UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year December 31, 1995 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from ______________________ to
______________________
Commission File Number 0-9370
___________________
USMX, INC.
(Exact name of registrant as specified in its charter)
___________________
Delaware 84-1076625
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
141 Union Boulevard, Suite 100 80228
Lakewood, Colorado (Zip Code)
(Address of principal executive offices)
(303) 985-4665
Registrant's telephone
number, including area
code
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of class)
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 this
Form 10-K or any amendment to this Form 10-K. Disclosure
contained herein __ Disclosure not contained herein X
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was approximately $21,812,693.
This calculation is based on the closing price of the stock
as reported on The Nasdaq Stock Market on March 8, 1996.
The number of shares of the Registrant's $.001 par value
common stock outstanding as of March 8, 1996 was 14,643,519.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 are anticipated to be included in
the definitive proxy statement.
Table of Contents
Items 1 and 2. Business and Properties. 3
Introduction. 3
Summary of Drill-Defined Mineralization 4
History of Operations 5
The Illinois Creek Project 7
The Thunder Mountain Project 10
Montana Tunnels 12
Exploration 13
Competition 17
Markets 17
Government Contracts 18
Governmental Regulation 18
Employees 19
Financial Information about Foreign and
Domestic Operations and Export Sales. 19
Glossary of Terms 21
Item 3. Legal Proceedings. 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Market For The Registrant's Common Equity
And Related Stockholder Matters. 26
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 28
Liquidity and Capital Resources 28
Results of Operations 29
Trends Which May Affect Future Results of
Operations 32
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 37
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. 37
INDEX TO EXHIBITS 38
PART I
Items 1 and 2. Business and Properties.
Introduction.
USMX, INC. (the "Company" or "USMX") is a Delaware
corporation which engages in the exploration for, and
development and operation of precious metal properties. The
Company also evaluates base metal and non-metallic
opportunities. The Company conducts its operations directly
and through various operating subsidiaries. All references
in this Report to the Company or USMX include all
subsidiaries of USMX, INC., unless the context otherwise
requires.
All of the Company's 1995 production (6,266 ounces of
gold) was from the Company's Goldstrike Mine near St.
George, Utah. Mining was completed at the Goldstrike Mine
in October 1994. The Company expects minimal future
production from the Goldstrike Mine. In addition to
revenues from its operations at the Goldstrike Mine in 1995,
the Company also received the minimum annual advance royalty
of $720,000 in connection with operations of the Montana
Tunnels Mine.
The Company's principal focus in 1995 was on further
exploration and preliminary development of its Illinois
Creek and Thunder Mountain properties. In February 1996,
the Company completed its feasibility study of the Illinois
Creek property and received a commitment for project
financing. The Company is currently proceeding with
development of this property. It is the Company's goal to
commence mining at Illinois Creek in the fall of 1996. See
below in these Items and Item 7 for additional discussion
regarding the Company's plans and the associated risks.
The Company views exploration as an important means of
growth, and it typically actively explores several projects
annually. In 1995, the Company's exploration efforts in the
United States were concentrated on expanding the
mineralization at Illinois Creek and Thunder Mountain. In
addition, the Company continued its exploration efforts
outside of the United States, principally in Mexico.
The following map depicts the location of the Company's
operating property, royalty interest, principal exploration
and development properties, and offices.
The original document contains a map of the western United States
and Alaska depicting the above items.
Summary of Drill-Defined Mineralization
Set forth below are the Company's estimates of the
amounts and grades of drill-defined mineralization that can
be economically recovered from the Company's principal
development projects. These figures are based on extensive
drilling and sampling on the Company's properties and are
based on assumptions believed by the Company to be
reasonable regarding production costs, metallurgical
recoveries and mineral prices. Although the Company
believes that it has carefully prepared these estimates,
there are numerous uncertainties inherent in this process,
including many factors beyond the control of the Company.
The accuracy of any such estimates is a function of the
quality of available data and of engineering and geological
interpretation and judgment. It can be expected that, as
the Company conducts additional evaluation, drilling and
testing with respect to its properties, these estimates will
be adjusted and plans for mining could be revised.
Based on its analysis of the mineral deposits detailed
in the table below, it is the Company's present
determination that these properties can be mined on an
economic basis by the Company and that these estimates
constitute reserves as that term is typically used in the
mining industry. Although permitting required to initiate
mining operations in the United States has become extremely
complex and cannot be considered a certainty, the Company
projects that, in the normal course of property development,
it should be able to obtain the necessary permits to
commence mining operations on these properties. However,
there are strict requirements that must be satisfied in
order for the Company to be permitted to commence production
on its development properties and, therefore, no assurances
can be given in this regard.
In its Securities Act Industry Guide 7, the U. S.
Securities and Exchange Commission defines the term,
"reserve", as , "that part of a mineral deposit which could
be economically and legally extracted or produced at the
time of the reserve determination." Insofar as the
necessary permits have not been obtained on the Company's
development properties, the estimates for those properties
set forth in the table below have not been classified as
"reserves". All references to estimates of drill-defined
mineralization in this Report must be qualified with the
caveat that all legal requirements for extraction of
minerals have not yet been satisfied.
The following table reflects drill-defined gold
mineralization at each of the Company's properties at
December 31, 1995.
Tons (000s) Grade (Oz. Contained
per ton) Ounces -
Property (1) Not Permitted
_____________________________________________________________________________
Illinois Creek 5,543 0.074 (3) 412,365 (4)
Dewey Dome portion of Thunder Mountain(2) 5,290 0.047 248,630
_____________________________________________________________________________
Total 660,995
=============================================================================
(1) The above estimates utilize in place grades and do not
reflect losses that will be incurred in the recovery
process. They do include allowance for dilution of ore in
the mining process. Recovery rates for each property, to
the extent they are known or estimated, are provided as part
of the discussion of each property below.
(2) While management believes this project will be
economically feasible, the Company is in the process of
completing feasibility studies to confirm its economic
viability.
(3) Gold equivalent grade
(4) Gold equivalent ounces
History of Operations
The Company's first producing mine, the Green Springs
Mine, commenced production in June 1988. The Company
completed mining, crushing and stacking operations at Green
Springs in June 1990. Reclamation of pits, haul roads and
waste dumps commenced in 1990 and continued through 1993.
Rinsing of the heaps was initiated during 1992 to meet final
closure requirements. During 1993, rinsing of the heaps and
reclamation of the heaps and the plant site were completed.
During the life of the Green Springs Mine, the Company
received several environmental and safety awards for this
operation while producing a total of 69,331 ounces of gold.
The Company was particularly gratified to receive the 1992
State of Nevada Governor's Award for Excellence in Mine
Reclamation in connection with several of the Company's
Nevada mines (described below), including the Green Springs
Mine. The award, made jointly by the State of Nevada, U.S.
Bureau of Land Management and U.S. Forest Service was given
to the Company in recognition of outstanding achievement in
innovative design, superior mine planning and commitment to
reclamation from project commencement to closure.
The Company commenced open pit mining at its Casino
Mine in Nevada in June 1990 and completed mining in May
1991. In July 1991, the Company commenced mining at the
Winrock Mine in Nevada. Mining and crushing were completed
at the Winrock Mine in June 1992. The Casino and Winrock
Mines shared a common heap leaching facility. The Company
produced a total of 48,953 ounces of gold from the
Casino/Winrock project prior to its sale on August 27, 1993.
In May 1990, the Company completed the purchase of the
Alligator Ridge Mine in Nevada, which included partially
leached gold ore on heaps, gold recovery facilities, a
mining fleet, a mill, and approximately 26,000 acres of
mineral interests in the Alligator Ridge trend. During its
tenure at the Alligator Ridge Mine, the Company produced
50,188 ounces of gold. Construction of the crushing and
gold recovery facilities at a satellite facility, designated
the Yankee Mine, was completed during the first quarter of
1992. The Company produced 26,220 ounces of gold at the
Yankee Mine between the time of initial gold production in
June 1992 and its sale on August 27, 1993. The Company's
Casino, Winrock, Alligator Ridge and Yankee Mines, together
with surrounding exploration prospects, were sold in two
separate transactions in 1993 for a total of $20 million
cash, plus the assumption by the buyer of all related
obligations, including reclamation liabilities.
Effective November 1, 1992, the Company acquired from
Tenneco Corporation (Tenneco), the stock of Tenneco Minerals
Company-Utah (TMC-Utah), owner and operator of the
Goldstrike Mine located approximately 35 miles northwest of
St. George, Utah. Soon after the acquisition, the name of
this wholly owned subsidiary was changed to USMX of Utah,
Inc. Gold production from the Goldstrike Mine since
November 1, 1992, has been 77,182 ounces, including 6,266
ounces of gold produced in 1995. During 1995, the Company
was recognized for its reclamation efforts at the Goldstrike
Mine when it received the 1995 Earth Day Award from the
State of Utah Board and Division of Oil, Gas and Mining.
The Goldstrike property presently consists of
approximately 2,600 acres of unpatented mining claims.
Access to the Goldstrike Mine is by State Highway 212 to a
point approximately 21 miles northwest of St. George, then
by well-maintained gravel road over a distance of
approximately 14 miles. Mining operations at the Goldstrike
Mine were completed in October 1994. Leaching was completed
in December 1995. All disturbed areas at the Goldstrike
Mine were reclaimed during 1995 except for the heaps and the
plant site. Reclamation of one of the two heaps was begun
near the end of 1995. Rinsing of the second heap commenced
in January 1996 and is expected to continue into 1997. Once
rinsing of the second heap is complete, the heap will be
recontoured, covered with topsoil and seeded with various
native plant species. In addition, the process plant will
be dismantled and the plant site reclaimed. Management
believes that adequate provision has been made in the
accompanying consolidated financial statements for the cost
of completing the reclamation of the Goldstrike Mine.
The Company's investment in the Goldstrike Mine as of
December 31, 1995, was approximately $891,000, including
$91,000 in undepreciated property, plant and equipment and a
$800,000 certificate of deposit provided to the State of
Utah as reclamation surety.
The following table sets forth gold production at each
of the Company's mines over the past five years:
Gold Production (Ounces)
Mine 1995 1994 1993 1992 1991
____________________________________________________________________
Green Springs - - - 2,353 4,984
Casino/Winrock (1) - - 3,190 19,745 19,979
Alligator Ridge (1) - - 4,965 10,454 16,824
Yankee (1) - - 15,299 10,921 -
Goldstrike (2) 6,266 34,486 31,934 4,496 -
____________________________________________________________________
Total 6,266 34,486 55,388 47,969 41,787
====================================================================
(1) Sold August 27, 1993
(2) Acquired effective November 1, 1992
The following table sets forth statistics regarding
gold production and sales and related per ounce information:
Year Ended December 31, 1995 1994 1993 1992 1991
________________________________________________________________________________
Ounces of gold produced 6,266 34,500 55,400 48,000 41,800
Ounces of gold sold 6,900 35,600 50,400 47,400 43,800
Per ounce statistics:
Cash production costs incurred $233 $229 $289 $280 $242
Depreciation, depletion, amortization
and reclamation accruals - 48 38 51 48
________________________________________________________________________________
Production costs per ounce produced $233 $277 $327 $331 $290
________________________________________________________________________________
Gold sales revenue $388 $383 $360 $360 $376
________________________________________________________________________________
Production costs per ounce sold 212 269 359 335 276
Change in inventories and deferred
production costs 207 46 (37) (30) (21)
________________________________________________________________________________
Cost of gold sold 419 315 322 305 255
Mining taxes 2 3 3 2 7
Production royalties 55 19 17 17 11
________________________________________________________________________________
Costs applicable to sales 476 337 342 324 273
________________________________________________________________________________
Gross profit (loss) -88 46 18 36 103
================================================================================
The Illinois Creek Project
Introduction
The Illinois Creek Project is a moderate grade, near
surface gold-silver deposit. It consists of two State of
Alaska Mining Leases, totaling 62,480 acres. The underlying
leaseholder is North Pacific Mining Corporation ("NPMC"), a
wholly owned subsidiary of Cook Inlet Region, Inc. ("CIRI"),
an Alaska Native Regional Corporation. The Illinois Creek
Project is located in the western interior of Alaska. It
lies approximately 57 miles southwest of Galena and 320
miles northwest of Anchorage.
The exploration and development phases have been
completed with the exception of permitting. All major
permit applications have been submitted and have been
reviewed by the State of Alaska. A 30-day public review
process is currently underway. A final decision on all
permits is expected in April 1996. No major federal permits
will be required. Assuming the grant of the necessary
permits, the Company intends to commence site development
and construction in late April 1996. Field construction is
anticipated to take approximately four months to complete.
History
The Illinois Creek Project is part of a large
polymetallic hydrothermal district covering 400 square miles
in the southern Kaiyuh Mountains. The area was first
explored by Anaconda Minerals as part of a joint venture
with CIRI in 1980. Subsequent to Anaconda Minerals'
activities, the area was explored by Goldmor Group, Ltd.,
NPMC, and Echo Bay in association with CIRI. The Company
commenced its exploration activities in August 1994. The
Company has drilled 61 core holes and 89 reverse circulation
holes, totaling approximately 31,000 feet. This drilling
succeeded in increasing the drill-defined mineralization to
about 412,000 contained equivalent ounces of gold and
provided geotechnical information necessary for pit design
and engineering.
The Company made initial payments to NPMC totaling
$100,000 in 1994 to evaluate the Illinois Creek property.
Pursuant to the Company's Agreement with NPMC, the Company
is required to make a $1 million, non-refundable payment to
NPMC in cash or USMX stock. The Company has elected to make
the payment in stock, which the Company has calculated will
amount to 449,754 shares. The Company will issue these
shares upon effectiveness of a registration statement
covering the resale of these shares. The Company expects to
file this registration statement in April 1996. In
addition, if the Company obtains the necessary permits and
there has been no material adverse change in the economics
of the project, the Company will be required to make an
additional payment to NPMC of $3 million in cash or USMX
stock in exchange for title to the underlying leases. If
the Company elects to pay all or part of this amount in
stock, it will also be required to provide for the
registration of the resale of the shares issued to NPMC.
The number of shares of USMX common stock to be issued to
NPMC will be based on a 30-day average of the price of the
USMX stock on The Nasdaq Stock Market. NPMC also has chosen
to receive a 5% net returns royalty on production from the
Project.
If the Company delineates the existence of additional
ore reserves on the lease known as the Illinois Creek Upland
Mining Lease, which increases the total proven ore reserves
to at least one million ounces of equivalent gold ore
reserves beyond the mineralization stated in the Company's
February 1996 feasibility report, then NPMC will have the
right to elect to participate in subsequent mining
operations with respect to those additional reserves for a
25% working interest by reimbursing the Company 120% of
NPMC's 25% share of exploration, development and capital
costs incurred by the Company subsequent to February 1996
which are directly related to the delineation and/or
production of the additional reserves.
Pursuant to the Company's Agreement with NPMC, the
Company has until December 16, 1997, to achieve Commercial
Production (as defined) from the property. This period may
be extended at the option of the Company for two additional
one year periods upon payment by the Company of a $300,000
advance royalty, adjusted for inflation, for each one year
extension. The Agreement terminates on December 16, 1999,
if the Company has not achieved Commercial Production from
the property by that date.
Location, Access, Terrain and Climate
The Illinois Creek Project site is located in the
southern Kaiyuh Mountains in the western interior of Alaska.
The project is located approximately 57 miles southwest of
Galena and 23 miles east of the Yukon River. It is
equidistant from Fairbanks and Anchorage which lie
approximately 320 miles to the east and southwest of the
Project, respectively.
Access to the site is by air. Equipment and supplies
will be transported to the site by land, sea and air.
Equipment and supplies will be transported from Seattle,
Washington to Anchorage, Alaska by barge. From Anchorage,
it will travel by truck or rail to Nenana. From Nenana, it
will be moved down river on barge to Galena. From Galena,
it will be lifted by air to the site. The site will be
connected to the personnel camp and airport by a 6.5 mile
road which has been partially constructed.
A C-133 aircraft will be required to transport the large,
oversized mining equipment. The C-133 is a retired military
plane which has not been certified for commercial use by the
FAA. The Company has been assisted by the Alaska Industrial
Development and Export Authority ("AIDEA"), a political
subdivision of the State of Alaska, in obtaining a waiver
from the FAA for use of the C-133. The Company has entered
into a Cost Reimbursement Agreement with AIDEA pursuant to
which AIDEA will undertake a feasibility analysis and
negotiate with the Company a proposed use and
indemnification agreement with respect to the lease of
aircraft equipment. Finalization of these arrangements in
the near future is essential to the Company's construction
plans for the summer of 1996. In addition, there is only
one such airworthy aircraft currently available for use by
the Company. There is also one additional C-133 available
to supply spare parts, if needed. If the Company is unable
to transport all of the components it currently plans to
transport using the C-133 aircraft, substantial delays and
additional costs could be incurred as the components would
have to be cut into smaller pieces, transported to the site
using smaller aircraft and reassembled at the site.
