[CONFORMED]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK
ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-9620
LOGO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1199974
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
9100 EAST MINERAL CIRCLE 80112
ENGLEWOOD, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(303)643-5500
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $0.01 PAR VALUE (78,196,647 NEW YORK STOCK EXCHANGE, INC.
SHARES OUTSTANDING AT 3/17/94) THE TORONTO STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK AMERICAN STOCK EXCHANGE
(4,066,649 OUTSTANDING AT 3/17/94) THE TORONTO STOCK EXCHANGE
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES^^X^ NO^^^
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS REPORT OR ANY
AMENDMENTS TO THIS REPORT. ^^^
AS OF MARCH 17, 1994, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON
STOCK HELD BY NON-AFFILIATES (USING NEW YORK STOCK EXCHANGE CLOSING PRICES) WAS
APPROXIMATELY $339,901,315.
PORTIONS OF THE FOLLOWING DOCUMENT ARE INCORPORATED BY REFERENCE INTO THIS
REPORT: REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 5, 1994 (PART III).
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PART I
Definitions. As used herein, the term "reserves" means those estimated
quantities of a mineral deposit that, under presently anticipated conditions,
may be economically and legally mined and sold or processed for the extraction
of their constituent values. "Proven reserves" means reserves for which
quantity is computed from dimensions revealed in outcrops, trenches, workings
or drill holes, grade and/or quality are computed from the results of detailed
sampling and the sites for inspection, sampling and measurement are spaced so
closely and the geologic character is so well defined that size, shape, depth
and mineral content of reserves are well-established. "Probable reserves" means
reserves for which quantity and grade and/or quality are computed from
information similar to that used for proven reserves, but the sites for
inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced; the degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
"Proven/probable reserves" means reserves as to which the difference in degree
of assurance between the two classes of reserves cannot be readily defined. The
Company's proven/probable reserves are calculated through the use of mapping,
drilling, sampling, assaying and other standard evaluation methods. Unless
otherwise indicated, all ore reserves herein are given as of December 31, 1993.
Except as otherwise noted, stated tonnages and grades of ore reserves include
allowances for waste dilution but do not include allowances for losses in the
recovery process. References to "tons" and "ounces" are to short tons of 2,000
pounds avoirdupois and to troy ounces of 1.097 ounces avoirdupois,
respectively. References to "dollars", "US$", and "$" are to United States
dollars.
ITEM 1. BUSINESS.
INTRODUCTION
Amax Gold Inc. (the "Company," "Amax Gold" or "AGI" which terms include
subsidiaries, where indicated by the context) is a Delaware corporation engaged
in the mining and processing of gold and silver ore and in the exploration for,
and acquisition and development of, gold-bearing properties, principally in
North and South America. The Company's share of production from its operating
properties totaled 210,880 ounces during 1993. The Company's operating
properties consist of a 100% interest in the Sleeper mine in Humboldt County,
Nevada; a 100% interest in the Hayden Hill mine in Lassen County, California;
an indirect 90% interest in the Guanaco mine in Chile and a 100% interest in
the Wind Mountain mine in Washoe County, Nevada. The Company also retains a
nominal interest in the Waihi mine in New Zealand. In addition, the Company
owns a 100% interest in the Fort Knox gold project near Fairbanks, Alaska; an
indirect 50% interest in the Refugio gold project in Chile; and a 62.5% joint
venture interest in the Haile gold project in Lancaster County, South Carolina.
See map on page 2. The Company's share of reserves as of December 31, 1993 in
all its properties totaled approximately 7.4 million contained ounces of gold.
History of the Company. The Company was incorporated as a wholly-owned
subsidiary of AMAX Inc. ("Amax"), a New York corporation, in April 1987 to
acquire the gold interests of Amax in the United States, Canada and the North
Island of New Zealand. Amax sold approximately 13% of the then outstanding
shares of common stock of the Company in the Company's initial public offering
in July 1987. During 1992, the Company issued approximately 13.2 million shares
of its common stock and approximately 4 million warrants ("Warrants") to
purchase common stock in connection with the acquisition of the Fort Knox
project and issued another one million shares of common stock in connection
with acquisition of the Haile project. On January 14, 1993, the Company issued
3.15 million shares of unregistered common stock to the shareholders of a
privately held Chilean company to acquire an indirect 50% interest in the
Refugio project in central Chile.
On November 15, 1993, Amax was merged with and into Cyprus Minerals Company
(the "Cyprus Amax Merger"), which was renamed Cyprus Amax Minerals Company
("Cyprus Amax"). Immediately prior to the Cyprus Amax Merger, Amax, which at
that time held approximately 68% of the Amax Gold outstanding
1
[STRIP ART HERE]
2
common stock, distributed approximately 21.8 million shares (approximately 28%)
of the common stock (together with all of the outstanding shares of common
stock of Alumax Inc., a Delaware corporation that
controlled Amax's aluminum business) in a distribution to its shareholders. As
a result of the above stock distribution and the Cyprus Amax Merger, Cyprus
Amax acquired approximately 31.3 million shares of Amax Gold common stock,
which constitutes approximately 40% of the outstanding common shares of the
Company. Cyprus Amax has committed to purchase and the Company has agreed to
issue and sell an additional 3,000,000 shares of Amax Gold common stock at
$6.888 per share, with the proceeds of the sale to be used to retire
indebtedness owed by Amax Gold to Cyprus Amax. See "BUSINESS--AGREEMENTS WITH
CYPRUS AMAX--Stock Purchase Agreement." As a result of this share purchase,
Cyprus Amax's ownership of Amax Gold common stock will increase to
approximately 42%. This percentage ownership would increase to slightly under
50% upon conversion of all of the Cyprus-Amax $100 million line of credit to
Amax Gold common stock. See "BUSINESS--AGREEMENTS WITH CYPRUS AMAX--Line of
Credit" and NOTE 8 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under ITEM 8
of PART II herein. Cyprus Amax's nearly 50% ownership share would be reduced to
approximately 48% if all of the Warrants issued in connection with the Fort
Knox acquisition are exercised. This percentage would be further reduced to 45%
if the Put and Call Agreement between Cyprus Amax and the Company is fully
exercised by either party. See "BUSINESS--AGREEMENTS WITH CYPRUS AMAX--Put and
Call Agreement." The Company's common stock is listed on the New York Stock
Exchange (AU) and the Toronto Stock Exchange (AXG) and the Warrants are listed
on the American Stock Exchange (AUWS) and the Toronto Stock Exchange (AXGWT).
The Gold Industry. Gold has two principal uses: product fabrication and
bullion investment. Fabricated gold has a wide variety of end uses, including
jewelry manufacture (the largest fabrication component), electronics,
dentistry, industrial and decorative uses, medals, medallions and official
coins. The Company sells all of its refined gold to banks and other bullion
dealers, utilizing a variety of hedging techniques. Substantially all of the
Company's 1993 sales were export sales made in Europe by the Company's wholly-
owned subsidiary, Amax Precious Metals, Inc. ("APMI"). See "BUSINESS--REFINING,
SALES AND HEDGING ACTIVITIES" and NOTES 9 and 10 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS under ITEM 8 of PART II herein.
Gold Prices. The profitability of the Company's operations is significantly
affected by the market price of gold. The price of gold has fluctuated widely,
and is affected by numerous factors, including international economic trends,
currency exchange fluctuations, expectations for inflation, consumption
patterns (such as purchases of gold jewelry and the development of gold coin
programs), sales of gold bullion holdings by central bank or other large gold
bullion holders or dealers and political events in the Middle East and major
gold-producing countries such as South Africa and the CIS. Gold prices are also
affected by worldwide production levels, which have increased in recent years.
In addition, the price of gold has on occasion been subject to rapid short-term
changes because of market speculation. The following table sets forth for the
years indicated the high and low selling prices of gold, first position, as
provided by the Commodity Exchange, Inc. ("COMEX") in New York.
YEAR HIGH LOW
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(DOLLARS PER OUNCE)
1983........................................................ 510.10 372.60
1984........................................................ 404.60 307.30
1985........................................................ 340.70 282.00
1986........................................................ 441.10 327.00
1987........................................................ 497.10 392.10
1988........................................................ 487.00 394.00
1989........................................................ 418.90 358.10
1990........................................................ 422.40 346.80
1991........................................................ 403.20 344.30
1992........................................................ 359.30 329.70
1993........................................................ 407.00 326.30
3
SLEEPER MINE
The Sleeper mine, located in Humboldt County, Nevada, approximately 28 air
miles north of Winnemucca, is 100% owned by the Company, through its wholly-
owned subsidiary, Nevada Gold Mining, Inc. ("Nevada Gold"). The Company's land
holdings, which consist of unpatented mining claims, encompass approximately
8.25 square miles. The number of unpatented mining claims maintained by the
Company was substantially reduced in 1993. Current facilities occupy
approximately 2,000 acres of land. Access to the mine is by way of a six-mile
gravel road that connects to a county and state highway. Power is provided by
the local rural electric association. Water for mining and processing
operations at Sleeper is provided by a well system that dewaters the pits, and
potable water is supplied by truck. As it is currently operated, the mine is
free of royalty burden.
The property was discovered by an Amax geologist in 1982. Development of the
mine started in July 1985 and was completed in March 1986. From inception
through December 31, 1993, 1,454,726 ounces of gold have been produced at the
Sleeper mine. The following table presents operating data for the Sleeper mine
for the periods indicated:
YEARS ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
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Tons mined(1)............... 18,608,500 18,466,900 16,247,200
Tons of ore milled.......... 899,791 896,788 623,302
Average mill-head grade (oz.
per ton)................... 0.078 0.106 0.219
Mill recovery (%)(2)........ 72.70 82.6 88.5
Tons of ore to heap leach... 6,327,600 8,610,600 8,305,700
Average grade to heap leach
(oz. per ton).............. 0.019 0.020 0.024
Ounces of gold produced(3)
Mill...................... 51,257 82,962 120,906
Heap leach(4)............. 48,761 61,611 62,440
---------- ---------- ----------
Total................... 100,018 144,573 183,346
========== ========== ==========
Ounces of silver
produced(3)................ 254,692 257,797 289,463
Cost per ounce of gold
produced
Cash production costs(5).. $ 317 $ 223 $ 188
Depreciation and
depletion(6)............. 132 99 71
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Total production costs.. $ 449 $ 322 $ 259
========== ========== ==========
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(1) Includes stripping.
(2) Mill recovery for any period is defined as the gold contained in the ore
processed compared to the gold produced in the form of dore bullion plus
(or minus) any increase (or decrease) in plant inventory. Plant inventory
is the amount of gold that is (i) present as adsorbed gold on activated
carbon or (ii) present in the refinery as electrowon gold and gravity
concentrates before being smelted into dore bullion.
(3) Production for any period is defined as gold or silver, as the case may be,
produced in the form of dore bullion plus, effective January 1, 1992, plant
inventory that is present in the mill carbon circuit. Gold and silver
production for 1992 reflects an additional 4,733 gold ounces and 9,282
silver ounces due to the cumulative effect of a change in accounting to
include production in the mill carbon circuit.
(4) Based on production experience, the Company estimates that processing of
ore by heap leaching will result in ultimate gold recovery of approximately
50% for crushed ore and 22% for run-of-mine (uncrushed) ore.
(5) Cash production costs include all operating costs at the mine site,
including overhead and Nevada net proceeds tax, before depreciation and
depletion, and net of credits for silver by-products.
(6)Depreciation is calculated primarily using the unit of production method.
Production experience and a reinterpretation of geologic and metallurgical
data at the Sleeper mine during the fourth quarter of 1993 led to a reduction
of the proven/probable ore reserves. As a result, Amax Gold recognized a $23.6
million pre-tax ($15.6 million after-tax) write-down of the Sleeper asset as of
4
December 31, 1993. See NOTE 7 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under ITEM 8 of PART II herein. A large portion of the remaining Sleeper ore
reserve contains high clay content material which is expected to have adverse
impacts on operating costs and recoveries.
The Company's proven/probable reserves at the Sleeper mine have been
confirmed by Derry, Michener, Booth & Wahl, Inc. ("DMBW"), independent
geological consultants, in a report dated February 7, 1994. Reserves for the
Sleeper mine are based upon a $400 per ounce gold price and variable cut-off
grades. Reserves represent in-place diluted grades and do not reflect losses in
the recovery process. No royalties are payable with respect to any of the
reserves presently identified.
SLEEPER MINE
PROVEN/PROBABLE ORE RESERVES
CONFIRMED BY DMBW
AS OF DECEMBER 31, 1993
GOLD GOLD
TONS AVG. GRADE CONTENT
(000) (OZ./TON) (000 OZ.)
----- ---------- ---------
Mill Ore....................................... 1,331 0.115 153
Heap Leach Ore................................. 5,358 0.018 97
----- ----- ---
Total...................................... 6,689 0.037 250
===== ===== ===
The net reduction of the Sleeper reserves from year-end 1992 to year-end 1993
is 500,400 contained ounces. Production accounts for 204,400 contained ounces,
with the balance of the reduction due to a variety of factors, including the
removal of suspected downhole contamination from the database, an increased
understanding of the problems associated with high clay and high pyrite
material, new exploration drilling, and new geostatistical parameters for the
reserve model. In comparison to the previous reserve model, the new model has
greater geological constraints and utilizes a dilution correction to more
closely match recent production.
Indications of mineralized material have been identified both beyond the
boundaries of the current pits and at depths below the currently planned pit
limits. The Company has conducted approximately 78,000 linear feet of drilling
to determine the continuity of a portion of the deep vein structure and has
completed a preliminary feasibility study on a more extensive underground
drilling program. There can be no assurance, however, that a further drilling
program will result in additions to the Company's reserves. If no new reserves
are established, the remaining life of the Sleeper mine is estimated at
approximately two years, exclusive of residual leaching after cessation of
mining operations.
The Company's total capital spending at the Sleeper mine for 1993 was $3.3
million, compared with $7.6 million for 1992. In 1994, total capital spending
is expected to be approximately $2 million, primarily for additions to the
dewatering system, tailings dam construction, and development drilling.
The Company has filed an application for a patent on certain of the
unpatented mining claims at the Sleeper mine. See "PROPERTIES--United States".
Certain mining claims, none of which are included in the calculation of the
Company's reserves, are owned by the Company subject to a royalty deed
providing for payment of a 3% royalty on net returns in the event of mining
from the claims. In January 1994, the Company made the final payment under a
promissory note and deed of trust previously encumbering these claims.
Nevada Gold has a gold bullion loan agreement under which 4,000 ounces of
gold ($1.6 million) were outstanding as of December 31, 1993. The Company has
verbally agreed to repay this loan in February 1995, but it may be prepaid at
any time. Collateral consists of a pledge of all of Nevada Gold's capital stock
and a mortgage of all of its assets (principally the Sleeper mine). See NOTE 8
of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under ITEM 8 of PART II herein.
HAYDEN HILL MINE
The Company owns 100% of the Hayden Hill gold mine in Lassen County,
California. Hayden Hill is approximately 120 air miles north-northwest of Reno,
Nevada, and 58 miles northwest of Susanville, California. Access to the mine is
by way of a four-mile gravel road that connects to a state highway. The
5
Company controls approximately 6,300 acres through ownership of federal
patented and unpatented mining claims and fee lands and a lease of federal
unpatented mining claims, which has an indefinite term. The leased property is
subject to a gross receipts, net smelter return royalty ranging from 2% to 5%.
Approximately 75% of the current reserves are subject to this royalty. Five of
the patented mining claims, which are included in the calculation of ore
reserves, are owned by the Company subject to a promissory note and deed of
trust to a third party. The principal balance due on the note as of December
31, 1993 totalled $220,000, which is scheduled to be paid by December 31, 1995.
The Hayden Hill mine is an open-pit operation based on two pits, the Lookout
Zone and the Providence Zone, separated by approximately 1,000 feet. Power for
operations is provided by the local rural electric association. Water for
mining and processing operations is provided by two wells located in close
proximity to the mine. Potable water is supplied by truck. The mine, which
began production in mid-June 1992, was designed as a combined mill and heap
leach operation. It experienced unacceptably high unit operating costs and
reduced production as a result of lower than expected ore grade. Mining
experience indicated that mill grade ore occurred in thinner, less continuous
structures than originally interpreted by the statistical reserve analysis. A
major reevaluation of the operation was completed in July 1993. Given the
geologic complexity of the deposit as determined from mining experience and a
revised interpretation of geologic data, the proven/probable reserves were
restated to exclude a significant portion of the deposit, eliminating the
original differentiation between mill ore and heap leach ore. During the last
half of 1993, the mine was reconfigured to operate as a heap leach operation
only, with the mill being maintained on a standby status. The mill may be run
intermittently if sufficient higher grade ore is encountered.
The following table presents operating data for the Hayden Hill mine for the
periods indicated:
YEAR ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
Tons mined(1)................................... 11,262,609 12,104,800
Tons of ore milled.............................. 423,884 563,248
Average mill-head grade (oz. per ton)........... 0.032 0.036
Mill recovery (%)............................... 90.7 88.7
Tons of ore to help leach(2).................... 4,993,742 2,619,993
Average grade to heap leach (oz. per ton)....... 0.017 0.017
Ounces of gold produced:
Mill.......................................... 11,570 17,191
Heap leach.................................... 41,468 11,624
---------- ----------
Total....................................... 53,038 28,815
========== ==========
Ounces of silver produced....................... 144,438 79,696
Cost per ounce of gold produced:
Cash production costs(3)...................... $ 470 $ 432
Depreciation and depletion.................... 149 152
---------- ----------
Total production costs...................... $ 619 $ 584
========== ==========
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(1) Includes stripping.
(2) The Company estimates that processing of ore by heap leaching will result
in ultimate gold recovery of approximately 60% to 65%.
(3) Cash production costs include all operating costs at the mine site,
including overhead and royalty, before depreciation and depletion, and net
of credits for silver by-products.
The 1993 year-end reserves stated below represent a reduction of 517,000
contained ounces of gold from the year-end 1992 reserve figures. The large
decrease in reserves resulted from elimination of questionable gold assays from
the database, more severe dilution corrections, restriction of range of
influence of high grade gold assays, revised costs related to metallurgical
recovery factors, and 1993 production. Production in 1993 accounts for 108,400
contained ounces, with the balance of the reduction due to reserve restatement.
The
6
mineralization excluded from the proven/probable reserves as a result of the
mid-year reevaluation was reclassified as a geologic resource until such time,
if ever, that additional data from drilling and further mining establish
otherwise. The Company recognized a $64.1 million pre-tax ($41.9 million after-
tax) write-down of the asset as of June 30, 1993. See NOTE 7 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS under ITEM 8 of PART II herein.
The following table sets forth the proven/probable reserves at the Hayden
Hill mine. Reserves are based upon an assumed gold price of $400 per ounce and
a variable cut-off grade. Reserves represent in-place diluted grades and do not
reflect losses in the recovery process.
HAYDEN HILL MINE
PROVEN/PROBABLE ORE RESERVES
AS OF DECEMBER 31, 1993
GOLD GOLD
TONS AVG. GRADE CONTENT
(000) (OZ./TON) (000 OZ.)
------ ---------- ---------
Heap Leach Ore................................ 18,800 0.024 451
Construction of the mine was financed in part through a syndicated multi-
option financing facility under which Lassen Gold Mining, Inc. ("Lassen Gold"),
the Company's wholly-owned subsidiary that owns the mine, borrowed $67.5
million, solely for the construction and development of the Hayden Hill mine.
At December 31, 1993, $51.9 million remained outstanding under this loan
agreement. Collateral consists of a mortgage on all of the Hayden Hill mine
assets, a pledge of the Lassen Gold stock and a guarantee by the Company. See
NOTE 8 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under ITEM 8 of PART II
herein. Capital spending for Hayden Hill during 1993 was $3 million compared
with $45.8 million in 1992. Capital expenditures in 1994 are expected to be
approximately $7 million, primarily for heap leach pad expansion, overburden
stripping, crusher modifications, and development drilling.
Lassen Gold received a letter from the California Regional Water Quality
Control Board (the "Board") in January 1993, advising that certain violations
of waste discharge requirements were occurring at the Hayden Hill mine
pertaining to the tailings pond, process pond and heap leach pad. The alleged
violation regarding the tailings pond has since been corrected and the tailings
pond is no longer in use since shutdown of the mill. The Company has submitted
two reports to the Board and has continued to work with the Board in addressing
the remaining issues, which pertain to the flow rate between the two synthetic
liners underlying the heap leach pad and process pond. The Board has the
authority under the waste discharge requirements to require remediation and/or
repair or cessation of leaching operations in affected cells of the leach pad
and to require surface impoundments to be taken out of service, drained, and
liners repaired. The Company does not currently expect further enforcement
action by the Board. A staff representative of the Board has approved the
design and construction of two new cells of the leach pad and has approved
initial application of cyanide leach solutions on one of the new cells;
however, permit modifications may be required prior to construction of
additional leach pad cells. Lassen Gold has installed cyanide gas detection
wells to monitor for leaks under certain cells of the leach pad system and no
gas was detected during the initial monitoring of these wells. Under the facts
currently known, the Company does not anticipate any material adverse effect on
its financial condition or results of operations from this situation.
