SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period SEPTEMBER 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 NOVEMBER 11, 1994
--------------------------------------------------------------------
- 81,242,970 SHARES
--------------------
Total Pages - 25
Exhibit Index Located on Page - 21
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- - -----------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
=================================================================================================================
SALES $ 23,700 $ 20,600 $ 75,400 $ 62,100
- - -----------------------------------------------------------------------------------------------------------------
Costs and operating expenses-
Costs applicable to sales 21,700 21,400 61,600 60,700
Depreciation and depletion 5,700 5,600 19,100 19,100
Selling, general and administrative
expenses 1,600 2,200 4,900 6,400
- - -----------------------------------------------------------------------------------------------------------------
Total costs and operating expenses 29,000 29,200 85,600 86,200
- - -----------------------------------------------------------------------------------------------------------------
GROSS OPERATING LOSS (5,300) (8,600) (10,200) (24,100)
GAIN ON WAIHI TRANSACTION - - - 8,800
HAYDEN HILL ASSET WRITE-DOWN - - - (64,100)
EXPLORATION EXPENSES (2,200) (1,500) (3,600) (3,100)
- - -----------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (7,500) (10,100) (13,800) (82,500)
Minority interest 300 500 1,100 1,000
Interest income 1,000 100 1,300 500
Interest expense (2,400) (2,200) (7,000) (6,200)
Other - - (100) (600)
- - -----------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES (8,600) (11,700) (18,500) (87,800)
Income tax benefit 1,000 4,300 1,900 25,300
- - -----------------------------------------------------------------------------------------------------------------
LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (7,600) (7,400) (16,600) (62,500)
Cumulative effect of accounting
changes, net of income tax
benefits of $5,500 - - - (15,200)
- - -----------------------------------------------------------------------------------------------------------------
NET LOSS $ (7,600) $ (7,400) $(16,600) $(77,700)
=================================================================================================================
PER COMMON SHARE:
Loss before cumulative
effect of accounting changes $ (.10) $ (.10) $ (.21) $ (.80)
Cumulative effect of
accounting changes - - - (.20)
- - -----------------------------------------------------------------------------------------------------------------
NET LOSS $ (.10) $ (.10) $ (.21) $ (1.00)
=================================================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ - $ .02 $ - $ .06
=================================================================================================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 79,400 77,942 78,603 77,650
=================================================================================================================
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)
SEPTEMBER 30, DECEMBER 31,
- - -----------------------------------------------------------------------------------------------------
1994 1993
=====================================================================================================
ASSETS
Cash and equivalents $ 67,400 $ 7,500
Inventories 15,700 16,600
Other assets 9,000 9,800
Receivables on open sales contracts 800 4,000
- - -----------------------------------------------------------------------------------------------------
CURRENT ASSETS 92,900 37,900
Property, plant and equipment, net 309,600 315,800
Refugio equity investment 23,900 22,700
Other assets 10,500 4,600
- - -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $436,900 $381,000
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $ 3,500 $ 4,000
Accounts payable, affiliates 1,500 100
Accrued and other current liabilities 13,400 16,400
Reclamation reserve, current portion 2,000 2,000
Current maturities of long-term debt 24,900 15,100
- - -----------------------------------------------------------------------------------------------------
CURRENT LIABILITIES 45,300 37,600
Long-term debt 93,800 111,800
Notes payable to Cyprus Amax - 24,700
Reclamation reserve, noncurrent portion 10,400 8,600
Other noncurrent liabilities 7,400 8,100
- - -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 156,900 190,800
- - -----------------------------------------------------------------------------------------------------
Deferred taxes 13,900 16,900
- - -----------------------------------------------------------------------------------------------------
Contingencies - -
- - -----------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, of which 2,000,000 shares have been designated
as Series A Convertible Preferred Stock, no shares issued and