The local area consists of moderate hills (elevations
ranging from 200 to 1,000 feet), the flood plains of the
Little Mud and Innoko Rivers, Illinois Creek, local warm
springs and California Creek south of the site, and the
wetlands to the west of the Project site along the Yukon
River. These wetlands are not expected to be affected by
the Project facilities.
The climate is sub-arctic and characterized by large,
seasonal extremes in temperature and daylight. Average
winter temperatures are -7 F to 20 F; mean summer
temperatures range from 35 F to 67 F. Regional extremes
are -63 F to 93 F. Precipitation averages 15 to 18 inches
annually, including 81 inches of snow. Snow depth at the
site ranges from 24 to 36 inches during a typical winter.
Historically, September is the heaviest rainfall month with
an average of 8.3 inches.
Freeze-up on the Yukon River normally occurs in late
October to early November; breakup normally occurs in early
to mid May. Accordingly, the shipping schedule on the Yukon
River will typically be limited to a period between
approximately May 25 and September 25.
Drill-defined Mineralization
In February 1996, the Company completed a comprehensive
feasibility study pertaining to the Illinois Creek deposit.
Based on this study, the Company believes that the deposit
contains 5.54 million tons of mineable drill-defined
mineralization at a gold grade of 0.069 ounces of gold per
ton and 1.467 ounces of silver per ton, yielding a gold
equivalent grade of 0.074 ounces of gold per ton. The
calculation was based on a gold price of $400 per ounce and
a 0.025 ounce gold equivalent per operating ton cut off
grade. The average stripping ratio over the planned life of
the project is 2.79:1. An additional 479,000 tons of low
grade material exists within the limits of the ultimate pit
design. This material has an average equivalent grade of
0.024 ounces per ton. This indicates the presence of an
additional 11,369 equivalent ounces of gold that will be
leachable under present economic parameters.
Metallurgy
Metallurgical recovery from the run-of-mine ore is
projected to be approximately 85% of contained gold and 25%
of contained silver. Year round leaching will be conducted
if it proves to be economic. Gold production for 1996
should be approximately 20,000 ounces, assuming timely
receipt of permits and other regulatory approvals and
assuming a startup date of September 1. See Item 7.
Geology
The deposit occurs as a large gossan zone striking east-
northeast and dipping 40 to 70 degrees to the southeast, hosted
within a thick sequence of quartzites which are carbonate
rich. The gossan has been intersected by drilling over
strike length of 12,000 feet and to a depth of greater than
1,500 feet. Oxidation of the mineralization is complete to
a depth of at least 1,100 feet below the present surface.
Economic gold-silver mineralization is present in portions
of the gossan, and is associated with elevated levels of
copper and/or lead, hydrothermal or remobilized silica,
earthy hematite, and poorly defined structural features.
Supergene enrichment of both gold and silver in near surface
locations is also apparent.
Plan of Operations
The Company has retained Lyntek, Inc. to provide
detailed engineering, procurement and construction
management services. D. H. Blattner and Sons, Inc. has been
selected to complete all construction earthworks, and to
serve as the mining contractor.
Previous activities by other mining companies have
resulted in some infrastructure on the property including a
25 person camp, a 4,500 foot air strip suitable for DC-6 and
C-133 aircraft, a vehicle maintenance/sample preparation
building, and miscellaneous other buildings and pieces of
equipment. The existing airstrip is 6.5 miles by road from
the mine site and will be utilized by the Company for
transportation purposes. The vehicle maintenance/sample
preparation building is usable in its present condition.
Also, the existing personnel camp will be used by the
Company's exploration staff.
The Company plans to construct a 90-person camp north
of the airstrip. A well will provide potable water for the
camp. Water for process mining will come from a source
located near the mid-point of the main access road from the
airfield to the mine site. Electrical power will be
generated using diesel powered generator sets. Waste heat
from the generators will be used to heat the process
building. In addition to the process building, also to be
constructed are a modular assay laboratory, a truck
maintenance shop and a modular administration building.
Communications will be by satellite.
The deposit will be developed as a conventional open-
pit mine. It will be operated on a seasonal basis. Mining
will be conducted during the warmest six months of the year,
normally May through October. Trucks and front-end loaders
will be used to mine, haul and stack the ore in a valley
fill lined impoundment. Heap leaching followed by carbon
adsorption/desorption/electrowinning will be used to extract
the gold. The process system is designed to recover the
annual scheduled amount of gold production in eight months.
Due to excessive costs of transporting burnt lime to the
site, lime will be produced on-site utilizing a local source
of dolomitic limestone. The Company has contracted for the
refurbishing and transport to the site of a diesel-fired
rotary kiln.
The mine operating schedule will be ten hours per
shift, two shifts per day, six days per week. Three crews
will rotate on a four-week on, two-week off schedule. The
Company currently expects to employ approximately 54 people
at Illinois Creek, with a like number of personnel to be
employed by the mine contractor.
Total pre-production capital costs, including
approximately $4.7 million in working capital, are currently
estimated at about $26.6 million, exclusive of property
acquisition costs of $4 million to be paid to NPMC as
outlined above. As of December 31, 1995, the Company's
investment in Illinois Creek was approximately $4 million.
See Item 7.
The Thunder Mountain Project
Introduction
The Company proposes to conduct gold and silver mining
activities at the Dewey Mine in the Thunder Mountain Mining
District in eastern Valley County, Idaho, approximately 100
miles northeast of Boise, Idaho. The proposed Dewey mining
operations are part of the Thunder Mountain Project and
consist of the development of a gold and silver ore deposit
located on patented mining claims administered by the Idaho
Department of Lands. The Company proposes to initiate
construction of the Dewey Mine facilities in the summer of
1997. In January 1996, the Company submitted a Notice of
Intent to Operate ("NOI") with the Idaho Department of
Lands, which is currently being reviewed. A feasibility
study will be ongoing throughout 1996 to refine the project
design and economics.
History
Gold was discovered in the Thunder Mountain area in
1894 at the site of what is now known as the Dewey Mine.
During the period from the initial discovery until 1942,
various operators reportedly produced approximately 31,000
ounces of gold and 16,000 ounces of silver from both
underground and surface placer workings. Renewed interest
in the district began in earnest during the early 1970s due
to rising gold prices. After exploration by several major
mining companies, a portion of the property, the Sunnyside
Mine area, was placed into production by Coeur d'Alene Mines
Corporation ("Coeur d'Alene") as an open pit, heap leach
operation in 1986. Between 1986 and 1990, Coeur d'Alene
reportedly produced 120,000 ounces of gold and 240,000
ounces of silver from the combined Sunnyside, Goldbug and
Lightning Peak pits. After reclaiming the property, Coeur
d'Alene terminated its leases with Thunder Mountain Gold,
Inc. in December 1990. At the adjacent Dewey Mine, the
Dewey Mining Company constructed a 450 ton per day mill and
the property was operated as an open pit mine (Golden Reef
Joint Venture) during 1981. In the mid 1980s, the Dewey
Mine became the subject of litigation which was resolved in
favor of the Dewey Mining Company late in 1991.
Effective July 9, 1993, the Company entered into an
Exploration and Option to Purchase Agreement ("Agreement")
with Dewey Mining Company, Thunder Mountain Gold, Inc. and
two individuals (the foregoing companies and individuals
described below collectively as "Owners"). The Owners
control approximately 5,500 acres in the Thunder Mountain
Mining District consisting of both patented and unpatented
mining claims. Pursuant to the terms of the Agreement, the
Company was granted the sole and exclusive right to explore
for and develop minerals on the property in exchange for
advance royalty payments totaling $100,000. In addition,
the Company committed to spend, and did spend, a minimum of
$500,000 evaluating the property prior to April 1, 1995.
The Agreement requires that, before the Company can put
the property into commercial production, it must prepare and
deliver to the Owners a feasibility study regarding the
project. In 1995, the Company extended the term of the
agreement through April 30, 1996, by making an additional
advance royalty payment in the amount of $150,000. The
Company has the option to further extend the Agreement
through April 30, 1997, by paying an additional advance
royalty payment of $200,000. The Company intends to so
extend the Agreement. The Agreement further provides the
Company with the option for a final extension until April
30, 1998, in exchange for an additional advance royalty
payment of $250,000. The advance royalty payments may
be recovered by the Company for seven years after payment
should the Owners elect to receive royalties under options
(a) or (c) below. The Agreement terminates if the Company
fails to deliver a feasibility study to the Owners by the
end of the last year's extension under the Agreement or if
the Company exercises its right to terminate the Agreement
at any time.
Within 90 days after the Company provides the Owners
with a feasibility study, the Owners may elect to (a)
participate in subsequent efforts to the extent of a 30%
working interest, plus receive a 1.5% royalty, or (b)
receive a 30% net profits interest, or (c) receive a 5% net
returns royalty from production. If the Owners elect to
receive a 5% net returns royalty, the Company will be
obligated to make advance royalty payments of $200,000
within thirty days after commencement of Commercial
Production (as defined in the Agreement), and $250,000 each
year thereafter. If the Owners fail to notify the Company
of their election prior to the end of the 90 day election
period they will be deemed to have made an election to
receive a 5% net returns royalty.
The Agreement provides that, once the Owners have made
their election, the Company shall have one year within which
to achieve Commercial Production. If the Company fails to
achieve Commercial Production within one year, the Company
must either reconvey the property to the Owners or extend by
one year the time period within which Commercial Production
must commence by paying an advance royalty of $200,000 to
the Owners. If Commercial Production has not begun by the
end of the extension period, the Company may obtain one
final extension of one year within which to achieve
Commercial Production by paying the Owners an additional
advance royalty of $250,000.
In addition to the advance royalty payments and the
work commitments outlined above, the Company is obligated to
pay all fees necessary to maintain the unpatented mining
claims through August 31 of the calendar year in which the
extension year expires.
The area of the Company's primary activity lies
approximately 4,000 feet west of the Sunnyside deposit
previously mined by Coeur d'Alene. The results of the
Company's drilling during 1993 were favorable, including a
number of intersections that exceed 100 feet in thickness
and average in excess of 0.10 ounces of gold per ton. The
Company was also successful in extending the deposit along
strike into an area that was not previously drilled. During
1994, the Company drilled a total of 104 exploration and
development holes on the property, helping to define the
margins and high grade core of the Dewey deposit. As of
December 31, 1995, the Company has expended a total of $2.3
million on the property.
Location, Access, Terrain and Climate
The Dewey Mine lies within the Thunder Mountain
District in eastern Valley County, Idaho. Access to the
District is obtained via U.S. Highway 95 to Cascade, Idaho,
then east 42 miles to Landmark, Idaho on Forest Highway 22,
then north and east approximately 57 miles on U.S. Forest
Service roads to the property. The Thunder Mountain Mining
District is currently accessible by vehicle about seven
months out of the year from late May to late November.
Local elevations range from approximately 7,300 to
9,000 feet. The District forms a 5,980-acre enclave of
patented and unpatented land within the Frank Church
Wilderness Area administered by the Krassel District of the
Payette National Forest.
Due to the location of the property, and based on the
experience of operations previously conducted at the Dewey
Mine and at nearby existing operations, future mining
operations of the Company would be seasonal, but processing
may be conducted year around.
Drill-defined Mineralization
The Company's internal engineering staff updated the
mine model in 1995. This work indicated the presence of
preliminary floating cone mineable open pit drill-defined
mineralization of 5,290,000 tons with an average grade of
0.047 ounces of gold per ton containing approximately
248,630 ounces of gold. The calculation was based on a
gold price of $400 per ounce and a 0.031 gold ounce per ton
operating cutoff grade. The estimated stripping ratio of
waste to ore for this mineralization is approximately
1.02:1. Further, metallurgical test work completed in 1995
indicated the material is amenable to heap leaching, and an
85% gold recovery factor was used in the mine model.
Additional potential is known to exist within the
Thunder Mountain property. The presence of other drill-
indicated gold mineralization has been identified by the
earlier exploration programs conducted by the Company as
well as other mining companies. During 1996, limited
exploration is planned at Thunder Mountain in conjunction
with the ongoing geotechnical and environmental work needed
to generate data for mine design and permitting. Geological
mapping and geochemical surveys will be completed on several
outlying targets to be tested in the future after issuance
of permits.
Plan of Operations
The Dewey Mine deposit is a bulk tonnage, heap-
leachable ore body and is located on several patented lode
mining claims in the central portion of the Thunder Mountain
Mining District. The Company is currently conducting a
feasibility study to determine the optimum design by which
to profitably exploit this deposit. It is presently
anticipated that conventional open pit/heap leach techniques
will be used. The fluid management system will be designed
as a zero discharge system. Due to the remote location of
the deposit, the Company will be required to generate its
own electrical power.
The Company plans to use a contract miner to develop
and operate the open pit mine. The preliminary production
schedule is for a six to eight month per year mining system,
two shifts per day, seven days per week. The number of mine
operating days is estimated at 210 to 240, depending on
weather. Processing would occur at least 250 days per year,
and perhaps would run throughout the year. The Company
would expect to employ approximately 75 to 100 people at the
Dewey Mine.
Geology
The Thunder Mountain Mining District is localized in
the central portion of a caldera complex underlain by
Challis Volcanics as well as graben-fill, pyroclastic-
derived sediments. The Dewey Dome ore deposit is hosted by
the pyroclastic sediments, and the Sunnyside, Goldbug and
Lightning Peak deposits mined by Coeur d'Alene were hosted
by the volcanics. Known concentrations of economic gold
mineralization are controlled by a combination of structure
and stratigraphy.
Permitting
During 1995, limited geotechnical and baseline
environmental work was conducted while the Company was re-
evaluating the project based on heap leaching of the ore for
recovering gold. On January 31, 1996, based on favorable
preliminary findings, the Company submitted a Notice of
Intent to Operate ("NOI") with the Idaho Department of Lands
and Payette National Forest. A feasibility study will be
ongoing throughout 1996 to refine the project design and
economics. Since permitting has only recently commenced, it
is difficult to predict when necessary permits might be
received. However, it seems reasonable to expect that
permit approvals are attainable in 1997, which may allow for
development of the project that same year.
Montana Tunnels
The Montana Tunnels property is located in the Colorado
Mining District, Jefferson County, Montana, 22 miles south
of Helena. Montana Tunnels consists of approximately 9,300
acres of patented ground plus about 1,000 acres of other
mineral rights. This property was developed and is operated
by Pegasus Gold Inc. ("Pegasus") pursuant to an agreement
with the Company. Mine and mill construction commenced in
March 1986, milling operations began in March 1987, and full
operating status was achieved by Pegasus in October 1987.
The Montana Tunnels Mine involves open pit mining
operations and conventional milling technology. The Montana
Tunnels ore is processed through a circuit which
incorporates crushing, grinding, and selective flotation to
produce lead and zinc concentrates, and a gravity circuit
for recovery of free gold. The majority of gold and silver
value is associated with the base metal concentrates.
Pegasus has supplied to the Company the operating
statistics for Montana Tunnels set forth in the following
table:
Year Ended December 31,
________________________
1995 1994
________________________
Ore milled (tons) 5,474,191 5,411,170
Payable metals:
Tons of lead 7,399 9,374
Tons of zinc 21,611 19,814
Ounces of gold 89,231 80,179
Ounces of silver 1,073,173 1,085,257
As of December 31, 1995, Pegasus estimates that the
Montana Tunnels Mine has proven and probable ore reserves of
approximately 24,000,000 tons.
The Company owns a net profits royalty interest in the
Montana Tunnels Mine. The Company is entitled to the
greater of a five percent net profits royalty interest or
minimum advance royalties of $60,000 per month until certain
construction, land acquisition and associated financing and
other costs have been recovered by Pegasus ("Payback"), and
a 50 percent net profits royalty interest thereafter.
Payback is defined in the agreement with Pegasus to occur
when 90 percent of net profits equals the sum of $250,000,
plus the project costs incurred subsequent to January 1,
1986, plus interest costs imputed on these costs until
September 30, 1987, the date of full operation status. Net
profits, as defined, include deduction from revenues of such
costs as direct operating and administration expenses,
allowable new capital expenditures, property payments,
management fees, interest on debt and equity financing,
repayment of gold loans, repayment of certain debt
obligations, and taxes other than income taxes. Based on
information provided by Pegasus, the Company estimates that,
as of December 31, 1995, the remaining net profit
recoverable costs were $26,539,000.
Depending on metal prices and production rates, Payback
could be achieved which would result in increased revenue to
the Company at some future date. However, even if Payback
is not achieved, the Company seems reasonably assured of
continued payments of $720,000 per year during the life of
the Montana Tunnels Mine, now estimated by Pegasus to
continue into the year 2000. During 1995, the Company
received minimum annual royalties of $720,000.