GUANACO MINE
The Company owns an indirect 90% interest in the Guanaco mine, which is
located in the Guanaco Mining District approximately 145 miles southeast of
Antofagasta, Chile. The project is held by Compania Minera Amax Guanaco (CMAG),
an indirect 90% owned Chilean subsidiary of the Company, which is also operator
of the project. Access to the project from Antofagasta is provided by the Pan
American Highway (approximately 120 miles south) and a newly constructed gravel
surface road (approximately 25 miles east). Power is supplied by an on-site
power plant. The water supply for mine operations comes primarily from multiple
wells adjacent to the minesite and from nearby surface springs which also
provide potable quality
7
water. The developed water supply, while adequate for current operations, is
insufficient to achieve the optimum level of production. The Company has water
exploration and exploitation rights on an extensive property position adjacent
to the mine, and programs are currently underway to develop additional water
supplies.
The Guanaco property position is comprised of approximately 25,000 acres,
consisting of leased mineral claims owned by ENAMI, an entity of the Chilean
government, and certain other mineral rights. Nearly all of the reserves are
located in the area covered by the ENAMI lease. The surface area is owned by
the Chilean government; however, CMAG has filed applications to purchase
selected areas within the ENAMI lease, including the area covered by the
current open pit design and the areas where the process plant, crusher
facilities and campsite are located. The ENAMI lease has an initial term
expiring in 2006, with provisions for five-year renewals thereafter, at the
Company's option. The lease is subject to various levels of royalties depending
on the level of production of ore, with the royalty on gold ranging from a 7%
gross royalty to a 3% gross royalty plus a 2% net profits royalty; there is a
gross royalty of 2% for all other metals. Negotiations with ENAMI to
restructure this lease are contemplated. In addition to this royalty, an
additional payment in adjustment of the purchase price is required to be paid
in July 1994 to the minority owners of the Guanaco project, based on reserves
in excess of 560,000 gold ounces, if any, including all reserves mined after
acquisition of the property in April 1992 and reserves established as of April
1, 1994. The additional payment is $7.77 per troy ounce for proven/probable
reserves in excess of 560,000 ounces. Based on the year-end 1993 reserves, the
additional payment due would be approximately $1.3 million. An advance of the
1994 additional payment has been made in the form of non-interest bearing
promissory notes in the aggregate amount of $4 million. The Company has taken a
pledge of the remaining 10% interest in CMAG to secure the repayment of amounts
that may not be payable under such notes in 1994. Preliminary discussions are
underway with the minority owners to possibly extend the April 1, 1994 date for
calculation of reserves. The property is also subject to a 1.1% net smelter
return royalty to the minority owners for gold produced in excess of the
additional ounces and for other metals. The promissory notes are secured by a
guarantee from the Company.
After acquiring its interest in Guanaco in April 1992, the Company designed a
new heap leach facility to process up to 2.2 million tons of ore per year. The
design includes three stages of crushing, permanent pad heap leaching and
Merrill Crowe zinc precipitation of gold. Construction commenced in June 1992,
spraying of the heap leach pads began in February 1993 and production was
achieved in April 1993. A three-year mining contract has been entered into with
an experienced mining contractor to drill, blast, load and transport all ore
and waste. The Company is responsible for supplying camp facilities to the
contractor, and the existing camp has been upgraded to service both the mining
contractor and CMAG employees.
The Guanaco mine started up more slowly than expected due to initial problems
with the crusher and the need to improve ore control procedures. Modifications
made to the crushing plant, as well as improved ore control procedures and more
ore under leach, resulted in a 36% increase in production in the fourth quarter
1993 over the prior quarter.
The following table presents operating data for the Guanaco mine for the
period from inception of production in April 1993 through December 31, 1993:
INCEPTION TO
DECEMBER 31, 1993
-----------------
Tons mined.............................................. 9,547,075
Tons of ore to heap leach(1)............................ 1,460,427
Average grade to heap leach (oz. per ton)............... .060
Ounces of gold produced(2).............................. 29,862
Ounces of silver produced............................... 136,687
Cost per ounce of gold produced:
Cash production costs(3).............................. $ 664
Depreciation and depletion............................ 142
----------
Total production costs.............................. $ 806
==========
8
- --------
(1) The Company estimates that processing of ore by heap leaching will result
in ultimate gold recovery of approximately 65% to 70%.
(2) Guanaco had limited production prior to start-up on April 1, 1993. Revenue
and related operating costs prior to April 1 were treated as capitalized
costs and excluded from the above.
(3) Cash production costs include non-mine site administration costs and all
operating costs at the mine site, including overhead and royalty, before
depreciation and depletion, and net of credits for silver by-products.
The Guanaco deposit contains gold mineralization in sub-horizontal mantos and
in steeply dipping vein-like zones within a silicified volcanic host rock. No
attempt has been made to quantify a silver reserve, but the current operation
is recovering about five times as much silver as gold. There are significant
drill intersections of sulfide copper, but these are largely below the gold pit
and the intersections are too widely spaced to quantify a resource. The 1993
year end reserve is based on the 1992 stated reserves less production. The
following table sets forth the proven/probable reserves at the Guanaco mine.
The reserves are based upon an assumed gold price of $375 per ounce and a cut-
off grade of 0.013 ounce of gold per ton. The Company has determined that
calculating the reserves at $400 per ounce would not materially change the
results. Reserves represent in-place diluted grades and do not reflect losses
in the recovery process.
GUANACO MINE
PROVEN/PROBABLE ORE RESERVES
AS OF DECEMBER 31, 1993
GOLD CONTENT
(000 OZ.)
--------------
GOLD AGI
TONS AVG. GRADE 90%
(000) (OZ./TON) TOTAL SHARE
------ ---------- ------ ------
Heap Leach Ore............................. 12,874 0.049 633 570
Total capital costs to acquire and bring the mine into production were
approximately $64 million, including $36.9 million of capitalized acquisition
costs. Capital spending (including capitalized interest and fees) during 1993
was $7.7 million, and capital expenditures in 1994 are expected to be
approximately $3.5 million, primarily for water supply development, mine
definition drilling, camp and facilities upgrade, and crusher modifications.
Institutional financing has been used to fund a portion of the capital costs,
as well as the acquisition price for the property. SEE NOTE 8 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS under ITEM 8 of PART II herein.
WAIHI
The Company retains a nominal 33.53% joint venture interest in the Waihi
gold/silver mine located within the town of Waihi, approximately 80 miles
southeast of Auckland, on the North Island of New Zealand. On June 4, 1993, the
Company completed a transaction with a subsidiary of Poseidon Gold Limited, a
publicly traded Australian company, through which the Company realized all
future economic benefit from its 33.53% joint venture interest, effective April
30, 1993. SEE ITEM 3 "LEGAL PROCEEDINGS" and NOTE 7 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS under ITEM 8 of PART II herein.
9
The following table presents operating data for the Waihi mine for the
periods indicated.
YEARS ENDED DECEMBER 31,
------------------------------
1993(1) 1992 1991
--------- --------- ---------
Tons mined....................................... 1,983,058 4,392,209 3,603,903
Tons or ore milled............................... 290,890 900,950 961,374
Average mill-head grade (oz. per ton)............ 0.097 0.093 0.094
Mill recovery(%)................................. 92.0% 89.9 89.8
Ounces of gold produced.......................... 25,846 76,126 80,240
AGI's share of ounces of gold produced(2)(3)..... 8,666 25,525 25,824
AGI's share of ounces of silver produced(2)(3)... 51,202 126,048 114,548
Cost per ounce of gold produced:
Cash production costs(4)....................... $233 $225 $184
Depreciation and depletion..................... 49 79 67
---- ---- ----
Total production costs....................... $282 $304 $251
==== ==== ====
- --------
(1) Due to the completion of the transaction with Poseidon Gold Limited,
effective April 30, 1993, production and related operating data in the 1993
period represent amounts only through April 30, 1993.
(2) Prior to April 1991 the Company's share was 28.35%. In April 1991 the
Company acquired an additional interest in the Waihi Mine joint venture,
increasing its interest to 33.53%.
(3) Production for 1992 reflects an additional 1,616 gold ounces (Company share
542 ounces) and 10,671 silver ounces (Company share 3,578 ounces) due to
the cumulative effect of a change in accounting to include production in
the mill carbon circuit, effective January 1, 1992.
(4) Cash production costs include all operating costs at the mine site,
including overhead, before depreciation and depletion, and net of credits
for silver by-products.
WIND MOUNTAIN
Mining operations at the Company's 100% owned Wind Mountain mine were
conducted from April 1989 to January 1992. The Wind Mountain mine is located
approximately 75 air miles northeast of Reno and 100 air miles southwest of the
Company's Sleeper mine. Access to the mine is by way of a seven-mile gravel
road connecting to a state highway. The Company's holdings at Wind Mountain
encompass approximately 775 acres of unpatented mining claims, all of which are
leased from third parties under a lease that expires in 1995. The number of
unpatented mining claims maintained by the Company was substantially reduced in
1993. Production is subject to a 5% net smelter return royalty. Mining ceased
at the end of January 1992 due to the depletion of mineral reserves. Since
cessation of mining, residual leaching from the leach pads has continued.
Precious metals precipitates are shipped to the Sleeper mine for processing
into dore. Power for operations at the Wind Mountain mine is provided by the
local public utility. Water for processing operations is provided by two wells
in close proximity to the mine. Potable water is supplied by truck.
The following table presents operating data for the Wind Mountain mine for
the periods indicated.
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------ --------- ----------
Tons mined(1)....................................... -- 1,223,800 14,406,600
Tons to heap leach(2)............................... -- 1,169,200 11,785,200
Average grade (oz. per ton)......................... -- 0.014 0.016
Ounces of gold produced(3).......................... 19,296 54,690 91,063
Ounces of silver produced(3)........................ 86,515 297,403 405,149
Cost per ounce of gold produced:
Cash production costs(4).......................... $167 $114 $210
Depreciation and depletion(5)..................... -- 27 109
---- ---- ----
Total production costs.......................... $167 $141 $319
==== ==== ====
10
- --------
(1) Includes ore mined and waste.
(2) The processing of ore by heap leaching has resulted in a gold recovery rate
of 64% from inception.
(3) Production is in the form of precipitate.
(4) Cash production costs include all operating costs at the mine site,
including overhead and Nevada net proceeds tax, before depreciation and
depletion, and net of credits for silver by-products.
(5) The assets were fully depreciated as of the first quarter of 1992.
The Company intends to continue leaching operations as long as it is
economical to do so. Reclamation of the mine site commenced immediately after
mining ceased. A final reclamation plan has been approved by the federal Bureau
of Land Management. Reclamation work outside the area in which heap leach and
processing operations are continuing is approximately 95% complete. See ITEM 3
"LEGAL PROCEEDINGS."
FORT KNOX PROJECT
The Company owns indirectly a 100% interest in the Fort Knox project. The
Fort Knox project is located in the Fairbanks Mining District, 15 miles
northeast of Fairbanks, Alaska. Access to the property is via a paved highway
21 miles from the City of Fairbanks and then five miles by unpaved two-wheel
drive road. The location of the project near Fairbanks eliminates much of the
infrastructural problems and costs often associated with arctic projects.
The Fort Knox project (including an exploration prospect known as the Teryl
Property) covers approximately 28,000 acres and consists of approximately 1,075
state mining claims and 45 patented federal mining claims. The Fort Knox
property is held by way of deeds, mining leases, option agreements, a joint
venture agreement (affecting only the Teryl Property), and mining locations.
The leases and option agreements have expiration dates ranging from 1995-2014,
with provisions for extension in some cases. A portion of the property is
encumbered by deeds of trust to third parties securing obligations as of
December 31, 1993 of approximately $900,000, all of which are due to be paid by
November 1997. All of the state mining claims are subject to a 3% royalty
(based on net income) payable to the State of Alaska. The 48 state mining
claims on which essentially all of the current reserves are located are free of
royalty burden except for the state royalty. On February 15, 1994, the lands
included in these 48 state mining claims were converted to a state mining lease
embracing approximately 1,148 acres; such conversion will facilitate ongoing
permitting, future property maintenance, and record keeping without increasing
the amount of any required assessment work, rent, or royalty. The other state
mining claims included in the project will continue to be held and maintained
as such for the foreseeable future. Additional net smelter return royalties
ranging from 3% to 6% burden some of these other state mining claims, and both
a 1% net smelter return royalty and a 10% overriding net profits interest
burden a few of the patented federal mining claims.
Simultaneously with the issuance of the state mining lease referred to above,
the State of Alaska issued to the Company's operating subsidiary in Alaska a
millsite permit covering approximately 7,541 acres, comprising the 1,148 acres
within the mining lease and 6,393 adjoining acres (which adjoining acres
already are included in the state mining claims at Fort Knox or in certain
patented mining claims the surface of which was conveyed by the Company to the
State of Alaska immediately prior to the issuance of the millsite permit). This
millsite permit thus covers all of the lands that are expected to be directly
affected by the development of the Fort Knox project. The grant made by the
millsite permit is appurtenant to the state mining lease described above and
was made for the purpose of facilitating the development and operation of the
Fort Knox project. Fair market rent in the amount of $102,000 must be paid
annually to the State of Alaska in order to keep the millsite permit in effect.
The issuance of this millsite permit secures for the project adequate lands on
which to construct all of the facilities necessary to bring a mine into
production on the Fort Knox property.
The Fort Knox gold deposit occurs as porphyry-style mineralization of the
type usually associated with copper and molybdenum ore bodies. The ore is
hosted within the upper margins of a granitic intrusion in a stockwork of small
quartz veins and shear zones. The veins and shears are fractions of an inch to
10 inches
11
wide with an erratic and widely spaced distribution. The gold occurs as fine
grains of free gold disseminated within and along the margins of the veins and
shears. In plan view, the deposit has a dimension of about 4,000 X 2,000 feet,
elongated in an east-west direction and extending to depths of 1,000 feet.
Geology is relatively simple and the rocks are only weakly altered. Grade is
usually related to the degree of fracturing and veining of the rocks. Because
of the low grade and erratic distribution of gold, mining is planned to be done
on a bulk tonnage basis.
The following table sets forth the proven/probable reserves for the Fort Knox
project, which are unchanged from the 1992 year-end reserves. Reserves are
based on a cut-off grade of 0.0112 ounce of gold per ton and a gold price of
$375 per ounce. The Company has determined that calculating the reserves at
$400 per ounce would not materially change the results. Reserves represent in-
place diluted grades and do not reflect losses in the recovery process. The
Company estimates that mill recovery will be approximately 90%.
FORT KNOX PROJECT
PROVEN/PROBABLE ORE RESERVES
AS OF DECEMBER 31, 1993
GOLD
GOLD AVG. CONTENT
TONS GRADE (000
(000) (OZ./TON) OZ.)
------- --------- -------
Mill Ore........................................ 174,483 0.024 4,117
Significant additional mineralization has been encountered both inside and
outside of the design pit; however, no assurance can be given such
mineralization will result in additional reserves.
A basic engineering study for the project has been completed. The study has
defined an open-pit mining operation and a conventional crushing, grinding and
cyanidation plant designed to treat 13 million tons of ore per year (36,000
tons per day). According to the preliminary design, tailings from the operation
would be pumped to a tailings pond located adjacent to the milling facility.
Process water would be supplied from a water reservoir constructed downstream
from the tailing pond. The process facilities are designed as a "zero discharge
system." Power would be supplied by the public utility serving the area over a
newly constructed distribution line, most of which will be paid for by the
Company.
The mine and plant are designed to operate year round and to produce
approximately 300,000 to 350,000 ounces of gold per year with the higher rates
expected during the early years. The engineering studies have considered the
effects that the arctic environment will have on the operation, but no
assurance can be given that such rates of production will be achieved. The
Company is currently reviewing the engineering study with respect to the
optimum mining and processing rate, taking into consideration project economics
and financing.
Initial permit applications were prepared and submitted to the various
regulatory agencies in 1992 and 1993. Most of these applications were submitted
to the State of Alaska, which appointed a project coordinator and an
interagency task force to coordinate all state permitting activities. This
group met throughout 1993, and on February 15, 1994, State agencies granted to
the Company most of the significant state regulatory authorizations (including
the solid waste disposal permit, dam construction permits, fish and game
permits, and reclamation plan approval) needed to go forward with the Fort Knox
project. Those state permits and authorizations not yet received (e.g., plan of
operations approval and air permit) are expected to be applied for and received
in due course, but no assurance can be given that this will occur.
A dredge and fill permit application also has been filed with the U.S. Army
Corps of Engineers under Section 404 of the Clean Water Act. As of March 1994,
the Corps was continuing to evaluate the application under the National
Environmental Policy Act to determine whether an Environmental Impact Statement
("EIS") must be prepared. The Company expects a decision from the Corps on this
issue in the first half of 1994, but no assurance can be given that this will
occur. Based on the current schedule, and assuming that
12
the Corps of Engineers decides that an EIS is not required, the Company expects
all permits necessary to initiate construction to be issued during 1994. No
assurance can be given that this will occur, however. If the Corps of Engineers
decides that an EIS is required, no decision on the Company's dredge and fill
permit will be made by the Corps until such statement is prepared.
During 1994, if the dredge and fill permit is issued, the Company plans to do
detailed engineering for the project, upgrade the access road to the project
site, and complete the necessary permitting to commence construction. Total
capital requirements to construct and develop the property in accordance with
the preliminary design are currently estimated to be between $250 million and
$270 million, in addition to capitalized acquisition and development costs of
approximately $182 million at December 31, 1993. The Company needs to secure
financing to fund a significant portion of the future capital requirements.
Timing of development is dependent on the obtaining of such financing on
acceptable terms, on the obtaining of final permits, and on market conditions
and approval of the Company's Board of Directors. Capital expenditures are
expected to be approximately $12 million in 1994, as compared to approximately
$6.7 million in 1993.
REFUGIO PROJECT
In January 1993 the Company acquired an indirect 50% interest in the Refugio
project, which is located in the Maricunga Mining District in central Chile,
approximately 75 miles due east of Copiapo. The project is situated at between
13,800 feet and 14,800 feet above sea level. The property is held by Compania
Minera Maricunga ("CMM"), a Chilean contractual mining company, which is
indirectly owned 50% by the Company and 50% by Bema Gold Corporation ("Bema"),
a publicly traded company based in Vancouver, British Columbia.
The Refugio property position comprises approximately 14,500 acres,
consisting of mineral rights, surface rights and water rights sufficient to
allow development of the project. The principal ore deposit is held by mining
claims which are owned by CMM. Essentially all of the mineral rights
surrounding the claims are held by a joint venture formed by Bema and the
former owner of the Refugio claims. CMM has agreements in place with this joint
venture that will allow CMM to mine any extensions of major ore deposits found
on CMM property that extend onto surrounding mineral rights and to use the
surrounding areas for project needs.
Surface rights that cover the known mineralization and the proposed
facilities are owned or controlled by CMM under a lease or applications to
purchase from Chilean governmental entities or agreements with Bema and the
former owner of the Refugio claims. Water extraction rights sufficient to
supply the project are controlled by CMM. In addition, exploration concessions
for water in more favorable locations closer to the project are controlled by
Bema and are currently being evaluated.
The Company, through its 50% ownership of CMM, is responsible for payment of
a net smelter return royalty to the former owner of the Refugio property that
is expected to average 2.5% of the Company's share of production from the
currently defined ore reserves. A sliding scale net smelter return royalty
related to net profits and ranging from 2.5 to 5% (Company's share) is payable
on any production in excess of current reserves. No other royalties are payable
on the Company's share of production from the property.
The Refugio project encompasses the Verde, Pancho and Guanaco gold deposits,
which are disseminated gold porphyry deposits containing minor amounts of
copper. Gold mineralization is contained within a strong stockwork system
hosted by silicified intrusive rocks. The Verde deposit contains all the
current reserves and consists of oxide, mixed and unoxidized ore types. The
Refugio property lies at the southern end of the Maricunga Gold District in
central Chile. The Maricunga District is a 90 mile long belt of late volcanic
origin that contains a number of large disseminated gold-silver deposits.
The reserves in the Verde deposit at the Refugio project, which are unchanged
from the 1992 year-end reserves, are set forth in the following table. The
proven/probable reserves are contained in a pit based upon a gold price of $300
per ounce and a variable cut-off grade based on the economics associated with
variable
13
mining and processing costs. The reserves represent in-place diluted grades and
do not reflect losses in the recovery process. The Company expects the ultimate
recovery rate from the heap leaching process to range from 50% to 80% depending
upon the type of ore, with overall recovery estimated to be approximately 66%.
REFUGIO PROJECT
PROVEN/PROBABLE ORE RESERVES IN THE VERDE DEPOSIT
AS OF DECEMBER, 1993
GOLD CONTENT
(000 OZ.)
-------------
GOLD AGI
TONS AVG. GRADE 50%
(000) (OZ./TON) TOTAL SHARE
------- ---------- ------ ------
Heap Leach Ore........................... 104,383 0.030 3,075 1,537
The Verde deposit is open at depth and additional exploration potential exists
in the Guanaco and Pancho deposits.
A definitive feasibility study was completed for Bema in December 1992 for
the Verde deposit. The study was based on a gold price of $375 per troy ounce
and a mineable resource of 3.3 million ounces. This mineable resource contains
7% "mining possible" material within the $300 per ounce proven/probable reserve
pit, which the Company has not included as part of the reportable reserve in
the table above. The Company considers the $300 pit to be conservative, but has
elected for the time being not to have the reserves recalculated. Development
plans call for an open pit, heap leach operation capable of processing 33,000
tons of ore per day (11.9 million tons per year). Ores would be crushed, and
carbon adsorption, stripping and electrowinning would be used to recover gold
from the leach solutions. Electrowon cathodes would be smelted to dore bars for
shipment. Potential production from the Verde deposit is estimated to range
from 200,000 to 250,000 ounces of gold per year of which the Company's share
would be 50%, but no assurance can be given that such estimate will be
achieved. Access to the site from Copiapo would be by way of existing roads
that would be graded, widened and, in part, resurfaced. Power would be supplied
by on-site diesel powered generators.
