SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period June 30, 1994
ended --------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-9620
----------------
AMAX GOLD INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1199974
- - ---------------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 East Mineral Circle, Englewood, Colorado 80112
- - ---------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (303) 643-5500
------------------------
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
--- ---
Common Stock Outstanding, $0.01 par value, as of July 22, 1994 - 78,221,295
- - --------------------------------------------------------------------------------
shares
- - -------
Total Pages - 26
Exhibit Index Located on Page -25
1
Part I - Financial Information
------------------------------
Item 1. Financial Statements
--------------------
AMAX GOLD INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
- - ------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------------------
Sales $27,900 $ 23,100 $51,700 $ 41,500
- - ------------------------------------------------------------------------------------------------------------
Costs and operating expenses-
Costs applicable to sales 18,900 22,200 39,900 39,300
Depreciation and depletion 7,500 7,700 13,400 13,500
Selling, general and administrative
expenses 1,600 2,200 3,300 4,200
- - ------------------------------------------------------------------------------------------------------------
Total costs and operating expenses 28,000 32,100 56,600 57,000
- - ------------------------------------------------------------------------------------------------------------
Gross operating loss (100) (9,000) (4,900) (15,500)
Gain on Waihi transaction - 8,800 - 8,800
Hayden Hill asset write-down - (64,100) - (64,100)
Exploration expenses, net (1,100) (1,100) (1,400) (1,600)
- - ------------------------------------------------------------------------------------------------------------
Loss from operations (1,200) (65,400) (6,300) (72,400)
Minority interest 400 400 800 500
Interest income 200 200 300 400
Interest expense (2,200) (2,400) (4,600) (4,000)
Other - (400) (100) (600)
- - ------------------------------------------------------------------------------------------------------------
Loss before income
taxes and cumulative effect
of accounting changes (2,800) (67,600) (9,900) (76,100)
Income tax (expense) benefit (400) 18,500 900 21,000
- - ------------------------------------------------------------------------------------------------------------
Loss before cumulative
effect of accounting changes (3,200) (49,100) (9,000) (55,100)
Cumulative effect of accounting
changes, net of income tax
benefits of $5,500 in 1993 - - - (15,200)
- - ------------------------------------------------------------------------------------------------------------
Net loss $(3,200) $(49,100) $(9,000) $(70,300)
============================================================================================================
Per common share:
Loss before cumulative
effect of accounting changes $ (.04) $ (.63) $ (.12) $ (.71)
Cumulative effect of
accounting changes - - - (.20)
- - ------------------------------------------------------------------------------------------------------------
Net loss $ (.04) $ (.63) $ (.12) $ (.91)
============================================================================================================
Dividends declared per common share $ - $ .02 $ - $ .04
============================================================================================================
Weighted average common shares
outstanding 78,208 77,798 78,197 77,502
============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
2
AMAX GOLD INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
(Dollars in thousands except par value of stock)
June 30, December 31,
- - --------------------------------------------------------------------------------
1994 1993
================================================================================
ASSETS
Cash and equivalents $ 6,800 $ 7,500
Inventories 17,700 16,600
Other assets 8,100 9,800
Receivables on open sales contracts 600 4,000
- - --------------------------------------------------------------------------------
Current assets 33,200 37,900
Property, plant and equipment, net 312,000 315,800
Refugio equity investment 23,300 22,700
Other assets 6,700 4,600
- - --------------------------------------------------------------------------------
Total assets $375,200 $381,000
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $ 4,000 $ 4,000
Accounts payable, affiliates 700 100
Accrued and other current liabilities 15,300 16,400
Reclamation reserve, current portion 2,000 2,000
Current maturities of long-term debt 19,900 15,100
- - --------------------------------------------------------------------------------
Current liabilities 41,900 37,600
Long-term debt 101,800 111,800
Notes payable to Cyprus Amax 34,000 24,700
Reclamation reserve, noncurrent portion 9,800 8,600
Other noncurrent liabilities 7,500 8,100
- - --------------------------------------------------------------------------------
Total liabilities 195,000 190,800
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Deferred taxes 15,300 16,900
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Contingencies - -
- - --------------------------------------------------------------------------------
Minority interest 300 -
- - --------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, issued and outstanding, none - -
Common stock, par value $.01 per share, authorized
200,000,000 shares, issued and outstanding 78,216,618
shares in 1994 and 78,185,057 shares in 1993 800 800
Paid-in capital 151,000 150,700
Retained earnings 12,800 21,800
Common stock in treasury, at cost (1,991 shares in
1994 and 1993) - -
- - --------------------------------------------------------------------------------
Total shareholders' equity 164,600 173,300
- - --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $375,200 $381,000