Exploration
Due to continued threat of adverse amendment to or
replacement of the U.S. mining laws as well as to other
existing regulations, the Company continued in 1995 to
direct its exploration activity to the evaluation of private
lands in the United States, and opportunities in Latin
America. Exploration for minerals, particularly for gold,
is highly speculative in nature, involves many risks and
frequently is nonproductive. There can be no assurance that
the Company's mineral exploration efforts will be
successful. Once mineralization is discovered, it usually
takes a number of years from the initial phases of
exploration until production is possible, during which time
the economic feasibility of production may change.
Substantial expenditures are required to establish ore
reserves through drilling, to determine metallurgical
processes to extract the metal from the ore and, in the case
of new properties, to construct mining and processing
facilities. As a result of these uncertainties, no
assurance can be given that the Company's exploration
programs will result in the expansion or replacement of
existing reserves.
Cala Abajo, Puerto Rico
During 1992, 1993, and 1994, the Company acquired an
equity interest currently totaling approximately 80% of the
outstanding common stock of Southern Gold Resources (USA),
Inc., a Colorado corporation. On October 5, 1992, Southern
Gold was granted an exclusive exploration permit by the
Puerto Rican government covering 2,170 acres that include
the Cala Abajo copper/gold deposit in west-central Puerto
Rico. The prospecting permit may be extended year to year
for a maximum 10 year period and gives the Company the
exclusive right to conduct exploration and environmental
studies and to negotiate a mining lease covering the permit
area. Through June 1995, the Company incurred approximately
$1.0 million in drilling, metallurgical test work,
engineering and base line environmental studies and had
determined the existence of mineable drill-defined
mineralization of 52,649,000 tons of ore averaging 0.799%
copper and 0.013 ounces of gold per ton, resulting in an
equivalent copper grade of 1.134% copper. The estimate
contains approximately 847,000,000 pounds of copper and
685,000 ounces of gold. The overall stripping ratio is
approximately 1.13:1, including waste to be removed before
mining could begin.
In 1995, the Commonwealth of Puerto Rico amended its
mining law to prohibit open pit mining of metal deposits on
the island. The effect of the mining law, as currently
amended, was to render the Company's plan for development of
the Cala Abajo deposit uneconomic. Accordingly, the
Company's investment was written off during the year. The
Company is considering various strategies and responses to
the action by the Commonwealth of Puerto Rico.
Other United States Mineral Properties
The Company has additional mineral properties, located
in Utah, Montana, and Wyoming in the United States. These
additional properties are currently being explored solely by
the Company.
Investment as of
Property State Status December 31, 1995
- -------------------------------------------------------------------------------------------
Goldstrike Area Utah Drilling scheduled $358,000
Baggs Creek/ Hidden Hand Montana Has small resource $68,000
Jack Springs Montana Has small resource -
Elk Creek Montana Available for joint venture $89,000
Hartville Wyoming Assembling land package $14,000
Round Top Alaska Part of Illinois Creek $45,000
Mexico
The Company, through its wholly owned subsidiary, MXUS
S.A. de C.V. ("MXUS"), is currently investigating a number
of opportunities located primarily in the northern Mexican
states of Sonora, Chihuahua and Coahuila. The more
significant projects the Company is currently evaluating are
described below.
Amargosa
This property is located approximately 95 kilometers
southeast of Juarez in the state of Chihuahua. The property
is accessible from Juarez on Highway 2, southeast for 90
kilometers to El Porvenir, then via poorly maintained dirt
roads to the project. The Company controls by denouncement
approximately 15,100 acres. The Company must meet certain
minimum work requirements arising from Mexican mining law to
maintain its rights to the properties. In addition, if the
properties are placed into production, the Company will be
obligated to pay net smelter return royalties varying from
2.75% to 3.25% on production from most of the properties.
A significant amount of exploration was conducted on
the Amargosa polymetallic massive sulfide targets in 1994.
Results of this drilling at Amargosa were geologically
interesting, but no significant economic widths were
encountered, or continuity between holes demonstrated by the
three holes drilled.
A strong magnetic anomaly was partially defined at the
edge of a ground geophysical survey. The anomaly, which is
as yet untested, occurs on the down-dropped side of a major
fault which may be the feeder fault for the massive sulfide
mineralization. This geologic setting is very similar to
that of several other major massive sulfide deposits around
the world, such as the Sullivan Mine in British Columbia.
Although this property continues to hold a great deal
of geologic interest, no economic mineralization has yet
been identified. Accordingly, management recorded an
impairment loss of $1.0 million in 1995. As of December 31,
1995, the Company's remaining investment in this property
was approximately $315,000.
Boludo Goldfields
Early in 1994, MXUS acquired by lease and purchase
option approximately 5,400 acres in the Boludo Goldfields
placer district located approximately 121 kilometers
southwest of Nogales in northwest Sonora. Access to the
property is via paved highway and well maintained dirt road.
During 1994, 328 backhoe pits were dug at Boludo by the
Company to test for placer gold. In addition, several drill
holes were put down in the hard rock targets. This drilling
failed to identify significant mineralization; however the
placer sampling identified a resource estimated to contain
about 10.5 million cubic yards with an average grade of
0.011 ounces gold per cubic yard or about 116,000 ounces of
contained gold. The original land package was trimmed back
to this resource area to reduce holding costs. In 1995, the
Company entered into an agreement with Resource Trend Pty
Ltd, an Australian mining company, which intends to place it
into production during 1996. The Company retained a royalty
interest on future production from the property. The
Company's investment in this project was approximately
$450,000 as of December 31, 1995.
Noche Buena
Noche Buena is a disseminated gold prospect located
approximately 45 kilometers northwest of the city of Caborca
in the state of Sonora. Access from Caborca is via Highway
2 north for 60 kilometers then west via dirt road for
approximately 10 kilometers. MXUS controls by denouncement
approximately 18,800 acres at Noche Buena that are subject
only to Mexican mineral property fees and taxes.
The Company has drilled 51 reverse circulation holes on
the property. Low grade gold mineralization was detected in
nearly every hole over a surface area of approximately 100
acres. This property was joint ventured to Kennecott
Exploration Company in 1995. As of December 31, 1995, the
Company's investment in Noche Buena was approximately
$366,000.
Samalayuca
Samalayuca is located approximately 40 kilometers south
of Juarez in the state of Chihuahua, and is accessed via
Highway 45 to the town of Samalayuca then via dirt roads
west a few kilometers to the property. The Company controls
by lease agreement and denouncement approximately 19,000
acres. The lease, executed on August 12, 1992, provides for
a twenty year term. If the exploration work is successful,
the owners will be paid a three percent net smelter return
royalty on base metals and a four percent net smelter return
royalty on precious metals produced and sold from the
property. The Company makes annual advance royalties of
$25,000 and must meet certain minimum work requirements.
The property is a sediment hosted, stratabound
copper/silver property with primary chalcocite
mineralization. In the past (pre 1975), local miners
shipped copper bearing quartzite to the El Paso smelter as
flux. These miners were paid for the copper content of this
material which ranged from one to three percent. Mining
ceased when copper prices fell in the mid 1970s.
The Company has conducted short hole air track drilling
as well as limited rotary and core drilling since
acquisition of the property. Results of this work have been
inconclusive due to structural complexity and associated
oxidation and to depletion of copper values near the
surface.
During 1995, the property was leased to Phelps Dodge.
As of December 31, 1995, the Company had invested a total of
$523,000 in the property.
Sierra Mojada
This property is located approximately 200 kilometers
north of Torreon in the state of Coahuila. Access is via
improved dirt road north from Torreon or by railroad from
Monclova. The Company controls by denouncement
approximately 11,800 acres in the district.
Production from the district in the past has been
significant, consisting of copper, zinc, lead and silver.
The district was discovered in 1878 with most of the past
production occurring between 1890 and 1945. Currently,
oxide zinc is being mined by others in the district and
shipped to a smelter in Monterey, Mexico.
The exploration objective consists of defining new
polymetallic deposits similar to those previously exploited,
as well as evaluating the remaining resource in the current
mines.
The Company entered into an agreement with Kennecott
Exploration Company in 1994 to jointly explore and develop
their extensive concessions in the old Sierra Mojada mining
district. Kennecott conducted geophysics and drilling on
the properties in 1994 and 1995. Based on the work
performed, Kennecott elected not to continue with the
project. The Company plans to review the data generated by
Kennecott, reduce the size of the land package and seek to
interest other mining companies in the property. The
Company's investment in this project was approximately
$33,000 as of December 31, 1995.
Other Mexican Mineral Properties
The Company has additional mineral properties in Mexico
as follows.
<CAPTION
Investment as of
Property State Status December 31, 1995
- ----------------------------------------------------------------------------------------
Altar, Los Apaches Sonora Available for lease $107,000
El Cajon/Las Cruces/Tecolote, Initial evaluation to
La Tribu/La Reserva Sonora be completed in 1996 $123,000
El Ocuca, Las Rastras, San Miguel Sonora Under lease $153,000
Ecuador
In 1995, the Company acquired all of the outstanding
capital stock of Mega Minerals S.A., an Ecuadorian company.
The assets of the company at the time of acquisition
consisted of title to eight exploration concessions
comprising approximately 80,600 acres and the right to
acquire title to four additional exploration concessions
comprising approximately 5,900 acres. The twelve
concessions are located in the Nambija-Zamora gold belt of
southern Ecuador. Initial exploration on these concessions
has yielded encouraging results. Follow-up geological
mapping and geochemical sampling of stream sediments
anomalous in base and precious metals have identified a two
kilometer by three kilometer zone of skarn type alteration
with associated base metals and gold mineralization. An
exploration program is being planned to further evaluate the
discovery. The Company's investment in Ecuador as of
December 31, 1995 totaled $222,000.
Chile
In 1995, USMX acquired its first exploration project in
Chile through its wholly-owned subsidiary, Compania Minera
USMX de Chile. The Putu property is located approximately
160 miles southwest of Santiago, Chile near the coastal city
of Constitution. Ten concessions totaling 7,410 acres were
staked by USMX to cover the Putu Gold Mine, as well as
several other small prospects. A magnetite rich, felsic
volcanic, exhalite horizon was previously mined for gold at
Putu by underground methods.
The Company is currently running a ground magnetic
geophysical program and soil geochemical survey over the
immediate mine area. Regional exploration has identified
other showings of the mineralized exhalite that upon
weathering have generated placer gold deposits which have
been mined by the local inhabitants.
The Putu project is located in a forested area near sea
level with very limited outcrop exposures, similar to the
Pacific Northwest of the United States. Following
completion of the survey work to be performed during the
first quarter of 1996, the data will be compiled and
reviewed to identify profitable drilling targets. The
Company's investment in Chile as of December 31, 1995, was
approximately $18,000.
Competition
The Company has been engaged primarily in the
exploration for, development, and operation of precious
metal properties. The Company's current objective is to
locate and acquire prospects that can be profitably mined by
open pit or underground methods. The search for this type
of deposit involves high risk, and development requires
relatively large capital outlays and a high degree of
operational expertise. The Company must compete for mineral
properties with many companies, including those which are
substantially larger and possess greater financial resources
than the Company.
The availability of mining prospects in the United
States is dependent on the Company's ability to negotiate
leases with property owners or locate claims pursuant to the
general mining laws of the United States Increased
governmental regulation of the location, exploration and
development of mineral prospects, coupled with the increased
withdrawal of public lands from mineral entry, as well as
potential federal legislation to revise or replace the
general mining laws of the U.S., could limit the
availability of mineral prospects and increase the cost of
those which are available. Due to the potential for adverse
changes to the general mining laws of the U.S., more onerous
reclamation standards and new mining claim fees, the Company
continues to focus much of its exploration efforts on
private lands in the United States and in Latin America.
Markets
If minerals are discovered under claims or leases in
which the Company owns an interest, the availability of a
ready market may depend on numerous factors not within the
Company's control, including the extent of production by
others, proximity and capacity of mills, and the effect of
state and federal regulations. To date, the Company has
made precious metal sales from its mines and has not been
dependent on any single customer for its products.
Typically, gold can be readily sold in several markets with
a multitude of buyers. The Company also uses forward sales
and option contracts in connection with its marketing
program.
Government Contracts
No portion of the Company's business is subject to
renegotiation of profits or termination of contracts or
subcontracts at the election of the Government.
Governmental Regulation
The mining operations of the Company are subject to
inspection and regulation by the Mine Safety and Health
Administration of the Department of Labor ("MSHA") under
provisions of the Federal Mine Safety and Health Act of
1977. The Occupation and Safety Health Administration
("OSHA") also has jurisdiction over safety and health
standards not covered by MSHA.
All of the Company's exploration, development and
production activities are subject to regulation under one or
more of the various environmental laws. These laws address
emissions to the air, discharges to water, management of
wastes, management of hazardous substances, protection of
natural resources, protection of antiquities and reclamation
of lands which are disturbed. Many of the regulations also
require permits to be obtained for the Company's activities;
these permits normally are subject to public review
processes resulting in public approval of the activity. It
is possible that future changes in these laws or regulations
could have a significant impact on some portion of the
Company's business, causing those activities to be
economically reevaluated at that time.
During the past three years, the United States Congress
considered a number of proposed amendments to the General
Mining Law of 1872, as amended (the "General Mining Law"),
which governs mining claims and related activities on
federal lands. In 1992, a holding fee of $100 per claim was
imposed on unpatented mining claims located on federal
lands. In October 1994, a one-year moratorium on the
processing of new patent applications was approved. That
moratorium has been extended pending reform of the General
Mining Law. In addition, a variety of legislation is now
pending before the United States Congress to amend further
the General Mining Law. The proposed legislation would,
among other things, change the current patenting procedures,
impose royalties, and enact new reclamation, environmental
controls and restoration requirements. The royalty
proposals range from a 2% royalty on "net profits" from
mining claims to an 8% royalty on modified gross income/net
smelter returns. The extent of any such changes is not
presently known and the potential impact on the Company as a
result of future congressional action is difficult to
predict. Although a majority of the Company's existing and
planned operations are on other than federal lands, the
proposed changes to the General Mining Law could adversely
affect the Company's ability to economically develop mineral
resources on federal lands.
Environmental Regulations
Mining is subject to potential risks and liabilities
associated with pollution of the environment and the
disposal of waste products occurring as a result of mineral
exploration and production. Environmental liability may
result from mining activities conducted by others prior to
the Company's ownership of a property. Insurance for
environmental risks (including potential liability for
pollution or other hazards as a result of the disposal of
waste products occurring from exploration and production) is
not generally available at a reasonable price to the Company
or other companies within the industry. To the extent the
Company is subject to environmental liabilities, the payment
of such liabilities would reduce funds otherwise available
to the Company and could have a material adverse effect on
the Company.
In the context of environmental permitting, including
the approval of reclamation plans, the Company must comply
with standards, laws and regulations which may entail
greater or lesser costs and delays depending on the nature
of the activity to be permitted and how stringently the
regulations are implemented by the permitting authority. It
is possible that the costs and delays associated with
compliance with such laws, regulations and permits could
become such that the Company would not proceed with the
development of a project or the operation or further
development of a mine. Laws and regulations involving the
protection and remediation of the environment are constantly
changing and are generally becoming more restrictive. The
Company has made, and expects to make in the future,
significant expenditures to comply with such laws and
regulations.
Pending bills which affect environmental laws
applicable to mining include versions which may
substantially alter the Clean Water Act, Safe Drinking Water
Act, Endangered Species Act and a bill which will introduce
additional protection of wetlands (Wetlands Protection and
Management Act). Adverse developments and operating
requirements in these acts could impair the ability of the
Company as well as others to develop mineral resources.
Revisions to current versions of these bills could occur
prior to passage.
The Environmental Protection Agency ("EPA") continues
the development of a solid waste regulatory program specific
to mining operations under the Resource Conservation and
Recovery Act ("RCRA"). Of particular concern to the mining
industry is a proposal by the EPA titled "Recommendation for
a Regulatory Program for Mining Waste and Materials Under
Subtitle D of the Resource Conservation and Recovery Act"
("Strawman II") which, if implemented, would create a system
of comprehensive federal regulation of the entire mine site.
Many of these requirements would be duplicative of existing
state regulations. Strawman II as currently proposed would
regulate not only mine and mill wastes but also numerous
production facilities and processes which could limit
internal flexibility in operating a mine. To implement
Strawman II as proposed, the EPA must seek additional
statutory authority, which is expected to be requested in
connection with Congress' reauthorization of RCRA.
The Company is also subject to regulations under (i)
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA" or "Superfund") which
regulates and establishes liability for the release of
hazardous substances and (ii) the Endangered Species Act
("ESA") which identifies endangered species of plants and
animals and regulates activities to protect these species
and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on the Company of these
revisions is not clear at this time.
Employees
The number of persons employed by the Company at March
8, 1996 was thirty-three.
Financial Information about Foreign and Domestic Operations
and Export Sales.
The Company had no production from foreign mining
operations and did not make export sales during 1995.