In addition to the Company's $22.7 million of capitalized acquisition and
exploration costs, construction and development costs to bring the project into
production are estimated to total approximately $120-$140 million, of which
one-half would be the Company's share. The Company and its 50% partner are
attempting to secure financing to fund a significant portion of the required
future capital.
During 1993 the Company and Bema explored financing alternatives, continued
limited engineering studies, made progress with permitting and land issues, and
performed care and maintenance activities. Project development is expected to
take approximately two years from the start of final engineering. Timing of
development is dependent upon economic conditions and obtaining the necessary
financing on acceptable terms.
HAILE PROJECT
The Company owns a 62.5% joint venture interest in the Haile project, a gold
project in Lancaster County, South Carolina. The remaining 37.5% interest is
owned by Piedmont Mining Company, Inc. ("Piedmont"). The Haile project is
located approximately 50 miles north of Columbia, and 4 miles north of the town
of Kershaw. Access to the site is by way of a paved state highway. The Company
and Piedmont, through wholly owned subsidiaries, have formed a joint venture to
conduct further development drilling and prepare a definitive feasibility
study. A separate wholly owned subsidiary of the Company is the manager of the
joint venture.
The Haile project covers approximately 3,700 acres and consists entirely of
fee property, which is either owned by the venture participants, leased from
third parties, or controlled by purchase agreements. The known reserves are
contained partly on property that is jointly owned by the Company and Piedmont
and partly on property that is leased from a third party under a lease expiring
in 1996, with provisions for
14
extension until 2001. The leased property is presently burdened by a 4% net
smelter return royalty; however, the lease and the royalty would be
extinguished upon consummation of the purchase agreement covering the leased
property at such time as all material permits for a new surface gold mine at
the site have been received. All of the property containing the known reserves
is encumbered by a mortgage securing indebtedness of approximately $110,000 as
of December 31, 1993, all of which is a debt obligation of the Company and is
due to be paid in 1994.
The Haile project is located in the Carolina Slate Belt, a northeast-
southwest trending belt of deformed Precambrian to Paleozoic metavolcanic and
metasedimentary rocks that extends from Alabama to Virginia. Numerous historic
gold occurrences are located in the Slate belt. In recent times, four
properties, including Haile, have been developed to the production stage.
Piedmont operated a small-scale gold heap leach operation at the site of the
Haile project prior to the formation of the joint venture in July 1992.
Piedmont suspended active mining activities at the site in August 1991, and
leaching and recovery of gold ended in late 1992. Piedmont has agreed to
indemnify the Company and its affiliates from environmental liabilities arising
from matters occurring or existing on the Haile project property prior to March
15, 1991 (the date of the option agreement under which the Company acquired its
interest in the project).
Ore grade mineralization on the Haile property is generally hosted within
silicified and pyritized fine-grained metasedimentary rocks near the folded and
faulted contact with overlying volcaniclastic and metavolcanic rocks. Current
reserves are contained in four separate deposits. The following table sets
forth the proven/probable reserves at the Haile Project, which are unchanged
from the year-end 1992 reserves and are based upon an assumed gold price of
$375 per ounce and a cut-off grade based on the economics associated with
variable mining and processing costs. The Company has determined that
calculating the reserves at $400 per ounce would not materially change the
results. Reserves represent in-place mineable estimates and do not reflect
losses in the recovery process. The Company estimates ultimate gold recoveries
will range from 65%-85%.
HAILE PROJECT
PROVEN/PROBABLE ORE RESERVES
AS OF DECEMBER 31, 1993
GOLD CONTENT
(000 OZ.)
--------------
GOLD AGI
TONS AVG. GRADE 62.5%
(000) (OZ./TON) TOTAL SHARE
----- ---------- ------ ------
Mill Ore................................. 6,849 0.101 689 431
An updated status report and revised reserve estimate incorporating results
from the 1993 drilling program is expected to be completed early in the second
quarter of 1994. Development expenditures in 1993 were approximately $4.0
million, of which the Company's share was approximately $2.5 million, and
included 67,464 feet of core and reverse circulation drilling which identified
additional mineralization. There can be no assurance, however, that such
mineralization will result in additional reserves.
During the option period prior to the Company's acquisition of its interest
in the Haile project and since becoming manager, the Company has conducted an
extensive evaluation program. This program has included studies relating to
reserve delineation, metallurgical evaluation, environmental studies,
hydrological and other technical studies. A preliminary feasibility study
estimating basic economic parameters has been completed and is scheduled to be
updated in the second quarter of 1994 by the status report referenced above.
Depending upon the results and conclusions reached in the updated status
report, the project may move into the engineering design phase or additional
development drilling may be conducted. In either case, environmental studies
and design work will continue to be a major focus of the venture.
15
EXPLORATION AND ACQUISITION ACTIVITIES
Prior to the Cyprus Amax Merger, the Company conducted most of its
exploration programs in the United States and in Canada and Chile through
wholly-owned subsidiaries of the Company. The Company was also party to an
Exploration Services Agreement with Amax Exploration, Inc. ("Amax
Exploration"), a wholly-owned subsidiary of Cyprus Amax, under which Amax
Exploration has conducted some gold and silver exploration for the Company.
That agreement is expected to be terminated in conjunction with consummation of
an exploration joint venture agreement between the Company and Cyprus Amax,
which is currently under negotiation. See "BUSINESS--AGREEMENTS WITH CYPRUS
AMAX--EXPLORATION SERVICES AGREEMENT."
The Company's exploration activities have ranged from "grass roots"
reconnaissance programs and submittal examinations to drill evaluation of
advance stage projects. The Company's exploration objective continues to be the
acquisition and evaluation of near-surface gold deposits that can be mined by
open pit methods. During 1993 the Company's exploration efforts were focused on
prospects in Nevada, Idaho, Alaska and Chile.
Exploration expenditures were $5.2 million in 1993 compared to $6.7 million
in 1992 (excluding exploration expenditures on the Haile and Guanaco projects
for 1992). The exploration budget for 1994 is approximately $4 million. The
Company changed its accounting policy for exploration expenditures effective
January 1, 1993. See NOTE 1 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under
ITEM 8 of PART II herein.
REFINING, SALES AND HEDGING ACTIVITIES
Refining arrangements are in place with third parties for the Sleeper, Wind
Mountain, Hayden Hill and Guanaco mine production. Because of the availability
of refiners other than those with whom such arrangements have been made, the
Company believes that no adverse effect would result if any of these
arrangements were terminated.
Substantially all of the Company's gold sales and hedging activities are
conducted through Amax Precious Metals, Inc., a wholly-owned subsidiary of the
Company. The Company employs a number of hedging techniques with the objective
of mitigating the impact of downturns in the gold market and providing adequate
cash flow for operations while maintaining significant upside potential in a
market upswing. At December 31, 1993, the Company had in place a number of
hedging contracts. See NOTE 9 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under ITEM 8 of PART II herein. During 1993 and 1992 the Company's hedging
efforts resulted in average realized prices of $392 an ounce and $402 an ounce,
respectively. This contrasts with an average COMEX price of approximately $360
an ounce for 1993 and $344 an ounce for 1992.
AGREEMENTS WITH CYPRUS AMAX
In connection with the change of ownership of the Company resulting from the
Cyprus Amax Merger, Amax Gold is in the process of negotiating various
agreements with Cyprus Amax. These include a services agreement, a gold
exploration joint venture agreement, a non-competition agreement and a $100
million financing arrangement. Cyprus Amax may also sell to Amax Gold certain
of its gold exploration and development properties, subject to the approval of
each company's Board of Directors and compliance with stock exchange and
possibly other regulatory requirements regarding related party transactions.
The services agreement would provide the Company with certain Cyprus Amax
general and administrative services in order to take advantage of the synergies
between the two companies. It is expected to provide both companies with cost
savings. The new exploration joint venture agreement would result in the two
companies pooling their efforts to discover and develop gold properties, with
Cyprus Amax providing 75% of initial funding for newly identified gold
exploration targets. This joint venture arrangement would have the benefits of
potentially broadening the Company's geographic reach, sharing key personnel,
reducing costs, and sharing the high risks associated with exploration.
Exploration projects that the Company held prior to the Cyprus Amax Merger will
continue to be evaluated entirely by the Company. The non-compete agreement
would define the terms under which either company would develop and ultimately
produce minerals that would be in competition with the other party. The $100
million financing arrangement is described below under "Line of Credit."
16
Until the new services agreement and gold exploration joint venture agreement
are concluded, the existing Management Services Agreement and Exploration
Services Agreement described below will remain in effect with Cyprus Amax
succeeding to the rights and obligations of Amax under such agreements. The Put
and Call Agreement described below will also remain in place, with Cyprus Amax
succeeding to the rights and obligations of Amax under this agreement. The Tax
Sharing and Allocation Agreement and Non-Competition Agreement between the
Company and Amax have been terminated as described below.
Management Services Agreement. Pursuant to the terms of a management services
agreement (the "Management Services Agreement") entered into at the time of the
Company's formation, Amax agreed to provide a variety of managerial and other
services to the Company on a full cost-reimbursement basis. The agreement is
terminable by the Company or by Amax as of the end of any month on 180 days'
written notice. For 1993 and 1992, amounts charged to the Company by Amax
pursuant to the Management Services Agreement were approximately $5.2 million
and $5.5 million, respectively, including the cost of insurance coverage for
the Company and employee benefits provided to the Company's officers and
employees under benefit and pension plans maintained by Amax through the date
of the Cyprus Amax Merger. See NOTE 3 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS under ITEM 8 of PART II herein.
Exploration Services Agreement. Pursuant to an exploration services agreement
(the "Exploration Services Agreement") entered into at the time of the
Company's formation, Amax Exploration agreed to provide exploration services
for the Company. The agreement is effective until terminated by either party
with at least 180 days' prior notice. During 1993, the Company conducted its
exploration programs through wholly-owned subsidiaries of the Company using its
own personnel. Effective January 1, 1994, in order to reduce costs and realize
some of the synergies from its new affiliation with Cyprus Amax, the Company
transferred most of its exploration personnel to Cyprus Amax, but retained its
Vice President in charge of exploration. In the future, Cyprus Amax geologists
will conduct the Company's exploration for gold, either under the exploration
joint venture agreement or otherwise.
Put and Call Agreement. The Company and Amax entered into a put and call
agreement (the "Put and Call Agreement") under which Cyprus Amax (as successor
to Amax) may sell shares of Amax Gold common stock to the Company upon exercise
of the Warrants issued in connection with the acquisition of the Fort Knox
project. See "BUSINESS--INTRODUCTION--History of the Company." The Put and Call
Agreement has been approved by the Company's independent directors. A summary
of the terms of the Put and Call Agreement is set forth below:
(i) Put Option. Under the Put and Call Agreement, Cyprus Amax has a put
option (the "Put Option") whereby, upon exercise of any Warrants, Cyprus
Amax may require the Company to purchase a number of shares of Amax Gold
common stock from Cyprus Amax at the Exercise Price (the "Warrant Exercise
Price"), as determined pursuant to the provisions of the Warrant Agreement
dated January 6, 1992, entered into between the Company and Manufacturers
Hanover Trust Company as Warrant Agent, such number to be equal to the
number of shares of Amax Gold common stock which the Company is required to
issue upon exercise of such Warrants. Pursuant to the Warrant Agreement,
the initial Warrant Exercise Price is $21.00 per share and is subject to
customary anti-dilution adjustments upon the occurrence of, among other
things, stock dividends, stock splits, reclassifications, mergers and
similar events.
(ii) Call Option. In the event Cyprus Amax fails to exercise the Put
Option, the Company will have a call option (the "Call Option") whereby it
may require Cyprus Amax to sell shares of Amax Gold common stock (to the
extent then owned by Cyprus Amax) to the Company equal to the number of
shares of Amax Gold common stock which the Company is required to issue
upon exercise of such Warrants at a price equal to the Warrant Exercise
Price plus two-thirds of the excess of (x) the market price per share of
Amax Gold common stock over (y) the Warrant Exercise Price.
Tax Sharing and Allocation Agreement. The Company was formerly a party to a
tax sharing agreement with Amax which was terminated as of the close of
business on December 31, 1991. See NOTE 5 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS under ITEM 8 of PART II herein.
17
Non-Competition Agreement. The Non-Competition Agreement formerly in effect
between the Company and Amax expired by its terms as of the effective date of
the Cyprus Amax Merger.
Line of Credit. On February 11, 1994, a commitment letter was signed between
Cyprus Amax and Amax Gold to provide Amax Gold with a $100 million convertible
line of credit, portions of which will be designated as support for existing
Amax Gold debt and as replacement for Cyprus Amax guarantees for certain Amax
Gold debt. The outstanding indebtedness under the convertible line of credit
may be repaid by Amax Gold with the issuance of an Amax Gold convertible
preferred stock, which in turn can be converted into Amax Gold common stock at
$8.265 per share. The conversion price represents a 20% premium over the
average closing price of Amax Gold common stock for the 10 trading days
immediately prior to February 11, 1994. In addition, Amax Gold will have the
right to convert the convertible preferred stock into Amax Gold common stock at
a maximum price of $8.265 per share and a minimum price of $5.854 per share.
Cyprus Amax will have the right to replace the line of credit and any
outstanding indebtedness and/or preferred stock with the purchase of $100
million of Amax Gold common stock at a price of $8.265 per share. This
represents approximately 12.1 million shares of Amax Gold common stock. The
commitment is subject to the completion of formal documentation and
satisfaction of stock exchange and possibly other regulatory requirements.
Documentation is expected to be complete by the end of March, subject to
possible regulatory delays.
Stock Purchase Agreement. The February 11, 1994 commitment letter between
Cyprus Amax and Amax Gold also committed Cyprus Amax to purchase, and Amax Gold
agreed to issue and sell, an additional 3 million shares of Amax Gold common
stock at $6.888 per share. The proceeds from the sale of the stock will be used
to retire $20.7 million indebtedness owed to Cyprus Amax by Amax Gold. The
stock purchase is expected to be completed by the end of March in conjunction
with the completion of formal documentation of the Line of Credit facility
described above.
EMPLOYEES
At December 31, 1993, the Company and its consolidated subsidiaries employed
655 persons. The hourly employees of CMAG at the Guanaco mine are represented
by the Sociedad Contractual Minera Guanaco labor union and are covered by a
labor contract. None of the Company's U.S. employees are unionized and the
Company considers its employee relations to be good. In addition, the Company
may obtain general administrative and other services from Cyprus Amax. See
"BUSINESS--EXPLORATION AND ACQUISITION ACTIVITIES" and "--AGREEMENTS WITH
CYPRUS AMAX--MANAGEMENT SERVICES AGREEMENT" AND "EXPLORATION SERVICES
AGREEMENT."
COMPETITION
The Company competes with other companies in the acquisition of mineral
interests, the sale of refined gold and the recruitment and retention of
qualified employees. A number of these companies are larger than the Company in
terms of annual gold production and total reserves. Moreover, many of these
companies have been engaged in gold mining and exploration longer than the
Company. Management does not believe, however, that such competition has had a
material effect on the development of the Company's business or the sale of its
products.
REGULATION
The Company's mining and processing operations and exploration activities in
the United States and Chile are subject to various laws and regulations
governing the protection of the environment, exploration, development,
production, exports, taxes, labor standards, occupational health, waste
disposal, toxic substances, mine safety and other matters. New laws and
regulations, amendments to existing laws and regulations, or more stringent
implementation of existing laws and regulations could have a material adverse
impact on the Company, increase costs, cause a reduction in levels of
production and/or delay or prevent the development of new mining properties.
Failure to comply with laws and regulations may result in orders being issued
thereunder which may cause operations to cease or be curtailed or may require
installation of additional equipment. Violators may be required to compensate
those suffering loss or damage by reason of their mining activities and may be
fined if convicted of an offense under such legislation.
18
United States: Numerous state and federal laws and regulations relative to
environmental protection and land use concerns affect the Company's domestic
operations. Revisions are often made to environmental regulations following
schedules dictated by laws previously enacted by the United States Congress. Of
particular importance to the Company, the 1990 amendments to the federal Clean
Air Act have created a schedule for new or modified regulations pursuant to
this act which may affect the Company's operations throughout the 1990s.
Bills pending in the United States Congress have the potential to
substantially alter the current mining law and several environmental laws which
have application to mining. Some versions of these bills could materially
impair the ability of the Company and others to develop mineral resources in
the United States.
Under the current terms of pending bills concerning mining law, the ability
of companies to obtain a patent on unpatented mining claims would be nullified
or substantially impaired. Moreover, such bills contain provisions for the
payment of royalties to the federal government in respect of production from
unpatented mining claims, which could materially and adversely affect the
potential for development of such claims and the economics of operating
existing mines on federal unpatented mining claims. The Company's Sleeper,
Hayden Hill and Wind Mountain mines are located in whole or in part on
unpatented mining claims.
Pending bills which affect environmental laws applicable to mining include
versions which may substantially alter the Clean Water Act, Safe Drinking Water
Act, Endangered Species Act and a bill which will introduce additional
protection of wetlands (Wetlands Protection and Management Act). Adverse
development and operating requirements in these Acts could impair the ability
of the Company as well as others to develop mineral resources. Revisions to
current versions of these bills are expected prior to passage.
The Environmental Protection Agency ("EPA") continues the development of a
solid waste regulatory program specific to mining operations under the Resource
Conservation and Recovery Act ("RCRA"). Of particular concern to the mining
industry is a proposal by EPA titled "Recommendations for a Regulatory Program
for Mining Waste and Materials Under Subtitle D of the Resource Conservation
and Recovery Act" ("Strawman II") which, if implemented, would create a system
of comprehensive federal regulation of the entire mine site. Many of these
requirements would be duplicative of existing state regulations. Strawman II as
currently proposed would regulate not only mine and mill wastes, but also
numerous production facilities and processes which could limit internal
flexibility in operating a mine. To implement Strawman II as proposed, the EPA
must seek additional statutory authority, which is expected to be requested in
connection with Congress' reauthorization of the RCRA.
In 1993 the Company made capital and operating expenditures of approximately
$2.8 million and $4.2 million, respectively, to meet domestic environmental
protection requirements. These figures do not include environmental
expenditures at the Company's properties in Chile. The Company estimates that
its capital expenditures for domestic environmental control facilities in 1994
and 1995 at its mines and projects as presently existing will be approximately
$1.5 million and $1.2 million, respectively, based on existing environmental
requirements.
Chile. The Guanaco mine and Refugio project in Chile are subject to national
and local laws and regulations governing mineral exploration, development and
production. Such laws and regulations apply to acquisition and ownership of
mineral rights, labor, environmental protection, health and safety standards,
royalties, income taxes, exports and other matters.
The Chilean Constitution provides that all people have the right to live in
an environment free from contaminants. Under law, disposal of residues in the
ocean or rivers that affect fish is prohibited. To date, the
19
Company's operations in Chile have not been unduly affected by environmental
requirements. In March 1994, the President of Chile approved the country's
first comprehensive environmental law which, among other things, establishes
(i) a comprehensive program for the issuance of permits for future exploration
and mining activities, (ii) the obligation to perform environmental impact
analyses, and (iii) a liability scheme for forms of environmental damage, and
contemplates the issuance of regulations which will impose operating standards.
The full impact of the new law on the mining industry is unclear at present.
FOREIGN OPERATIONS
For certain financial information concerning the Company's foreign sales and
operations, see NOTE 10 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under
ITEM 8 of PART II herein.
Foreign operations and investments such as those which the Company has in
Chile may be adversely affected by exchange controls, currency fluctuations,
taxation and laws or policies of particular countries or by political events in
those countries as well as by laws and policies of the United States affecting
foreign trade, investment and taxation. The Company has in place, through
Cyprus Amax, political risk insurance in the amount of $20 million for certain
defined political events relating to the Company's investment in the Guanaco
mine. No such insurance has yet been obtained for the Refugio project.
ITEM 2. PROPERTIES
The Company has acquired and maintains its properties in a manner that is
consistent with common mining industry practice and believes that its titles
are satisfactory.
United States. The Sleeper mine, the Wind Mountain mine and a major portion
of the Hayden Hill mine are located on federal unpatented lode and placer
mining claims. Some of the Company's undeveloped properties in the United
States also consist of federal unpatented mining claims owned by the Company or
its subsidiaries or leased from third parties. Unpatented claims are located
upon public land pursuant to procedures established by the federal mining law.
Requirements for the location of a valid mining claim on public land or
minerals depend on the type of claim being staked, but generally include
discovery of valuable minerals, erecting a monument and posting thereon a
location notice, marking the boundaries of the claim, and filing a certificate
of location with the county in which the claim is located and with the United
States Bureau of Land Management ("BLM"). If the statutes and regulations for
the location of a mining claim are complied with, the locator obtains a valid
possessory right to the contained minerals. To preserve an otherwise valid
claim, a claimant must also annually pay certain rental fees to the federal
government and make certain additional filings with the county and the BLM.
Failure to pay such fees or make the required filings may render the mining
claim void or voidable.
Because mining claims are self-initiated and self-maintained, they possess
some unique vulnerabilities not associated with other types of property
interests. It is impossible to ascertain the validity of unpatented mining
claims solely from public real estate records and it can be difficult or
impossible to confirm that all of the requisite steps have been followed for
location and maintenance of a claim. If the validity of an unpatented mining
claim is challenged by the government, the claimant has the burden of proving
the present economic feasibility of mining minerals located thereon. Thus, it
is conceivable that, during times of falling metal prices, claims which were
valid when located could become invalid if challenged. The patent procedure
permits claimants to purchase from the federal government fee title to claims
upon demonstrating that the mineral deposit on the claims can be mined at a
profit and satisfying other procedural requirements.