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
3
AMAX GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in thousands)
Six Months Ended
June 30,
- - ------------------------------------------------------------------------------
1994 1993
==============================================================================
Cash Flows from Operating Activities
Net loss $ (9,000) $(70,300)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and depletion 13,400 13,500
Increase in reclamation reserves 1,200 1,200
Decrease in deferred taxes (900) (21,300)
Minority interest (800) (500)
Other, net (100) -
Hayden Hill asset write-down - 64,100
Cumulative effect of accounting changes - 15,200
Gain on Waihi transaction - (8,800)
Decrease (increase) in working capital, net of
effect of investing and financing activities:
Receivables on open sales contracts 3,400 (3,500)
Other assets 900 100
Accounts payable, affiliates 600 (200)
Inventories (1,100) (800)
Accrued and other current liabilities (900) (400)
Accounts payable, trade (100) 1,900
- - ------------------------------------------------------------------------------
Net cash provided (used) by operating activities 6,600 (9,800)
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Investing Activities
Capital and cash acquisition expenditures
for property, plant and equipment (8,500) (13,500)
Refugio cash acquisition and investment costs (600) (1,100)
Other (400) -
Advances to Amax under notes receivable - (14,900)
Net cash received on Waihi transaction - 4,700
- - ------------------------------------------------------------------------------
Net cash used by investing activities (9,500) (24,800)
- - ------------------------------------------------------------------------------
Financing Activities
Proceeds from financings 52,400 30,000
Advances from Cyprus Amax under notes payable 9,300 -
Repayments of financings (57,600) (15,700)
Deferred financing costs (1,600) -
Other (300) (1,000)
Cash dividends paid - (1,000)
- - ------------------------------------------------------------------------------
Net cash provided by financing activities 2,200 12,300
- - ------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
equivalents - 100
- - ------------------------------------------------------------------------------
Net decrease in cash and equivalents (700) (22,200)
Cash and equivalents at January 1 7,500 23,700
- - ------------------------------------------------------------------------------
Cash and equivalents at June 30 $ 6,800 $ 1,500
==============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) FINANCIAL STATEMENT ADJUSTMENTS AND FOOTNOTE DISCLOSURES
--------------------------------------------------------
The accompanying financial statements are unaudited; however, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation have been made. These
financial statements and notes thereto should be read in conjunction with
the financial statements and related notes included in the annual report on
Form 10-K for Amax Gold Inc. (the "Company") for the fiscal year ended
December 31, 1993 on file with the Securities and Exchange Commission
(hereinafter referred to as "the Company's 1993 10-K"). All amounts are in
United States dollars ("U.S.$") unless otherwise stated.
As discussed in Note 1 to the Company's 1993 10-K Consolidated
Financial Statements, the Company changed its accounting policy from that
of subsequently capitalizing and restoring to earnings prior period
exploration expenses when a property became exploitable to a policy of
expensing exploration expenditures in the period incurred until such time
that a property becomes exploitable, with subsequent expenditures being
capitalized. Accordingly, all of the 1993 periods were restated to reflect
the adoption of this policy as of January 1, 1993 and, in the first six
months of 1993, the Company recognized a $13.4 million after tax charge
(net of an income tax benefit of $4.5 million) relating to the cumulative
effect from such accounting change for periods prior to 1993. Also as
discussed in Note 4 to the Company's 1993 10-K Consolidated Financial
Statements, effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" which resulted in an after tax charge of $1.8
million (net of an income tax benefit of $1.0 million) for the first six
months of 1993 related to the cumulative effect of this accounting change.
5
(2) INVENTORIES
-----------
Inventories consist of the following (in thousands):
June 30, December 31,
1994 1993
-------- ------------
Precious metals refined and in-process $ 10,200 $ 9,000
Materials and supplies 7,500 7,600
------- ------
$ 17,700 $16,600
======= =======
(3) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
The components of property, plant and equipment are as follows (in
thousands):
June 30, December 31,
1994 1993
---------- -------------
Mining plants and equipment $ 164,100 $ 163,200
Mining properties 164,900 159,900
Development properties and
construction-in-progress 201,300 197,900
--------- ---------
530,300 521,000
Less:
Accumulated depreciation and depletion
and write-downs (218,300) (205,200)
--------- ---------
$312,000 $ 315,800
======== =========
6
(4) DEBT
----
The following table summarizes the Company's outstanding debt at
June 30, 1994 (in thousands):
Current Noncurrent Total
------- ---------- --------
Lassen Gold Mining, Inc. $11,200 $ 35,300 $ 46,500
AGI Chile Credit Corp., Inc. 4,000 32,000 36,000
Notes payable to Cyprus Amax - 34,000 34,000
Amax Gold Inc. - 30,000 30,000
Compania Minera Amax Guanaco 3,100 4,500 7,600
Nevada Gold Mining, Inc. 1,600 - 1,600
------- -------- --------
$19,900 $135,800 $155,700
======= ======== ========
During the six months ended June 30, 1994, the Company paid $6.1
million of interest expense and fees, of which $1.6 million was deferred
relating to the Chilean debt refinancing discussed below. The annualized
interest rate for the $155.7 million of outstanding debt for the six months
ended June 30, 1994 was 5.6%.
AGI Chile Credit Corp., Inc.