During 1991, the Company incorporated USMX Mining, Inc.
under the British Columbia Company Act in anticipation of a
potential acquisition in the Province of British Columbia
that was not consummated. USMX Mining, Inc. had no material
assets or obligations as of December 31, 1995.
During 1992, 1993, 1994 and 1995, MXUS S. A. de C. V.,
a wholly owned subsidiary of the Company, acquired the
exploration rights to several properties in Mexico located
in the states of Chihuahua, Sonora, Coahuila and Jalisco.
The Company expended approximately $987,000,000 in Mexico in
1995 on these properties and on general reconnaissance. As
of December 31, 1995, the Company's investment in Mexican
properties amounted to approximately $2.1 million.
In 1992, the Company caused the incorporation of a
Costa Rican subsidiary, USMX de Costa Rica S. A., to
facilitate potential acquisitions in Costa Rica. To date,
no material expenditures or obligations have been incurred
by this subsidiary.
In 1994, the Company caused the formation of a Chilean
subsidiary, Compania Minera USMX de Chile Limitada, to
facilitate exploration in Chile. To date, no material
expenditures or obligations have been incurred by this
subsidiary.
In 1995, the Company purchased the outstanding capital
stock of Mega Minerals, S.A., an Ecuadorian company. As of
December 31, 1995, the Company had invested approximately
$222,000 in mining concessions and exploration thereof.
Glossary of Terms
The following terms are described to aid in
understanding this report.
Air Track Drilling
See Drilling.
Anomaly
An anomaly is a geochemical, geophysical or other observed
condition, indicated by differing empirical physical data,
that may indicate the presence of mineralization in
underlying bedrock.
Base Metals
A family of metallic elements, including copper, lead and
zinc.
Caldera Complex
A large, basin-shaped volcanic depression created by
subsidence, representative of a volcanic vent, which is
characterized by a diverse assemblage of volcanic intrusive
and extrusive rocks.
Carbon Adsorption
A process in which soluble complexes of gold and silver
physically adhere without chemical reaction to the molecular
surfaces of activated carbon particles. The process is used
to collect gold and silver from a leach solution. The
Company uses activated carbon made from coconut shells.
This carbon contains five to six million square feet of
molecular surface area per pound.
Cash Costs
Include all site costs incurred for mining, crushing, pad
loading, leaching, processing and mine site general and
administrative functions. Such costs exclude royalties and
mining taxes which costs are triggered not by the production
of gold but by its sale. Also excluded are depreciation of
equipment, amortization of previously capitalized costs and
accrual of reclamation costs. Revenues from the sale of by-
products (principally silver) are deducted from cash costs.
Contained Ounces
The estimated number of ounces of precious metals contained
in an orebody which is a gross measurement of ounces in the
ground. The ounces ultimately recovered from the ore
(recoverable ounces) will be less than contained ounces due
to inherent inefficiencies in recovery methods.
Cutoff Grade
The lowest grade of mineralized material that can be mined
and processed economically.
Denouncement
A process under Mexican mining law by which an exploration
concession may be obtained from the Mexican government. The
exploration concession is granted for a period of six years.
If a mineable resource is delineated, then an exploitation
concession with a term of fifty years can be obtained.
Dilution
An estimate of the amount of waste or low grade mineralized
rock that is unintentionally mined as part of normal mining
practices in extracting ore.
Dore
Unrefined bullion that is an alloy of gold and silver and
various impurities which will be further refined to almost
pure metals.
Drill-Defined Mineralization
Ore reserves, except that all legal requirements for
extraction of minerals have not yet been satisfied.
Drilling
Air Track Drilling
Small diameter, short hole, percussion drilling using
compressed air.
Core Drilling
Drilling using a hollow diamond-studded bit that cuts out a
rock core. This core is extracted from inside the drill rod
for geological examination and assay.
Infill Drilling
Drilling between existing holes to better define the geology
or to improve the reliability of the ore reserve
calculation.
Rotary Drilling
Drilling with a bit that breaks the rock into chips. The
chips are continually flushed from the hole (outside the
drill pipe) and are collected in sequence for geological
examination and assay.
Reverse Circulation Drilling
A type of rotary drilling that uses a double walled drill
pipe. Compressed air, water or other drilling medium is
forced down the space between the two pipes to the drill
bit, and the drilled chips are flushed back up to the
surface through the center tube of the drill pipe.
Flotation
A milling process for mineral concentration based on the
selective adhesion of minerals to air bubbles in a water and
ground-ore mixture. Air and specific chemicals are
introduced into the mixture. The finely ground minerals
float to the surface forming a metal rich concentrate that
is skimmed off the surface. The resulting concentrates are
shipped to a smelter where the final products are produced.
Graben
A block, generally long compared to its width, that has been
downthrown along faults relative to the rocks on either
side.
Grade
The metal or mineral content of rock, ore or drill samples.
With respect to precious metals, grade is generally
expressed as troy ounces per ton of rock.
Gravity Concentration
A method of recovering precious metals and other heavy
constituents from ore in which the ore may be physically
reduced in size, combined with water and then processed
utilizing gravity to separate the heavier precious metals
from the waste material.
Heap Leaching
A low cost leaching process in which ore is placed in a heap
on an impermeable pad. The solvent, which in the case of
gold is a weak cyanide solution, is sprinkled over the heap
and is later collected after percolating through the ore and
dissolving the metals, allowing subsequent gold recovery.
Hydrothermal Alteration
Changes in rocks or minerals caused by heated solutions.
Joint Venture
An arrangement whereunder two or more parties agree to
jointly participate in the evaluation of a mineral property.
Leaching
The extraction of a soluble metallic element from ore by
dissolving the metal in a solvent.
Leach Pad
An impermeable foundation or pad used as a base for ore
during heap leaching. The pad prevents the leach solution
from escaping from the circuit.
Massive Sulfide Mineralization
A sulfide deposit characterized by a concentration of
interconnected sulfides totaling in excess of 30% of the
total rock, as opposed to a disseminated or veinlike
deposit.
Mill
A plant where ore is ground, often to fine powder, and the
minerals and metals are concentrated and extracted by
physical or chemical processes.
Mineable
That portion of a mineral deposit from which it is
economically feasible to extract ore.
Mineral
A naturally occurring, usually inorganic and crystalline
substance with characteristic physical and chemical
properties that are due to its atomic arrangement.
Mineralization
Mineral bearing rock. Mineralization generally refers to
the presence of gold, silver, or other minerals and metals
which may not qualify as a commercially mineable orebody
without completion of additional evaluation.
Net Profits Royalty (Net Profits Interest)
A royalty based on the pretax profit (proceeds) remaining
after recapture of certain operating, capital and other
costs. The type and manner of computation of such capital
and other costs may vary considerably.
Net Smelter Return Royalty (Net Returns Royalty)
A royalty based on the actual sale price received for the
subject metal less the cost of smelting and/or refining the
material at an off-site refinery or smelter along with off-
site transportation costs.
Orebody
A mineral deposit that can be mined at a profit under
existing economic conditions.
Ore Reserves
That part of a mineral deposit which could be economically
and legally extracted or produced at the time of the reserve
determination.
Proven Ore Reserves
Reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes;
grade is 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.
Probable Ore Reserves
Reserves for which quantity and grade 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.
Ounce
Troy ounce which is equivalent to 31.103 grams. A troy
ounce is approximately 9.7% heavier than an avoirdupois
ounce. Accordingly, there are 14.58 troy ounces in an
avoirdupois pound as opposed to 16 avoirdupois ounces.
Oxide Ore
Mineralized rock in which some of the original minerals have
been oxidized. Significant for heap leach operations since
oxidation often changes the original minerals to a more
soluble form, and may also permit a more complete permeation
of cyanide solutions throughout the mineralized rock so that
particles of gold in the ore may be more readily dissolved
in the leaching process.
Patented Mining Claim
A mining claim, usually comprising about 20 acres in area,
to which the U.S. Government has conveyed title to the
owner.
Placer Deposit
A surficial mineral deposit formed by mechanical
concentration of mineral particles from weathered debris,
and which contains heavy minerals and metals such as gold.
Polymetallic
A type of deposit that contains a suite of minerals or
metals that may be valuable. Often copper, lead, zinc,
silver and gold may occur together.
Pyroclastic Rock
A rock consisting of unreworked solid material explosively
or aerially ejected from a volcanic vent.
Recoverable Ounces
Those ounces contained in ore which can be ultimately
produced and shipped from the mine.
Recovery Rate
The percentage of a metal recovered in a mineral separation
process. Recovery rates vary considerably depending on
physical, metallurgical and economic circumstances.
Refining
A process for removing impurities from metals by introducing
air and fluxes into the molten metal. The impurities are
removed as gas or slag.
Reserve
See Ore Reserves
Reverse Circulation Drilling
See Drilling.
Run of Mine Ore
Ore that is loaded onto heaps directly from the mine without
having been crushed.
Stratabound
A situation in which mineralization is essentially contained
in or confined to a particular sedimentary or volcanic unit.
Strike
The compass direction that the long axis of a geological
feature takes as it intersects the horizontal.
Stripping Ratio
The tonnage ratio between waste and ore in an open pit mine.
Sulfide
A mineral compound characterized by the linkage of sulfur
with a metal. Gold mineralization characterized by the
presence of sulfides is often more difficult to leach, and
therefor less economic.
Supergene Enriched Deposit
A deposit in which the mineralization has been concentrated
due to oxidation and movement by groundwater with subsequent
reprecipitation in a reducing environment at or near the
water table.
Unpatented Mining Claim
That portion of public mineral lands which a party has
staked or marked out in accordance with federal and state
mining laws to acquire the exclusive right to explore for
and exploit the minerals which may occur on such lands.
Working Interest
The interest in a mineral property which entitles the owner
of such interest to participate in the exploration,
development, and operation of a mineral property, and to
share in the revenues generated and related costs incurred.
Item 3. Legal Proceedings.
There are currently no legal proceedings to which the
Company is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's
stockholders during the fourth quarter of the fiscal year
covered by this Report.
PART II
Item 5. Market For The Registrant's Common Equity And
Related Stockholder Matters.
The Company's common stock trades on The Nasdaq
National Market tier of The Nasdaq Stock MarketSM under the
symbol "USMX" and the Toronto Stock Exchange under the
symbol "USM". The Nasdaq Stock MarketSM is the principal
market on which the Company's shares are traded. The
following table shows the high and low prices and the volume
traded of the Company's shares on The Nasdaq Stock MarketSM
for 1994 and 1995. The closing price of the Company's
common shares on December 29, 1995, on The Nasdaq Stock
MarketSM was $1.97.
High Low Volume
1994
First Quarter $4.75 $3.75 1,214,100
Second Quarter 4.25 2.94 948,100
Third Quarter 4.25 2.38 1,332,000
Fourth Quarter 4.19 2.38 1,423,200
1995
First Quarter 2.75 2.06 1,082,500
Second Quarter 2.94 2.13 1,648,700
Third Quarter 2.63 1.97 1,881,700
Fourth Quarter 2.06 1.75 1,347,100
At March 8, 1996, the approximate number of holders of
record of the Company's Common Stock was approximately
4,000. This number does not include beneficial owners
holding shares through nominee or "street" names. No cash
dividends have been paid by the Company. It has been the
Company's policy to use funds derived from its earnings for
exploration, development and other business activities. The
Company currently intends to continue this policy and does
not anticipate paying cash dividends in the near future.
Any determination to pay cash dividends in the future will
be made by the Company's Board of Directors after
consideration of the Company's financial condition, business
prospects and other relevant factors. At present, the
Company must first obtain the prior written consent of a
bank pursuant to a Secured Revolving Credit Agreement before
paying dividends or returning any capital or making any
distribution of assets to the Company's stockholders. In
addition, pursuant to the terms of the financing commitment
with respect to the Illinois Creek Project, the Company is
prohibited from paying dividends until the financing is
repaid.
Item 6. Selected Financial Data
The selected financial data should be read in
conjunction with the Consolidated Financial Statements and
the notes thereto which appear elsewhere in this Report.
(Amounts in thousands except per share data) December 31,
Summary of Financial Condition Data 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
Working capital $5,094 $14,105 $19,362 $12,903 $11,427
Current assets $5,834 $14,923 $21,573 $16,427 $14,140
Total assets $17,469 $24,190 $28,808 $28,741 $26,195
Current liabilities $740 $818 $2,211 $3,524 $2,713
Long term liabilities $885 $361 $1,074 $3,290 $1,680
Stockholders' equity $15,844 $23,011 $25,523 $21,927 $20,052
Year Ended December 31,
Summary of Operations Data 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
Revenue (gold sales revenue plus net
other income) $3,922 $14,866 $24,252(1)$18,043 $17,564
Net income (loss) ($6,906) $204 $2,602 $37 $1,928
Net income (loss) per share ($0.47) $0.01 $0.17 $0.00 $0.14
<FN>
(1) Includes gain from the sale of the Company's Alligator
Ridge assets totaling $5,000
</FN>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
Working capital at December 31, 1995, was $5.1 million.
Cash and cash equivalents amounted to $5.2 million. Cash
and cash equivalents decreased during 1995 by $6.8 million
primarily as a result of investment in property and
equipment of approximately $5.7 million, including deferred
exploration costs of $1.5 million and development costs of
$4.2 million ($3.1 million at Illinois Creek, Alaska, $0.7
million at Thunder Mountain, Idaho, and $0.4 at Cala Abajo,
Puerto Rico), and cash used in operations of $1.3 million.
These were partially offset by proceeds from the sale of
property and equipment of $449,000, principally proceeds
from the sale of the Company's interest in the Kinsley
Mountain project in Nevada.
The Company completed its feasibility study of the
Illinois Creek Project in February 1996. It is the
Company's goal to commence mining in the summer of 1996.
The Company estimates that the costs necessary to develop
the Illinois Creek Mine and place it into production will be
approximately $26.6 million including approximately $4.7
million in working capital and $4.0 milllion in property
acquisition costs which may be paid by the issuance of USMX
common stock. The Company intends to use its internal cash
resources and the proceeds of a $22 million facility to
finance the development and construction costs. The
commitment for this facility is subject to several
conditions, including a satisfactory due diligence report
from an independent engineering firm, receipt of necessary
permit approvals and completion of documentation
satisfactory to the lender.
In order for the Company to commence mining at the
Illinois Creek Mine in the summer of 1996, the facility must
be obtained in the spring of 1996 and the Company must
continue to make substantial development expenditures. The
Company's working capital is expected to decrease
substantially as the Company expends funds on the Illinois
Creek Project.
The Company is considering the use of internal sources
of capital other than its cash resources, including its
Montana Tunnels net profits interest and its holdings in
Alta Gold Co. common stock. The Company has also retained a
Canadian investment banking firm as its financial advisor
for the purpose of formulating and implementing a plan to
assist the Company in raising additional funds to partially
fund the Illinois Creek and Thunder Mountain Projects and
for strategic acquisitions. The Company has no firm
commitment for additional financing.
The Company has filed a Notice of Intent to Operate
with the Idaho Department of Lands describing the Company's
proposed gold and silver mining activities in the Thunder
Mountain Project. Management estimates that the project
would require substantial capital to place it into
production, including working capital. If the project is
sufficiently attractive to warrant continued development and
the necessary permits are obtained, construction could begin
in 1996 with the earliest completion date in 1997.
Management believes that the Company will probably need to
obtain additional capital to place Thunder Mountain into
production.
The Company's balance sheet at December 31, 1995,
reflects a total of $1.2 million in accrued reclamation
liabilities associated with its acquisition and operation of
the Goldstrike Mine. Reclamation activities in 1996 will
focus primarily on recontouring, topsoiling and planting
heap number one and the completion of rinsing and
commencement of recontouring and topsoiling of heap number
two as well as the dismantling of the process plant and
reclamation of the plant site. The goal is to gain
acceptance of the Company's final closure plan by midyear
and to achieve final closure by mid 1997. This reclamation
is expected to be financed with internally available cash
balances, cash generated from the sale of gold produced as a
by product of heap rinsing and cash previously provided to
the State of Utah as reclamation surety.
Results of Operations
The Company realized a net loss for the year ended
December 31, 1995, of $6,906,000 compared with net income of
$204,000 for 1994 and $2,602,000 for 1993. The loss for
1995 includes mineral property abandonments and impairments
of $4,431,000. The 1994 results include a $497,000 income
tax credit. This credit is primarily the result of the
difference between the estimated 1993 federal income tax
provision and the actual liability reflected on the income
tax returns which were prepared and filed after the 1993
financial statements had been issued. The 1993 results
include a gain of approximately $5,000,000 from the sale of
the Company's Alligator Ridge assets in two separate
transactions during the year, additional 1992 federal income
taxes of $396,000 and property abandonments totaling
$938,000.
Fluctuations in the Company's results of operations
from year to year arise primarily from four factors: (1)
changes in the volume of gold sold and the selling price of
gold, (2) changes in the cost of gold sold, (3) the cost of
mineral properties abandoned during any given period, and
(4) asset dispositions.