20
The Company has obtained a title opinion from a Nevada law firm, in the form
of a mineral status report, on the Sleeper mine. The report covers those claims
at Sleeper on which the two pits being mined and the mill facilities are
located. However, because validity of title to unpatented mining claims depends
on factors not of record, such as the existence of a valuable mineral
discovery, such opinion does not opine on the "merchantability" of title as
that term is commonly used. A patent application was filed in October, 1990,
for particular claims at Sleeper. A Mineral Entry Final Certificate was issued
for such claims on June 17, 1991, and the Company is in the final stages of
completing the patenting process, but there can be no assurance that a patent
will be granted with respect to all or any of the claims covered by that
application.
The Company has obtained a title opinion from a California licensed attorney
on the patented and unpatented mining claims at the Hayden Hill mine, which
opinion covers those claims on which the Lookout and Providence pits and the
mill facilities are located. However, because validity of title to unpatented
mining claims depends on factors not of record, such as the existence of a
valuable mineral discovery, such opinion does not opine on the
"merchantability" of title to the unpatented claims, as that term is commonly
used. The Company has not filed a patent application for any of the claims at
the Hayden Hill mine.
The state mining claims included in the Fort Knox project are initiated and
maintained in ways very similar to federal unpatented mining claims; the
validity of such claims is thus subject to similar off-record contingencies. In
addition, it is possible that certain Alaskan litigation and legislation
pertaining to the Alaska Mental Health Trust could have an effect on part of
the lands included in the Fort Knox project. Based on the Company's current
understanding of the situation, however, it is unlikely this litigation and
legislation will materially adversely affect the Company's ability to develop
and operate the Fort Knox property in the manner contemplated by the Company.
Chile. All the ore reserves at the Guanaco mine and Refugio project are held
by exploitation concessions granted by judicial authorities under the Chilean
Mining Code. Holders of exploitation concessions have the exclusive right to
explore and exploit the mineral resources and to process and sell the products
obtained therefrom. The term of an exploitation concession is indefinite,
subject to the payment of a minimal annual fee. The concessions at the Guanaco
mine are owned by ENAMI, an entity of the Chilean government, and leased to
CMAG, the indirect 90% owned Chilean subsidiary of the Company. The concessions
covering the principal ore deposit at the Refugio project are owned by CMM, the
Chilean contractual mining company that is indirectly owned 50% by the Company.
Under the Chilean Mining Code, the mineral owner has the right to use the
surface, providing payment of reasonable compensation is made to the surface
owner. The surface area covering the Guanaco claims is owned by the Chilean
government; however, CMAG has filed applications to purchase selected areas. At
the Refugio project, the surface rights overlying the known mineralization and
the proposed facilities are owned or controlled by CMM under applications to
purchase or leases from Chilean governmental entities. The Chilean Constitution
and the Chilean Mining Code provide constitutional protections to the owners of
mining concessions against expropriation of property. Under the Mining Code, if
a property is expropriated, the amount of compensation that must be paid by the
government must reflect the net present value of the expected cash flow based
on demonstrated reserves. At both the Guanaco mine and Refugio project, the
Company has received satisfactory assurances of title from its Chilean counsel.
See also ITEM 1 "BUSINESS" above for a more complete description of the
Company's properties.
ITEM 3. LEGAL PROCEEDINGS
On May 12, 1992, a Notice of Violation (NOV) was issued to Lassen Gold by the
Director, Air and Toxics Division, Region IX of the United States Environmental
Protection Agency ("EPA"), for alleged violations of federal regulations
promulgated under the Clean Air Act (the "Act"). The NOV alleged that Lassen
Gold commenced construction of the Hayden Hill Mine, and of seven diesel
powered generators which supplied temporary power at the mine, without
federally enforceable final permits having been issued
21
by the Lassen County Air Pollution Control District ("District"), and that
Lassen Gold failed to comply with certain notification requirements under
federal New Source Performance Standards (NSPS) regulations. In December 1992,
the Company and EPA negotiated a settlement of this matter for a civil penalty
of $125,000. This settlement will be effectuated by a consent decree to be
entered into between EPA, Lassen Gold and the U.S. Department of Justice.
Lassen Gold is presently awaiting governmental approval of the final form of
consent decree.
On June 4, 1993, the Company, certain other affiliated corporations and
several unnamed corporations and individuals were sued in the Nevada State
Court for Washoe County by TMB Associates ("TMB"), a Nevada general partnership
that is the lessor under an April 2, 1987 lease of unpatented federal mining
claims (as amended, the "Lease") which comprise a substantial part of the Wind
Mountain mine property position. The lawsuit involves the formation and
performance of, and alleged breach of duties with respect to, the Lease
pertaining to the exploration, development and mining of the Wind Mountain ore
deposit. The Company filed a motion to stay the litigation and to compel TMB to
proceed with arbitration, pursuant to an arbitration clause in the Lease
requiring any controversy to be settled by arbitration and imposing a one-year
limitation for commencing arbitration. In August 1993 the court granted the
Company's motion to stay the litigation pending arbitration and on February 1,
1994, the court denied TMB's motion for reconsideration. Unless TMB elects to
initiate arbitration, the court's latest action should end this litigation. At
this time, the Company's management does not anticipate any material adverse
effect on the Company's financial condition or results of operations from the
results of arbitration, if subsequently initiated by TMB.
On October 11, 1993, the Company and certain of its New Zealand subsidiaries,
and certain subsidiaries of Poseidon Gold Limited ("PosGold"), were named as
defendants in an action brought by Mineral Resources (N.Z.) Limited and a
subsidiary in the High Court of New Zealand, Auckland Registry, Commercial
List, claiming that the transaction between the Company and a subsidiary of
PosGold in June 1993 (described in NOTE 7 of the NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS under ITEM 8 of PART II herein) created a default under
the Waihi mine joint venture agreement. The plaintiffs also alleged breaches of
fiduciary duties by the defendants. As relief, the plaintiffs claim to be
entitled to obtain the entire venture interest of the Company's New Zealand
subsidiary that participates in the Waihi mine venture at a price to be
determined by an independent expert or alternatively to obtain a share of such
interest that would place the plaintiffs in an equal or majority position in
the venture. They also seek to have the Company relinquish all of its voting
shares in Waihi Financing Limited, which indirectly holds the Company's 33.53%
interest in the venture. The plaintiffs further claim a duty of the defendants
to account to the plaintiffs for losses suffered due to the alleged breach of
fiduciary duties, and they seek unspecified damages and costs. The Company,
through its New Zealand counsel, has entered a response generally denying the
plaintiffs' allegations. At this time, the litigation is in the discovery
stage, and the Company believes that it is remote that this litigation will
result in any material adverse effect on the Company's financial condition or
results of operations.
On March 10, 1994, the San Francisco, California, regional office of the
United States Forest Service for the Pacific Southwest Region notified the
Company that it considers the Company to be a Potentially Responsible Party
(PRP) under the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), jointly and severally liable with other PRPs (unless
exempt from liability due to statutory defenses) for all response costs,
interest, and any natural resource damages attributable to an alleged release
and further threatened releases of hazardous substances at the Siskon Mine,
located in the Klamath National Forest, Siskiyou County, California. The Forest
Service stated that the alleged release of hazardous substances is present in
mill tailings located in the floodplain and riparian area of a creek, that the
tailings pose a threat of further release into surface water, and that other
hazardous substances have been discovered at the site. The Forest Service has
initiated a CERCLA response action to assess the alleged release of hazardous
substances, and has invited the Company, along with other PRPs, to participate.
The Company has until April 9, 1994 to respond to this letter. Amax Gold
Exploration, Inc., a wholly-owned subsidiary of the Company, conducted a
limited exploration drilling program at the Siskon Mine in the summer of 1991,
pursuant to an option and earn-in agreement that was terminated as of December
1991. Based upon a
22
preliminary investigation, the Company believes that this drilling was not on
the portion of the property which the Forest Service has identified as affected
by the alleged release and threatened release of hazardous substances. Due to
the limited facts available at this time, the Company is unable to determine
the potential impact, if any, of this situation upon the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1993.
EXECUTIVE OFFICERS
As of March 18, 1994, the names, ages, and offices with the Company of all
executive officers of the Company were as follows:
NAME AGE OFFICE
---- --- ------
Milton H. Ward.......... 61 Chairman of the Board, President and Chief Executive Officer
Roger A. Kauffman....... 50 Senior Vice President and Chief Operating Officer
Mark A. Lettes.......... 44 Vice President and Chief Financial Officer
Harry B. Carson......... 50 Vice President
Richard B. Esser........ 47 Vice President
Paul J. Hemschoot, Jr... 53 Vice President, Secretary and General Counsel
Neil K. Muncaster....... 58 Vice President
Andrew F. Pooler........ 35 Vice President
Pamela L. Saxton........ 41 Vice President and Controller
There are no family relationships by blood, marriage or adoption among any of
the officers of the Company. All officers are elected until the meeting of the
Board of Directors immediately following the Company's annual meeting of
stockholders, or until their respective successors are chosen and qualified.
There is no arrangement or understanding between any of the above officers and
any other person pursuant to which he/she was selected as an officer, except
that Mr. Ward is an officer and Chairman of the Board of Cyprus Amax and Ms.
Saxton is an employee of Cyprus Amax. Both are compensated by Cyprus Amax for
services furnished to Cyprus Amax and AGI. Effective January 1, 1994, the
proportion of their time spent on Company matters is allocated and charged to
the Company.
Mr. Ward has been Chairman of the Board, President and Chief Executive
Officer of the Company since November 1993. He has been Chairman of the Board,
President and Chief Executive Officer of Cyprus Amax (formerly Cyprus Minerals
Company) since May 1992. Prior to joining Cyprus Amax, Mr. Ward had been
President and Chief Operating Officer of Freeport-McMoRan Inc. and Chairman and
Chief Executive Officer of Freeport McMoRan Copper & Gold Inc. since 1984.
Mr. Kauffman has been Senior Vice President and Chief Operating Officer of
the Company since February 1994. From 1986 to February 1994, he was Vice
President-Industrial Minerals for Hecla Mining Company.
Mr. Lettes has been Chief Financial Officer of the Company since January
1994. He has been Vice President of the Company since August 1989 in addition
to the office of Treasurer, which he held from May 1988 until February 1991. He
was also Director-Resource Development for Amax Mineral Resources Company from
January 1987 to August 1989.
Mr. Carson has been Vice President of the Company since May 1988. He also was
Vice President of Amax Minerals Resources Company from May 1988 to August 1989.
23
Mr. Esser has been Vice President of the Company since August 1989. From
December 1986 to July 1989, he was Vice President-Administration and Human
Resources for Amax Mineral Resources Company.
Mr. Hemschoot has been Secretary and General Counsel of the Company since
April 1987, and was elected a Vice President in May 1992. He was also Associate
General Counsel of Amax from August 1985 until June 1990.
Mr. Muncaster was elected a Vice President of the Company in February 1991.
Before that, he was Vice President, Exploration for Echo Bay Mines since 1986
when Echo Bay purchased the base and precious metals assets of Tenneco
Minerals.
Mr. Pooler was elected a Vice President of the Company in February 1992. From
May 1988 until February 1992, he was General Manager of the Wind Mountain mine.
Ms. Saxton has been Controller of the Company since May 1990 and was elected
a Vice President in May 1992. She also has been Assistant Controller of Cyprus
Amax since January 1994. From June 1989 until May 1990 she was Assistant
Controller of the Company. She joined Amax in September 1987 as Director of
Consolidations for Amax Mineral Resources Company and continued in that
capacity until June 1989.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York Stock Exchange (AU) and
the Toronto Stock Exchange (AXG). As of March 17, 1994, 78,196,647 common
shares were outstanding and the Company had approximately 12,800 shareholders
of record. Cyprus Amax owns approximately 40% of the Company's common stock.
The following table sets forth for the periods indicated the high and the low
sale prices per share of the Company's common stock as reported on the New York
Stock Exchange Composite Tape and the dividends paid on such stock.
Stock prices and Dividends per share
COMMON STOCK
--------------
QUARTER HIGH LOW DIVIDENDS
------- ------- ------ --------- ---
1993--First..................................... $ 9 3/8 $7 3/4 $.02
Second....................................... 9 1/2 6 7/8 .02
Third........................................ 10 1/2 6 3/4 .02
Fourth....................................... 8 6 .02
1992--First..................................... 12 1/2 8 1/2 $.02
Second....................................... 11 1/2 8 7/8 .02
Third........................................ 11 5/8 9 1/8 .02
Fourth....................................... 9 7/8 7 5/8 .02
On March 4, 1994, the Company's Board of Directors decided to eliminate the
quarterly dividend on the Company's common stock to reduce expenses.
As of March 17, 1994, 4,066,649 Warrants to purchase common stock of the
Company were outstanding and the Company had approximately 80 holders of
Warrants of record. The Warrants are listed on the American Stock Exchange
(AUWS) and the Toronto Stock Exchange (AXGWT). The Warrants were issued in
connection with the acquisition of the Fort Knox project. See ITEM 1
"BUSINESS--INTRODUCTION" under PART I herein.
24
ITEM 6. SELECTED FINANCIAL DATA
AMAX GOLD INC. AND SUBSIDIARIES
FINANCIAL AND OPERATING HIGHLIGHTS
(IN MILLIONS EXCEPT PER SHARE AMOUNTS, PERCENTAGES,
PRODUCTION AND SALES OUNCES AND AMOUNTS PER OUNCE)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- -------
FOR THE YEAR:
Sales................... $ 81.9 $ 99.7 $ 128.2 $ 149.8 $ 121.6 $ 104.4 $ 67.0
Gross operating margin
(loss)................. (31.9) 16.6 38.0 63.1 59.4 66.2 47.0
Asset write-downs(1).... 87.7 -- -- 12.6 -- -- --
Earnings (loss) from
operations(1)(2)....... (116.0) 18.8 24.0 36.1 43.7 44.3 40.9
Earnings (loss) before
cumulative effect of
accounting changes,
net(1)(2).............. (89.0) 13.0 21.2 28.3 33.3 43.0 40.4
Net earnings
(loss)(1)(2)(3)........ (104.2) 11.5 21.2 28.3 33.3 43.0 40.4
Per common share:
Earnings (loss) before
cumulative effect of
accounting
changes(1)(2)(3)..... (1.14) .18 .35 .47 .55 .72 .67
Net earnings
(loss)(1)(2)(3)...... (1.34) .16 .35 .47 .55 .72 .67
Weighted average common
shares outstanding(4).. 77.8 73.7 60.0 60.0 60.0 60.0 60.0
Capital and cash
acquisition
expenditures........... 23.4 113.7 60.0 39.9 31.7 38.7 27.2
Refugio cash acquisition
and investment costs... 1.2 -- -- -- -- -- --
Cash dividends to common
shareholders........... 2.0 2.8 4.8 4.8 4.8 4.0 1.6
Dividends declared per
common share(4)........ .08 .08 .08 .08 .08 .067 .027
Special distributions to
Amax................... -- -- -- -- -- -- 32.0
AT YEAR-END:
Current assets.......... 37.9 47.1 41.7 42.4 23.6 32.3 19.3
Total assets............ 381.0 477.6 198.3 157.2 150.5 146.3 95.8
Current liabilities..... 37.6 46.9 28.2 21.2 16.5 20.0 9.1
Long-term debt.......... 136.5 103.1 24.1 8.4 31.3 57.2 57.7
Shareholders' equity.... 173.3 257.2 136.3 120.7 98.3 68.5 28.9
Working capital......... .3 .2 13.5 21.2 7.1 12.3 10.2
Book value per common
share.................. 2.22 3.45 2.27 2.01 1.64 1.14 .48
Long-term debt to
equity................. 79% 40% 18% 7% 32% 84% 200%
KEY OPERATING FACTORS
FOR THE YEAR:
Total ounces of gold
produced(5)............ 210,880 253,603 300,233 354,859 307,387 239,980 158,696
Total ounces of gold
sold................... 209,290 248,024 300,418 359,146 296,075 233,159 159,900
Average price per ounce
sold................... $ 392 $ 402 $ 427 $ 417 $ 411 $ 448 $ 419
Average cost per ounce
produced(6):
Cash production
cost(7).............. $ 388 $ 223 $ 195 $ 147 $ 132 $ 110 $ 74
Depreciation and
depletion............ 122 87 82 73 59 38 29
------- ------- ------- ------- ------- ------- -------
Total production
cost............... $ 510 $ 310 $ 277 $ 220 $ 191 $ 148 $ 103
======= ======= ======= ======= ======= ======= =======
- --------
(1) In 1993 the Company recognized a $64.1 million pre-tax ($41.9 million after
tax) write-down of the Hayden Hill asset and a $23.6 million pre-tax ($15.6
million after tax) write-down of the Sleeper asset, which increased the
1993 net loss by $57.5 million, or $.74 per common share. The earnings for
1990 include a $12.6 million write-down of Amax Gold's investment in
Canamax Resources Inc. recorded in the first half of 1990, which reduced
1990 net earnings per common share by $.21. The remaining Canamax
investment was sold to Amax during the second half of 1990 for $6.4 million
in cash.
25
(2) In September 1993, Amax Gold changed its exploration accounting policy,
effective January 1, 1993, such that prior period exploration expenses
would no longer be capitalized and restored to earnings when a property
became exploitable. The 1993 net loss includes a $13.4 million, or $.17 per
common share, after tax charge relating to the cumulative effect of this
accounting change. The 1992 net earnings include $8.9 million, or $.12 per
common share, of after tax income related to prior year exploration
expenditures on the Haile and Guanaco projects that were capitalized and
restored to earnings. The pro forma unaudited net earnings and net earnings
per common share, assuming this 1993 exploration accounting change had been
applied retroactively for the fiscal years prior to 1993, were $4.9 million
in 1992 (or $.07 per common share), $21.9 million in 1991 (or $.36 per
common share), $30.5 million in 1990 (or $.50 per common share), $29.6
million in 1989 (or $.49 per common share), $44.0 million in 1988 (or $.74
per common share) and $36.2 million in 1987 (or $.60 per common share).
(3) The 1993 net loss includes a $1.8 million, or $.03 per common share, after-
tax cumulative effect of the January 1, 1993 adoption of Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits." Net earnings for 1992 include a $1.5 million, or
$.02 per common share, after-tax cumulative effect of the January 1, 1992
adoption of SFAS No. 106, "Postretirement Benefits Other Than Pensions."
(4) Adjusted for three-for-two common stock split effected in the form of a
stock dividend which was distributed in 1988.
(5) Gold production for the year ended December 31, 1992 reflects increased
production of 4,733 ounces at the Sleeper Mine and 542 ounces at the Waihi
Mine relating to the cumulative effect of a change in accounting to include
production in the mill carbon circuit, effective January 1, 1992.
(6) Average costs weighted by ounces of gold produced at each mine.
(7) Cash production costs include all operating costs at the mine site,
including overhead and, where applicable, Nevada net proceeds tax,
royalties and credits for silver by-products.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1993 FINANCIAL SUMMARY
On November 15, 1993, Amax was merged with and into Cyprus Minerals Company.
The new entity, Cyprus Amax, retained approximately 40% of the outstanding
common shares of Amax Gold. In connection with the change of ownership, Amax
Gold is in the process of negotiating several agreements with Cyprus Amax,
specifically a $100 million financing arrangement, a gold exploration joint
venture agreement, a non-competition agreement and a services agreement.
Additionally, Amax Gold has made management changes, reduced staff levels and
relocated its headquarters office to the Cyprus Amax headquarters office. These
actions were taken to give Amax Gold more financial strength and flexibility to
satisfy its current debt obligations, position Amax Gold to advance its
development projects and provide savings in exploration and general and
administrative expenses.
Amax Gold reported a 1993 net loss of $104.2 million compared with net income
of $11.5 million in 1992 and $21.2 million in 1991. The 1993 results include
after tax charges of $57.5 million for the write-downs of the Sleeper and
Hayden Hill investments and $15.2 million for the cumulative effects of an
exploration accounting change and the adoption of a new accounting standard for
postemployment benefits. Additionally, the 1993 results include an after tax
gain of $2.4 million from the realization of the future economic benefit from
its 33.53% interest in the Waihi Mine in New Zealand. The 1992 results include
after tax income of $8.9 million from exploration expenses for the Haile and
Guanaco expenditures that were capitalized and restored to earnings and an
after tax charge of $1.5 million for the cumulative effect of the adoption of a
new accounting standard for postretirement benefits other than pensions.
Excluding these special items, the 1993 net loss was $33.9 million compared to
net income of $4.1 million in 1992. The decline in results over the past three
years was due primarily to lower production and sales volumes and higher unit
production costs, particularly in 1993. To a lesser extent, lower average
realized sales prices over the past two years contributed to the decline in
operating results. A further discussion of the key factors affecting the 1993
results compared to 1992 and 1991 follows.
26
RESULTS OF OPERATIONS FOR THE
THREE YEARS ENDED DECEMBER 31, 1993
Sales declined to $81.9 million for 1993 from $99.7 million in 1992 and
$128.2 million in 1991 as a result of declines in production and sales volumes
from the Sleeper, Wind Mountain and Waihi mines together with lower average
realized sales prices in 1993 and 1992. Somewhat offsetting these declines was
production from the Hayden Hill Mine, which commenced in June 1992, and the
Guanaco Mine, which commenced in April 1993. The start-up of production from
the Hayden Hill and Guanaco mines was intended to more than offset expected
decreases in production from the Sleeper Mine, due to declining mill head
grades, and the Wind Mountain Mine, due to the cessation of mining in January
1992 with continuing residual heap leach production. However, significantly
lower than expected production from both the Hayden Hill and Guanaco mines
resulted in reduced production and sales volumes in 1993 and 1992. Total
production and sales volumes for 1994 are expected to increase approximately
10-15% from the 1993 levels as the Hayden Hill and Guanaco heap leach
operations move towards design capacity.