outstanding, and 1,840,000 shares have been designated as Series
B Convertible Preferred Stock, issued and outstanding 1,840,000
shares in 1994 and none in 1993 1,800 -
Common stock, par value $.01 per share, authorized
200,000,000 shares, issued and outstanding 81,238,420
shares in 1994 and 78,185,057 shares in 1993 800 800
Paid-in capital 258,300 150,700
Retained earnings 5,200 21,800
Common stock in treasury, at cost (1,991 shares in 1994 and 1993) - -
- - -----------------------------------------------------------------------------------------------------
Total shareholders' equity 266,100 173,300
- - -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $436,900 $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)
NINE MONTHS ENDED
SEPTEMBER 30,
- - -------------------------------------------------------------------------------------------
1994 1993
===========================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(16,600) $(77,700)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and depletion 19,100 19,100
Increase in reclamation reserves 1,800 1,900
Decrease in deferred taxes (1,900) (25,000)
Minority interest (1,100) (1,000)
Other, net (800) (200)
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 3,200 (2,900)
Accounts payable, affiliates 1,400 (800)
Inventories 900 200
Accrued and other current liabilities (1,600) 1,900
Accounts payable, trade (500) (1,400)
Other assets (400) (1,500)
- - -------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 3,500 (16,900)
- - -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital and cash acquisition expenditures
for property, plant and equipment (12,000) (18,800)
Refugio cash acquisition and investment costs (1,200) (1,200)
Net cash received on Waihi transaction - 7,200
- - -------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (13,200) (12,800)
- - -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from sale of convertible preferred stock 88,300 -
Proceeds from financings 62,900 30,000
Advances from Cyprus Amax 9,300 5,100
Repayments of financings (71,100) (22,200)
Repayments to Cyprus Amax (13,300) -
Other (4,300) (1,000)
Deferred financing costs (2,200) -
Cash dividends paid - (1,500)
- - -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 69,600 10,400
- - -------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS - 100
- - -------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 59,900 (19,200)
Cash and equivalents at January 1 7,500 23,700
- - -------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT SEPTEMBER 30 $ 67,400 $ 4,500
===========================================================================================
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. In the first nine 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 a
$1.8 million after tax charge (net of an income tax benefit of $1.0
million) for the first nine months of 1993 related to the cumulative effect
of this accounting change.
5
(2) INVENTORIES
-----------
Inventories consist of the following (in thousands):
SEPTEMBER 30, December 31,
1994 1993
------------- ------------
Precious metals, refined and in-process $ 8,700 $ 9,000
Materials and supplies 7,000 7,600
------- -------
$15,700 $16,600
======= =======
In-process inventories include precious metals in mill carbon circuits
but do not include precious metals on leach pads or in stockpiles.
(3) PREFERRED STOCK
---------------
In August 1994, the Company sold publicly 1,840,000 shares of $3.75
Series B Convertible Preferred Stock (the "Preferred Stock") for net
proceeds of $88.3 million. Outstanding Preferred Stock is convertible at
the option of the holder at any time, at an initial conversion price of
$8.25 per share (equivalent to a conversion rate of 6.061 shares of common
stock for each share of Preferred Stock), subject to adjustment in certain
events. The Preferred Stock is redeemable at the option of the Company at
any time on or after August 15, 1997, in whole or in part, for cash,
initially at a redemption price of $52.625 per share declining ratably
annually to $50.00 per share on or after August 15, 2004, plus accrued and
unpaid dividends. Annual cumulative dividends of $3.75 per share will
accrue from the date of issuance and are payable quarterly on each November
15, February 15, May 15 and August 15, as and if declared by the Board of
Directors.
6
(4) DEBT
----
The following table summarizes the Company's outstanding debt at
September 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
Amax Gold Inc. 5,000 23,500 28,500
Compania Minera Amax Guanaco 3,100 3,000 6,100
Nevada Gold Mining, Inc. 1,600 - 1,600
------- -------- --------
$24,900 $ 93,800 $118,700
======= ======== ========
During the nine months ended September 30, 1994, the Company paid $9.5
million, deferred $2.2 million and capitalized $0.1 million of interest
expense and fees. The annualized average interest rate for the debt
outstanding in the first nine months of 1994 was 5.5%.