Change in the Volume of Gold Sold and Selling Price of Gold
The following table analyzes the variance in gold sales
revenue for the years ended December 31, 1995, 1994, and
1993:
________________________________________________________________________________________
Revenue Variance Analysis
Year Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------
Ounces of gold sold 6,900 35,575 50,429
Average price realized per ounce $388 $383 $360
Change in revenue attributable to:
More (less) ounces sold ($10,972,000) ($5,342,000) $1,105,000
Higher (lower) price 35,000 820,000 2,000
- ----------------------------------------------------------------------------------------
Increase (decrease) in gold sales revenue
compared to the preceding year ($10,937,000) ($4,522,000) $1,107,000
________________________________________________________________________________________
Change in Costs Applicable to Sales
Cost of gold sold
Cost of gold sold was $2,890,000 or approximately $419
per ounce in 1995 compared to $11,203,000 or approximately
$315 per ounce in 1994 and $16,226,000 or approximately $322
per ounce in 1993. The fluctuation in the cost of gold sold
is a result of the change from period to period in the mix
of production from the Company's mines and the change in the
cost of production throughout the life of each mine as
illustrated in the table below.
Year Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------
Alligator Gold-
Goldstrike Goldstrike Ridge(1) strike(2) Total
- ---------------------------------------------------------------------------------------
Ounces of gold produced 6,266 34,486 23,454 31,934 55,388
Ounces of gold sold 6,900 35,575 19,299 31,130 50,429
Per ounce statistics:
Cash production costs incurred $233 $229 $268 $305 $289
Depreciation, depletion, amortiza-
tion and reclamation accruals - 48 60 21 38
- ---------------------------------------------------------------------------------------
Production cost per ounce produced $233 $277 $328 $326 $327
=======================================================================================
Gold sales revenue $388 $383 $360 $360 $360
- ---------------------------------------------------------------------------------------
Production cost per ounce sold $212 $269 $399 $334 $359
Change in inventories and deferred
production costs 207 46 (13) (52) (37)
- ---------------------------------------------------------------------------------------
Cost of gold sold 419 315 386 282 322
Mining taxes 2 3 3 3 3
Production royalties 55 19 19 16 17
- ---------------------------------------------------------------------------------------
Costs applicable to sales 476 337 408 301 342
- ---------------------------------------------------------------------------------------
Gross profit (loss) ($88) $46 ($48) $59 $18
=======================================================================================
<FN>
(1) Sold August 27, 1993.
(2) The Goldstrike Mine was acquired effective November 1, 1992.
</FN>
Cash production costs per ounce of gold produced at the
Company's Goldstrike Mine increased to $233 for 1995 from
$229 for 1994 despite the fact that no mining, crushing or
pad loading costs were incurred after October 1994 because a
significant portion of processing costs are fixed and,
therefore, do not decrease as production decreases. As the
result of a reduction of the estimated remaining recoverable
ounces of gold at the Goldstrike Mine, change in inventories
and deferred production costs increased to $207 per ounce
sold for 1995 from $46 in 1994.
Mining Taxes and Royalties
During 1995, the Company incurred $14,000 in mining
taxes compared to $106,000 in 1994 and $149,000 in 1993.
The decrease in mining taxes in 1995 and 1994 is
attributable to the decrease in ounces sold compared to the
previous year as a result of declining production at the
Goldstrike Mine. Also, the Company incurred $379,000 in
royalty expense for 1995 compared to $665,000 in 1994 and
$882,000 in 1993. The increase in production royalties per
ounce of gold sold is attributable to the monthly minimum
royalty paid at Goldstrike through January of 1996.
Cost of Mineral Properties Abandoned and Provisions for
Impairments of Investments in Mineral Properties
The Company periodically reviews the carrying values of
its properties. In 1995, management determined that
properties with an aggregate historical cost of $758,000 no
longer held sufficient promise to justify the cost of
maintenance. The properties abandoned in 1995 were Tule
Canyon ($65,000), Divide ($63,000) and three other
properties ($202,000) in the United States and La Cienega
($111,000), Jalisco Copper ($164,000) and four other
properties ($153,000) in Mexico. Property abandonments were
$261,000 and $938,000 in 1994 and 1993, respectively. The
properties abandoned in 1994 were the Ancho Canyon, New
Mexico ($221,000) and the South Pass, Wyoming ($40,000)
placer properties, both of which were acquired during the
year. The properties abandoned in 1993 were the Tombstone,
Arizona project ($509,000), Green Springs ($183,000), Cedar
Mountain ($113,000), Emigrant Springs ($89,000) and three
other properties ($44,000).
In 1995, the Commonwealth of Puerto Rico adopted
legislation which amended the mining law to prohibit future
mining of metallic deposits by open pit methods. Although
the Company is considering various strategies and responses,
the effect of the mining law, as currently amended, is to
render the Company's plan for development of the Cala Abajo
deposit uneconomic. As a result, in 1995 the Company
reduced the carrying value of this property to zero and
recorded an impairment loss of $1.0million.
Gold production at the Company's Goldstrike Mine in
Utah declined sharply in August and September of 1995. This
decline in gold recovery triggered a reevaluation of the
estimated remaining recoverable gold ounces in the heaps.
As a result, the carrying value of Deferred mining and
processing costs was reduced to the fair market value of the
remaining gold bullion and dore at the refinery and the
Company recorded an impairment loss of $1.6 million.
Because exploration efforts to date have not yet
yielded an economic deposit at the Amargosa polymetallic
prospect in Chihuahua, Mexico, management determined in the
fourth quarter of 1995 to reduce the carrying value of this
property by $1.0 million.
Asset Dispositions
In April 1994, the Company sold its interest in the
Kinsley Mountain Project in Elko County, Nevada to Alta Gold
Co. ("Alta"). In addition to the $20,000 previously
received, the Company received $380,000 in cash and Alta
restricted common stock with a then market value of
$200,000. In April 1995, the Company received a final cash
payment of $400,000 and additional Alta restricted common
stock with a then market value of $200,000. The Company
received, and retained at December 31, 1995, a total of
352,711 shares of Alta restricted common stock. The cash
proceeds and discounted value of the stock received were
recorded as a reduction to the carrying value of the
property on the Company's books. In 1995, the Company
recorded a loss on this transaction of $1,000.
During 1993, the Company sold its mining assets located
at Alligator Ridge in White Pine County, Nevada in two
separate transactions for a total of $20 million cash, plus
the assumption by the buyer of all related obligations,
including reclamation liabilities. After deducting the net
book value of the assets sold of approximately $15 million,
the Company recorded gains from these sales totaling
approximately $5.0 million during 1993. The net book value
of the assets sold comprised $8.3 million in deferred
mining, crushing, pad loading and processing costs
associated with ounces of gold in various stages of
production, plus $8.9 million remaining investment in
property, plant and equipment, less recorded reclamation
liabilities of $2.2 million.
Other Factors
General and administrative expenses were higher in 1995
than 1994 principally due to legal and other professional
fees paid relative to the Cala Abajo project and to salaries
and related expenses of additional corporate staff. General
and administrative expenses in 1994 were comparable to those
incurred in 1993.
Prospecting costs in 1995 were lower than 1994 as a
result of the concentrated effort by the Company's
exploration staff to complete development drilling at the
Illinois Creek, Alaska property. Prospecting costs in 1994
were slightly higher than in 1993 due to expanded
investigation of various Latin American properties in 1994.
Higher interest rates in 1995 compensated for
decreasing cash balances during the year. As a result,
interest income for 1995 was comparable to 1994. Interest
income was higher in 1994 than 1993 due to higher interest
rates in 1994.
Income tax expense primarily represents current and
deferred federal regular and alternative minimum taxes. The
entire income tax benefit of $118,000 for 1995 is the result
of an adjustment to federal income taxes receivable related
to 1993 net operating losses carried back to prior years.
See Note 10 to the Consolidated Financial Statements for a
reconciliation of the provision for income taxes for 1995,
1994 and 1993 to the statutory federal income tax rate.
Trends Which May Affect Future Results of Operations
As previously stated, fluctuations in the Company's
results of operations arise primarily from four factors: (1)
changes in the volume and selling price of gold, (2) changes
in the cost of gold sold, (3) the cost of mineral properties
abandoned during any given period and (4) asset
dispositions. The following is management's view of trends
in these factors.
Change in the Volume of Gold Sold and Selling Price of Gold
Volume
The Company expects minimal production from its
Goldstrike Mine in 1996. The Company's principal focus is
on the development of its Illinois Creek and Thunder
Mountain Projects. The Company is also actively involved in
exploration activities and periodically considers
acquisition opportunities. It is the Company's goal to
commence mining at the Illinois Creek Mine in the summer of
1996. If this can be achieved by the target date of
September 1, the Company forecasts production at the
Illinois Creek Mine of approximately 20,000 ounces of gold
in 1996. Based on the Company's feasibility study (which is
currently being reviewed by an independent engineering firm,
and subject to revision) the Company projects that
approximately 60,000 ounces of gold could be produced in
1997. The Company projects that the drill-defined
mineralization consists of 5.54 million tons grading 0.074
ounces per ton gold equivalent or approximately 412,000
contained equivalent ounces of gold. Metallurgical recovery
from the run-of-mine ore is projected to be approximately
85% of contained gold and 25% of the contained silver.
The Company's ability to achieve the forecasted gold
production will be dependent upon many factors, some of
which, such as the price of gold and climate conditions, are
beyond the control of the Company. No assurance can be
given that the indicated amount of gold will be recovered.
As with any development project, there is no operating
history upon which to base estimates of future cash
operating costs and capital requirements. Estimates of
mineralization, metallurgical recovery, and cash operating
costs are to a large extent based on the interpretation of
geologic data obtained from drill holes and other sampling
techniques and feasibility reviews which derive estimates of
cash operating costs based on anticipated tonnage and grades
of ore to be mined and processed, the configuration of the
ore body, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climate
conditions and other factors. Accordingly, actual cash
operating costs and economic returns of the Illinois Creek
Project and other projects that may be undertaken by the
Company may materially differ from the costs and returns
initially estimated.
The Company has obtained a commitment for a $22 million
facility to finance development and construction costs on
the Illinois Creek Project. The Company will need to
promptly finalize, and commence use of funds, from this
facility, in order for the Company to commence mining in the
summer of 1996. Closing is subject to several conditions,
including completion of a satisfactory due diligence report
from an independent engineering firm, the Company's receipt
of necessary permit approvals, and completion of
documentation satisfactory to the lender.
The Illinois Creek Project has required extensive
planning by the Company, due in particular to the special
logistical aspects of gaining access to the site.
Transportation of equipment, construction materials,
supplies and personnel to the site will involve various
modes of transportation. Most goods are to be staged in
Seattle, Washington, loaded into containers, and shipped by
barge to Anchorage, Alaska. Materials will then be
transported from Anchorage to Galena using trucks, barges
and railroads. From Galena, the goods will be flown to the
site using various aircraft.
Major components of some of the larger mining equipment
will be flown to the site using C-133 aircraft. There is
only one such airworthy aircraft currently available for use
by the Company. In addition, there is one additional C-133
available to supply spare parts if needed. The Company is
in the process of finalizing arrangements for use of these
aircraft, which requires special permission. If the Company
is unable to transport all of the components it currently
plans to transport using the C-133 aircraft, substantial
delays and additional costs could be incurred as the
components would have to be cut into smaller pieces,
transported to the site using smaller aircraft and
reassembled at the site. If substantial delays occur, the
Company would not be able to commence mining in the summer
of 1996. Due to weather conditions, mining operations
cannot be conducted year-round. Therefore, if mining
operations are not started in 1996 the earliest operations
could commerce would be late spring of 1997.
It is the Company's goal to initiate construction of
the Dewey Mine facilities in the Thunder Mountain Mining
District, Idaho, in the summer of 1997. In January 1996 the
Company submitted a Notice of Intent to Operate with the
Idaho Department of Lands, which is currently being reviewed
by that agency and other state and federal agencies,
including the U.S. Forest Service. The Company is presently
conducting a data sufficiency review of prior studies
pertaining to the Project area and previous operations
conducted near the Project area. The Company intends to
thereafter retain an independent environmental consulting
firm to coordinate the submission of an environmental impact
statement. The views of several governmental agencies, as
well as any public comments received, are expected to be
considered in connection with the review of the
environmental impact statement. Although the Company
forecasts that it has a realistic prospect of obtaining the
necessary permits in 1997, there can be no assurance that
this will be achieved.
A feasibility study by the Company will be ongoing
throughout 1996 to refine the Project design and economics.
It is presently anticipated that conventional open pit/heap
leaching techniques will be used. The Company will also be
conducting additional metallurgical work, finalizing the
acquisition of adjacent land, and making preliminary
arrangements for facility construction and mining
operations.
The Company's operations will be subject to all of the
operating hazards and risks normally incident to operation
of mineral properties, such as unusual or unexpected
geological formations, environmental hazards, industrial
accidents, labor disputes, equipment incapability or
failures, and inclement weather conditions. Such
occurrences could result in damage to, or destruction of,
mineral properties or production facilities, personal injury
or death, environmental damage, delays in mining, monetary
losses and possible legal liability. Moreover, the
Company's mining operations will be subject to extensive
federal, state and local laws and regulations governing
production, taxes, labor standards, occupational health,
waste disposal, protection and remediation of the
environment, reclamation, mine safety, toxic substances and
other matters.
Compliance with such laws and regulations has increased
the cost of planning, designing, drilling, developing,
constructing, operating and closing other mines and
facilities previously operated by the Company. In addition,
the Company has expended significant resources, both
financial and managerial, to comply with environmental
protection regulations and permitting requirements and
anticipates that it will continue to do so in the future.
Although the Company believes that it has made adequate
provision to comply with such regulations, there can be no
assurance that additional significant costs and liabilities
will not be incurred to comply with current and future
environmental protection regulations. Moreover, it is
possible that future developments, such as increasingly
strict environmental protection laws, regulations and
enforcement policies, and claims for damages to property and
persons resulting from the Company's operations, could
result in substantial costs and liabilities in the future.
Price of Gold
Another significant uncertainty facing the Company
which could potentially impact its financial position,
profitability and liquidity in the short term is the price
of gold. The gold price is a function of a number of
factors including investors' expectations with respect to
inflation, the strength of world currencies, decisions by
central banks regarding their gold reserves, and supply and
demand factors, none of which is under the control of
Company management. After trending downward over the past
several years, making a six year low during the fourth
quarter of 1992, the price of gold rebounded in 1993
reaching a high of $403 on August 3, 1993. The average
market price of gold was $384 an ounce during 1995 and 1994
compared to $360 an ounce during 1993.
Change in the Cost of Gold Sold
The cost of gold sold which is planned to be produced
at the Company's Illinois Creek Mine is estimated on the
basis of the projected life of mine average cost of
approximately $320 per ounce of gold including $80 per ounce
of gold representing amortization of the Company's planned
total capital investment in the mine and $240 per ounce of
gold cash cost.
Cost of Mineral Properties Abandoned
The cost of mineral properties abandoned in any period
is a function of the results of the Company's exploration
efforts and economic considerations. The Company currently
expects to invest approximately $1.5 million during 1996 for
property acquisition and exploration. The Company makes
every effort to maximize the results of its exploration
efforts. However, exploration for economically recoverable
metals involves significant risk. Accordingly, while it is
probable there will be abandonment losses in the future, it
is not possible to predict either the timing or amount.
Item 8. Financial Statements and Supplementary Data.
USMX, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1995 and 1994,
For the years ended December 31, 1995, 1994 and 1993
Page
--------------
Independent Auditors' Reports 35
Consolidated Financial Statements:
Consolidated Statements of Financial Position F-1, F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5, F-6
Notes to Consolidated Financial Statements F-7 thru F-20
Independent Auditors' Report
To the Stockholders and Board of Directors
USMX, INC.:
We have audited the accompanying consolidated statements of
financial position of USMX, INC. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of USMX, INC. and subsidiaries as of
December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes.