The Sleeper Mine's 1993 production level of 100,018 gold ounces declined from
144,573 gold ounces in 1992 and 183,346 gold ounces in 1991 as a direct result
of lower mill head grades, which also affected the recovery rate. The 1993
average mill head grade at the Sleeper Mine was 0.078 ounce of gold per ton
compared to 0.106 ounce of gold per ton in 1992 and 0.219 ounce of gold per ton
in 1991. Heap leach production from Sleeper was also less in 1993 because of
fewer tons of ore being placed under spray. Production at the Wind Mountain
Mine decreased from 91,063 gold ounces in 1991 to 54,690 gold ounces in 1992
and 19,296 gold ounces in 1993 as a result of the completion of mining
activities in January 1992 with continuing residual heap leach production. Amax
Gold's 33.53% interest in the production from the Waihi Mine in New Zealand was
8,666 gold ounces in 1993 compared to 25,525 gold ounces in 1992 and 25,824 in
1991. In June 1993, Amax Gold completed a transaction which resulted in the
realization of all future economic benefit from its 33.53% interest in the
Waihi Mine, effective April 30, 1993. This transaction resulted in the
realization of an $8.8 million pre-tax ($2.4 million after tax) gain in 1993.
Amax Gold realized an average selling price of $392 per gold ounce in 1993
compared to $402 per gold ounce in 1992 and $427 per gold ounce in 1991. The
average realized price for each of the periods includes hedging benefits from
closing forward sales contracts and gold options at prices above market. The
average COMEX gold price for 1993 was $360 per ounce compared to $344 per ounce
in 1992 and $362 per ounce in 1991.
Costs applicable to sales rose to $79.7 million in 1993 from $52.8 million in
1992 and $57.5 million in 1991. Average gold unit cash production costs
increased to $388 per ounce in 1993 compared to $223 per ounce in 1992 and $195
per ounce in 1991. The 1993 increase was primarily the result of high unit cash
production costs of $664 per ounce at the Guanaco Mine, $470 per ounce at the
Hayden Hill Mine and $317 per ounce at the Sleeper Mine.
The high 1993 unit cash production costs at the Guanaco Mine were primarily
the result of the start-up phase of the heap leach operation together with
initial problems experienced with crusher throughput. Unit cash costs for the
Guanaco Mine are expected to decline in 1994 as heap leach production increases
toward design capacity. The Hayden Hill unit cash production costs were high
primarily due to a lower than expected ore grade. Hayden Hill's 1993 unit cash
production costs were $470 per gold ounce, up from the 1992 unit cash
production costs of $432 per gold ounce, due to abnormally high operating costs
in the first half of 1993 resulting from dilution in the grade of ore to the
mill, a lower than expected mill recovery and, to a lesser extent, severe
weather conditions. At the Sleeper Mine, unit cash production costs increased
to $317 per gold ounce in 1993 from $223 per gold ounce in 1992 and $188 per
gold ounce in 1991 primarily as a result of reduced production levels from
declining mill head grades. The Wind Mountain unit cash production costs of
$167 per gold ounce in 1993 rose from $114 per gold ounce in 1992 primarily as
a result of reduced 1993 production.
27
While average unit production costs also increased in 1992 as compared with
1991, total costs applicable to sales declined in 1992 compared with 1991. This
was primarily the result of more sales of lower unit cost production from the
Wind Mountain Mine in 1992.
The Company's operating costs include estimated reclamation costs for each of
Amax Gold's mines which are accrued and charged over the expected mine life
using the unit of production method. The anticipated reclamation costs are
estimates based on current federal, state and Chilean laws and regulations
governing the protection of the environment. Changes in these laws and
regulations could impact these anticipated reclamation costs. See Note 13 of
Notes to Consolidated Financial Statements under Item 8 of Part II herein for a
further discussion.
Depreciation and depletion increased by $3.9 million in 1993 compared to
1992. On a unit basis, depreciation and depletion increased to $122 per ounce
in 1993 from $87 per ounce in 1992. The 1993 increases were primarily due to
the inclusion of the Guanaco Mine depreciation and depletion, which commenced
in April 1993, and a reduction in estimated recoverable ore reserves at the
Sleeper Mine as of December 31, 1992. Somewhat offsetting these 1993 increases
in depreciation and depletion was lower depreciation and depletion for the
Hayden Hill Mine in the last half of 1993 due to the Hayden Hill assets being
written down as of June 30, 1993. Additionally, total depreciation and
depletion for 1993 and 1992 were favorably impacted by the Wind Mountain assets
being fully depreciated in the first quarter of 1992, with continuing residual
heap leach production. For 1992 compared to 1991, total depreciation and
depletion declined by $2.9 million as a result of lower production volumes. On
a per ounce basis, however, total depreciation and depletion increased from $82
per ounce in 1991 to $87 per ounce in 1992 as a result of the commencement of
the Hayden Hill depreciation and depletion, which was partially offset by lower
depreciation and depletion at the Wind Mountain Mine.
The Hayden Hill Mine, which began commercial production in mid-June 1992,
experienced unacceptably high unit operating costs and reduced production
resulting from a lower than expected ore grade. Mining indicated that mill
grade ore occurred in thinner, less continuous structures than originally
interpreted. A major re-evaluation of the operation was completed in July 1993.
Given the geologic complexity of the deposit as determined from mining
experience and a revised interpretation of geologic data, the proven/probable
reserves were reduced by approximately 409,000 contained gold ounces.
Mineralization excluded from the proven/probable reserves was reclassified as a
geologic resource until such time, if ever, that additional data from drilling
and further mining establish otherwise. The restated proven/probable reserves
as of December 31, 1993 were 18.8 million tons at an average grade of 0.024
ounce of gold per ton of ore containing 451,000 ounces of gold. During the last
half of 1993, the mine was reconfigured to operate as a heap leach operation
only, with the mill being maintained on a stand-by status. The mill may be run
intermittently if sufficient higher grade ore is encountered. As a result of
the downward revision of the Hayden Hill ore reserves and placing the mill on
stand-by status, Amax Gold recorded a $64.1 million pre-tax ($41.9 million
after tax) write-down of its Hayden Hill investment as of June 30, 1993.
Through the last half of 1993, the Hayden Hill Mine remained unprofitable as
modifications were made to increase heap leach production.
Mining experience and a reinterpretation of geologic data at the Sleeper Mine
during the fourth quarter of 1993 also led to a reduction in ore reserves. As
of December 31, 1993, the contained proven/probable ore reserves were reduced
to 6.7 million tons at an average grade of 0.037 ounce of gold per ton of ore
containing 250,000 ounces of gold. The change in tonnage and grade resulted in
a reduction of proven/probable reserves of approximately 296,000 contained gold
ounces. As a result, Amax Gold recorded a $23.6 million pre-tax ($15.6 million
after tax) write-down of its Sleeper investment as of December 31, 1993. In
addition, a portion of the remaining Sleeper ore reserve contains high clay
content material which is expected to have adverse impacts on operating costs
and recoveries.
In connection with the change in ownership from Amax to Cyprus Amax, Amax
Gold made management changes, reduced staff levels and relocated its
headquarters office to the Cyprus Amax headquarters office. The 1993 costs
relating to these restructuring activities were not significant.
28
Exploration expenses for 1992 were net of $11.2 million of exploration
expenses on the Haile and Guanaco projects which were capitalized and restored
to earnings, representing $8.9 million of 1991 exploration expenses and $2.3
million of 1992 exploration expenses. Under the accounting policy in effect in
1992, Amax Gold charged exploration expenses against earnings until a property
became exploitable, at which time all of the prior year exploration expenses
for such property were capitalized and restored to earnings. Effective January
1, 1993, the Company changed this accounting policy whereby exploration
expenses are expensed in the period incurred until such time as a property
becomes exploitable, with subsequent expenditures being capitalized. For 1993,
the Company recognized a $13.4 million after tax charge (net of a deferred tax
benefit of $4.5 million) relating to the cumulative effect from such accounting
change for periods prior to 1993. Excluding the exploration expenditures on the
Haile and Guanaco projects for 1992 and 1991, exploration expenditures were
$5.2 million in 1993 compared to $6.7 million in 1992 and $5.1 million in 1991.
Interest expense rose to $8.5 million in 1993 from $2.3 million in 1992 and
$.4 million in 1991. These increases were primarily the result of a higher
average debt balance each year which was partially offset by the capitalization
of a portion of the 1992 interest expense while the Hayden Hill and Guanaco
mines were in the construction and development phase.
Income tax benefits of $33.8 million were recognized in 1993 as a result of
the deferred tax effects of asset write-downs combined with estimated tax
losses for 1993. The amount of 1993 tax loss was partially offset by the tax
effects of the gain on the Waihi transaction. The 1992 income tax provision
increased by $.9 million compared to the net income tax provision for 1991,
despite lower earnings for 1992. This was due to a $4.6 million tax benefit
being recognized in 1991 under a tax sharing agreement with Amax for which
there was no comparable amount in 1992. Beginning January 1, 1992, Amax Gold
was no longer included in the consolidated income tax return of Amax and, as a
result, the tax sharing agreement was terminated as of the close of business on
December 31, 1991. Excluding the 1991 benefit from the tax sharing agreement,
Amax Gold's effective tax rate for 1991 was 34% compared to 28% for both 1992
and 1993.
Accounting changes as a result of new accounting standards included Statement
of Financial Accounting Standards No. 112 which Amax Gold adopted in 1993,
effective January 1, 1993, and Statement of Financial Accounting Standards No.
106 which Amax Gold adopted in 1992, effective January 1, 1992. The cumulative
effect of the 1993 accounting change for periods prior to 1993 was $1.8 million
(net of a deferred tax benefit of $1 million). The cumulative effect of the
1992 accounting change for periods prior to 1992 was $1.5 million (net of a
deferred tax benefit of $.9 million).
LIQUIDITY AND FINANCIAL POSITION
For 1993 the Company had negative operating cash flow of $23.2 million
primarily due to lower mill head grades at the Sleeper and Hayden Hill mines,
high start-up costs for the heap leach production from the Guanaco Mine and
higher interest expenditures resulting from increased debt levels. The negative
operating cash flow for 1993, together with $24.6 million of capital, cash
acquisition and investment expenditures and $31.6 million of debt principal
repayments were funded with existing cash balances of $23.7 million, $59.2
million of additional borrowings and net cash proceeds from the Waihi
transaction of $7.8 million. At December 31, 1993, Amax Gold had working
capital of $.3 million compared to $.2 million at December 31, 1992.
For 1993, the $24.6 million of capital expenditures and Refugio cash
acquisition and investment costs exclude $21.1 million of Refugio acquisition
costs that were funded through the issuance of 3.15 million shares of Amax Gold
common stock. The 1993 capital and acquisition cash outlay consisted of $7.7
million of Guanaco construction and development costs, $6.7 million of Fort
Knox development costs, an aggregate of $6.5 million of sustaining capital at
the Sleeper, Hayden Hill and Waihi mines, $2.5 million of Haile development
costs and $1.2 million of Refugio cash acquisition and investment costs.
29
Capital expenditures at the Sleeper, Hayden Hill and Guanaco mines for 1994
are currently estimated to be approximately $12.5 million. Fort Knox and
Refugio construction and development expenditures for 1994 are currently
estimated to be approximately $12 million and $26 million, respectively,
subject to securing the necessary financing.
In 1993, Amax Gold incurred borrowings of $59.2 million, of which $30 million
represented working capital gold loans, or 89,615 gold ounces (referred to as
"the Gold Loans"), $24.7 million represented borrowings from Amax under a
demand promissory note payable (referred to as "the Cyprus Note") and $4.5
million represented a refinancing of a portion of the Chilean short-term bridge
loans. Repayments of outstanding indebtedness in 1993 totalled $31.6 million,
which represented $15.6 million under the Hayden Hill financing, $10 million of
outstanding working capital gold loans (or 29,600 gold ounces), $1.5 million of
outstanding Chilean debt, which was assumed in connection with the 1992 Guanaco
acquisition, and $4.5 million of Chilean short-term bridge loans which were
refinanced through another Chilean bank. The $15.6 million repayment under the
Hayden Hill financing represented $9.6 million of scheduled amortization
payments and a $6 million voluntary prepayment utilizing a portion of the Waihi
transaction proceeds.
At December 31, 1993, Amax Gold had total outstanding debt obligations of
$151.6 million, representing $51.9 million under the Hayden Hill loan facility,
$34.2 million under Chilean short-term bridge loans, $9.2 million under Chilean
assumed debt, $30 million under the Gold Loans, $1.6 million (or 4,000 gold
ounces) under the Sleeper gold bullion loan agreement and $24.7 million under
the Cyprus Note.
Subsequent to December 31, 1993, various financing activities were undertaken
to provide Amax Gold with more financial strength and flexibility to meet its
outstanding debt obligations. In February 1994 a commitment letter was signed
between Amax Gold and Cyprus Amax to provide Amax Gold with a $100 million
convertible line of credit. The outstanding indebtedness under the $100 million
convertible line of credit may be repaid by Amax Gold issuing a like amount of
convertible preferred stock, which in turn could be converted into Amax Gold
common stock at $8.265 per share, which represents a 20% premium to the ten-day
average closing price immediately prior to the date the commitment letter was
signed. In addition, Amax Gold will have the right to convert the convertible
preferred stock into Amax Gold common stock at a maximum price of $8.265 per
share and a minimum price of $5.854 per share. Cyprus Amax will have the right
to replace the line of credit and any outstanding indebtedness and/or preferred
stock with the purchase of $100 million of Amax Gold common stock at a purchase
price of $8.265 per share, which represents approximately 12.1 million shares
of Amax Gold common stock.
With respect to the Cyprus Note, in February 1994 Amax Gold's Board of
Directors approved the purchase by Cyprus Amax of three million shares of its
common stock as repayment of $20.7 million of the outstanding indebtedness
under the Cyprus Note. This stock purchase is expected to be completed by the
end of March 1994. This share purchase, combined with the potential conversion
of the $100 million line of credit into Amax Gold common stock, would increase
Cyprus Amax's ownership of Amax Gold outstanding shares to slightly under 50%.
At December 31, 1993, the $24.7 million of outstanding indebtedness under the
Cyprus Note was classified as long-term based on the three million share
purchase approval in payment of $20.7 million of indebtedness and the deferral
by Cyprus Amax of the repayment of the remaining balance until 1995. The
remaining indebtedness to Cyprus Amax may also be settled through an additional
share purchase between Cyprus Amax and Amax Gold.
Also in March 1994, Amax Gold refinanced $34.2 million of Chilean bridge
loans with a $36 million U.S. term loan agreement with two financial
institutions, with scheduled amortization payments over a three-year term,
commencing in October 1994. This loan is collateralized by guarantees from Amax
Gold and, initially, from Cyprus Amax. At December 31, 1993, $33.2 million of
the Chilean bridge loans were classified as long-term based upon this
refinancing. In February 1994, Cyprus Amax also provided a guarantee for a
letter of credit which secures $9.2 million of Chilean assumed debt.
With respect to the Gold Loans, Cyprus Amax provided a guarantee in February
1994 for $10 million of the $30 million outstanding indebtedness which was
scheduled to be repaid in February 1994. The $10 million guarantee allowed Amax
Gold to extend the repayment of this loan to February 1995. It is expected that
the remaining $20 million of outstanding Gold Loans that are scheduled to be
repaid in 1994 will also
30
be extended into 1995 as a result of the $100 million convertible line of
credit provided by Cyprus Amax. As a result of the 1994 refinancing activities,
the Gold Loans were classified as long-term debt at December 31, 1993.
Upon completion of definitive documentation for the $100 million convertible
line of credit, a portion of this credit line is expected to be designated as
support for $30 million of the outstanding indebtedness under the Hayden Hill
financing and as replacement for the Cyprus Amax guarantee on the new $36
million Guanaco U.S. term loan. The remaining portion under the line of credit
will provide Amax Gold with additional working capital to meet its on-going
obligations. Definitive documentation for the $100 million convertible line of
credit is expected to be completed by the end of March 1994, subject to
possible regulatory delays.
At December 31, 1993, Amax Gold had 4,000 gold ounces outstanding under the
Sleeper gold bullion loan agreement, or $1.6 million. Amax Gold has verbally
agreed to repay the outstanding $1.6 million under this loan in February 1995.
Principal repayment obligations for 1994 aggregate $15.1 million, which
includes $11.1 million of scheduled amortization payments under the Hayden Hill
financing, $3.0 million of scheduled amortization payments under the
outstanding Chilean assumed debt and $1.0 million of scheduled amortization
payments under the new Guanaco U.S. term loan.
Amax Gold and Cyprus Amax are currently in the process of negotiating an
exploration joint venture agreement, a non-compete agreement and a services
agreement. These agreements are being put in place in order to maximize the
value of the strategic alliance between the two companies. The exploration
joint venture agreement would result in the two companies pooling their efforts
to discover and develop gold properties, with Cyprus Amax providing 75% of
initial funding for newly identified gold exploration targets. The non-compete
agreement would clarify the terms under which either company could develop and
ultimately produce minerals which would be in competition with the other party.
The services agreement would provide for certain general and administrative
services between Cyprus Amax and Amax Gold in order to take advantage of the
synergies between the two companies and to provide both companies with cost
savings. Cyprus Amax may also sell to Amax Gold certain of its gold exploration
and development properties, subject to the approval of each company's Board of
Directors and compliance with stock exchange and possibly other regulatory
requirements regarding related party transactions.
In 1994 Amax Gold expects that its operating mines will generate positive
cash flow, conditioned upon the performance of the Hayden Hill, Sleeper and
Guanaco mines. With the support of Cyprus Amax through the $100 million
convertible line of credit and debt guarantees, Amax Gold will be able to
sustain its current operations, its operating mine capital requirements, its
current debt service requirements and, to the extent funds are available,
exploration and project development costs. Additional financings will be
required, however, to fund the total capital required to bring its Fort Knox,
Refugio and other development projects into production. While Amax Gold intends
to seek additional 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.
Total capital requirements to construct and develop the Fort Knox property in
accordance with the preliminary design are currently estimated to be between
$250 million and $270 million, in addition to $182 million of capitalized
acquisition and development costs as of December 31, 1993. Amax Gold intends to
seek financing to fund a significant portion of the required future capital. In
February 1994, certain Alaska state permits were received. Upon the issuance of
a finding of no significant impact by the U. S. Army Corps of Engineers, which
is expected to be received during the first half of 1994, the Company plans to
perform detailed engineering for the project, upgrade the access road to the
project site and complete the necessary permitting to commence construction.
Timing of the construction is dependent on obtaining the final permits,
securing financing on acceptable terms and the approval by the Company's Board
of Directors.
Total capital requirements to construct and develop the Refugio project are
estimated to be between $120 million and $140 million, of which Amax Gold's
share is $60 million to $70 million. This is in addition
31
to Amax Gold's $22.7 million of capitalized exploration and acquisition costs
as of December 31, 1993. Amax Gold and its 50% partner are attempting to secure
financing to fund a significant portion of the required future capital. Each
partner is responsible for its own financing. Timing of development is
dependent on securing adequate financing.
The Haile joint venture will focus on an updated status report and revised
reserve estimate incorporating results from the 1993 drilling program, which is
expected to be completed in the second quarter of 1994. Depending upon the
results and conclusions reached in the updated status report, the project may
move into the engineering design phase or additional development drilling may
be conducted. Amax Gold's share of 1994 development costs on the Haile project
are estimated to be approximately $4 million.
OUTLOOK
Net losses are expected to continue to be realized in 1994, assuming an
average realized selling price of $395 per gold ounce. Depending upon the
performance of Hayden Hill, Sleeper and Guanaco, total production and sales
volumes for 1994 are expected to increase approximately 10-15% from the
production and sales volumes for 1993. However, total costs and operating
expenses (including depreciation and depletion) combined with exploration
expenditures and interest expense are expected to exceed the expected 1994
sales, resulting in a continuing net loss for 1994. Net losses are expected to
be higher in the first quarter of 1994 as the Hayden Hill and Guanaco heap
leach operations move toward design capacity. Additionally, the 1994
production, sales volumes and net results are expected to be slightly impacted
by declining residual heap leach production from the Wind Mountain operation.
Unit cash operating costs in 1994 are expected to decline from 1993 levels,
primarily as a result of expected increases in production from the Hayden Hill
and Guanaco operations. Depreciation and depletion unit costs in 1994 are also
expected to decline from 1993 levels primarily due to the write-down of the
Sleeper and Hayden Hill assets, which will result in lower unit depreciation
and depletion costs in 1994. However, the total average 1994 unit production
costs, which include the total average unit cash operating costs and
depreciation and depletion costs, are expected to exceed the 1994 average
realized price per ounce of gold sold, primarily due to lower production in the
first half of 1994 as the Hayden Hill and Guanaco operations move towards
design capacity. This is expected to result in an operating loss for 1994.
However, Amax Gold expects that its operating mines will generate positive cash
flow in 1994.