----------------------------
In March 1994, the Company refinanced $34.2 million of outstanding
Chilean short-term bridge loans with a $36 million U.S. term loan agreement
through AGI Chile Credit Corp., Inc. (Chile Credit Corp.), a wholly-owned
domestic subsidiary of the Company. The final maturity date for this new
loan agreement is October 1997, with semi-annual amortization payments
commencing in October 1994. Amounts outstanding under this term loan bear
interest at the LIBOR interest rate plus 1.25%. This loan is
collateralized by guarantees from the Company and, initially, Cyprus Amax
Minerals Company (Cyprus Amax). As of June 30, 1994, Cyprus Amax owned
approximately 31.3 million common shares, or approximately 40%, of the
Company's outstanding common stock.
7
In connection with the refinancing, the Company incurred approximately
$1.6 million of financing costs which were deferred and are being amortized
as interest expense over the life of the new loan.
Notes Payable to Cyprus Amax
----------------------------
On April 15, 1994, the Company and Cyprus Amax signed an agreement
pursuant to which Cyprus Amax will provide the Company with a $100 million
convertible line of credit. The outstanding indebtedness under this line
of credit bears interest at the LIBOR interest rate plus 0.3% and may be
repaid by the Company issuing up to two million shares of a $2.25 Series A
convertible preferred stock. The holder of shares of preferred stock will
be entitled to receive dividends at an annual rate of $2.25 per share,
which will be cumulative, accruing without interest and will be payable in
cash in equal semi-annual installments. The Company may elect to pay any
dividend due and payable in shares of common stock in lieu of a cash
dividend, unless the holder of preferred stock delivers written notice
stating that such holder elects to receive cash. The Company will have the
right to redeem the convertible preferred stock by issuing up to 12,099,213
shares of the Company's common stock at a maximum price of $8.265 per share
and a minimum price of $5.854 per share. In the event the full 12,099,213
common shares have been issued to redeem the preferred stock, any remaining
preferred stock would be redeemed, if a full redemption is desired by the
Company, with cash in lieu of the common shares which would be payable in
twelve consecutive substantially equal quarterly installments. Cyprus Amax
will have the right to replace the line of credit and any outstanding
indebtedness and/or preferred stock with the purchase of 12,099,213 shares
of the Company's common stock at a purchase price of $8.265 per share, or
$100 million. The $8.265 per common share price represents a 20% premium
to the ten-day average closing price of the Company's common stock
immediately prior to the February 1994 signing of a commitment letter for
the line of credit.
On June 30, 1994, a Proxy Statement was filed with the Securities and
Exchange Commission and sent to stockholders of record as of June 24, 1994
seeking stockholder approval of the transaction contemplated under the
$100 million line of credit and the
8
issuance of three million shares of the Company's common stock to Cyprus
Amax discussed below. The Special Meeting of Stockholders to approve
these transactions is scheduled for July 26, 1994.
On June 22, 1994, the Company borrowed $8 million under the $100
million line of credit pursuant to the terms of a letter agreement, dated
June 1, 1994, whereby Cyprus Amax and the Company agreed to waive all of
the equity features of the loan agreement until stockholder approval is
received. In the event that stockholder approval is not received, the
current $8 million advance under this line of credit will be treated as a
term loan, with amortization payments commencing on June 30, 1997.
The remaining portion of the $100 million credit line are designated
as support for up to $30 million of outstanding indebtedness under the
Lassen Gold Mining, Inc. financing and as support for up to $36 million
of outstanding indebtedness under the Chile Credit Corp. U.S. term loan.
The remaining line of credit will be available for support of other
existing indebtedness and for working capital to enable the Company to
meet its on-going obligations.
Additionally, at June 30, 1994, the Company had $26 million of
outstanding indebtedness to Cyprus Amax under a demand promissory note
payable. Upon execution of a renewal of the demand promissory note, Cyprus
Amax deferred the repayment of the outstanding amounts under the note
until one year plus one day from the date the demand repayment notice is
given. As a result, the Company classified the $26 million of outstanding
indebtedness as long-term at June 30, 1994. In February 1994, the
Company's Board of Directors approved the issuance to Cyprus Amax of three
million shares of the Company's common stock as repayment of $20.7 million
of the amounts outstanding under such note. This share purchase, evidenced
by a Stock Purchase Agreement dated April 15, 1994, is subject to
stockholder approval at the July 26, 1994 Special Meeting of Stockholders
discussed above. The $6.888 per share purchase price for these common
shares under the Stock Purchase Agreement represents the ten-day average
closing price of the Company's common stock immediately prior to the
February 1994 signing of a commitment letter for
9
the purchase of the shares. This share purchase, combined with the
potential conversion of the entire $100 million line of credit into
Company common stock, would increase Cyprus Amax's ownership of the
Company's outstanding shares to slightly under 50%.
Amax Gold Inc.
--------------
At June 30, 1994, the Company had outstanding borrowings of 85,020
gold ounces which were sold for $30 million. These ounces are scheduled to
be repaid as follows:
Maturity Gold Amount
Date Ounces (in thousands)
-------------- ------ --------------
August 1994 15,129 $ 5,000
December 1994 44,183 15,000
February 1995 25,708 10,000
------ -------
85,020 $30,000
====== =======
During the first six months of 1994, the Company borrowed and repaid
an additional 15,464 gold ounces which were sold for $6 million.