KPMG Peat Marwick LLP
Denver, Colorado
March 1, 1996
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
(Amounts in thousands)
December 31,
----------------------
1995 1994
------- -------
Assets
Current assets:
Cash and cash equivalents $5,226 $12,014
Deferred mining and processing costs - 2,344
Consumable inventories - 34
Federal income taxes receivable 381 274
Other 227 257
------- -------
Total current assets 5,834 14,923
------- -------
Property, plant and equipment, at cost:
Undeveloped mineral properties 2,913 4,660
Mineral properties under development 6,344 2,521
Developed mineral properties 921 921
Mine buildings and equipment 2,451 2,417
Vehicles, furniture and equipment 662 691
------- -------
13,291 11,210
Less accumulated depreciation,
depletion and amortization (3,475) (3,418)
------- -------
Net property, plant and equipment 9,816 7,792
------- -------
Other assets 1,819 1,475
-------- -------
Total assets $17,469 $24,190
======== =======
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
(Concluded)
(Amounts in thousands except shares)
December 31,
----------------------
1995 1994
------- -------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $312 $197
Accrued salaries 73 32
Accrued reclamation 304 493
Other accrued liabilities 51 96
------- ------
Total current liabilities 740 818
------- ------
Long term liabilities:
Estimated reclamation liability 885 361
------- ------
Total long term liabilities 885 361
------- ------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000
shares authorized, none issued - -
Common stock, $.001 par value, 45,000,000
shares authorized, 14,644,000 shares issued
and outstanding as of December 31, 1995,
14,786,000 shares issued and outstanding
as of December 31, 1994 15 15
Additional paid-in capital 15,583 15,860
Treasury stock, at cost - (16)
Retained earnings 246 7,152
------- -------
Total stockholders' equity 15,844 23,011
------- -------
Total liabilities and stockholders' equity $17,469 $24,190
======= =======
<FN>
The accompanying notes are a part of these consolidated financial statements.
</FN>
USMX, INC. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Years Ended December 31,
----------------------------
1995 1994 1993
------ ------- -------
Sales of gold $2,678 $13,615 $18,137
Costs applicable to sales:
Cost of gold sold 2,890 11,203 16,226
Mining taxes 14 106 149
Production royalties 379 665 882
------ ------ ------
3,283 11,974 17,257
------ ------ ------
Gross profit (loss) (605) 1,641 880
General and administrative expenses 2,548 2,185 2,048
Prospecting costs 684 739 667
Asset abandonments, write downs and impariments 4,431 261 938
------ ------ ------
Loss from operations (8,268) (1,544) (2,773)
Other income:
Royalty income (received from related party) 720 720 720
Interest income 525 518 321
Other, net (1) 13 5,074
------ ------ ------
1,244 1,251 6,115
------ ------ ------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (7,024) (293) 3,342
Income taxe expense (benefit) (118) (497) 1,472
Income before cumulative effect of change in ------ ------ ------
accounting principle (6,906) 204 1,870
Cumulative effect on prior years (to December 31,1992)
of change in method of accounting for income taxes - - 732
------ ------ ------
Net income (loss) ($6,906) $204 $2,602
======= ====== ======
Net Income (loss) per common share:
Net Income (loss)Income before cumulative effect of change
in accounting principle ($0.47) $0.01 $0.12
Cumulative effect of change in accounting principle - - 0.05
------- ------ ------
Net income (loss) per common share ($0.47) $0.01 $0.17
======= ====== ======
Weighted average common and common equivalent shares
outstanding 14,755 14,860 15,714
======= ====== ======
<FN>
The accompanying notes are a part of these consolidated financial statements.
</FN>
USMX, INC. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
--------------------
(Amounts in thousands except shares) Additional
Number of Paid-in Treasury Retained
Shares Amount Capital Stock Earnings
----------- ------ ---------- --------- ---------
Balance at December 31, 1992 14,962,000 $15 $17,566 $- $4,346
Shares issued as compensation 28,000 - 50 - -
Exercise of stock options 638,000 1 1,156 - -
Previously issued shares submitted in partial payment
for options exercised - - - (213) -
Treasury stock retired (39,000) - (213) 213 -
Net income - - - - 2,602
- ---------------------------------------------------- ----------- ------ -------- -------- -------
Balance at December 31, 1993 15,589,000 16 18,559 - 6,948
Shares issued as compensation 2,000 - 7 - -
Exercise of stock options 198,000 - 314 - -
Previously issued shares submitted in partial payment
for options exercised - - 14 (14) -
Repurchase of common stock - - - (3,215) -
Treasury stock retired (1,003,000) (1) (3,213) 3,213 -
Income tax benefit arising from the disqualifying
disposition of incentive stock options - - 179 - -
Net income - - - - 204
- ---------------------------------------------------- ----------- ------- -------- -------- -------
Balance at December 31, 1994 14,786,000 15 15,860 (16) 7,152
Shares issued as compensation 3,000 - 11 - -
Exercise of stock options 3,000 - 6 - -
Repurchase of common stock - - - (278) -
Treasury stock retired (148,000) - (294) 294 -
Net loss - - - - (6,906)
- ---------------------------------------------------- ----------- ------- -------- -------- --------
Balance at December 31, 1995 14,644,000 $15 $15,583 $ - $246
- ---------------------------------------------------- ----------- ------- -------- -------- --------
<FN>
The accompanying notes are a part of these consolidated financial statements.
</FN>
USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended December 31,
-----------------------------
1995 1994 1993
-------- -------- --------
Cash flows from operating activities:
Cash from sales of precious metals $2,678 $13,615 $18,137
Cash paid to suppliers and employees (4,831) (12,279) (19,156)
Mining taxes paid (14) (106) (149)
Royalties paid in cash (379) (665) (923)
Royalties received 720 720 720
Interest received 525 518 321
Other income, net (1) 13 76
Income taxes paid, net of refunds received 11 1,311 (2,352)
-------- -------- --------
Net cash provided by (used in) operating activities (1,291) 3,127 (3,326)
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (5,674) (4,221) (4,311)
Proceeds from sales of property and equipment 449 380 20,111
Investment in certificates of deposit, net - (171) (1,362)
Aquisition of Goldstrike property - - (708)
Other, net - 80 -
------- ------- -------
Net cash provided by (used in) investing activities (5,225) (3,932) 13,730
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 6 314 944
Repurchase of common stock (278) (3,215) -
------- ------- -------
Net cash provided by (used in) financing activities (272) (2,901) 944
------- ------- -------
Net increase (decrease) in cash and cash equivalents (6,788) (3,706) 11,348
Cash and cash equivalents at beginning of year 12,014 15,720 4,372
------- ------- -------
Cash and cash equivalents at end of year $5,226 $12,014 $15,720
------- ------- -------
Supplemental Disclosure of Noncash
Investing and Financing Activities
The Company received $400,000 and $380,000 cash, plus 184,438 and 168,273
shares of Alta Gold Co. common stock, in 1995 and 1994 respectivly, as payment
for purchase of the Company's interest in the Kinsley Mountain Property.
Payment received $ 560 $ 540 $ -
Discounted market value of common stock received 160 160 -
------- -------- --------
Cash Received (included in proceeds from sale of property and equipment above) $ 400 $ 380 $ -
------- -------- --------
USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Concluded)
(Amounts in thousands) Years Ended December 31,
-----------------------------------------
1995 1994 1993
----------- --------- ----------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income (loss) $ (6,906) $ 204 $ 2,602
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization charged to costs and expenses 134 1,484 1,684
Cost of mineral properties abandoned 2,928 261 541
Other, net (15) 14 50
Changes in operating assets and liabilities:
(Increase) decrease in deferred mining and processing costs 2,344 1,647 (2,356)
Decrease (increase) in consumable inventories 34 27 (30)
Depreciation, depletion and amortization
included in ending inventories
(Increase) decrease in federal income taxes receivable (107) 744 (1,018)
Increase (decrease) in accounts payable 116 (1,044) 221
Increase (decrease) in accrued salaries 41 (153) (33)
Decrease in federal income taxes payable - - (615)
Increase (decrease) in other accrued liabilities (45) (35) 32
Decrease in royalties payable - - (41)
Increase (decrease) in accrued and estimated reclamation 335 (874) (326)
Decrease in deferred income taxes - - (92)
Other changes in assets and liabilities, net (150) 233 303
----------- ---------- ----------
Net cash provided by (used in) operating activities $ (1,291) $ 3,127 $ (3,326)
=========== ========== ==========
<FN>
The accompanying notes are a part of these consolidated financial statements.
</FN>
USMX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. - The Company
USMX, INC. (the "Company") is a Delaware corporation
which engages in the exploration for, and development and
operation of precious metal properties. The Company also
evaluates base metal and non-metallic situations. The
Company conducts its operations directly and through various
operating subsidiaries. All references herein to the
Company include all subsidiaries of USMX, INC.
Note 2. - Summary of Significant Accounting Policies
Consolidation and basis of presentation
The consolidated financial statements include the
accounts of the Company and its wholly-owned and majority
owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in
consolidation. Management makes various estimates and
assumptions in determining the reported amounts of assets,
liabilities revenues and expenses, and in the disclosure of
commitments and contingencies. These estimates and
assumptions will change with the passage of time and the
occurrence of future events, and actual results will differ
from the estimates.
Cash and Cash Equivalents
The Company considers cash in banks and all highly
liquid investments, purchased with a maturity of three
months or less, to be cash equivalents.
Production Costs
Production costs incurred are charged to Deferred
mining and processing costs as incurred. Cost of gold sold
is based on the currently estimated life of mine average
cost. The amount carried in the Company's balance sheet for
Deferred mining and processing costs is the lower of the
difference between production costs incurred to date and the
amount charged to Cost of gold sold to date or net
realizable value.
Mineral Properties
The Company's policy is to charge to operations, costs
associated with identifying prospective mineral properties
and to capitalize the costs of acquiring, exploring and
developing unproven mineral properties. For properties
subsequently placed into production, the applicable
capitalized costs are amortized using the units-of-
production method, based on the ratio of tons of ore mined
or processed during the year to the estimated total proven
and probable ore reserves of the project.
Capitalized costs related to sold or abandoned
properties are charged against operations at the time the
property is sold or abandoned. Proceeds from rentals and
option fees relating to undeveloped mineral properties in
which the Company has an economic interest are credited
against capitalized property costs and no gain is recognized
until all costs have been fully recovered.
The Company periodically reviews the carrying value of
its properties by comparing the net book value of each
property to the estimated undiscounted future cash flow from
the property. If the net book value exceeds the
undiscounted future cash flow, an impairment is recorded.
Changes in estimates and assumptions that underly
management's estimate of future cash flow from the Company's
mineral properties can materially impact future carrying
values and operating results.
Note 2. - Summary of Significant Accounting Policies
(continued)
Depreciation and Amortization
Mine buildings and equipment are depreciated using the
units-of-production method based on the ratio of tons of ore
mined or ounces of gold produced during the period to the
estimated total proven and probable reserves of the related
property. Vehicles, furniture and office equipment are
depreciated using the straight-line and the declining
balance methods over estimated useful lives of two to five
years. The cost of normal repairs and maintenance is
charged to operations as incurred. Significant expenditures
which increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the
asset. Upon retirement or disposition of property and
equipment, related gains or losses are recorded in
operations.
Reclamation Costs
The Company records a liability for the estimated cost
to reclaim mined land by recording charges to production
costs for each ton of ore mined. The amount charged is
based on management's estimate of reclamation costs to be
incurred. The estimate is based on the work which is to be
performed as set forth in the reclamation plan approved by
the agencies responsible for granting the related mining
permits. The accrued reclamation liability is reduced as
reclamation expenditures are made. Certain reclamation work
is performed concurrently with mining. However, the
majority of reclamation expenditures is made after mining
operations cease.
Revenue Recognition and Hedging Transactions
The Company recognizes revenue as precious metals are
sold. In order to protect against the impact of falling
gold prices, the Company enters into hedging transactions,
the goal of which is to provide a minimum price for future
production, and allow the Company to take advantage of short
term increases in the gold price. Hedging transactions
include spot deferred and forward sales contracts and option
contracts. Contracted prices on spot deferred and forward
sales and options are recognized in gold sales as production
is delivered to meet the commitment.
Income Taxes
The Company follows Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, ("SFAS 109"). Under the asset
and liability method of SFAS 109, deferred income taxes are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
By-product Revenues
Revenues from sales of by-products (principally silver)
are treated as a reduction of the cost of sales.
Net Income (loss) per Common Share
Net income (loss) per common share is based on the
weighted average number of shares of common stock and common
stock equivalents outstanding during the year, unless they
are anti-dilutive.
Note 2. - Summary of Significant Accounting Policies
(concluded)
Reclassifications
Certain amounts in the accompanying consolidated
financial statements for the years ended December 31, 1994
and 1993, have been reclassified to conform to the
classifications used in 1995.
Note - Deferred mining and processing costs
Deferred mining and processing costs in the
accompanying consolidated statements of financial position
represent mining, crushing, pad loading and processing costs
associated with ounces of gold in various stages of
production as follows:
Inventoried Ounces of
Gold at
December 31,
---------------------
1995 1994
---------------------
Gold bullion and dore - 1,200
Gold in process - 9,100
Gold in crusher stockpile - -
---------------------
Total estimated ounces in process - 10,300
=====================
During 1995 the Company recorded an impairment related
to Deferred mining and processing costs of $1,620,000 (see
Note 7.)
Note 4. - Undeveloped Mineral Properties
The Company views exploration as an important means of
growth, and it typically actively explores several projects
annually. Deferred costs at December 31, 1995 and 1994
associated with undeveloped mineral properties in various
countries were as follows:
Deferred Exploration Costs in
Undeveloped Mineral Properties
------------------------------
1995 1994
------------------------------
United States $ 584,000 $ 2,000,000
Mexico 2,081,000 2,660,000
Chile 18,000 -
Ecuador 230,000 -
------------------------------
Total $ 2,913,000 $ 4,660,000
==============================
Note 5. - Mineral Properties Under Development
At December 31, 1995 and 1994, the Company had two
mineral properties in various stages of feasibility and
development as follows:
Mineral Properties Under
Development
-----------------------------
1995 1994
-----------------------------
Illinois Creek, Alaska $ 4,037,000 $ 955,000
Thunder Mountain, Idaho 2,307,000 1,566,000
-----------------------------
Total $ 6,344,000 $2,521,000
=============================
Illinois Creek, Alaska
The Illinois Creek Project is a moderate grade, near
surface gold-silver deposit. It consists of two State of
Alaska Mining Leases, covering 62,480 acres. The project is
located in the western interior of Alaska approximately 57
miles southwest of Galena and 320 miles northwest of
Anchorage. The exploration and development phases have been
completed with the exception of permitting. A final
decision from the State of Alaska on all permits is expected
in April 1996. No major federal permits will be required.
Assuming the grant of the necessary permits, the Company
intends to commence site development and construction in
late April 1996. Field construction is anticipated to take
approximately four months to complete.
Pursuant to an agreement with the current owner of the
underlying leases (the "Agreement"), the Company made
initial payments to the owner of $100,000 in 1994 to
evaluate the Illinois Creek property. The Company is
required to make a $1 million, non-refundable payment to the
owner in cash or common stock of the Company. The Company
has elected to make the payment in stock, which the Company
and the owner have agreed will amount to 449,754 shares.
The Company will issue these shares upon effectiveness of a
registration statement covering the resale of these shares.
The Company expects to file this registration statement in
April 1996. In addition, if the Company obtains the
necessary permits and there has been no material adverse
change in project economics, the Company will be required to
make an additional payment to the owner of $3 million in
cash or common stock in exchange for title to the underlying
leases. If the Company elects to pay all or part of this
amount in stock, it will also be required to provide for the
registration of the resale of the shares issued to the
owner. The number of shares of common stock to be issued to
the owner will be based on a 30-day average of the price of
the Company's stock on The Nasdaq Stock Market. In addition
to these payments, the owner will receive a 5% net returns
royalty.
Also, if the Company delineates the existence of
additional ore reserves on the lease known as the Illinois
Creek Upland Mining Lease, which increases the total proven
ore reserves to at least one million ounces of equivalent
gold ore reserves beyond the mineralization stated in the
Company's February 1996 feasibility report, then the owner
will have the right to elect to participate in subsequent
mining operations with respect to those additional reserves
for a 25% working interest by reimbursing the Company 120%
of the owner's 25% share of exploration, development and
capital costs incurred by the Company subsequent to February
1996 which are directly related to the delineation and/or
production of the additional reserves.
Pursuant to the Agreement, the Company has until
December 16, 1997, to achieve Commercial Production (as
defined) from the property. This period may be extended at
the option of the Company for two additional one year
periods upon payment by the Company of substantial advance
royalties for each one year extension. The Agreement
terminates on December 16, 1999, if the Company has not
achieved Commercial Production from the property by that
date. See Note 17.
Note 5. - Mineral Properties Under Development (Concluded)
Thunder Mountain, Idaho
The Company proposes to conduct gold and silver mining
activities at the Dewey Mine in the Thunder Mountain Mining
District in eastern Valley County, Idaho, approximately 100
miles northeast of Boise, Idaho. The proposed Dewey mining
operations are part of the Thunder Mountain Project and
consist of the development of a gold and silver ore deposit
located on patented mining claims administered by the Idaho
Department of Lands.
Effective July 9, 1993, the Company entered into an
Exploration and Option to Purchase Agreement ("Agreement")
with Dewey Mining Company, Thunder Mountain Gold, Inc. and
two individuals (the foregoing companies and individuals
described below collectively as "Owners"). The Owners
control approximately 5,500 acres in the Thunder Mountain
Mining District consisting of both patented and unpatented
mining claims. Pursuant to the terms of the Agreement, the
Company was granted the sole and exclusive right to explore
for and develop minerals on the property in exchange for
advance royalty payments totaling $100,000. In addition,
the Company committed to spend, and did spend, a minimum of
$500,000 evaluating the property prior to April 1, 1995.