General and administrative and exploration expenses are expected to be lower
in 1994. Amax Gold made several management changes, reduced its staff,
relocated its headquarters office to the Cyprus Amax headquarters office and is
in the process of negotiating a services agreement and gold exploration joint
venture agreement with Cyprus Amax. These actions are expected to provide
savings in general and administrative and exploration expenses.
Amax Gold expects to realize a 1994 average selling price in the range of
$385 to $450 per gold ounce, depending upon the market price for gold. Amax
Gold 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. During the first
quarter of 1993, the COMEX market price for gold dropped to a new seven-year
low of $326 per ounce, then rose to a high of $407 per ounce on July 29, 1993.
As of March 10, 1994, the COMEX market price for gold was $387 per ounce. The
1993 increase in gold market prices has allowed Amax Gold to put in place new
hedge positions for a substantial portion of the forecast gold production for
1994 and 1995. Amax Gold 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. Amax Gold also believes it can
continue to obtain an average realized sales price for fiscal 1994 and 1995 of
at least $385 per ounce if gold market prices decline to as low as $320 per
ounce. However, Amax Gold'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.
Amax Gold's focus for 1994 will be to maximize the operating performance at
all of its mines while at the same time attempting to minimize capital and
operating cash outlays and to pursue additional financings to advance its
development projects at a rate that will yield attractive returns.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Amax Gold Inc.:
We have audited the accompanying consolidated statements of financial
position of Amax Gold Inc. and Subsidiaries (the Company) as of December 31,
1993 and 1992, and the related consolidated statements of operations, changes
in capital stock, paid-in capital and retained earnings and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Amax Gold Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, during 1993
the Company changed its method of accounting for exploration expenditures and
postemployment benefits. As also discussed in Note 1 to the consolidated
financial statements, during 1992 the Company changed its method of accounting
for precious metals inventory, postretirement benefits and income taxes.
Coopers & Lybrand
Denver, Colorado
February 4, 1994 except for Note 8 for which the date is March 18, 1994.
33
REPORT OF MANAGEMENT
Report on Financial Statements and on Internal Control
Amax Gold Inc. is responsible for the preparation of the consolidated
financial statements in the Annual Report on Form 10-K and for the integrity
and objectivity of the information presented. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include amounts which are estimates and judgments.
The fairness of the presentation in these consolidated statements of Amax
Gold's operations, financial position, cash flows and changes in capital stock,
paid-in capital and retained earnings is audited and reported on by the
independent accountants.
To assist in carrying out the above responsibility, Amax Gold has internal
systems which provide for selection of personnel, segregation of duties and
maintenance of accounting policies, systems, procedures and related controls.
Although no cost-effective system can ensure the elimination of errors, Amax
Gold's systems have been designed to provide reasonable but not absolute
assurance that assets are safeguarded, that policies and procedures are
followed and that the financial records are adequate to permit the production
of reliable consolidated financial statements.
The Audit Committee of the Board of Directors, which is composed of directors
who are not officers or employees of Amax Gold, Cyprus Amax Minerals Company or
their subsidiaries, meets regularly with senior financial officers and the
independent accountants in connection with monitoring the adequacy and
integrity of Amax Gold's accounting, financial reporting and internal controls.
34
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
--------- ------- --------
SALES............................................ $ 81,900 $99,700 $128,200
COSTS AND OPERATING EXPENSES--
Costs applicable to sales...................... 79,700 52,800 57,500
Depreciation and depletion..................... 25,700 21,800 24,700
Selling, general and administrative expenses... 8,400 8,500 8,000
--------- ------- --------
Total costs and operating expenses............. 113,800 83,100 90,200
--------- ------- --------
GROSS OPERATING MARGIN (LOSS).................... (31,900) 16,600 38,000
GAIN ON WAIHI TRANSACTION........................ 8,800 -- --
ASSET WRITE-DOWNS................................ (87,700) -- --
EXPLORATION EXPENSES, NET........................ (5,200) 2,200 (14,000)
--------- ------- --------
EARNINGS (LOSS) FROM OPERATIONS.................. (116,000) 18,800 24,000
Interest expense............................... (8,500) (2,300) (400)
Minority interest.............................. 1,100 -- --
Interest income................................ 700 1,600 1,700
Other.......................................... (100) (100) --
--------- ------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES......... (122,800) 18,000 25,300
Income tax (provision) benefit................. 33,800 (5,000) (8,700)
Benefit from tax sharing agreement............. -- -- 4,600
--------- ------- --------
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES.............................. (89,000) 13,000 21,200
Cumulative effect of accounting changes, net of
income tax benefits of $5,500 in 1993 and $900
in 1992....................................... (15,200) (1,500) --
--------- ------- --------
NET EARNINGS (LOSS).............................. $(104,200) $11,500 $ 21,200
========= ======= ========
PER COMMON SHARE:
Earnings (loss) before cumulative effect of
accounting changes............................ $ (1.14) $ .18 $ .35
Cumulative effect of accounting changes........ (.20) (.02) --
--------- ------- --------
Net earnings (loss)............................ $ (1.34) $ .16 $ .35
========= ======= ========
DIVIDENDS DECLARED PER COMMON SHARE.............. $ .08 $ .08 $ .08
========= ======= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING....... 77,758 73,695 59,995
========= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
35
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE OF STOCK)
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
ASSETS
Cash and equivalents................................. $ 7,500 $ 23,700
Inventories.......................................... 16,600 15,100
Other assets......................................... 9,800 7,800
Receivables on open sales contracts.................. 4,000 500
-------- --------
CURRENT ASSETS..................................... 37,900 47,100
Property, plant and equipment, net................... 315,800 429,800
Refugio equity investment............................ 22,700 --
Other assets......................................... 4,600 700
-------- --------
TOTAL ASSETS....................................... $381,000 $477,600
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade.............................. $ 4,000 $ 6,700
Accounts payable, affiliates......................... 100 1,000
Accrued and other current liabilities................ 16,400 16,300
Reclamation reserve, current portion................. 2,000 2,000
Short-term debt...................................... -- 10,000
Current maturities of long-term debt................. 15,100 10,900
-------- --------
CURRENT LIABILITIES................................ 37,600 46,900
Long-term debt and unearned revenue.................. 111,800 103,100
Note payable to Cyprus Amax.......................... 24,700 --
Reclamation reserve, noncurrent portion.............. 8,600 2,300
Other noncurrent liabilities......................... 8,100 8,000
-------- --------
TOTAL LIABILITIES.................................. 190,800 160,300
-------- --------
Deferred income taxes................................ 16,900 60,100
-------- --------
Commitments and contingencies (Notes 9 and 13)....... -- --
-------- --------
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
78,185,057 shares in 1993 and 74,503,819 shares in
1992.............................................. 800 700
Paid-in capital.................................... 150,700 125,500
Retained earnings.................................. 21,800 132,200
Cumulative translation adjustment.................. -- (1,100)
Common stock in treasury, at cost (1,991 shares in
1993 and 4,500 shares in 1992).................... -- (100)
-------- --------
TOTAL SHAREHOLDERS' EQUITY......................... 173,300 257,200
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $381,000 $477,600
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
36
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
--------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
NET EARNINGS (LOSS)........................... $(104,200) $ 11,500 $ 21,200
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Asset write-downs............................ 87,700 -- --
Depreciation and depletion................... 25,700 21,800 24,700
Cumulative effect of accounting changes...... 15,200 1,500 --
Increase in reclamation reserves............. 3,700 1,600 1,000
Increase (decrease) in deferred taxes........ (34,100) 4,700 3,000
Gain on Waihi transaction.................... (8,800) -- --
Minority interest............................ (1,100) -- --
Other, net................................... (600) 900 (700)
Capitalization of prior period exploration
costs....................................... -- (8,900) --
Decrease (increase) in working capital, net of
effect of investing and financing activities:
Accrued and other current liabilities........ 2,700 2,000 3,100
Receivables on open sales contracts.......... (3,500) 700 (100)
Inventories.................................. (2,300) (5,200) (100)
Accounts payable, trade...................... (2,000) (3,600) 4,400
Accounts payable, affiliates................. (900) (700) (2,000)
Other assets................................. (700) (400) (3,600)
--------- --------- --------
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES.................................... (23,200) 25,900 50,900
--------- --------- --------
INVESTING ACTIVITIES
Net cash received on Waihi transaction........ 7,800 -- --
Capital and cash acquisition expenditures for
property, plant and equipment................ (23,400) (113,700) (60,000)
Refugio cash acquisition and investment costs. (1,200) -- --
Other......................................... (200) (200) --
Repayments from Amax under notes receivable... -- 15,400 13,900
Fort Knox acquisition costs, net of cash
acquired..................................... -- 300 (7,600)
--------- --------- --------
NET CASH USED BY INVESTING ACTIVITIES.......... (17,000) (98,200) (53,700)
--------- --------- --------
FINANCING ACTIVITIES
Proceeds from financings...................... 34,500 86,700 25,000
Advances from Cyprus Amax under notes payable. 24,700 -- --
Repayments of financings...................... (31,600) -- (7,900)
Cash dividends paid........................... (2,000) (2,800) (4,800)
Other......................................... (1,700) 2,800 (200)
--------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 23,900 86,700 12,100
--------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
EQUIVALENTS................................... 100 (200) (300)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS................................... (16,200) 14,200 9,000
Cash and equivalents at January 1.............. 23,700 9,500 500
--------- --------- --------
CASH AND EQUIVALENTS AT DECEMBER 31 (INCLUDING
RESTRICTED CASH OF $6,100 IN 1991)............ $ 7,500 $ 23,700 $ 9,500
========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements
37
AMAX GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL STOCK,
PAID-IN CAPITAL AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
COMMON STOCK COMMON
----------------- PAID-IN RETAINED STOCK IN
SHARES AMOUNT CAPITAL EARNINGS TREASURY
---------- ------ -------- --------- --------
BALANCE AT DECEMBER 31, 1990.... 59,999,982 $600 $ 9,900 $ 110,200 $(100)
Net earnings for the year
ended December 31, 1991...... -- -- -- 21,200 --
Cash dividends on common
stock........................ -- -- -- (4,800) --
---------- ---- -------- --------- -----
BALANCE AT DECEMBER 31, 1991.... 59,999,982 600 9,900 126,600 (100)
Net earnings for the year
ended December 31, 1992...... -- -- -- 11,500 --
Issuance of common shares for
acquisitions................. 14,173,253 100 112,500 -- --
Issuance of common shares
under dividend reinvestment
plan......................... 330,584 -- 3,100 (3,100) --
Cash dividends on common
stock........................ -- -- -- (2,800) --
---------- ---- -------- --------- -----
BALANCE AT DECEMBER 31, 1992.... 74,503,819 700 125,500 132,200 (100)
Net earnings (loss) for the
year ended December 31, 1993. -- -- -- (104,200) --
Issuance of common shares for
acquisitions................. 3,150,000 100 21,000 -- --
Issuance of common shares
under dividend reinvestment
plan......................... 523,989 -- 4,200 (4,200) --
Shares issued to non-employee
directors.................... 4,740 -- -- -- --
Issuance of treasury shares to
non-employee directors....... 2,509 -- -- -- 100
Cash dividends on common
stock........................ -- -- -- (2,000) --
---------- ---- -------- --------- -----
BALANCE AT DECEMBER 31, 1993.... 78,185,057 $800 $150,700 $ 21,800 $ --
========== ==== ======== ========= =====
The accompanying notes are an integral part of these consolidated financial
statements.
38
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Amax Gold Inc. and
its more than 50% owned subsidiaries (hereinafter referred to as the Company).
Investments in 20 percent to 50 percent owned companies are accounted for by
the equity method. The Company includes its pro rata share of assets and
liabilities for investments in ventures on a proportionate consolidation basis.
All material intercompany balances and transactions have been eliminated.
PROPERTY, PLANT AND EQUIPMENT are carried at cost, including development
expenditures and capitalized interest. Maintenance and repairs are charged to
earnings. Expenditures for major betterments are capitalized. Gains and losses
on retirements are included in earnings. Depreciation and depletion are
computed using the unit of production method based on the estimated ounces of
gold to be recovered and an estimated salvage value for certain assets at the
end of their useful lives. Mobile equipment and assets which have a useful life
which is shorter than the mine life are depreciated on a straight-line basis
over estimated useful lives of one to five years. A provision for impairment is
provided when a determination has been made that the net book value of mining
assets will not be recovered through estimated undiscounted future cash flows.
EXPLORATION expenditures are charged against earnings in the period incurred.
Costs of acquiring exploration mineral rights are deferred and amortized
against earnings. Provisions for impairment of exploitable properties not being
developed are also charged to expense. The Company changed its accounting
policy, effective as of January 1, 1993, from that of subsequently capitalizing
and restoring to earnings prior period exploration expenses when a property
becomes 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. This change is believed to better
present income from mining activities and follows the predominant practice in
the mining industry with respect to accounting for exploration expenses. For
the year ended December 31, 1993, the Company recognized a $13.4 million, or
$.17 per common share, after tax charge (net of a deferred income tax benefit
of $4.5 million) relating to the cumulative effect from such accounting change
for periods prior to 1993. The effect of this accounting change on the 1993
period costs was to reduce the 1993 net loss by $4.3 million. The pro forma
unaudited results, assuming this 1993 accounting change had been applied
retroactively for the prior two fiscal years, are as follows (in millions
except per share amounts):
YEARS ENDED
DECEMBER 31,
--------------
1992 1991
------ -------
Earnings from operations................................... $ 8.2 $ 24.7
Earnings before cumulative effect of accounting changes.... $ 6.4 $ 21.9
Net earnings............................................... $ 4.9 $ 21.9
Net earnings per common share.............................. $ .07 $ .36
GOLD INVENTORY is stated at the lower of aggregate cost, computed on a last-
in, first-out (LIFO) basis, or market. Materials and supplies inventories are
stated at average cost less reserves for obsolescense. Effective January 1,
1992, the Company revised its procedures to measure precious metal production
in the mill carbon circuit. Previously, production was measured in the form of
dore bullion. As a result, costs applicable to the gold ounces in the mill
carbon circuit are included in inventory. This change results in a better
matching of production units with related costs and follows practices which are
prevalent in the mining industry. The cumulative effect of the accounting
change for prior years (to December 31, 1991) together with the effect of the
change for the year ended December 31, 1992 (aggregating approximately $.1
million) was not shown separately as the amounts were insignificant to the
Company's results of operations for fiscal 1992.
39
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
RECLAMATION, SITE RESTORATION AND CLOSURE COSTS for each producing mine are
estimated based primarily upon environmental and regulatory requirements and
are accrued and charged over the expected life of each of the Company's mines
using the unit of production method. Ongoing environmental and reclamation
expenditures are expensed as incurred.
UNEARNED REVENUE represents payments received for the future delivery of
mineral products to be mined. Upon delivery, sales are included in the
Company's statements of operations based on the per ounce ratable share of
payments received and expenses are included based on production costs.
FORWARD SALE CONTRACTS AND PUT AND CALL OPTION CONTRACTS are entered into
from time to time to hedge the effect of price changes on the Company's
precious metals that are produced and sold. The results of such activities are
included in sales at the time the hedged production is sold.
INTEREST RATE swaps, options and caps are entered into as a hedge against
interest rate exposure on the Company's financing facilities. The differences
to be paid or received on swaps, options and caps are included in interest
expense as payments are made or received.
INCOME TAXES are calculated using the liability method in accordance with the
provisions set forth in Statement of Financial Accounting Standards (SFAS) No.
109, which the Company adopted in 1992, effective January 1, 1992. Prior to
1992, income taxes were calculated in accordance with SFAS No. 96. The adoption
of SFAS No. 109 in 1992 had no effect on the Company's net earnings. See Note 5
for a further discussion.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS are calculated in accordance with
the provisions set forth in SFAS No. 106, which the Company adopted in 1992,
effective January 1, 1992. See Note 4 for a further discussion.
POSTEMPLOYMENT BENEFITS are calculated in accordance with the provisions set
forth in SFAS No. 112, which the Company adopted in 1993, effective January 1,
1993. See Note 4 for a further discussion.
CASH AND EQUIVALENTS include cash and all highly liquid investments with an
original maturity of three months or less. The Company invests cash in time
deposits maintained in high credit quality financial institutions. To date,
this concentration of credit risk has not affected the Company's operations.
Cash flows from hedged production of gold are included in cash flows from
operating activities.
2. ACQUISITIONS
In January 1993, the Company acquired an indirect 50% interest in a Chilean
company which, in turn, purchased the Refugio gold development project in
Chile. To acquire this interest, the Company issued 3.15 million unregistered
shares of common stock of the Company. The acquisition cost approximated $22.2
million, representing $21.1 million in stock and $1.1 million in cash
acquisition costs.
3. TRANSACTIONS WITH AFFILIATES
On November 15, 1993, AMAX Inc. (Amax), a New York corporation which owned
approximately 68% of the Company's outstanding common stock, was merged with
and into Cyprus Minerals Company, a Delaware corporation. Immediately prior to
the merger, Amax distributed to Amax shareholders from the shares then held by
Amax approximately 28% of the Company's outstanding common stock. As of
December 31, 1993, the merged company, called Cyprus Amax Minerals Company
(Cyprus Amax), owned approximately 31.3 million common shares, or approximately
40% of the Company's outstanding common stock.
40
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
In connection with the change in ownership, the Company is in the process of
negotiating several agreements with Cyprus Amax, including an exploration joint
venture agreement, a non-compete agreement and a services agreement. The
exploration joint venture agreement would result in the two companies pooling
their efforts to discover and develop gold properties, with Cyprus Amax
providing 75% of initial funding for newly identified gold exploration targets.
The non-compete agreement would clarify the terms under which either company
could develop and ultimately produce minerals which would be in competition
with the other party. The services agreement would provide for general
administrative services between Cyprus Amax and the Company.
For the years ended December 31, 1993, 1992 and 1991, Amax supplied
management services and employee benefits to the Company on a full cost
reimbursement basis. These services and employee benefits included insurance
coverage for the Company, employee benefit plans (medical and life insurance
benefits) and employee pension and thrift plan benefits. In October 1993, the
Company established separate medical and life insurance coverage for its
employees. Additionally, on November 15, 1993, a separate defined benefit
pension plan and thrift plan for Company employees became effective. For the
period from January 1, 1993 through November 14, 1993, and for the years ended
December 31, 1992 and 1991, Amax charged the Company approximately $.4 million,
$1.3 million and $1.0 million for pension costs. For the years ended December
31, 1993, 1992, and 1991, Amax also charged the Company $4.8 million, $4.2
million and $4.1 million for services, insurance and employee benefits other
than pensions.
The Company made advances to Amax during the years ended December 31, 1993,
1992 and 1991 under a demand promissory note receivable bearing interest at the
sum of the federal funds rate plus 3/16%. At December 31, 1993, all amounts had
been fully repaid. The annualized interest rate on outstanding amounts during
the years ended December 31, 1993, 1992 and 1991 was 3.2%, 3.7% and 6.1%
respectively. Interest income on these advances was $.2 million, $.5 million
and $1.2 million for the years ended December 31, 1993, 1992 and 1991,
respectively.
Amax made loans to the Company during the year ended December 31, 1993 under
a demand promissory note payable, bearing interest at the sum of the federal
funds rate plus 3/16%. See Note 8 for a further discussion.
4. EMPLOYEE BENEFITS
PENSION PLAN
Effective November 15, 1993, substantially all Company employees were covered
by a non-contributory defined benefit pension plan. The plan provides
retirement benefits for employees based generally on years of service and
compensation during the last years of employment. Pursuant to the Amax and
Cyprus Amax merger agreement, a distribution of the Company's share of pension
plan assets will be made from the Cyprus Amax pension plan based on the
Company's proportionate share of pension plan liabilities. The pension plan
assets are expected to be received on May 15, 1994 and will be used to fund the
Company's pension plan. During the period from November 15, 1993 through May
15, 1994, the pension plan assets will earn interest at a rate of 6% per annum,
pursuant to the Amax and Cyprus Amax merger agreement. On-going funding for the
Company's defined benefit pension plan will be made in accordance with the
requirements of ERISA.
41
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Net annual pension cost (including the cost incurred during the period the
Company was included in the Amax pension plan) includes the following
components:
1993
----
Service cost........................................................ $1.0
Interest cost....................................................... .4
Expected return..................................................... (.1)
Net amortization of prior service cost and losses................... .3
----
Net periodic expense................................................ $1.6
====
The following table summarizes the funded status of the plan and the related
amounts recognized in the Company's statement of financial position at December
31:
1993
-----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $2.2
million.......................................................... $ 3.3
=====
Projected benefit obligation....................................... $(7.0)
Estimated plan assets at fair value................................ 2.1
-----
Estimated plan assets less than projected benefit obligation....... (4.9)
Unrecognized prior service cost.................................... 1.6
Unrecognized net loss.............................................. 2.1
-----
Accrued pension cost............................................... $(1.2)
=====
The expected long-term rate of return on plan assets and compensation
increases assumed were 10% and 5.25%, respectively. The discount rate assumed
was 7.5% in determining the actuarial present value of benefit obligations and
8.5% in determining the 1993 net periodic expense.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company also provides certain health care and life insurance benefits for
retired employees in the United States. Effective January 1, 1992, the Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", which requires companies to accrue such benefits during the
employees' period of service. Prior to 1992, the Company charged these costs to
expense as paid. As of January 1, 1992, the Company recognized the full amount
of its estimated accumulated postretirement benefit obligation as a cumulative
effect of an accounting change. This cumulative amount represented the present
value of the estimated future benefits payable to current retirees and a pro
rata portion of estimated benefits payable to currently active employees after
their retirement. The pre-tax charge to 1992 earnings for the cumulative effect
was $2.4 million, with a net earnings effect of $1.5 million.