Indebtedness to Cyprus Amax
---------------------------
On April 15, 1994, the Company and Cyprus Amax Minerals Company
("Cyprus Amax") signed an agreement, subsequently approved by the Company's
stockholders in July 1994, in which Cyprus Amax agreed to provide the
Company with a $100 million convertible line of credit. Cyprus Amax owns
approximately 42% of the Company's outstanding common stock.
Outstanding amounts under the credit line bear interest at the London
Inter-Bank Offered Rate ("LIBOR") plus 0.3% and may be repaid by the
Company issuing up to two million shares of $2.25 Series A Convertible
Preferred Stock. The Company will have the right to redeem the convertible
preferred stock by issuing up to 12,099,213 shares of common stock at a
maximum price of $8.265 per share and a minimum price of $5.854 per share.
To effect a full redemption at prices below $8.265, the Company may be
required
7
to redeem a portion of any outstanding convertible preferred stock with
cash. Cyprus Amax will have the right to replace the line of credit and
any outstanding indebtedness and/or convertible preferred stock with the
purchase of up to 12,099,213 shares of the Company's common stock at a
purchase price of $8.265 per share, an aggregate of $100 million.
A portion of the credit line is designated as support for indebtedness
relating to the Hayden Hill, Guanaco and Refugio projects and for general
corporate purposes. If the entire $100 million line of credit is drawn and
converted into the Company's common stock, Cyprus Amax ownership would
increase to slightly under 50%.
In June 1994, the Company borrowed $8 million from Cyprus Amax under
the $100 million credit line. Pending stockholder approval, which was
received in July 1994, Cyprus Amax and the Company agreed to waive all
equity features of the loan agreement for this borrowing. In August 1994,
the Company repaid Cyprus Amax $34 million outstanding under a demand
promissory note payable and the line of credit agreement. The repayment
was made with $13.3 million in cash and $20.7 million proceeds from the
sale to Cyprus Amax of three million shares of common stock under a stock
purchase agreement approved in July 1994.
Amax Gold Inc.
--------------
At September 30, 1994, the Company had outstanding borrowings of
79,200 ounces of gold, which were sold for $28.5 million and originally
scheduled to be repaid as follows:
MATURITY GOLD AMOUNT
DATE OUNCES (IN THOUSANDS)
------------- ------ --------------
December 1994 44,183 $ 15,000
February 1995 25,708 10,000
February 1995 9,309 3,500
------ -------
79,200 $ 28,500
====== =======
8
At September 30, 1994, $23.5 million of outstanding gold loans are
classified as long-term based on the Company's intention to extend terms
and the availability of long-term financing from Cyprus Amax described
above.
The Company does not have any gold market price risk associated with
these borrowings due to 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.
Nevada Gold Mining, Inc.
------------------------
At September 30, 1994, a subsidiary of the Company had outstanding
borrowings of 4,000 ounces of gold, which were sold for $1.6 million and
are scheduled to be repaid in March 1995.
Refugio Financing
-----------------
In August 1994, Compania Minera Maricunga ("CMM"), a 50% owned
subsidiary of the Company, received a commitment from a group of five banks
to provide $85 million in financing for the Refugio project in Chile. The
loan is expected to be a five year amortizing term loan that can be drawn
in U.S. dollars and/or gold. The Company and the other 50% owner will be
guarantors on a several basis until after completion tests are passed, at
which time the loan would become non-recourse to the Company. Interest
will be calculated at LIBOR for a U.S. dollar loan or at the bank's gold
base rate for a gold loan, plus 1.75% during the construction phase or plus
2.5% after production begins. The loan is expected to close in November
1994.