The Agreement requires that, before the Company can put
the property into commercial production, it must prepare and
deliver to the Owners a feasibility study regarding the
project. In 1995, the Company extended the term of the
agreement through April 30, 1996, by making an additional
advance royalty payment in the amount of $150,000. The
Company has the option to further extend the Agreement
through April 30, 1997, by paying an additional advance
royalty payment of $200,000. The Company intends to so
extend the Agreement. The Agreement further provides the
Company with the option for a final extension until April
30, 1998, in exchange for an additional advance royalty
payment of $250,000. The advance royalty payments made may
be recovered by the Company for seven years after payment
should the Owners elect to receive royalties under options
(a) or (c) below. The Agreement terminates if the Company
fails to deliver a feasibility study to the Owners by the
end of the last year's extension under the Agreement or if
the Company exercises its right to terminate the Agreement
at any time.
Within 90 days after the Company provides the Owners
with a feasibility study, the Owners may elect to (a)
participate in subsequent efforts to the extent of a 30%
working interest, plus receive a 1.5% royalty, or (b)
receive a 30% net profits interest, or (c) receive a 5% net
returns royalty from production. If the Owners elect to
receive a 5% net returns royalty, the Company will be
obligated to make advance royalty payments of: (I) $200,000
within thirty days after commencement of Commercial
Production (as defined in the Agreement), and $250,000 each
year thereafter. If the Owners fail to notify the Company
of their election prior to the end of the 90 day election
period they will be deemed to have made an election to
receive a 5% net returns royalty.
The Agreement Provides that, once the Owners have made
their election, the Company shall have one year within which
to achieve Commercial Production. If the Company fails to
achieve Commercial Production within one year, the Company
must either re-convey the property to the Owners or extend
by one year the time period within which Commercial
Production must commence by paying an advance royalty of
$200,000 to the Owners. If Commercial Production has not
begun by the end of the extension period, the Company may
obtain one final extension of one year within which to
achieve Commercial Production by paying the Owners an
additional advance royalty of $250,000.
In addition to the advance royalty payments and the
work commitments outlined above, the Company is obligated to
pay all fees necessary to maintain the unpatented mining
claims through August 31 of the calendar year in which the
extension year expires.
Note 6. - Developed Mineral Properties
The Company's investment in developed mining properties
at December 31, 1995 and 1994 is as follows:
Developed Mineral Properties
------------------------------
1995 1994
------------------------------
Goldstrike Mine $ 365,000 $ 365,000
Montana Tunnels 556,000 556,000
------------------------------
Total $ 921,000 $ 921,000
==============================
Goldstrike Mine
Effective November 1, 1992, the Company acquired from
Tenneco Corporation (Tenneco), the stock of Tenneco Minerals
Company-Utah (TMC-Utah), owner and operator of the
Goldstrike Mine located approximately 35 miles northwest of
St. George, Utah. Soon after the acquisition, the name of
this wholly owned subsidiary was changed to USMX of Utah,
Inc. Gold production from the Goldstrike Mine since
November 1, 1992, has been 77,182 ounces, including 6,266
ounces of gold produced in 1995.
Mining operations at the Goldstrike Mine were completed
in October 1994. Leaching was completed in December 1995.
All disturbed areas at the Goldstrike Mine were reclaimed
during 1995 except for the heaps and the plant site.
Reclamation of one of the two heaps was begun near the end
of 1995. Rinsing of the second heap commenced in January
1996 and is expected to continue into 1997. Once rinsing of
the second heap is complete, the heap will be re-contoured,
covered with topsoil and seeded with various native plant
species. In addition, the process plant will be dismantled
and the plant site reclaimed.
Montana Tunnels
The Company owns a net profits interest in this
property (see Note 13.) and, accordingly, the carrying value
has been classified as a producing mineral property in the
Company's consolidated statements of financial position.
The Company's investment is amortized using the units of
production method, based on the ratio of tons of ore mined
to the estimated total proven and probable ore reserves as
reported to the Company by the operator, Pegasus Gold Inc.
("Pegasus").
Sale of Alligator Ridge Area Assets
In 1993, the Company sold all of its unpatented mining
claims, mill sites, fee lands, mineral leases, easements and
other interests in real property owned by it in the area
known as Alligator Ridge in White Pine County, Nevada, along
with all related equipment, machinery, goods, supplies and
other personal property used by the Company. The assets
were sold to the same buyer in two separate transactions for
a total of $20 million in cash plus assumption by the buyer
of all obligations and liabilities associated with or
arising out of the operation of the assets, including all
reclamation liabilities. The Company recorded gains from
these sales of approximately $5.0 which is included in other
net in the accompanying consolidated statements of
operations.
Note 7. - Asset abandonments, write downs and impairments
Goldstrike Mine
Gold production at the Company's Goldstrike Mine in
Utah declined sharply in August and September of 1995. This
decline in gold recovery triggered a reevaluation of the
estimated remaining recoverable gold ounces in the heaps.
It was determined that it was no longer economically
feasible to add cyanide to the system and the rinsing of the
heaps commenced in October. As a result, the carrying value
of Deferred mining and processing costs was reduced to the
fair market value of the remaining gold bullion and dore at
the refinery and the Company recorded an impairment loss of
$1,620,000.
Note 7. - Asset abandonments, write downs and impairments
(Concluded)
Cala Abajo
In October 1992, the government of Puerto Rico granted
an Exclusive Exploration Permit covering the Cala Abajo
copper-gold deposit to the Company's majority owned
subsidiary, Southern Gold Resources (USA), Inc. (Southern
Gold). In June 1995, the Commonwealth of Puerto Rico adopted
legislation which amended the island's mining law to
prohibit future mining of metallic deposits by open pit
methods. Although the Company is considering various
strategies and responses, the effect of the mining law, as
currently amended, is to render the Company's plan for
development of the Cala Abajo deposit uneconomic. As a
result, the Company reduced the carrying value of the
property to zero and recorded an impairment loss of
$1,039,000 during 1995.
Amargosa
During 1995 the Company wrote down the carrying value
of the Amargosa property by $1,000,000 to $315,000.
Although the property remains geologically promising, to
date, no significant economic mineralization has been
encountered. The Company anticipates further exploration of
the Amargosa property, possibly in joint venture with
another mining company.
Note 8. - Revolving Bank Credit Agreement
In order to provide a source of short-term financing,
the Company entered into a revolving credit agreement
("Agreement") with The Colorado National Bank of Denver
("Bank") effective as of June 24, 1992. Under the terms of
the Agreement, the Company may borrow up to $3 million at
the Bank's prime rate plus three quarters of a percent.
The amount which the Company may borrow under the
Agreement is limited to the lesser of $3 million or the
borrowing base amount, as defined in the Agreement. The
borrowing base amount is the sum of a calculated present
value of the Company's interest in the Montana Tunnels
royalty, gold bullion and dore in the hands of outside
refiners and U. S. Treasury Bills and U. S. Treasury Notes
which the Company may elect to include in the borrowing base
less any amounts outstanding under the Agreement. At
December 31, 1995, the borrowing base was $1,379,000.
Interest on any borrowings is payable monthly with principal
due upon expiration of the annual agreement.
The Agreement contains certain financial covenants
including the maintenance of minimum levels of tangible net
worth and cash flow, and limitations on the incurrence of
additional indebtedness. In addition, the Company must
first obtain the prior written consent of the Bank before
paying dividends or refunding any capital or making any
distributions of assets to the Company's stockholders. At
December 31, 1995, $1,051,000 of this facility was being
used to secure letters of credit provided by the Company as
reclamation surety in connection with the Goldstrike Mine in
Washington County, Utah. The balance of the facility was
unused at that date. The Agreement has been extended to
December 1997.
Note 9. - Sales of Property and Equipment
In April 1994, the Company sold its interest in the
Kinsley Mountain Project in Elko County Nevada to Alta Gold
Co. ("Alta"). In April 1995, the Company received a final
cash payment of $400,000 and Alta restricted common stock
with a market value of $200,000 based on the average closing
price of the stock over the 30 trading days prior to
issuance. The payment was in addition to cash of $400,000
and Alta restricted common stock with a market value of
$200,000 previously received. The cash proceeds and
discounted value of the stock received were recorded as a
reduction to the carrying value of the property on the
Company's books. During 1995, the carrying value of the
property was reduced to zero and a $1,000 loss was recorded.
Note 10. - Stock Options
The Company has two stock option plans, the ("1987
Plan") and the Non-discretionary Plan for Non-Employee
Directors ("Directors' Plan"), which cover a total of
1,700,000 shares of common stock available for grant to
employees and directors of the Company.
Under the 1987 Plan, the Company may grant incentive
stock options as well as non-incentive stock options.
Incentive stock options granted under the 1987 Plan are
exercisable at prices equal to the market value of the
common stock at the date of grant. The option prices of non-
incentive stock options granted under the 1987 Plan may be
less than the market value of the common shares as of the
grant date. Options expire at such time as the Option
Committee of the Board of Directors determines, but no later
than ten years from the grant date.
The Directors' Plan was established in 1992 to afford
non-employee directors an opportunity for investment in the
Company and the incentive advantages inherent in stock
ownership of the Company. Options granted under the
Directors' Plan are exercisable at prices equal to the
market value of the common stock at the date of grant and
are exercisable in full on the date of grant.
Shares acquired pursuant to the Directors' Plan may not
be sold, transferred or otherwise disposed of for a period
of at least six months following the date of grant. Under
the terms of the Directors' Plan, the directors who elected
to participate were each issued options to purchase 10,000
shares of the Company's common stock upon adoption of the
plan. Thereafter, each non-employee director who elects to
participate is automatically granted an option to purchase
10,000 shares of the Company's common stock upon joining the
Board. In addition, on October 1 of each year each
participant is automatically granted an option to purchase
an additional 5,000 shares. Options granted under the
Directors' Plan expire ten years from the date of grant
except that an option will expire, if not exercised, ninety
days after the optionee ceases to be a director of the
Company.
Note 10. - Stock Options (Concluded)
Changes in stock options for the years ended December
31, 1993, 1994 and 1995, are as follows:
Option
Shares Price Per
Share
-----------------------------
Outstanding at December 31, 1992 1,073,200 $1.13-4.75
Exercised (630,150) 1.44-4.75
Granted 314,500 3.06-5.50
-----------------------------
Outstanding at December 31, 1993 757,550 $1.13-5.50
Exercised (198,300) 1.13-3.06
Expired or canceled (39,000) 3.06-5.50
Granted 275,000 2.69-4.13
-----------------------------
Outstanding at December 31, 1994 795,250 $1.16-5.50
Exercised (3,000) 2.06
Expired or canceled (791,750)(1) 1.16-5.50
Granted 1,137,250(1) 1.16-5.50
-----------------------------
Outstanding at December 31, 1995 1,137,750(2) $1.16-5.50
=============================
(1) During 1995, option terms to acquire 724,750 shares were
extended to ten years from the original date of grant. For
accounting purposes the extension was treated as the cancellation of
the existing options and the granting of new options.
(2) Of the options outstanding at December 31, 1995, options to
acquire 826,250 shares were exercisable on that date at an average
option price of $2.90 per share. The remaining options are
exercisable on various dates between March 1996 and October 1998.
Note 11. - Employees' Benefit Plans and Incentive Bonus
Arrangements
Effective July 1, 1987, the Company adopted an Employee
Savings and Investment Plan under section 401(k) of the
Internal Revenue Code, which covers all full-time employees.
The plan is a defined contribution plan and allows employee
contributions of up to ten percent of pre-tax compensation,
limited to the maximum deferral allowed by the Internal
Revenue Service.
The Company may contribute at least ten percent and not
more than one hundred percent of the amount contributed by
the employees, up to a maximum of six percent of pre-tax
compensation. For 1995, 1994 and 1993, the Board of
Directors has set the Company's contribution at fifty
percent of the first six percent of employee contributions.
For 1995, 1994 and 1993, the Company's contributions were
approximately $57,000, $59,000, and $111,000, respectively.
Participants vest in the Company's contributions based upon
years of service, and are fully vested after four years of
service.
Note 11. - Employees' Benefit Plans and Incentive Bonus
Arrangements(Concluded)
Effective January 1, 1992, the Company adopted an
incentive stock bonus plan for substantially all employees
involved in its Nevada operations. Under the terms of the
plan, a stock bonus was payable on the earlier of December
31, 1994, or the last day of the calendar quarter in which a
covered employee's employment with the Company was
terminated. For each calendar quarter worked by a covered
employee, the employee accrued a bonus of the number of
shares of the Company's stock determined by dividing five
percent of the employees' gross base salary for the quarter
by the average closing price per share for the last ten
trading days of the quarter. The cost associated with each
quarterly-determined bonus was treated as a non-cash cost of
production. For the years ended December 31, 1994 and 1993,
approximately $11,000 and $61,000, respectively, was accrued
under the plan. As a result of the sale of the Company's
Alligator Ridge area assets in August 1993, all but three of
the covered employees were terminated. The Company issued a
total of 27,810 shares of its common stock to the terminated
employees and 5,434 shares of its common stock to the three
remaining employees as final payments due under the
incentive stock bonus plan.
The Company has an Exploration Discovery Bonus Plan
under which bonuses are paid in cash or in shares of the
Company's stock to certain employees for discoveries of ore
deposits that the Company's Board of Directors determines
can be operated at a profit. The bonus is based on the net
present value of the deposit and is calculated using a
sliding scale ranging from 2% for deposits with a net
present value of up to $10 million, to 0.85% of the first
$100 million of net present value plus 0.25% of that portion
of the net present value of the deposit that exceeds $100
million. Under the terms of the plan, 70% of each discovery
bonus is divided equally among the Company's explorationists
and the remainder is to be shared among those individuals
designated by the Company's President as playing an
especially important role in the discovery. No bonuses were
paid in 1995 or 1994 under the plan. The Company paid
Exploration Discovery Bonuses totaling approximately $71,000
in 1993.
Note 12. - Commitments and Contingencies
Reclamation Surety
Pursuant to the mining reclamation and bonding
regulations of the State of Utah, Department of Natural
Resources and the Bureau of Land Management, in 1993 the
Company provided reclamation surety for the Goldstrike Mine
in the amount of $2,251,000. In October 1995, the Company
was advised that, as a result of the reclamation work
accomplished by the Company at the Goldstrike Mine, the
required surety had been reduced by approximately $400,000
to $1,851,000. The required surety is in the form of a
certificate of deposit in the amount of $800,000 and letters
of credit in the amount of $1,051,000. The certificate of
deposit is reflected in Other assets in the accompanying
Consolidated Statements of Financial Position.
Operating Leases
The Company leases office space and vehicles under
operating leases which expire through 1998.
Effective as of June 15, 1992, the Company entered into
a new lease for its corporate offices in Lakewood, Colorado.
The initial term of the lease expires September 30, 1998,
with an option to renew for an additional five year period
at the market rate in effect at the time of renewal. The
lease provides for base rent of $7,690 per month with an
annual $780 per month increase effective July 1 of each year
beginning in 1997. In addition, the Company is obligated to
reimburse the landlord for the Company's proportionate share
of increases in real estate taxes and operating expenses.
Note 12. - Commitments and Contingencies (Concluded)
The following table sets forth the future minimum lease
payment obligations as of December 31, 1995:
Minimum
Year Lease Payments
-------------------------
1996 $100,000
1997 $98,000
1998 $79,000
1999 $0
2000 $0
Rent expense was $113,000, $139,000 and $303,000 for
the years ended December 31, 1995, 1994 and 1993,
respectively.
Note 13. - Transactions With Affiliates
As of December 31, 1995, Pegasus owned 4,826,000 shares
(33.0%) of the Company's outstanding common stock. In
January 1986, the Company entered into a revised agreement
with Centennial Minerals Ltd., a subsidiary of Pegasus for
the development of the Montana Tunnels property. Pursuant
to the agreement, Pegasus developed the property, acquired a
100 percent working interest in the project, and commenced
mine and mill operations in March 1987. The operations at
Montana Tunnels achieved defined operating status on October
1, 1987. Under the agreement, the Company will receive the
greater of a minimum advance royalty of $60,000 per month or
a five percent net profits interest until Pegasus recovers
payout of capital and other defined costs estimated by the
Company, based on information provided by Pegasus, to
approximate $26.5 million as of December 31, 1995.
After certain construction, land acquisition,
associated financing and other costs are recovered by
Pegasus ('Payback'), the Company is entitled to fifty
percent of the profits. Depending upon metal prices and
production rates, the mine could achieve payback which would
result in increased income to the Company at some future
date. However, even if payback is not achieved, the Company
seems reasonably assured of continued income of $720,000 per
year during the life of the mine, now estimated by Pegasus
to continue into the year 2000. For each of the years ended
December 31, 1995, 1994 and 1993, the Company received
$720,000 in royalty income from the Montana Tunnels
property.