At June 30, 1994, outstanding gold loans of $30 million were
classified as long-term based on available long-term credit from Cyprus
Amax described above.
The June 30, 1994 market value of the total outstanding gold ounces
borrowed was $2.8 million higher than the $30 million carrying value (using
the spot market price for gold as of June 30, 1994). However, the Company
has contractual agreements with the lenders which set the gold price upon
repayment equal to the carrying value plus a 4% average annualized
effective rate of interest. As a result, the Company does not have any
gold market price risk associated with these borrowings.
In July 1994, the Company borrowed an additional 9,000 gold ounces
which were sold for $3.5 million. These gold ounces are scheduled to be
repaid in August 1994.
10
(5) HEDGE CONTRACTS
---------------
Precious metal hedge contracts include forward sales contracts, spot
deferred forward sales and put and call options. Forward sales contracts
require the future delivery of gold at a specified price. Forward sales
contracts that are made on an industry standard spot deferred basis allow
the Company to defer the delivery of gold under a forward sales contract to
a later date at a renegotiated market price, as long as certain conditions
are satisfied. Various factors influence the decision to close a spot
deferred forward sales contract or to roll the contract forward to a later
date. A put option gives the put buyer the right, but not the obligation,
to sell gold to the put seller at a predetermined price on or before a
predetermined date. A call option gives the call buyer the right, but not
the obligation, to buy gold from the call seller at a predetermined price
on or before a predetermined date.
As of June 30, 1994, the Company's outstanding precious metal hedge
contracts were as follows:
Average
Gold Price
Ounces Per Ounce Period
------- --------- --------------------------
Forward sales contracts/(1)/ 239,600 $417 July 1994 - September 1994
Option contracts:
Purchased put options 206,000 385 July 1994 - December 1995
Sold put options 37,000 359 July 1994 - November 1995
Purchased call options 114,500 426 July 1994 - March 1995
Sold call options 344,500 451 July 1994 - December 1995
/(1)/ Represents the net forward sales position which was made primarily on a
spot deferred forward basis which allows the Company to defer the delivery
of gold ounces to a later date at a renegotiated gold price.
The market value of the Company's forward contracts and put and call
option contracts at June 30, 1994 was approximately $7.2 million and $1.7
million, respectively. Future market valuations for these contracts are
dependent on gold market prices, option volatility and interest rates,
which can vary significantly. These contracts will be utilized in the
future to hedge against low gold market prices for the Company's future
gold production
11
to provide cash flow for operations while maintaining benefits in the event
of higher gold market prices.
Interest rate hedge contracts entered into by the Company consist of
interest rate swap, option and cap agreements to reduce the impact of
changes in interest rates on its financing facilities. At June 30, 1994,
the Company had five interest rate swap agreements outstanding with
commercial banks having a total principal amount of $50 million, as
follows:
Fixed
Borrowings Interest Rate Period
---------- -------------- -------------------------
$10 million 4.44% July 1994
$10 million 6.54% July 1994 - November 1994
$10 million 4.40% July 1994 - January 1995
$10 million 5.95% July 1994 - March 1996
$10 million 4.85% July 1994 - March 1996
As of June 30, 1994, the Company would pay approximately $.1 million
to terminate these interest rate swap agreements, given the market interest
rates as of such date. The Company may be exposed to nonperformance by the
other parties to such agreements, thereby subjecting the Company to current
interest rates on its financings. However, the Company does not anticipate
nonperformance by the counterparties.
(6) CONTINGENCIES
-------------
Lassen Gold Mining, Inc. (Lassen Gold), a wholly-owned subsidiary of
the Company that owns the Hayden Hill Mine, received a letter from the
California Regional Water Quality Control Board (the Board), dated March
25, 1994, advising that, among other things, no new leach pad cells
beyond those under construction will be approved by the Board with the
current design. On June 24, 1994, formal Board approval of a new waste
discharge permit was granted which will allow Lassen Gold to construct
new cells using an alternative design. The new permit also resolves other
minor issues in the Board's March 25, 1994 letter.