(5) HEDGE CONTRACTS
---------------
The Company uses forward sales and option contracts to hedge against
low gold market prices for future gold production which assures a minimum
cash flow for operations
9
while maintaining benefits in the event of higher gold market prices. As
of September 30, 1994, the Company's outstanding precious metal hedge
contracts were as follows:
AVERAGE
GOLD PRICE
OUNCES PER OUNCE PERIOD
------- --------- -----------------------------
Forward sales contracts/(1)/ 241,400 $423 October 1994 - January 1995
Option contracts:
Purchased put options 387,200 $390 October 1994 - October 1999
Sold put options 28,500 $362 December 1994 - November 1995
Purchased call options 125,000 $422 December 1994 - March 1995
Sold call options 354,600 $452 October 1994 - December 1995
/(1)/ Represents the net forward sales position 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 September 30, 1994 was approximately $6.0 million and
$2.5 million, respectively. Future market valuations for these contracts
are dependent on gold market prices, option volatility and interest rates,
which can vary significantly.
At September 30, 1994, the Company had interest rate swap agreements
with a total principal amount of $20 million, as follows:
FIXED
BORROWINGS INTEREST RATE PERIOD
---------- -------------- ----------------------------
$10 million 6.54% October 1994 - November 1994
$10 million 4.40% October 1994 - January 1995
As of September 30, 1994, the Company would be required to pay less
than $0.1 million to terminate the agreements, given current market
interest rates. The Company may be exposed to nonperformance by the other
parties to such agreements, thereby subjecting the Company to higher
current interest rates on a portion of its financings. The Company does not
anticipate nonperformance by the counterparties, which are commercial
banks.
10
(6) CONTINGENCIES
-------------
The Company's mining and exploration activities are subject to various
federal, state, local 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 public health and the environment. The Company
has made, and expects to make in the future, significant expenditures to
comply with such laws and regulations.
11
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- - --------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
==============================================================================================================
GUANACO MINE:
Ounces of gold produced/(1)/ 10,676 8,594 41,561 18,158
Average cost per ounce produced:
Cash production cost/(2)/ $ 624 $ 733 $ 477 $ 661
Depreciation and depletion 149 147 146 145
- - --------------------------------------------------------------------------------------------------------------
Total production cost $ 773 $ 880 $ 623 $ 806
- - --------------------------------------------------------------------------------------------------------------
HAYDEN HILL MINE:
Ounces of gold produced 17,714 13,566 51,064 40,718
Average cost per ounce produced:
Cash production cost/(2)/ $ 335 $ 343 $ 353 $ 485
Depreciation and depletion 105 111 105 162
- - --------------------------------------------------------------------------------------------------------------
Total production cost $ 440 $ 454 $ 458 $ 647
- - --------------------------------------------------------------------------------------------------------------
SLEEPER MINE:
Ounces of gold produced 24,161 22,677 82,562 71,578
Average cost per ounce produced:
Cash production cost/(2)/ $ 298 $ 359 $ 259 $ 332
Depreciation and depletion 92 127 92 132
- - --------------------------------------------------------------------------------------------------------------
Total production cost $ 390 $ 486 $ 351 $ 464
- - --------------------------------------------------------------------------------------------------------------
WIND MOUNTAIN MINE:
Ounces of gold produced 2,549 4,539 9,140 16,140
Average cost per ounce produced:
Cash production cost/(2)/ $ 152 $ 185 $ 157 $ 162
Depreciation and depletion - - - -
- - --------------------------------------------------------------------------------------------------------------
Total production cost $ 152 $ 185 $ 157 $ 162
- - --------------------------------------------------------------------------------------------------------------
WAIHI MINE:
Ounces of gold produced/(3)/ - - - 8,666
Average cost per ounce produced:
Cash production cost/(2)/ $ - $ - $ - $ 233
Depreciation and depletion - - - 49
- - --------------------------------------------------------------------------------------------------------------
Total production cost $ - $ - $ - $ 282
- - --------------------------------------------------------------------------------------------------------------
TOTAL:
Ounces of gold produced 55,100 49,376 184,327 155,260
Ounces of gold sold 59,289 52,456 188,039 158,501
Average price per ounce sold $ 400 $ 393 $ 401 $ 391
Average cost per ounce produced:/(4)/
Cash production cost/(2)/ $ 366 $ 403 $ 329 $ 388
Depreciation and depletion 103 114 104 123
- - --------------------------------------------------------------------------------------------------------------
Total production cost $ 469 $ 517 $ 433 $ 511
==============================================================================================================
(1) Production commenced at the Guanaco Mine in April 1993.
