bond in the amount of $5.1
million was posted to secure reclamation obligations under the plan. During
the first nine months of 1999, the Corporation incurred $1.3 million in
reclamation and closure-related expenditures at the Hycroft mine. To date,
Hycroft has reclaimed approximately 750 acres, or 40 percent, of the
disturbances on the entire mine site. Reclamation will continue in areas that
would not be affected by the potential re-start of mining operations as
discussed below.
-13-
In September 1996, the BLM approved the Mineral Ridge mine plan of operations
and a surety bond in the amount of $1.6 million was posted. Cash collateral
in the amount of $0.9 million has been posted as security for the surety bond.
REGULATORY COMPLIANCE AND OTHER MATTERS
During the first nine months of 1999, there were no material environmental
incidents or non-compliance events with any applicable environmental or other
regulations.
OUTLOOK
The Corporation is proceeding with a $0.4 million exploration program at the
Hycroft mine and continues to operate the Mineral Ridge mine. Financing
activities for the Bolivian Amayapampa project have been resumed following
the recent recovery of gold prices.
At the Hycroft mine, gold production from previously inventoried ore is
continuing at above-plan rates and is now expected to be 40,000 ounces for
the year. A reconciliation of the Brimstone ore reserve model confirmed that
actual gold production exceeded projected gold production by more than 30
percent. After considering the results of the reconciliation, the Board of
Directors approved a $0.4 million exploration program, to be completed before
the end of 1999. The program includes approximately 6,000 feet of diamond
drilling and 11,000 feet of angled reverse circulation drilling. The drilling
is designed to determine if the positive variance can be extended to the
remaining Brimstone gold resource. A positive conclusion could add
significantly to the Corporation's mineable reserves and allow the Hycroft
mine to resume operations.
After acquiring the Mineral Ridge mine in October 1998, the Corporation
recommenced mining activities immediately with a planned start-up period
leading to full production by the end of the first quarter of 1999. During
start-up, many plant and crushing design deficiencies were identified which
required correction and resulted in lower than expected gold production in
the first nine months of 1999. The major corrections have been completed and
crushing operations are now at planned capacity. The Corporation has revised
its 1999 gold production estimates at the Mineral Ridge mine to 30-32,000
ounces.
In Bolivia, the Corporation completed studies on a revised development plan
for the Amayapampa project. The revised project is forecast to have an
average production rate of 43,000 ounces per year. The proven and probable
reserve at Amayapampa is 548,000 ounces of gold calculated at a $300 per
ounce gold price. The estimated cash production costs of the project will be
$157 per ounce of gold and the initial capital cost will be approximately $26
million. The Corporation had suspended its efforts to finance the project due
to the continued depression in gold prices. As a result, the holding costs
for the Bolivian properties were minimized in order to preserve the assets
until gold prices returned to higher levels. Following the recent recovery of
gold prices, the Corporation has resumed its efforts to arrange financing for
the project.
The Corporation plans to complete the exploration of the Hycroft Brimstone
ore reserve, operate the Mineral Ridge mine and hold the Bolivian properties
using its existing financial resources. While the Corporation has positioned
itself to operate in the current gold price environment, there are no
assurances that it will be able to do so indefinitely or that gold prices
will not deteriorate. Such further deterioration could have adverse
consequences on the Corporation.
-14-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
The Corporation is engaged in gold mining and related activities, including
exploration, extraction, processing, refining and reclamation. Gold bullion
is the Corporation's principal product. Changes in the price of gold could
significantly affect the Corporation's profitability and cash flows. Gold
prices may fluctuate widely from time to time. For a description of factors
that affect gold prices, see note 1(a) to the consolidated financial
statements for the year ended December 31, 1998 filed under "Form 10-K, Item
8. Consolidated Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements".
Using current 1999 estimates of production at an estimated average gold price
of $300 per ounce, including the effects of the Corporation's hedging
position and management's estimate of expected operating expenses, a $10
change in the gold price would result in an increase or decrease of
approximately $0.2 million in net income and cash flows.
The Corporation occasionally utilizes derivative commodity instruments to
manage the Corporation's exposure to the risks associated with fluctuations
in the price of gold by protecting the selling price of a portion of its
production. The commodity instruments are not used for trading purposes. The
market risk of these commodity instruments to the Corporation's cash flow is
related to the possible failure of all counterparties to honor their
contractual obligations. Precious metals contracts between the Corporation
and various counterparties involve the requirement that the Corporation
deliver gold to the counterparty at agreed-upon prices. If the counterparty
is unable to fulfill its purchase obligations, there is no guarantee that the
Corporation will be able to receive the agreed-upon sales price in the open
market. If the Corporation is unable to produce sufficient gold to meet its
hedging contract obligations, it may be obligated to purchase such gold in
the open market. For further information regarding the Corporation's hedging
program, see note 3 to the consolidated financial statements for the three
months ended September 30, 1999 under "Item 1. Financial Statements - Notes
to Consolidated Financial Statements".
At September 30, 1999, the Corporation had forward sales contracts for
100,000 ounces at an average price of $307 per ounce. The contracts require
the Corporation to deliver the gold at various dates up to January 31, 2000.
The Corporation has the ability to defer the date of sale that the related
gold is ultimately delivered. During the first nine months of 1999, the
Corporation closed out various forward sales contracts for cash consideration
of approximately $3.0 million. The closed out contracts were replaced with
new forward sales contracts for the same amount of ounces at lower average
prices.
INTEREST RATE RISK
At September 30, 1999, the interest rate on a significant majority of the
Corporation's long-term debt was LIBOR plus two percent. The interest rate on
this debt is variable and can be fixed for specific periods of time of up to
180 days at the option of the Corporation. As a result, management does not
believe that the Corporation is exposed to significant interest rate risk and
the Corporation does not utilize market risk sensitive instruments to manage
its exposure to this risk.
FOREIGN CURRENCY EXCHANGE RATE RISK
The price of gold is denominated in U.S. dollars, and all of the
Corporation's revenues and a significant majority of its expenses are
incurred in U.S. dollars. As a result, management does not believe that the
Corporation is exposed to significant foreign currency exchange rate risk and
the Corporation does not utilize market risk sensitive instruments to manage
its exposure to this risk.
-15-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.01 Statement re: Computation of per Share Earnings.
27.01 Financial Data Schedule.
99.01 Third Quarter 1999 Report to Shareholders
(b) Reports on Form 8-K
The following documents were filed under cover of Form 8-K
during the quarter ended September 30, 1999:
1. Press release dated August 13, 1999 announcing the
second quarter 1999 financial results filed under
cover of Form 8-K on August 16, 1999.
2. Press release dated September 16, 1999 announcing an
update on Bolivia filed under cover of Form 8-K on
September 17, 1999.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISTA GOLD CORP.
(Registrant)
Date: November 12, 1999 By: /s/ MICHAEL B. RICHINGS
-------------------------------------
Michael B. Richings
President and Chief Executive Officer
Date: November 12, 1999 By: /s/ ROGER L. SMITH
-------------------------------------
Roger L. Smith
Vice President Finance
-17-
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
11.01 Computation of per Share Earnings 19
27.01 Financial Data Schedule 20
99.01 Third Quarter 1999 Report to Shareholders 21
-18-