Net periodic postretirement benefit costs for the years ended December 31,
1993 and 1992 were insignificant.
42
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The following table sets forth the status of the plans and the related
amounts recognized in the Company's statement of financial position at December
31:
1993 1992
----- -----
Accumulated postretirement benefit obligation:
Retirees................................................. $ .4 $ .3
Fully eligible active plan participants.................. .1 .1
Other active plan participants........................... 1.0 .8
----- -----
Total accumulated postretirement benefit obligation...... 1.5 1.2
Plan assets at fair value................................ -- --
----- -----
Accumulated postretirement benefit obligation in excess
of plan assets.......................................... (1.5) (1.2)
Unrecognized prior service cost.......................... (1.8) (2.0)
Unrecognized net loss.................................... .5 .4
----- -----
Accrued postretirement benefit cost...................... $(2.8) $(2.8)
===== =====
The accumulated postretirement benefit obligation was determined using a
weighted average annual discount rate of 7.5% in 1993 and 8.5% in 1992. The
assumed health care cost trend rate used in 1993 was 14.5% declining gradually
to 6.2% for 2008 and thereafter.
A one percent increase each year in the health care cost trend rate used
would have resulted in an insignificant increase in the 1993 aggregate service
and interest expense components and the accumulated postretirement benefit
obligation at December 31, 1993.
POSTEMPLOYMENT BENEFITS
The Company also has a number of postemployment plans covering severance,
disability income and continuation of health and life insurance for disabled
employees. Effective January 1, 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". The pre-tax charge to 1993
earnings for the cumulative effect of this accounting change was $2.8 million,
with a net earnings effect of $1.8 million.
5. INCOME TAXES
Beginning January 1, 1987, the Company was included in the consolidated
federal income tax return of Amax and made tax payments to Amax under a tax
sharing agreement. Under this tax sharing agreement, the Company was not
charged for its use of Amax's existing federal net operating loss and
investment tax credit carryforwards. The agreement did not include any foreign
taxes required to be paid by the Company. On December 31, 1991, the Company and
Amax amended the tax sharing agreement such that the federal income tax
liability originally charged to the Company by Amax from 1987 to 1991 will be
final and will not be affected by audit adjustments, claims for refund,
carrybacks, carryovers or amended returns. The tax sharing agreement was
terminated as of the close of business on December 31, 1991. As a result of the
issuance of the Company's common stock upon the consummation of the Fort Knox
acquisition in 1992, the Company was no longer included in the consolidated
federal income tax return of Amax or Cyprus Amax, effective January 1, 1992.
43
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The income tax provision (benefit) for the years ended December 31, 1993,
1992 and 1991 was based on earnings (loss) before income taxes and cumulative
effect of accounting changes as follows:
1993 1992 1991
------- ----- -----
United States....................................... $(108.8) $13.3 $26.0
Foreign............................................. (14.0) 4.7 (.7)
------- ----- -----
$(122.8) $18.0 $25.3
======= ===== =====
The total income tax provision (benefit) for the years ended December 31,
1993, 1992 and 1991 was included in the financial statements as follows:
1993 1992 1991
------ ---- ----
Income tax provision (benefit)......................... $(33.8) $5.0 $4.1
Cumulative effect of accounting changes................ (5.5) (.9) --
------ ---- ----
Total net income tax provision (benefit)............... $(39.3) $4.1 $4.1
====== ==== ====
The income tax provision (benefit) for the years ended December 31, 1993,
1992 and 1991 consisted of the following:
1993 1992 1991
------ ---- -----
Current:
Federal and state................................... $ -- $ .1 $ 4.8
Foreign............................................. .3 .2 1.1
------ ---- -----
.3 .3 5.9
------ ---- -----
Deferred:
Federal and state................................... (39.2) 3.4 2.1
Foreign............................................. (.4) .4 .7
------ ---- -----
(39.6) 3.8 2.8
------ ---- -----
Benefit from tax sharing agreement.................... -- -- (4.6)
------ ---- -----
Total net income tax provision (benefit).............. $(39.3) $4.1 $ 4.1
====== ==== =====
Cash payments (refunds):
Federal and state taxes............................. $ (.5) $ .6 $ 2.0
Foreign taxes....................................... .1 .2 1.1
------ ---- -----
$ (.4) $ .8 $ 3.1
====== ==== =====
The sources of significant temporary differences for the years ended December
31, 1993, 1992 and 1991 consisted of the following:
1993 1992 1991
------ ----- ----
Exploration and development costs and depreciation... $(29.7) $12.0 $2.8
Deferred tax benefit from current year net operating
loss................................................ (8.8) (6.8) --
Other................................................ (3.7) (1.4) --
------ ----- ----
Total temporary differences.......................... (42.2) 3.8 2.8
Valuation allowance.................................. 2.6 -- --
------ ----- ----
Total deferred taxes................................. $(39.6) $ 3.8 $2.8
====== ===== ====
44
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The components of the net deferred tax liabilities at December 31, 1993 and
1992 were as follows:
1993 1992
----- -----
Deferred tax assets:
Current--
Liabilities and reserves...................................... $ 1.0 $ 1.1
Inventory..................................................... 1.4 .9
Non-current--
Net operating loss carryforwards.............................. 22.4 12.5
Less: Valuation adjustment.................................... (2.6) --
Alternative minimum tax credits............................... 2.8 2.9
Postretirement benefits other than pensions................... 1.0 1.0
Postemployment benefits....................................... 1.0 --
Other liabilities and reserves................................ 3.3 1.3
----- -----
Total deferred tax assets................................... 30.3 19.7
----- -----
Deferred tax liabilities:
Current--
Inventory..................................................... .1 .1
Non-current--
Exploration and development costs and depreciation............ 35.0 77.8
Other liabilities and reserves................................ 9.8 --
----- -----
Total deferred tax liabilities.............................. 44.9 77.9
----- -----
Net deferred tax liabilities................................ $14.6 $58.2
===== =====
The valuation allowance of $2.6 million has been provided to reduce Chilean
tax assets because it is likely that a portion of the Chilean tax assets will
not be realized.
The differences between the Company's provision (benefit) for income taxes
and taxes at the statutory rate for the years ended December 31, 1993, 1992 and
1991 were as follows:
1993 1992 1991
------ ----- -----
Tax at statutory rate.................................... $(41.7) $ 6.1 $ 8.6
Excess of alternative minimum tax over tax at regular
statutory rate.......................................... -- -- 4.4
State income taxes, net of federal benefit............... (1.4) .8 --
Percentage depletion..................................... (.5) (2.7) (4.7)
Exploration and development costs and depreciation....... -- -- (2.0)
Foreign exploration...................................... -- (.8) 1.9
Waihi transaction gain................................... 3.7 -- --
Valuation allowance for foreign losses with no expected
tax benefit............................................. 5.1 -- --
Other, principally non-recurring items................... 1.0 1.6 .5
------ ----- -----
Income tax............................................... (33.8) 5.0 8.7
Benefit from tax sharing agreement....................... -- -- (4.6)
------ ----- -----
Income tax provision (benefit)........................... (33.8) 5.0 4.1
------ ----- -----
Income taxes on cumulative effect of accounting changes
at statutory rate....................................... (7.0) (.8) --
State income taxes, net of federal benefit............... (.2) (.1) --
Valuation allowance for foreign losses with no expected
tax benefit............................................. 1.7 -- --
------ ----- -----
Income tax benefit on cumulative effect of accounting
changes................................................. (5.5) (.9) --
------ ----- -----
Total income tax provision (benefit)..................... $(39.3) $ 4.1 $ 4.1
====== ===== =====
45
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
At December 31, 1993, the Company had federal tax net operating loss
carryforwards of $53.5 million and alternative mininum tax net operating loss
carryforwards of $26.7 million expiring in the years 2002-2008 and alternative
minimum tax credit carryforwards of $2.8 million with no expiration. At
December 31, 1993, the Company also had Chilean tax net operating loss
carryforwards of $28 million with no expiration.
The Omnibus Budget Reconciliation Act of 1993 increased the U.S. federal
corporate tax rate from 34% to 35%. The rate change had no effect on the net
recorded deferred tax accounts of the Company.
Net income tax on a separate company basis for the year ended December 31,
1991 would have been substantially the same as the amounts reflected above in
income tax, excluding the benefit from the tax sharing agreement.
6. INVENTORIES
Inventories at December 31, 1993 and 1992 consisted of the following:
1993 1992
----- -----
Precious metals, refined and in-process....................... $ 9.0 $ 7.3
Materials and supplies........................................ 7.6 7.8
----- -----
$16.6 $15.1
===== =====
The market value of the precious metals inventory at December 31, 1993 was
$12.6 million, with the excess replacement cost (at market value) over the LIFO
basis being $3.6 million.
7. PROPERTY, PLANT AND EQUIPMENT AND WRITE-DOWNS
The components of property, plant and equipment at December 31, 1993 and 1992
were as follows:
1993 1992
------- -------
Mining plants and equipment............................ $ 163.2 $ 150.4
Mining properties...................................... 159.9 120.1
New Zealand joint venture mining properties, plant and
equipment............................................. -- 14.9
Development properties and construction-in-progress.... 197.9 253.8
------- -------
521.0 539.2
Less:
Accumulated depreciation, depletion and 1993 write-
downs............................................... (205.2) (109.4)
------- -------
$ 315.8 $ 429.8
======= =======
Asset write-downs
The Hayden Hill Mine, which began commercial production in June 1992,
experienced unacceptably high unit operating costs due to lower than
anticipated mill head grades. A re-evaluation of the operation completed in
July 1993 resulted in the downward revision of proven/probable ore reserves of
approximately 409,000 contained gold ounces. During the last half of 1993, the
mine was reconfigured to operate as a heap leach operation only, with the mill
being maintained on stand-by status. As a result of the downward revision of
the Hayden Hill ore reserves and the stand-by status of the mill, the Company
recorded a $64.1 million pre-tax ($41.9 million after-tax) write-down of the
Hayden Hill assets on June 30, 1993. At December 31, 1993, the net book value
assigned to the Hayden Hill mill was approximately $24 million. The Company is
depreciating a portion of this mill over the life of the Hayden Hill mine based
on
46
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
usage. At the end of the Hayden Hill mine life, a residual value for the mill
of approximately $20 million is expected which would be classified as an idle
asset until the mill is either utilized at another Company operation or sold.
Mining experience and a reinterpretation of geologic data at the Sleeper Mine
during the fourth quarter of 1993 also led to a reduction in proven/probable
ore reserves of approximately 296,000 contained gold ounces. As a result, Amax
Gold recorded a $23.6 million pre-tax ($15.6 million after-tax) write-down of
its Sleeper assets as of December 31, 1993.
Waihi Transaction
In June 1993, the Company completed a transaction which resulted in the
realization of all future economic benefit from the Company's 33.53% interest
in the Waihi Mine in New Zealand, effective April 30, 1993. The Company
received cash proceeds of US$15.4 million from the transaction and a commitment
to deliver a total of 15,500 ounces of gold over a 5-year period. Following the
transaction, the Company sold forward, on a spot-deferred forward basis (which
allows the Company to defer the delivery of the gold ounces to a later date at
a renegotiated gold price) the 15,500 gold ounces at an average price of $365
per ounce. During the year ended December 31, 1993, the Company recognized a
US$8.8 million pre-tax gain on the transaction (including the 15,500 gold
ounces sold forward at $365 per ounce).
The Company's statement of cash flow for the year ended December 31, 1993
reflects the net cash received from the transaction of $7.8 million, which
includes the following:
Cash proceeds received upon completion of transaction............. $15.4
Cash proceeds for gold ounces received and sold in December 1993.. .6
Less:
Cash and cash equivalents for New Zealand companies previously
reflected in the consolidated statement of financial position.. (8.0)
Transaction costs............................................... (.2)
-----
Net cash received from transaction.............................. $ 7.8
=====
8. DEBT AND UNEARNED REVENUE
The following tables summarize the outstanding borrowings under bank loans
and gold loan facilities at December 31, 1993 and 1992 and related principal
repayments based on the 1993 balances:
AMOUNT OUTSTANDING AT AMOUNT OUTSTANDING AT
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------- -------------------------
CURRENT NONCURRENT TOTAL CURRENT NONCURRENT TOTAL
------- ---------- ------ ------- ---------- ------
Unearned Revenue:
Nevada Gold Mining, Inc.. $ -- $ 1.6 $ 1.6 $ -- $ 1.6 $ 1.6
Debt:
Lassen Gold Mining, Inc.. 11.1 40.8 51.9 9.4 58.1 67.5
Compania Minera Amax
Guanaco................. 4.0 39.4 43.4 1.5 43.4 44.9
Amax Gold Inc............ -- 30.0 30.0 10.0 -- 10.0
----- ------ ------ ----- ------ ------
Total unearned revenue and
debt...................... 15.1 111.8 126.9 20.9 103.1 124.0
----- ------ ------ ----- ------ ------
Note payable to Cyprus
Amax...................... -- 24.7 24.7 -- -- --
----- ------ ------ ----- ------ ------
$15.1 $136.5 $151.6 $20.9 $103.1 $124.0
===== ====== ====== ===== ====== ======
47
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
YEAR
ENDED
DECEMBER PRINCIPAL
31, REPAYMENTS
-------- ----------
1994......................................................... $ 15.1
1995......................................................... 78.6
1996......................................................... 29.9
1997......................................................... 28.0
1998......................................................... --
------
$151.6
======
The above named obligors, other than the Company, are wholly-owned
subsidiaries of the Company except for Compania Minera Amax Guanaco, which is a
90% owned subsidiary.
The market value of the total outstanding debt and unearned revenue as of
December 31, 1993 was $5 million higher than the carrying value of $151.6
million.
Nevada Gold Mining, Inc.
As of December 31, 1993, 4,000 ounces of gold, or $1.6 million, remained
outstanding under a gold bullion loan agreement for Nevada Gold Mining, Inc.
(Nevada Gold), a wholly-owned subsidiary of the Company that owns the Sleeper
Mine. The Company has made a verbal agreement to repay the outstanding $1.6
million under this loan in February 1995. Collateral consists of a pledge of
all of Nevada Gold's capital stock and a mortgage of all its assets
(principally the Sleeper Mine). Interest, payable quarterly, is based on the
cost of borrowing gold by the gold lender plus commitment and agency fees.
During the years ended December 31, 1993, 1992 and 1991, the annualized
interest rate was .7%, 1.8% and 1.0%, respectively. During the years ended
December 31, 1993, 1992 and 1991, the Company paid $.1 million, $.2 million and
$.4 million in interest expense and fees, respectively.
Lassen Gold Mining, Inc.
At December 31, 1993, $51.9 million remained outstanding under a financing
agreement for Lassen Gold Mining, Inc. (Lassen Gold), a wholly-owned subsidiary
of the Company that owns Hayden Hill. During 1993, Lassen Gold made $15.6
million in principal repayments under this financing, of which $9.6 million
represented the scheduled amortization payments and $6 million represented a
voluntary prepayment utilizing a portion of the Waihi transaction proceeds (as
discussed in Note 7). Collateral for this financing consists of a mortgage on
all of the Hayden Hill Mine assets, a pledge of the Lassen Gold stock and a
guarantee by the Company. The final maturity date for the facility is December
31, 1997.
Interest, payable quarterly, is currently based on the London Interbank
Offered Rate plus .45%. The annualized interest rate on such loan for the years
ended December 31, 1993, 1992 and 1991 was 5.3%, 5.5% and 5.6% respectively.
During the years ended December 31, 1993, 1992 and 1991, the Company paid $3.5
million, $3.1 million and $.6 million, respectively, in interest expense and
fees on such loan.
48
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Compania Minera Amax Guanaco
At December 31, 1993, Compania Minera Amax Guanaco (Amax Guanaco), a 90%
owned Chilean subsidiary of the Company that owns the Guanaco project, had
$34.2 million of indebtedness outstanding under Chilean short-term bridge loans
and $9.2 million of outstanding debt owed to a Chilean governmental development
agency. During 1993, Amax Guanaco made $1.5 million of scheduled amortization
payments under the debt to the Chilean governmental agency. The final maturity
date for the $9.2 million of debt to the Chilean governmental agency is August
31, 1996.
At December 31, 1993, $35.9 million of the outstanding aggregate Chilean debt
was collateralized by a stand-by letter of credit and $7.5 million was
collateralized by the Company's 90% interest in Amax Guanaco and a guarantee
from the Company. Additionally, the stand-by letter of credit was
collateralized by a guarantee from the Company.
For the years ended December 31, 1993 and 1992, the annualized interest rate
for the Chilean loans was 9.4% and 8.4%, respectively. During the years ended
December 31, 1993 and 1992, interest expense and fees paid on these financings
totalled $5 million and $1.4 million, respectively. During the years ended
December 31, 1993 and 1992, $.5 million and $2.8 million, respectively, of
interest expense and fees on these financings were capitalized. The capitalized
interest and fees are being amortized over the life of the project.
In March 1994, the $34.2 million of outstanding Chilean short-term bridge
loans were refinanced by a $36 million U.S. term loan agreement. The final
maturity date for this new loan agreement is October 1997, with semi-annual
amortization payments commencing in October 1994. This loan is collateralized
by guarantees from the Company and, initially, Cyprus Amax. Amounts outstanding
under this term loan bear interest at the LIBOR interest rate plus 1.25%. At
December 31, 1993, $33.2 million of the short-term Chilean bridge loans were
classified as long-term based on this March 1994 refinancing. In February 1994
Cyprus Amax also provided a guarantee for a letter of credit which secures the
$9.2 million of debt to the Chilean governmental development agency.
Amax Gold
At December 31, 1993, the Company had borrowed 89,615 gold ounces which were
sold for $30 million. At December 31, 1993, these ounces were scheduled to be
repaid during 1994 as follows:
GOLD AMOUNT (IN
MATURITY DATE OUNCES THOUSANDS)
------------- ------ ----------
February 1994.......................................... 30,303 $10,000
August 1994............................................ 15,129 5,000
December 1994.......................................... 44,183 15,000
------ -------
89,615 $30,000
====== =======
While the December 31, 1993 market value of the total outstanding ounces
borrowed is $5 million higher than the $30 million carrying value (using the
spot market price for gold), 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.
In February 1994, Cyprus Amax provided a guarantee on $10 million (or 30,303
gold ounces) of the outstanding gold loans. This guarantee allowed the Company
to extend the repayment of this obligation to February 1995. Additionally, in
February 1994, a commitment letter was signed between the Company and
49
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Cyprus Amax to provide the Company with a $100 million convertible line of
credit. The outstanding indebtedness under this line of credit may be repaid by
the Company issuing a like amount of convertible preferred stock, which in turn
could be converted into Company common stock at $8.265 per share, which
represents a 20% premium to the ten-day average closing price of the Company's
common stock immediately prior to the date the commitment letter was signed. In
addition, the Company will have the right to convert the convertible preferred
stock into Company common stock at a maximum price of $8.265 per share and a
minimum price of $5.854 per share. Cyprus Amax will have the right to replace
the line of credit and any outstanding indebtedness and/or preferred stock with
the purchase of $100 million of Company common stock at a purchase price of
$8.265 per share.
Upon completion of definitive documentation for the $100 million convertible
line of credit, a portion of this credit line is expected to be designated as
support for $30 million of outstanding indebtedness under the Lassen Gold
financing and as replacement for the Cyprus Amax guarantee on the new $36
million Guanaco U.S. term loan. The remaining line of credit will provide the
Company to meet its on-going obligations, including the support of the $30
million of outstanding gold loans. At December 31, 1993, the $30 million of
outstanding gold loans were classified as long-term based on the 1994
refinancing activities.
Note Payable to Cyprus Amax
Amax made loans to the Company during the year ended December 31, 1993 under
a demand promissory note payable, bearing interest at the sum of the federal
funds rate plus 3/16%. At December 31, 1993, $24.7 million was outstanding and
payable to Cyprus Amax. The annualized interest rate and the interest expense
on outstanding amounts was 3.1% and $.1 million, respectively, for the year
ended December 31, 1993. In February 1994 the Company's Board of Directors
approved the purchase by Cyprus Amax of three million shares of its common
stock as repayment of $20.7 million of outstanding amounts under the demand
promissory note. This share purchase is expected to be completed by the end of
March 1994. This share purchase, combined with the potential conversion of the
$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%. At
December 31, 1993, the $24.7 million of outstanding debt was classified as
long-term based upon the approval for Cyprus Amax to purchase three million
shares in payment of $20.7 million of indebtedness and the deferral by Cyprus
Amax of the repayment of the remaining balance until 1995.
9. HEDGE CONTRACTS
Precious Metal Hedge Contracts include forward sales contracts, spot deferred
forward sales and put and call options. Realization under these contracts is
dependent upon the counterparties performing in accordance with the terms of
the contracts. The Company does not anticipate nonperformance by the
counterparties.
Forward sales contracts require the future delivery of gold at a specified
price. Forward sales contracts that are made on a 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 December 31, 1993, the Company's outstanding hedge contracts were as
follows:
AVERAGE
GOLD PRICE
OUNCES PER OUNCE PERIOD
------- --------- ------
Forward sales contracts(1)................ 320,100 $405 Jan. 1994-Feb. 1994
Option contracts:
Purchased put options................... 265,500 386 Jan. 1994-Dec. 1995
Sold put options........................ 82,800 343 Jan. 1994-Dec. 1994
Purchased call options.................. 58,000 400 Jan. 1994-Dec. 1994
Sold call options....................... 402,000 449 Jan. 1994-Dec. 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.