(2) 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.
(3) Represents the Company's 33.53% share through April 30, 1993.
(4) Average costs weighted by ounces of gold produced at each mine.
12
THIRD QUARTER AND FIRST NINE MONTHS OF 1994 COMPARED WITH THIRD QUARTER AND
---------------------------------------------------------------------------
FIRST NINE MONTHS OF 1993
-------------------------
During the third quarter of 1994, the Company recognized a net loss of
$7.6 million on revenues of $23.7 million compared to a net loss of $7.4
million on revenues of $20.6 million for the third quarter of 1993. For the
first nine months of 1994, the Company recognized a net loss of $16.6
million on revenues of $75.4 million compared to a net loss of $77.7
million on revenues of $62.1 million for the first nine months of 1993. The
first nine 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
nine 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 first nine months of 1993 was $23.0
million. This reduction in net loss for the first nine months of 1994 was
primarily the result of significantly 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, which
were partially offset by lower tax benefits. The loss for the third quarter
of 1994 was essentially the same as the 1993 quarter, as higher production
and sales volumes were more than offset by lower deferred tax benefits.
Revenues for the third quarter and first nine months of 1994 increased
by 15% and 21%, respectively, from the same periods in the prior year. This
increase was due to significantly higher production and sales volumes and a
slightly higher average realized selling price. The increased production
and sales volumes were primarily attributable to higher 1994 production
from the Guanaco, Hayden Hill and Sleeper mines which more than offset the
elimination of production from the Waihi Mine and declining residual heap
leach production from the Wind Mountain Mine.
13
The Company realized an average selling price of $400 and $401 per
gold ounce in the third quarter and first nine months of 1994,
respectively, compared to $393 and $391 per gold ounce for the same periods
in 1993. Average realized prices include hedging benefits from closing
forward sales contracts and gold options at prices above market. The
average COMEX gold price for the first nine months of 1994 was $384 per
ounce compared to $355 per ounce for the first nine months of 1993.
Production from the Guanaco Mine during the third quarter and first
nine months of 1994 increased by 2,082 ounces and 23,403 ounces,
respectively, over the same periods in 1993. The Guanaco Mine, which
commenced production in April 1993, has not yet achieved the optimum level
of production due to an insufficient supply of water to process ore on the
heap leach pads at design capacity. In October, the Company completed
development of water supplies which are expected to be sufficient to
achieve design throughput commencing during the first quarter of 1995. In
part to offset the high costs experienced during the first 18 months of
production, the Company is seeking to optimize the mine plan, which
includes evaluation of various mine plan and cost reduction alternatives.
Subsequent to a major re-evaluation resulting in a $64.1 million pre-
tax write-down in July 1993, the Hayden Hill mine was reconfigured for heap
leach operation only, with the mill being maintained on a standby status
for possible intermittent operation if higher grade ore was encountered or
possible use at one of the Company's development properties. To date
sufficient high grade ore has not been encountered and the Company is
evaluating the sale of the Haile development property in South Carolina.