12
The Company's mining and exploration activities are subject to various
federal, state and foreign laws and regulations governing the protection of
the environment. These laws and regulations are continually changing and
generally becoming more restrictive. The Company conducts its operations
so as to protect the public health and environment. The Company has made,
and expects to make in the future, significant expenditures to comply with
such laws and regulations.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
---------------------
The following table sets forth the Company's ounces of gold sold and
average realized prices as well as the ounces of gold production and
production costs for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
- - ----------------------------------------------------------------------------------
1994 1993 1994 1993
==================================================================================
Sleeper Mine:
Ounces of gold produced 32,471 25,805 58,401 48,901
Average cost per ounce produced:
Cash production cost/(1)/ $ 219 $ 322 $ 243 $ 320
Depreciation and depletion/(2)/ 92 133 92 134
- - ----------------------------------------------------------------------------------
Total production cost $ 311 $ 455 $ 335 $ 454
- - ----------------------------------------------------------------------------------
Wind Mountain Mine:
Ounces of gold produced 3,317 5,328 6,591 11,601
Average cost per ounce produced:
Cash production cost/(1)/ $ 130 $ 180 $ 159 $ 152
Depreciation and depletion - - - -
- - ----------------------------------------------------------------------------------
Total production cost $ 130 $ 180 $ 159 $ 152
- - ----------------------------------------------------------------------------------
Hayden Hill Mine:
Ounces of gold produced 21,543 15,089 33,350 27,152
Average cost per ounce produced:
Cash production cost/(1)/ $ 288 $ 478 $ 363 $ 556
Depreciation and depletion/(2)/ 105 183 105 187
- - ----------------------------------------------------------------------------------
Total production cost $ 393 $ 661 $ 468 $ 743
- - ----------------------------------------------------------------------------------
Guanaco Mine:
Ounces of gold produced/(3)/ 15,293 9,564 30,885 9,564
Average cost per ounce produced:
Cash production cost/(1)/ $ 427 $ 598 $ 426 $ 598
Depreciation and depletion/(2)/ 146 143 146 143
- - ----------------------------------------------------------------------------------
Total production cost $ 573 $ 741 $ 572 $ 741
- - ----------------------------------------------------------------------------------
Waihi Mine:
Ounces of gold produced/(4)/ - 2,613 - 8,666
Average cost per ounce produced:
Cash production cost/(1)/ $ - $ 254 $ - $ 233
Depreciation and depletion/(2)/ - 48 - 49
- - ----------------------------------------------------------------------------------
Total production cost $ - $ 302 $ - $ 282
- - ----------------------------------------------------------------------------------
Total:
Ounces of gold produced 72,624 58,399 129,227 105,884
Ounces of gold sold 69,342 59,049 128,750 106,045
Average price per ounce sold $ 402 $ 391 $ 402 $ 391
Average cost per ounce produced:/(5)/
Cash production cost/(1)/ $ 279 $ 391 $ 313 $ 380
Depreciation and depletion/(2)/ 103 132 104 127
- - ----------------------------------------------------------------------------------
Total production cost $ 382 $ 523 $ 417 $ 507
==================================================================================
(1) Cash production costs include all operating costs at the mine sites,
including overhead, and, where applicable, Nevada net proceeds tax,
royalties and credits for silver by-products.
(2) In September 1993, the Company changed its accounting policy for
exploration expenditures, effective January 1, 1993. Accordingly, the
second quarter and first six months of 1993 were restated to reflect the
adoption of this policy.
(3) Production commenced at the Guanaco Mine in April 1993.
(4) Represents the Company's 33.53% share. During the 1993 second quarter, the
Company completed a transaction which resulted in the realization of all
future economic benefit from its 33.53% interest, effective April 30, 1993.
(5) Average costs weighted by ounces of gold produced at each mine.
14
Second Quarter and First Six Months of 1994 Compared with Second Quarter and
----------------------------------------------------------------------------
First Six Months of 1993
------------------------
During the second quarter of 1994, the Company recognized a net loss of
$3.2 million on revenues of $27.9 million compared to a net loss of $49.1
million on revenues of $23.1 million for the second quarter of 1993. For
the first six months of 1994, the Company recognized a net loss of $9.0
million on revenues of $51.7 million compared to a net loss of $70.3
million on revenues of $41.5 million for the first six months of 1993. The
second quarter and first six months of 1993 included a $41.9 million after-
tax charge for the write-down of the Hayden Hill investment and a $2.4
million after tax gain from the realization of the future economic benefit
from the Company's 33.53% interest in the Waihi Mine in New Zealand. The
results for the first six months of 1993 also included an after-tax charge
of $15.2 million related to the cumulative effects of accounting changes.
Excluding these special items, the loss for the second quarter and first
six months of 1993 was $9.6 million and $15.6 million, respectively,
compared to $3.2 million and $9.0 million for the same periods in 1994,
respectively. This reduction in net losses for the 1994 periods was
primarily the result of signifigantly higher gold production and sales
volumes, lower unit cash production costs, a higher average realized
selling price for gold and lower general and administrative expenses.
These 1994 operating improvements were somewhat offset by lower deferred
tax benefits. A further discussion of the key factors affecting the 1994
results compared to the 1993 results follows.
Revenues for the second quarter and first six months of 1994 increased
by 21% and 25%, respectively, from the same periods in the prior year.
This increase was due to significantly higher production and sales volumes
and a higher average realized selling price. The increased production and
sales volumes were primarily attributable to higher 1994 production from
the Guanaco, Sleeper and Hayden Hill mines which more than offset the
elimination of production from the Waihi Mine, as a result of a transaction
completed in June 1993, and declining residual heap leach production from
the Wind Mountain Mine.
The Company realized an average selling price of $402 per gold ounce in
the 1994 periods compared to $391 per gold ounce in the 1993 periods. The
average realized price
15
for both periods included hedging benefits from closing forward sales
contracts and gold options at prices above market. The average COMEX gold
price for the first six months of 1994 was $383 per ounce compared to $345
per ounce for the first six months of 1993.