In March 1995, the Company acquired all of the
outstanding capital stock of Mega Minerals S.A., an
Ecuadorian company. The Company assumed obligations of
approximately $120,000, and agreed to pay the seller a 10%
net proceeds royalty on any production from the concessions
after recovery of all capital expenditures. A director and
principal shareholder of the seller is also a director of
the Company. The assets of Mega Minerals S.A. consist of
eight exploration concessions and the rights to acquire four
additional exploration concessions, all located in the
Nambija-Zamora gold belt of southern Ecuador.
Note 14. - Income Taxes
Total income tax expense (benefit) for the years ended
December 31, 1995, 1994 and 1993, was $(118,000),
$(497,000), and $1,472,000 respectively. The entire income
tax benefit of $118,000 for the year ended December 31,
1995, is the result of an adjustment to federal income taxes
receivable related to 1993 net operating losses carried back
to prior years. Income tax expense (benefit) consists of the
following:
Current Deferred Total
------------------------------------------
Federal tax provision $(118,000) $- $(118,000)
State tax provision - - -
------------------------------------------
Year ended December 31, 1995 $(118,000) $- $(118,000)
==========================================
Federal tax provision $(416,000) $- $(416,000)
State tax provision (81,000) - (81,000)
------------------------------------------
Year ended December 31, 1994 $(497,000) $- $(497,000)
==========================================
Federal tax provision $715,000 $640,000 $1,355,000
State tax provision 117,000 - 117,000
------------------------------------------
Year ended December 31, 1993 $832,000 $640,000 $1,472,000
==========================================
For the year ended December 31, 1993, deferred income
tax expense of $640,000 results from the utilization of net
operating loss carryforwards previously recorded as a
deferred tax asset.
The Company's effective tax rate for the years ended
December 31, 1995, 1994 and 1993, differs from the federal
statutory tax rate for the following reasons:
1995 1994 1993
------------------------------------
Federal statutory rate 34.0% 34.0% 34.0%
Provision for Supreme Court reversal of the
Hill Case - - 2.9%
Revision of prior year's estimated tax 1.7% 211.9% 9.0%
Cost of sales for tax purposes less than
financial statements (9.0%) (184.5%) 22.8%
Exploration and development deducted for
tax purposes not for financial statements (40.4%) 77.4% (10.5%)
Royalty payments deducted for tax purposes
not for financial statements - 22.3% -
Mineral property disposal, tax gain greater
than financial statement gain 8.6% (44.4%) -
Statutory depletion over cost basis - 16.2% (15.4%)
Use of alternative minimum tax rate (.4%) 29.4% -
State provision and other 7.2% 7.6% 1.2%
-------------------------------------
1.7% 169.9% 44.0%
=====================================
Note 14. - Income Taxes (Concluded)
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1995 and 1994 are
presented below:
Deferred tax assets: 1995 1994
----------------------------
Reclamation liabilities, accrued for financial
reporting purposes $439,000 $316,000
Deferred mining and processing costs, due to additional costs
deferred for tax purposes. 90,000 197,000
Alternative minimum tax credit carryforwards 157,000 157,000
Net operating loss carryforwards 3,343,000 1,417,000
Other 8,000 4,000
----------------------------
Total gross deferred tax assets 4,037,000 2,091,000
Less valuation allowance (3,612,000) (365,000)
----------------------------
Total deferred tax assets 425,000 1,726,000
----------------------------
Deferred tax liabilities:
Mineral properties, principally due to the capitalization of
exploration and development costs for financial reporting
purposes. (296,000) (1,635,000)
Plant and equipment, principally due to accelerated tax
depreciation of certain assets. (129,000) (91,000)
----------------------------
Total gross deferred tax liabilities (425,000) (1,726,000)
----------------------------
Net deferred tax asset (liability) $ - $ -
============================
As of December 31, 1995, the Company has net operating
loss carryforwards for federal income tax purposes of
approximately $9,036,000 which are available to offset
future federal taxable income, if any, through 2010. In
addition, the Company has net operating loss carryforwards
for alternative minimum tax purposes of approximately
$5,081,000 which are available to offset future alternative
minimum taxable income, if any, through 2010.
Note 15. - Quarterly Data (Unaudited)
Quarterly earnings data for the years ended December
31, 1995 and 1994, follow:
(Amounts in thousands, except per share data)
- ------------------------------------------------------------------------------------
1995 Quarters First Second Third Fourth
- ------------------------------------------------------------------------------------
Sales $386 $392 $ - $1,900
Costs applicable to sales 453 460 128 2,242
- ------------------------------------------------------------------------------------
Gross (loss) (67) (68) (128) (342)
Operating expenses 834(1) 2,363(1) 2,412(1)(2) 2,054(1)
- ------------------------------------------------------------------------------------
Loss from operations (901) (2,431) (2,540) (2,396)
- ------------------------------------------------------------------------------------
Loss before income taxes (534) (2,109) (2,240) (2,141)
- ------------------------------------------------------------------------------------
Net Loss (473) (1,951) (2,195) (2,287)
====================================================================================
Loss per common share: $(0.03) $(0.13) $(0.15) $(0.16)
====================================================================================
<FN>
(1) Operating expenses include the cost of mineral property
abandonments and write downs of $28,000, $1,443,000, $21,000
and $1,319,000, for the first through fourth quarters
respectively.
(2) As discussed in Note 3. to the financial statements,
operating expenses for the third quarter include an impairment
loss of $1,620,000 related to the Goldstrike Mine.
</FN>
Note 15. - Quarterly Data (Unaudited) (Concluded)
(Amounts in thousands, except per share data)
- -----------------------------------------------------------------------------
1994 Quarters First Second Third Fourth
- -----------------------------------------------------------------------------
Sales $1,872 4,627 $3,697 $3,419
Costs applicable to sales 1,749 3,920 3,164 3,141
- -----------------------------------------------------------------------------
Gross profit 123 707 533 278
Operating expenses 675 797 790(1) 923(1)
- -----------------------------------------------------------------------------
Loss from operations (552) (90) (257) (645)
- -----------------------------------------------------------------------------
Income (loss) before income taxes (269) 206 68 (298)
- -----------------------------------------------------------------------------
Net income (loss) (279) 216 389(2) (122)(2)
=============================================================================
Income (loss) per common share: $(0.02) $0.02 $0.02 $(0.01)
=============================================================================
<FN>
(1) Operating expenses for the second and third quarters include the cost
of property abandonments of $40,000 and $221,000, respectively.
(2) As discussed in Note 10. to the financial statements, the income tax
provision for the third and fourth quarters include a benefit of $321,000
and $176,000, respectively. The benefit arises from the difference between
the tax calculated on the 1993 tax return and the estimated tax liability
recorded in the financial statements in 1993. There were certain elections
and estimates used to prepare the tax return that were not anticipated when
the 1993 tax provision was originally prepared.
</FN>
Note 16. - New Accounting Standards
Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets to be
Disposed of" (SFAS 121) was issued in March, 1995, by the
Financial Accounting Standards Board. It requires that long-
lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS
121 is required to be adopted for fiscal years beginning
after December 15, 1995. Adopting this statement by the
Company is not expected to have a significant effect on the
financial statements.
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was
issued by the Financial Accounting Standards Board in
October 1995. SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation
plans as well as transactions in which an entity issues its
equity instruments to acquire goods or services from non-
employees. This statement defines a fair value based method
of accounting for employee stock options or similar equity
instruments, and encourages all entities to adopt that
method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). Entities electing to
continue to follow APB 25 must make pro forma disclosures of
net income and earnings per share, as if the fair value
based method of accounting defined by SFAS 123 had been
applied. SFAS 123 is applicable to fiscal years beginning
after December 15, 1995. The Company currently accounts for
its equity instruments using the accounting prescribed by
APB 25. The Company does not currently expect to adopt the
accounting prescribed by SFAS 123; however, the Company will
include the disclosures required by SFAS 123 in future
financial statements.
Note 17. - Subsequent Event
In February 1996, the Company received a commitment
from N. M. Rothschild & Sons Limited, London ("Rothschild"),
to underwrite a $22 million facility to finance development
and construction costs of the Company's Illinois Creek
Project (the "Project", See Note 6.) and to provide the
related initial working capital requirements. The
commitment is subject to several conditions, including a
satisfactory due diligence report from an independent
engineering firm, receipt of necessary permit approvals and
completion of documentation. The facility includes a $19.5
million project loan facility, a $2.5 million convertible
debenture and a 100,000 ounce margined gold hedging facility
to provide for project hedging requirements. The Company
currently estimates initial total capital costs of the
Project to be approximately $26.6 million, including
costs of property acquisition, construction, initial working
capital, financing and initial reclamation bonding, but
excluding costs incurred through December 31, 1995, of
approximately $4.0 million.
The project loan facility will be an amortizing term
loan facility available in gold ounces and/or US Dollars and
is to be repaid in thirteen equal quarterly installments
commencing June 30, 1997. The project loan may, at the
Company's option, be converted from a gold loan to a dollar
loan and vice versa, with the prior approval of Rothschild.
The project loan facility bears interest at the base rate
plus a margin. The base rate is LIBOR, in the case of
drawings in US Dollars, and LIBOR less the London Gold
Lending Rate, in the case of drawings in gold ounces. The
margin is 2.25% per annum until the Project has reached
Completion and 1.875% thereafter. Until the Project has
achieved Completion through the passing of a Completion Test
(and satisfaction of other conditions), the Company will
unconditionally guarantee all obligations under the project
loan. After Completion, the project facility will become
non-recourse to the Company, except for ongoing
environmental warranties.
The convertible debenture bears interest at the rate of
LIBOR plus 2% and, if not converted, matures June 30, 2000.
The debenture is convertible at the discretion of Rothschild
any time prior to the maturity date into shares of the
Company's common stock at the rate of $3.40 per share. The
Company will have the right to require conversion of the
debenture if the share price of the Company's common stock
trades above $4.75 for more than 30 consecutive days.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There were no disagreements with the Company's
principal independent accountants on any matter of
accounting principles or practices, financial statement
disclosures, or auditing scope or procedure.
PART III
Items 10, 11, 12 and 13 constituting Part III of this
Form 10-K have been omitted from this Annual Report pursuant
to the provisions of Instruction G(3) to Form 10-K, as the
Company intends to file a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange Act
of 1934 within 120 days after the close of its last fiscal
year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a)(1) Consolidated Financial Statements.
See Item 8.
(2) Consolidated Financial Statement Schedules.
See Item 8.
(3) Exhibits.
The exhibits listed on the accompanying Index to
Exhibits are filed as part of this Annual Report.
(b) Reports on Form 8-K.
The Company filed no report on Form 8-K during the
fourth quarter of the fiscal year covered by this Report
INDEX TO EXHIBITS
NUMBER DESCRIPTION
Exhibit 3.1 Certificate of Incorporation of the
Company, previously filed as an Exhibit to the
Company's Report on Form 10-K for the year
ended December 31, 1987, is incorporated herein
by this reference.
Exhibit 3.2 Bylaws of the Company, previously filed as
an Exhibit to the Company's Report on Form 10-K
for the year ended December 31, 1987, is
incorporated herein by this reference.
Exhibit 4 Specimen Certificate of the $.001 par value
common stock, previously filed as an Exhibit to
the Company's registration statement on Form S-
3 (No. 33-19699), is incorporated herein by
this reference.
Exhibit 10.2 The Company's 1987 Stock Option Plan, as
amended, previously filed as an Exhibit to the
Company's registration statement on Form S-8
(No. 33-49392), is incorporated herein by this
reference.
Exhibit 10.3 The Company's Savings and Investment Plan,
previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December
31, 1987, is incorporated herein by this
reference.
Exhibit 10.7 Agreement, dated January 1, 1986, between
the Company and Centennial Minerals Ltd.,
previously filed as Exhibit 10.17 to the
Company's Report on Form 10-K for the year
ended May 31, 1986, is incorporated herein by
this reference.
Exhibit 10.7A Amendment of Agreement and Deed dated July
15, 1991, by and between Montana Tunnels
Mining, Inc., USMX, INC. and USMX of Montana,
Inc., previously filed as an Exhibit to the
Company's Report on Form 10-K for the year
ended December 31, 1991, is incorporated herein
by this reference.
Exhibit 10.33 Non-Discretionary Stock Option Plan,
previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December
31, 1991, is incorporated herein by this
reference.
Exhibit 10.40 Asset Purchase Agreement, dated June 11,
1993, between the Company and Placer Dome U.S.
Inc., as amended, previously filed as an
Exhibit to the Company's Report on Form 10-K
for the year ended December 31, 1993, is
incorporated herein by this reference.
Exhibit 10.42 Employment Agreement, dated July 16, 1993,
between the Company and James A. Knox,
previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December
31, 1993, is incorporated herein by this
reference.
Exhibit 10.44 Exploration and Option to Purchase
Agreement, dated effective July 9, 1993,
between the Company and Dewey Mining Company
and Thunder Mountain Gold, Inc., Ronald C.
Yanke and Donald J. Nelson, previously filed as
an Exhibit to the Company's Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by this reference.
Exhibit 10.45 Purchase and Sale Agreement, dated April
14, 1994, among the Company, Cominco American
Resources Incorporated and Alta Gold Co.,
previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December
31, 1994, is incorporated herein by this
reference.
Exhibit 10.46 Agreement, dated effective December 16,
1994, between the Company and North Pacific
Mining Corporation, previously filed as an
Exhibit to the Company's Report on Form 10-K
for the year ended December 31, 1994, is
incorporated herein by this reference.
Exhibit 10.47 Post-Termination Agreement, dated February
16, 1996, between the Company and Bull Valley
L.L.C.
Exhibit 10.48 Exploration Discovery Bonus Plan, dated
effective September 1, 1989.
Exhibit 10.49 Mine Services and Earthworks Contract,
dated January 19, 1996, between the Company and
D.H. Blattner & Sons, Inc.
Exhibit 10.50 Purchase and Sale Agreement, dated March
20, 1995, among the Company, Mega Metals, Inc.;
Mega Minerals S.A.; Greg Pusey; John Dreier and
Gary McAdam.
Exhibit 22 Subsidiaries of the Company
Exhibit 24.1 Consent of KPMG Peat Marwick LLP
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.
USMX, INC.
(Registrant)
Date: March 22,1996 By: /s/ James A. Knox
James A. Knox,
President
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.
Date: March 22, 1996 /s/ James A. Knox
James A. Knox, President,
Chief Executive Officer, and
Chairman of the Board of
Directors
Date: March 22, 1996 /s/ Paul L. Blair
Paul L. Blair, Vice President
- Operations for Latin America
Date: March 22, 1996 /s/ Dennis L. Lance
Dennis L. Lance, Vice
President - Exploration
Date: March 22, 1996 /s/ Donald E. Nilson
Donald E. Nilson, Vice
President - Finance,
Secretary, Chief Financial
Officer
Date: March 22, 1996 /s/ Paul B. Valenti
Paul B. Valenti, Vice
President - Operations
Date: March 22, 1996 /s/ Daniel J. Stewart
Daniel J. Stewart, Controller
Date: March 25, 1996 /s/ George J. Allen
George J. Allen, Director
Date: March 30, 1996 /s/ Phillips S. Baker
Phillips S. Baker, Director
Date: March 25, 1996 /s/James P. Geyer
James P. Geyer, Director
Date:
Donald P. Bellum, Director
Date: March 25, 1996 /s/ Terry P. McNulty
Terry P. McNulty, Director
Date: March 25, 1996 /s/ Werner G. Nennecker
Werner G. Nennecker, Director
Date: March 28, 1996 /s/ Gregory Pusey
Gregory Pusey, Director
Date: March 26, 1996 /s/ Robert Scullion
Robert Scullion, Director
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year December 31, 1995 or
__ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from ________ to __________
Commission File Number 0-9370
___________________
USMX, INC.
(Exact name of registrant as specified in its charter)
___________________
Delaware 84-1076625
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 Union Boulevard, Suite 100
Lakewood, Colorado 80228
(Address of principal executive offices) (Zip Code)
(303) 985-4665
Registrant's telephone number, including area code
EXHIBITS
EXHIBIT INDEX
Exhibit 10.47 Post-Termination Agreement, dated February 16,
1996, between the Company and Bull Valley L.L.C.
Exhibit 10.48 Exploration discovery Bonus Plan,dated effective
September 1, 1989.
Exhibit 10.49 Mine Services and Earthworks contract, dated
January 19, 1996, between the Company and
D.H. Blattner & Sons, Inc.
Exhibit 10.50 Purchase and Sale Agreement, dated March 20,
1995, among the Company, Mega Metals, Inc.;
Mega Minerals S.A.; Greg Pusey; John Dreier
and Gary McAdam.
Exhibit 22 Subsidiaries of the Company
Exhibit 24.1 Consent of KPMG Peat Marwick LLP