Therefore, the Company may seek to sell the mill rather than use it in the
Company's own operations. Operating performance at the Hayden Hill Mine
since the reconfiguration has improved, as indicated by the production
increase in 1994 of 4,138 ounces and 10,346 ounces for the third quarter
and first nine months, respectively, and the reduction in cash operating
expenses of $8 per ounce and $132 per ounce for the same periods.
14
Production from the Sleeper Mine during the third quarter and first
nine months of 1994 increased by 1,484 ounces and 10,984 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 nine months of 1994 was 0.111 gold
ounce per ton compared to 0.070 gold ounce per ton for the first nine
months of 1993. Total tons mined for the first nine months of 1994 also
increased to approximately 14.4 million tons from approximately 13.8
million tons in the comparable period of 1993.
Gold production and consolidated cash costs for the quarter ended
September 30, 1994 were 55,100 ounces at $366 per ounce compared to gold
production of 72,624 ounces and consolidated cash costs of $279 for the
quarter ended June 30, 1994. The primary reasons for the reduction in gold
production and increase in consolidated cash costs were the expected lower
mill head grade at Sleeper for the second half of 1994 and insufficient
water supplies and related operating inefficiencies at Guanaco. Higher
production at Hayden Hill during the second quarter of 1994 reflected
achieving design heap leach capacity in the first quarter of 1994 and the
expected increase in recovery rates following the winter.
Total costs applicable to sales increased slightly in the third
quarter and first nine months of 1994, as compared to the 1993 periods, as
production and sales volumes were increased at a significantly lower cash
production cost per ounce. Consolidated unit cash production costs
decreased to $366 per ounce in the 1994 third quarter from $403 per ounce
in the 1993 third quarter, and to $329 per ounce in the first nine months
of 1994 from $388 per ounce in the first nine months of 1993. These
improvements were primarily the result of increased production from the
Guanaco, Hayden Hill and Sleeper 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 reduction in lower cost production from the Waihi and Wind Mountain
mines.
15
Unit depreciation and depletion costs for the third quarter and first
nine months of 1994 declined by $11 per gold ounce and $19 per gold ounce,
respectively, compared to the same periods in 1993. The lower 1994
depreciation rate was the result of the write-downs of the Hayden Hill
investment in the second quarter of 1993 and the Sleeper investment in the
fourth quarter of 1993.
Selling, general and administrative expenses declined to $1.6 million
and $4.9 million in the third quarter and first nine months, respectively,
of 1994 from $2.2 and $6.4 million in the third quarter and first nine
months, respectively, of 1993. On a per gold ounce basis, selling, general
and administrative expenses were $26 per gold ounce produced in the first
nine months of 1994 compared to $41 per gold ounce produced in the first
nine months of 1993. The decrease was the result of management changes,
staff reductions and lower headquarter office costs.
Interest expense for the third quarter and first nine months of 1994
was higher than the interest expense for the third quarter and first nine
months of 1993 primarily as a result of increased borrowings to fund the
Company's operating and development activities and lower interest
capitalization in 1994, somewhat offset by a lower average interest rate
due to refinancing the Guanaco short-term bridge loans in March 1994.
Interest income for the third quarter and first nine months of 1994
was higher than the corresponding periods in 1993 due to higher cash
balances in 1994 as a result of the sale of Preferred Stock in August 1994
and higher cash flows from operations.
Income tax benefits for 1994 are lower than the benefits provided in
1993 due to a reduction in domestic losses in 1994 compared to 1993.
Deferred tax benefits are not being provided for foreign losses.
16
The first nine 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.
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LIQUIDITY AND FINANCIAL POSITION
For the first nine months of 1994, the Company had operating cash flow
of $3.5 million compared to an operating cash outflow of $16.9 million for
the first nine months of 1993, primarily due to the improved performance of
the Hayden Hill and Sleeper 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 $13.2 million capital and investment cash outlay for the first
nine months of 1994 represented $8.5 million of sustaining capital at the
Hayden Hill, Guanaco and Sleeper mines, $2.6 million of Fort Knox
development costs, $0.9 million of Haile development costs and $1.2 million
of Refugio investment costs. Capital expenditures for the remainder of 1994
are estimated to be approximately $28 million, of which $21 million relates
to equity funding of construction of the Refugio project. The Company will
also advance $10.0 million to the other 50% owner of the Refugio project.