Production from the Guanaco Mine during the second quarter and first six
months of 1994 increased by 5,729 ounces and 21,321 ounces, respectively,
over the same periods in the prior year. The Guanaco Mine commenced
production in April 1993 and, as a result, there was no production from
Guanaco in the first quarter of 1993. While the Guanaco production has
improved in 1994 from the initial heap leach start up in 1993, the Guanaco
Mine has not yet achieved the optimum level of production due to an
insufficient supply of water to spray the heap leach pads at design
capacity. The Company has water exploration and exploitation rights on an
extensive property position adjacent to the Guanaco Mine, and programs are
currently underway to develop or acquire additional water supplies. There
can be no assurance that such programs will provide a sufficient quantity
of water at acceptable costs or on a timely basis.
Production from the Sleeper Mine during the second quarter and first six
months of 1994 increased by 6,666 ounces and 9,500 ounces, respectively,
over the same periods in the prior year primarily due to higher average
mill head grades and increased mine efficiencies. Sleeper's average mill
head grade for the first six months of 1994 was 0.115 gold ounce per ton
compared to 0.072 gold ounce per ton for the first six months of 1993.
Total tons mined for the first six months of 1994 also increased to
approximately 9.6 million tons from approximately 9.2 million tons in the
comparable period of 1993.
In July 1993, a major re-evaluation of the Hayden Hill operation was
completed which resulted in a reduction in the proven/probable ore reserves
and a conversion of the mine during the last half of 1993 to a heap leach
only operation. Due to the reduction of the Hayden Hill ore reserves, on
June 30, 1993 the Company recorded a $64.1 million pre-tax ($41.9 million
after tax) write-down of its Hayden Hill investment. Operating performance
at the Hayden Hill Mine has improved during the first six months of 1994,
generating positive cash flow in the second quarter of 1994.
16
Total costs applicable to sales declined by $3.3 million in the 1994
second quarter compared to the 1993 second quarter due to significantly
lower unit cash production costs. Overall unit cash production costs
decreased to $279 per ounce in the 1994 second quarter from $391 per ounce
in the 1993 second quarter. This improvement was primarily the result of
increased production from the Guanaco, Sleeper and Hayden Hill mines along
with lower production costs from Hayden Hill due to the conversion of that
mine to a heap leach operation in the last half of 1993. These
improvements were somewhat offset by the elimination of the lower cost
production from the Waihi Mine.
Unit depreciation and depletion costs for the second quarter and first
six months of 1994 declined by $29 per gold ounce and $23 per gold ounce,
respectively, compared to the same periods in 1993. The lower 1994
depreciation rate was the result of the 1993 write-downs of the Hayden Hill
and Sleeper assets.
Selling, general and administrative expenses declined to $1.6 million
and $3.3 million in the second quarter and first six months of 1994 from
$2.2 and $4.2 million in the second quarter and first six months of 1993,
respectively. On a per gold ounce basis, selling, general and
administrative expenses were $25 per gold ounce produced in the first six
months of 1994 compared to $40 per gold ounce produced in the first six
months of 1993. These improvements were the result of management changes,
staff reductions and lower headquarter office costs.
Interest expense for the 1994 second quarter was slightly lower than the
interest expense for the second quarter of 1993 primarily as a result of a
lower average interest rate for the 1994 quarter, which was somewhat offset
by increased borrowings to fund the Company's operating and development
activities. This lower average interest rate for the quarter was due to
the completion of a refinancing of the Guanaco short-term bridge loans in
March 1994. Interest expense for the first six months of 1994 was $.6
million higher than the first six months of 1993 primarily as a result of
increased borrowings to fund the Company's operating and development
activities, together with the capitalization of approximately $.5 million
of interest expense in the first quarter of 1993 related to the
17
construction of the Guanaco Mine.
For the second quarter of 1994, a provision for federal income tax
expense of $.4 million was recognized as a result of domestic earnings.
Domestic earnings in the 1994 periods were more than offset by losses from
foreign operations for which deferred tax benefits are not being provided
in accordance with Statement of Financial Accounting Standards No. 109.
The first six months of 1993 reflect a $13.4 million after tax ($17.9
million pre-tax) charge relating to the cumulative effect of a change in
the Company's exploration accounting policy for periods prior to 1993 and
$1.8 million after tax ($2.8 million pre-tax) charge relating to the
adoption of a new accounting standard for postemployment benefits. Both of
these accounting policy changes were effective as of January 1, 1993.
18
Liquidity and Financial Position
For the first six months of 1994, the Company had operating cash flow of
$6.6 million primarily due to the improved performance of the Sleeper and
Hayden Hill mines and the continued low cost residual heap leach production
from the Wind Mountain Mine, which were somewhat offset by high cost
production from the Guanaco Mine. The operating cash flow together with
existing cash balances were more than sufficient to fund $9.1 million of
capital expenditures and Refugio investment costs. However, as a result of
the Company's utilization of its current assets to develop its long-term
mining assets, together with the current maturities of long-term debt, the
Company had negative working capital of $8.7 million at June 30, 1994
compared to positive working capital of $.3 million at December 31, 1993.
The $9.1 million capital and investment cash outlay for the first six
months of 1994 represented $6.4 million of sustaining capital at the Hayden
Hill, Guanaco and Sleeper mines, $1.5 million of Fort Knox development
costs, $.6 million of Haile development costs and $.6 million of Refugio
investment costs. Capital expenditures for fiscal 1994 are currently
estimated to be approximately $40 million, with $13 million representing
sustaining capital for the Hayden Hill, Guanaco and Sleeper mines and $27
million representing development expenditures for the Fort Knox, Refugio
and Haile projects.
During the first six months of 1994, the Company made additional
borrowings of $61.7 million, substantially all of which were utilized to
refinance existing indebtedness. The $61.7 million of additional
borrowings include an $8 million advance from Cyprus Amax under a $100
million convertible line of credit. At June 30, 1994, the Company had
outstanding debt obligations of $155.7 million, up from $151.6 million at
December 31, 1993.
While the Company expects that its operating mines will generate
positive cash flow in 1994, the Company recognized that it would be unable
to service its existing debt obligations and to continue development work
on its new projects without additional financing. In order to provide the
Company with more financial strength and flexibility to
19
meet its outstanding debt obligations, in June 1994 a shelf registration
statement was filed with the Securities and Exchange Commission that will
enable the Company to offer an aggregate of up to $200 million of equity
and/or subordinated debt securities. The registration statement was
declared effective on July 21, 1994. To date, no sales of securities have
been made under the shelf registration statement and no assurance can be
given regarding the amount or timing of any such sales. Additionally, a
Special Stockholders Meeting is scheduled for July 26, 1994 to approve
the issuance of three million shares of the Company's common stock to
Cyprus Amax as repayment for approximately $20.7 million of the $26
million outstanding amount owed to Cyprus Amax as of June 30, 1994 under
a demand promissory note and also to approve the transactions
contemplated under an agreement for Cyprus Amax to provide the Company
with a $100 million convertible line of credit. See Note 4 to the Notes
to Consolidated Financial Statements in Item 1 for a further discussion.
In addition to the $100 million line of credit and the subscription
for three million common shares, as of June 30, 1994 Cyprus Amax had
provided $53.7 million of guarantees of the Company's indebtedness. It is
expected that upon stockholder approval of the transactions contemplated
under the $100 million line of credit, a portion of such line of credit
would be designated as replacement for $36 million of such guarantees.
With the flexibility to offer equity and/or subordinated debt
securities under the shelf registration statement, together with the
expected support of Cyprus Amax under the $100 million line of credit,
the three million common share subscription and debt guarantees, the
Company expects to be able to sustain its current operations and satisfy
its 1994 operating mine capital requirements and its current debt service
requirements. However, additional financings will be required to fund the
total capital required to bring its Refugio and Fort Knox projects into
production. While the Company intends to seek additional institutional
financings in 1994 to meet its long-term capital requirements, there can
be no assurance that all of the required financings can be obtained in
the time frame desired. In the event that stockholder approval is not
received at the Special Stockholders Meeting for the transactions
contemplated under the $100 million line of credit and the three million
common share
20
subscription, other financing alternatives would need to be pursued which
may result in substantial delays in or inability to obtain the contemplated
financings for project development and construction.
Total construction and development costs to bring the Refugio project
into production are estimated to total between $120 million and $130
million, of which the Company's share is $60 million to $65 million. This
is in addition to the Company's $23.3 million of capitalized acquisition
and development costs as of June 30, 1994. There can be no assurance
that such project costs will not exceed these estimates. Compania Minera
Maricunga, the Chilean company which holds the property and is owned 50%
by the Company and 50% by Bema Gold Corporation (Bema), is seeking
project bank financing for a significant portion of the required future
capital under which the Company and Bema would each be responsible for
supporting its respective share until such time, if any, as the financing
becomes non-recourse. A term sheet for the proposed financing is
currently being negotiated with a group of banks and the Company
anticipates entering into commitment letters in the near future. However,
there can be no assurance that the Company will receive such financing.
Additional Company funding for the project that would not be covered by
the project financing is expected to be raised through the issuance of
securities under the shelf registration statement. Construction and
development of the Refugio project is expected to commence as soon as
adequate financing is completed.
Total capital requirements to construct and develop the Fort Knox
property in accordance with the current preliminary design are estimated
to be between $250 million and $270 million, in addition to $183 million
of capitalized acquisition and development costs as of June 30, 1994. In
February 1994, certain Alaska state permits were received. In May 1994,
the U. S. Army Corps of Engineers issued its dredge and fill permit under
Section 404 of the Clean Water Act. With this permit, the Company is
performing detailed engineering for the project, upgrading the access
road to the project site and beginning initial site preparation. Timing of
the construction is dependent on obtaining the final air permits, securing
financing on acceptable terms and receiving the approval of the Company's
Board of Directors.