In July 1994, a shelf registration statement was declared effective
allowing the Company to offer an aggregate of up to $200 million of equity
and/or subordinated debt securities. In August 1994, the Company utilized
the shelf registration to sell publicly 1,840,000 shares of $3.75 Series B
Convertible Preferred Stock for net proceeds of $88.3 million. A portion of
the proceeds from this sale were used to repay debt. Net cash flow from
financing activities was $69.6 million for the nine months ended September
30, 1994.
With the remaining cash from the Preferred Stock sale, the flexibility
to offer additional equity and/or subordinated debt securities under the
shelf registration statement, together with the support of Cyprus Amax
under the $100 million line of credit, the Company expects to be able to
sustain its current operations and satisfy its 1994 capital and existing
debt service requirements. Financing for the Refugio project is nearly
complete. Additional financing will be required to complete development of
the Fort Knox project.
18
Total construction and development costs to bring the Refugio project
into production are estimated at 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 $23.9 million of capitalized acquisition and
development costs as of September 30, 1994. Fixed price construction and
contract mining agreements for the project are in process. Additional
Company funding for the project that would not be covered by the project
financing is expected to come from a portion of the remaining cash from the
sale of the Preferred Stock. Development of the Refugio project began in
October 1994 and is expected to accelerate when 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 $185 million of
capitalized acquisition and development costs as of September 30, 1994. The
Company is performing detailed engineering for the project, upgrading the
access road to the project site and beginning initial site preparation.
Final air permits for the project will not be issued until engineering
studies can be completed. Timing of construction is dependent on securing
financing on acceptable terms and receiving the approval of the Company's
Board of Directors.
Despite the improvements in operating results in 1994 compared to 1993
and numerous efforts to increase production and reduce costs, the Company
expects to continue to realize net losses in the fourth quarter of 1994
unless there is a substantial increase in the market price of gold.
The Company is in a position to realize a 1994 average selling price
in the range of $400 to $405 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
19
sales price for fiscal 1994 and 1995 of at least $400 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.
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PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
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See Part II - Item 1. "Legal Proceedings" in Form 10-Q for the
quarter ended June 30, 1994.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(A) A special meeting of shareholders was held July 26, 1994.
(B) Not applicable.
(C) Two agreements were submitted for approval, which were passed
by a vote of 63,227,917 shares in favor (disregarding the
shares held by Cyprus Amax, 33,949,373 shares in favor) and
1,878,019 shares against. There were 166,146 shares
abstaining.
(1) A $100 million double convertible revolving line of
credit agreement dated April 15, 1994, between the
Company and Cyprus Amax.
(2) A stock purchase agreement dated April 15, 1994,
providing for the purchase by Cyprus Amax of three
million shares of the Company's stock, the proceeds of
which were used to repay $20.7 million in indebtedness
to Cyprus Amax.
(D) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS
Exhibit Number Exhibit
-------------- -------
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
(1) Dated July 26, 1994, reporting stockholder approval of
the $100 million double convertible line of credit to
the Company by Cyprus Amax and the three million share
common stock purchase agreement between the Company and
Cyprus Amax.
(2) Dated August 2, 1994, reporting the commitments received
from a group of international banks for a project loan
of approximately $80 million for construction of the
Refugio Project in central Chile.
21
(3) Dated August 4, 1994, filing exhibits in connection with
the Company's Registration Statement on Form S-3 filed
on June 3, 1994, as amended on July 19, 1994.
22
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/ David L. Mueller
---------------------------------------
David L. Mueller
Vice President and Controller (principal
accounting officer)
Dated: November 11, 1994
23