21
The results for the first six months of 1994 indicate improvements from
the 1993 results. Production from the Hayden Hill Mine achieved near
design capacity in the second quarter of 1994. Mill head grades at the
Sleeper Mine for the first six months have increased resulting in higher
production at lower unit production costs. Although lower mill head grades
at the Sleeper Mine are expected in the last half of 1994, which will
result in somewhat lower production and higher unit costs than in the first
half of 1994, the fiscal 1994 results from the Sleeper Mine are expected to
show substantial improvements from the 1993 results. These operational
improvements have somewhat been offset, however, by declining residual heap
leach production from the Wind Mountain Mine and an insufficient water
supply at the Guanaco Mine. Programs are currently underway to develop or
acquire additional water supplies for the Guanaco Mine. Despite the
expected improvements in operating results for fiscal 1994 compared to
fiscal 1993, combined with lower general and administrative expenses, net
losses are expected to continue to be realized in fiscal 1994, without a
substantial increase in the market price for gold.
The Company is in a position to realize a 1994 average selling price in
the range of $390 to $450 per gold ounce, depending upon the market price
for gold. The Company has an active hedging program in place which is
intended to provide some protection against low gold market prices while
maintaining most of the potential benefit in the event of higher market
prices. The Company believes that, given its current hedge positions, it
could realize the benefit from rising market prices for fiscal 1994 and
1995 up to a market price of $450 per gold ounce. The Company also
believes it can continue to obtain an average realized sales price for
fiscal 1994 and 1995 of at least $390 per ounce if gold market prices
decline to as low as $320 per ounce. However, the Company's ability to
sustain an average realized price substantially above the market price for
fiscal 1996 and beyond may be significantly diminished as its current hedge
positions are depleted and new positions are put in place at lower prices.
22
The Company's focus for the remainder of 1994 will be to maximize the
operating performance at all of its mines while at the same time attempting
to minimize operating cash outlays and secure the additional financings
required to begin construction of its Refugio and Fort Knox projects.
23
PART II - Other Information
---------------------------
Item 1. Legal Proceedings
------- -----------------
On June 8, 1994 TMB filed a Demand for Arbitration under the
Commercial Arbitration Rules of the American Arbitration Association
naming the Company, Amax Exploration, Inc. and Wind Mountain Mining,
Inc. as respondents. TMB's statement of the nature of dispute
alleges fraud in the making of the Lease and a certain amendment to
the Lease dated as of August 4, 1988 and in the furnishing of
certain information to TMB concerning the results of exploration on
the property. TMB requests that the arbitrator award TMB rescission
of the Lease and damages equal to the total profit derived by the
Company from the Wind Mountain Mine, less the Company's cost of
generating such profit. It also requests rescission of the August
4, 1988 amendment to the Lease and damages attendant to that
rescission, the award of punitive damages, interest and attorneys'
fees to the extent permitted by law and any additional relief that
the arbitrator deems proper. TMB stated that it believes the value
of this relief, excluding punitive damages and interest, to be in
excess of $38 million.
Management believes, after consulting with counsel retained to
represent the Company in this arbitration, that this Demand for
Arbitration is without merit. Further, management believes that
this arbitration is barred by the express provisions of the Lease,
which require that a demand for arbitration must be filed within one
year from the date of the act of omission out of which the
controversy arose. In its statement of the nature of the dispute,
TMB acknowledged that during 1990 TMB learned of information that
gave rise to the claims made in this Demand for Arbitration. It
also acknowledged that these allegations formed the basis for a
complaint filed in the Second Judicial District Court of the State
of Nevada in and for Washoe County against the Company and the same
affiliated companies on June 4, 1993, which proceedings were stayed
by court order dated August 26, 1993 and the stay was reaffirmed in
a court order filed February 1, 1994 denying TMB's motion for
reconsideration of the August 26, 1993 order. This state court
litigation was previously reported in Registrant's Form 10-K for
the fiscal year ended December 31, 1993.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The annual meeting of stockholders was held on May 5, 1994.
(b) This information is omitted pursuant to instruction 3.
(c) The stockholders voted to approve the adoption of a stock
grant plan for the Company's nonemployee directors. Votes
cast in favor were 60,761,906, against were 860,620,
abstaining were 157,112.
24
The stockholders also voted to approve the appointment of
Price Waterhouse as Independent Accountants. Votes cast in
favor were 61,615,367, against were 43,252, abstaining were
40,945. Set forth below are the votes cast for the election
of Directors:
Director For Withheld
-------- ----- --------
Allen Born 61,679,167 100,471
Gerald J. Malys 61,690,275 89,363
Rockwell A. Schnabel 61,687,186 92,452
Vernon F. Taylor, Jr. 61,683,326 96,312
Milton H. Ward 61,691,437 88,201
Russell L. Wood 61,690,273 89,365
The shares represented at the meeting constituted 79% of the
issued and outstanding shares of common stock.
(d) Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K - None
25
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMAX GOLD INC.
By /s/ Pamela L. Saxton
-----------------------------------------
Pamela L. Saxton
Vice President and Controller (principal
accounting officer)
Dated: July 22, 1994
26