50
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The market value of the Company's forward contracts and put and call option
contracts at December 31, 1993 was approximately $6.1 million. 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 declines in gold market prices
for the Company's future gold production 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 December 31, 1993, the Company
had interest rate swap agreements outstanding with commercial banks having a
total principal amount of $60 million, as follows:
FIXED
BORROWINGS INTEREST RATE PERIOD
---------- ------------- ------
$10 million...................... 5.08% January 1994
$10 million...................... 4.91% January 1994
$10 million...................... 4.44% January 1994-July 1994
$10 million...................... 6.54% January 1994-November 1994
$10 million...................... 5.95% January 1994-March 1996
$10 million...................... 4.85% January 1994-March 1996
As of December 31, 1993, the Company would pay approximately $.3 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.
10. DOMESTIC AND FOREIGN OPERATIONS
The Company's foreign operations consist of the Guanaco Mine and Refugio gold
project in Chile. Effective April 30, 1993, the Company realized the future
economic benefit from its interest in the Waihi Mine in New Zealand. The
components of the Company's domestic and foreign operations were as follows:
1993 1992 1991
------- ------ ------
Sales--
United States................................... $ 69.2 $ 90.2 $116.7
Foreign......................................... 12.7 9.5 11.5
------- ------ ------
$ 81.9 $ 99.7 $128.2
======= ====== ======
Earnings (loss) from operations--
United States................................... $(104.7) $ 14.5 $ 24.9
Foreign......................................... (11.3) 4.3 ( .9)
------- ------ ------
$(116.0) $ 18.8 $ 24.0
======= ====== ======
Net earnings (loss)--
United States................................... $ (84.0) $ 7.5 $ 23.6
Foreign......................................... (20.2) 4.0 (2.4)
======= ====== ======
$(104.2) $ 11.5 $ 21.2
======= ====== ======
Assets--
United States................................... $ 294.6 $401.1 $180.2
Foreign......................................... 86.4 76.5 18.1
------- ------ ------
$ 381.0 $477.6 $198.3
======= ====== ======
51
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
Substantially all of the Company's 1993, 1992 and 1991 sales were made in
Europe, through a wholly-owned subsidiary of the Company. The Company's sales
to major customers which exceeded 10% of total sales were $38 million to two
customers during 1993, $46.4 million to three customers during 1992 and $57.1
million to three customers during 1991. The Company believes that the loss of
any of these customers would have no material adverse impact on the Company
because of the active worldwide market for gold.
11. COMMON STOCK
In February 1992, the Company's Board of Directors approved a Dividend
Reinvestment Plan whereby stockholders of the Company may elect to reinvest
quarterly dividend payments on all or a portion of the shares held in the name
of such electing shareholders in additional shares of the Company's common
stock. Three million shares of the Company's common stock are reserved for
issuance pursuant to this plan. During 1993, the Company issued 523,989
additional shares of common stock pursuant to this plan, of which 523,637
shares were issued to Amax or Cyprus Amax.
Earnings per common share have been calculated on the basis of the average
common shares outstanding. At December 31, 1993, outstanding Company warrants
were not considered in the earnings per share calculation as these were anti-
dilutive.
12. STOCK OPTION PLAN
In October 1992, the Company's Board of Directors approved a stock option
plan (the "Plan") for officers and salaried employees of the Company, and
reserved three million shares of common stock for issuance pursuant to the Plan
during its ten-year term. The Plan was approved by the stockholders of the
Company in May 1993. The Plan is administered by a compensation committee of
the Company's Board of Directors. These directors are not eligible for options
awarded under the Plan.
On December 3, 1992, 315,825 stock options were granted at $8.75 per share,
which represent the fair market value at the date of grant. These options are
exercisable during the period which began November 15, 1993 and ends ten years
from the date of grant. There were no stock options exercised or granted in
1993.
13. CONTINGENCIES
Lassen Gold received a letter from the California Regional Water Quality
Control Board (the Board) in January 1993, advising that certain violations of
waste discharge requirements were occurring at the Hayden Hill Mine pertaining
to the tailings pond, process pond and heap leach pad. The alleged violation
regarding the tailings pond has since been corrected and the tailings pond is
no longer in use since the shutdown of the mill. The Company has submitted two
reports to the Board and has continued to work with the Board in addressing the
remaining issues, which pertain to the flow rate between the two synthetic
liners underlying the heap leach pad and process pond. The Board has the
authority, under the waste discharge requirements, to require remediation
and/or repair or cessation of leaching operations in affected cells of the
leach pad and to require surface impoundments to be taken out of service,
drained, and liners repaired. The Company does not currently expect further
enforcement action by the Board. A staff representative of the Board has
approved the design and construction of two new cells of the leach pad and has
approved initial application of cyanide leach solutions on one of the new
cells; however, permit modifications may be required prior to construction of
additional leach pad cells. Lassen Gold has installed cyanide gas detection
wells to monitor for leaks under certain cells of the leach pad system and no
gas was detected during the initial monitoring of these wells. Under the facts
currently known, the Company does not anticipate any material adverse effect on
its financial condition or results of operations from this situation.
52
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
The Company is currently accruing reclamation liabilities for the following
operations:
RECLAMATION COSTS
TOTAL ACCRUED
ANTICIPATED -------------------
RECLAMATION COST CURRENT NON-CURRENT
---------------- ------- -----------
Sleeper Mine......................... $ 8.0 $-- $6.6
Hayden Hill Mine..................... 5.9 -- 2.0
Wind Mountain Mine................... 2.0 2.0 --
----- ---- ----
Total................................ $15.9 $2.0 $8.6
===== ==== ====
The anticipated reclamation costs for the Sleeper, Hayden Hill and Wind
Mountain mines are estimates based on current federal and state laws and
regulations governing the protection of the environment. The reclamation
accrual for the Wind Mountain Mine is shown as current due to the expectation
that residual heap leach production will subside in 1994, which is expected to
result in the commencement of the final reclamation activities. The anticipated
costs of reclamation for the Guanaco Mine, given current Chilean laws and
regulations governing the protection of the environment, are not expected to be
significant. Changes in the federal, state and Chilean laws and regulations
could impact these anticipated reclamation costs.
The Company's mining and exploration activities are subject to various
federal, state and Chilean laws and regulations governing the protection of the
environment which 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.
14. QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1993 and 1992
follow:
1993 QUARTERS(1) FIRST SECOND THIRD FOURTH
- ---------------- ------ ------ ----- ------
Sales........................................... $ 18.4 $ 23.1 $20.6 $ 19.8
Costs and operating expenses.................... 24.9 32.1 29.2 27.6
------ ------ ----- ------
Gross operating loss............................ (6.5) (9.0) (8.6) (7.8)
Gain on Waihi transaction....................... -- 8.8 -- --
Asset write-downs............................... -- (64.1) -- (23.6)
Exploration expenses............................ (.5) (1.1) (1.5) (2.1)
------ ------ ----- ------
Loss from operations............................ (7.0) (65.4) (10.1) (33.5)
------ ------ ----- ------
Loss before income taxes and cumulative effect
of accounting changes.......................... (8.5) (67.6) (11.7) (35.0)
------ ------ ----- ------
Loss before cumulative effect of accounting
changes........................................ (6.0) (49.1) (7.4) (26.5)
Cumulative effect of accounting changes, net of
income tax benefit............................. (15.2) -- -- --
------ ------ ----- ------
Net loss........................................ $(21.2) $(49.1) $(7.4) $(26.5)
====== ====== ===== ======
Per common share:
Loss before cumulative effect of accounting
changes...................................... $ (.07) $ (.63) $(.10) $ (.34)
Cumulative effect of accounting changes....... (.20) -- -- --
------ ------ ----- ------
Net loss...................................... $ (.27) $ (.63) $(.10) $ (.34)
====== ====== ===== ======
Dividends declared per common share............. $ .02 $ .02 $ .02 $ .02
====== ====== ===== ======
- --------
(1) Restated for the September 1993 change in exploration accounting policy,
effective as of January 1, 1993 and the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". These restatements
resulted in increasing the net loss by $16 million (or $.21 per common
share) for the 1993 first quarter and decreasing the net loss by $4.2
million (or $.05 per common share) for the 1993 second quarter.
53
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLARS IN MILLIONS UNLESS OTHERWISE INDICATED AND
EXCEPT PER SHARE AMOUNTS AND AMOUNTS PER OUNCE)
1992 QUARTERS(2) FIRST SECOND THIRD FOURTH
- ---------------- ----- ------ ----- ------
Sales.............................................. $27.2 $22.7 $22.4 $27.4
Costs and operating expenses....................... 20.2 16.3 18.8 27.8
----- ----- ----- -----
Gross operating margin (loss)...................... 7.0 6.4 3.6 (.4)
Exploration expenses, net.......................... (3.4) 9.1 (1.6) (1.9)
----- ----- ----- -----
Earnings (loss) from operations.................... 3.6 15.5 2.0 (2.3)
----- ----- ----- -----
Earnings (loss) before income taxes and cumulative
effect of accounting change....................... 4.1 15.8 1.2 (3.1)
----- ----- ----- -----
Earnings (loss) before cumulative effect of
accounting change................................. 3.8 11.7 .6 (3.1)
Cumulative effect of accounting change, net of
income tax benefit................................ (1.5) -- -- --
----- ----- ----- -----
Net earnings (loss)................................ $ 2.3 $11.7 $ .6 $(3.1)
===== ===== ===== =====
Per common share:
Earnings (loss) before cumulative effect of
accounting change............................... $ .05 $ .16 $ .01 $(.04)
Cumulative effect of accounting change........... (.02) -- -- --
----- ----- ----- -----
Net earnings (loss).............................. $ .03 $ .16 $ .01 $(.04)
===== ===== ===== =====
Dividends declared per common share................ $ .02 $ .02 $ .02 $ .02
===== ===== ===== =====
- --------
(2) Restated for the January 1, 1992 adoption of SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions", which resulted
in a net earnings decline of $1.7 million (or $.02 per common share) for
the 1992 first quarter and $.1 million for the 1992 third quarter.
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors of the Registrant will be contained under
the captions "INFORMATION CONCERNING DIRECTORS AND NOMINEES," "OTHER
INFORMATION CONCERNING DIRECTORS" and "COMPLIANCE WITH EXCHANGE ACT SECTION
16(A)" in the Company's definitive Proxy Statement for the 1994 Annual Meeting
of Stockholders and is incorporated herein by reference. See also "EXECUTIVE
OFFICERS" under PART I herein.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation will be contained under
the captions "OTHER INFORMATION CONCERNING DIRECTORS," and "INFORMATION
CONCERNING EXECUTIVE OFFICERS' COMPENSATION" in the Company's definitive Proxy
Statement for the 1994 Annual Meeting of Stockholders and except for the Report
of the Compensation Committee of the Registrant's board of directors regarding
executive compensation and the Performance Graph contained therein, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners
and Management will be contained under the captions "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS " and "SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS"
in the Company's definitive Proxy Statement for the 1994 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
will be contained under the captions "INFORMATION CONCERNING DIRECTORS AND
NOMINEES" "OTHER INFORMATION CONCERNING DIRECTORS," and "TRANSACTIONS WITH
CYPRUS AMAX" in the Company's definitive Proxy Statement for the 1994 Annual
Meeting of Stockholders and is incorporated herein by reference. See also ITEM
1 "BUSINESS--INTRODUCTION," "--EXPLORATION AND ACQUISITION ACTIVITIES," and "--
AGREEMENTS WITH CYPRUS AMAX" under PART I herein.
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
10-K
PAGE
----
1. Financial Statements
Report of Independent Accountants................................. 33
Report of Management.............................................. 34
Consolidated Statements of Operations............................. 35
Consolidated Statements of Financial Position..................... 36
Consolidated Statements of Cash Flows............................. 37
Consolidated Statements of Changes in Capital Stock, Paid-in
Capital and Retained Earnings.................................... 38
Notes to Consolidated Financial Statements........................ 39
2. Financial Statement Schedules
Report of Independent Accountants on Schedules.................... S-1
II--Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties............... S-2
IV--Indebtedness of and to Related Parties--Not Current........... S-3
V--Property, Plant and Equipment.................................. S-4
VI--Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment.................................... S-5
IX--Short-Term Borrowings......................................... S-6
X--Supplementary Income Statement Information..................... S-7
All other schedules have been omitted since they are either not required, are
not applicable, or the required information is shown in the financial
statements or related notes.
3. Exhibits
See Exhibit Index
(b) Reports on Form 8-K
A report on Form 8-K was filed with the Securities and Exchange
Commission on November 15, 1993, reporting a change in control of the
Company.
56
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Amax Gold Inc.
/s/ Paul J. Hemschoot, Jr.
March 18, 1994 By__________________________________
(PAUL J. HEMSCHOOT, JR. VICE
PRESIDENT, SECRETARY AND GENERAL
COUNSEL)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
SIGNATURE TITLE DATE
Chairman of the
/s/ Milton J. Ward Board, President
- ------------------------------------- and Chief Executive
(MILTON J. WARD) Officer (principal
executive officer)
and Director
/s/ Mark A. Lettes Vice President and
- ------------------------------------- Chief Financial
(MARK A. LETTES) Officer (principal
financial officer)
March 18, 1994
/s/ Pamela L. Saxton Vice President and
- ------------------------------------- Controller
(PAMELA L. SAXTON) (principal
accounting officer)
* Director
- -------------------------------------
(ALLEN BORN)
* Director
- -------------------------------------
(GERALD J. MALYS)
* Director
- -------------------------------------
(TIMOTHY J. HADDON)
*
- ------------------------------------- Director
(ROCKWELL A. SCHNABEL)
* Director
- -------------------------------------
(VERNON F. TAYLOR, JR.)
* Director
- -------------------------------------
(RUSSELL L. WOOD)
/s/ Paul J. Hemschoot, Jr.
*By_________________________________
PAUL J. HEMSCHOOT, JR., AS
ATTORNEY-IN-FACT
57
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Amax Gold Inc. is
included in this Form 10-K on page 33 which includes an explanatory paragraph
for a change in accounting method for exploration expenditures and
postemployment benefits in 1993, and a change in accounting method for precious
metals inventory, postretirement benefits and income taxes in 1992. In
connection with our audit of such financial statements, we have also audited
the related consolidated financial statement schedules listed in the index on
page 56 of this Form 10-K.
In our opinion, the consolidated financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information required to be
included therein.
COOPERS & LYBRAND
Denver, Colorado
February 4, 1994 except for Note 8 for which the date is March 18, 1994.
S-1
SCHEDULE II
AMAX GOLD INC. AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------
DEDUCTIONS ENDING BALANCE
- --------------------------------------------------------------------------------
BEGINNING AMOUNTS AMOUNTS NOT
NAME OF DEBTOR BALANCE ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT
- --------------------------------------------------------------------------------
1993
AMAX Inc. (a)........ $ -- $84,700 $(84,700) $ -- $ -- $ --
======= ======= ======== ===== ======= =====
1992
AMAX Inc. (a)........ $15,400 $57,800 $(73,200) $ -- $ -- $ --
======= ======= ======== ===== ======= =====
1991
AMAX Inc. (a)........ $29,300 $30,200 $(44,100) $ -- $15,400 $ --
======= ======= ======== ===== ======= =====
- --------
(a) During 1993, 1992 and 1991, Amax Gold Inc. advanced funds to AMAX Inc.
under demand promissory notes receivable. Interest on the notes was at the
Effective Federal Funds Rate plus 3/16%.
S-2
SCHEDULE IV
AMAX GOLD INC. AND SUBSIDIARIES
SCHEDULE IV--INDEBTEDNESS OF AND TO RELATED
PARTIES--NOT CURRENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------
BALANCE AT --INDEBTEDNESS OF-- BALANCE
NAME OF PERSON BEGINNING ADDITIONS DEDUCTIONS AT END
- --------------------------------------------------------------------------------
1993
Cyprus Amax Minerals Co................. $ -- $31,200 $(6,500) $24,700
===== ======= ======= =======
- --------
During 1993, Amax Gold Inc. borrowed funds from Cyprus Amax Minerals Company
under demand promissory notes payable. At December 31, 1993, Cyprus Amax
Minerals Company owned approximately 40% of Amax Gold's outstanding common
stock. In February 1994 approval was granted for Cyprus Amax Minerals Company
to purchase three million shares of Amax Gold's common stock at $6.888 per
share to repay approximately $20.7 million of the above indebtedness. Interest
on the notes was at the Effective Federal Funds Rate plus 3/16%. During 1992
and 1991 Amax Gold Inc. did not have any indebtedness to related parties.
S-3
SCHEDULE V
AMAX GOLD INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------
BALANCE BALANCE
OF ADDITIONS OTHER AT END
BEGINNING AT CHANGES ADD OF
CLASSIFICATIONS OF PERIOD COST(A) RETIREMENTS (DEDUCT)(B) PERIOD
- ---------------------------------------------------------------------------------
1993
Mining plants and
equipment................ $150,400 $ 17,000 $ (4,200) $ -- $163,200
Mining properties......... 120,100 56,600 (3,800) (13,000) 159,900
New Zealand joint venture
mining properties, plant
and equipment............ 14,900 200 (13,000) (2,100) --
Development properties and
construction-in-progress. 253,800 (50,400) -- (5,500) 197,900
-------- -------- -------- -------- --------
$539,200 $ 23,400 $(21,000) $(20,600) $521,000
======== ======== ======== ======== ========
1992
Mining plants and
equipment................ $ 94,400 $ 60,400 $ (800) $ (3,600) $150,400
Mining properties......... 48,800 69,000 -- 2,300 120,100
New Zealand joint venture
mining properties, plant
and equipment............ 14,700 800 -- (600) 14,900
Development properties and
construction-in-progress. 76,800 (16,500) -- 193,500 253,800
-------- -------- -------- -------- --------
$234,700 $113,700 $ (800) $191,600 $539,200
======== ======== ======== ======== ========
1991
Mining plants and
equipment................ $ 79,700 $ 15,000 $ (300) $ -- $ 94,400
Mining properties......... 43,600 5,400 (200) -- 48,800
New Zealand joint venture
mining properties, plant
and equipment............ 13,300 1,800 -- (400) 14,700
Development properties and
construction-in-progress. 39,100 37,800 (100) -- 76,800
-------- -------- -------- -------- --------
$175,700 $ 60,000 $ (600) $ (400) $234,700
======== ======== ======== ======== ========
- --------
Note:
(a) Additions for mining plants and equipment, mining properties and joint
venture mining properties, plant and equipment include transfers from
construction-in-progress. The construction-in-progress additions reflect
the amounts transferred.
(b) Other changes include foreign exchange adjustments, properties acquired
with stock or with the assumption of debt and intercompany transfers of
equipment. Prior to 1993 other changes included prior year exploration
costs that were capitalized and restored to earnings. The accounting policy
for exploration was changed in 1993 so that exploration is now expensed in
the period incurred until such time that a property becomes exploitable,
with subsequent expenditures being capitalized. Other changes for 1993
include the cumulative effect from this accounting change for periods prior
to 1993. Mining properties for 1992 includes $2.3 million transferred from
other noncurrent assets.
S-4
SCHEDULE VI
AMAX GOLD INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- -------------------------------------------------------------------------------
BALANCE BALANCE
AT ADDITIONS OTHER AT END
BEGINNING AT CHANGES ADD OF
CLASSIFICATIONS OF PERIOD COST(A) RETIREMENTS (DEDUCT)(B) PERIOD
- -------------------------------------------------------------------------------
1993
Mining plants and
equipment................ $ 71,700 $13,100 $ (4,100) $10,100 $ 90,800
Mining properties......... 30,900 12,200 (3,800) 75,100 114,400
New Zealand joint venture
mining properties, plant
and equipment............ 6,800 400 (6,400) (800) --
-------- ------- -------- ------- --------
$109,400 $25,700 $(14,300) $84,400 $205,200
======== ======= ======== ======= ========
1992
Mining plants and
equipment................ $ 59,200 $13,200 $ (700) $ -- $ 71,700
Mining properties......... 24,300 6,600 -- -- 30,900
New Zealand joint venture
mining properties, plant
and equipment............ 5,100 2,000 -- (300) 6,800
-------- ------- -------- ------- --------
$ 88,600 $21,800 $ (700) $ (300) $109,400
======== ======= ======== ======= ========
1991
Mining plants and
equipment................ $ 42,600 $16,800 $ (200) $ -- $ 59,200
Mining properties......... 18,000 6,300 -- -- 24,300
New Zealand joint venture
mining properties, plant
and equipment............ 3,700 1,600 -- (200) 5,100
-------- ------- -------- ------- --------
$ 64,300 $24,700 $ (200) $ (200) $ 88,600
======== ======= ======== ======= ========
- --------
Note:
(a) Depreciation and depletion have been computed using the unit of production
method based on the estimated ounces of gold to be recovered and an
estimated salvage value for certain assets at the end of their useful
lines. Mobile equipment and assets which have a useful life which is
shorter than the mine life are depreciated on a straight-line basis over
estimated useful lives of one to five years.
(b) Other changes consist primarily of foreign exchange adjustments. Other
changes for 1993 also include the cumulative effect of a change in
accounting policy concerning exploration expenses for all periods prior to
1993. Other changes for 1993 also include $87,700 related to property
write-downs.
S-5
SCHEDULE IX
AMAX GOLD INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------
MAXIMUM AVERAGE WEIGHTED
BALANCE WEIGHTED AMOUNT AMOUNT AVERAGE
AT END AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE OF INTEREST DURING DURING DURING
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(3) PERIOD(4)
- --------------------------------------------------------------------------------
1993
Gold loans (1)........... $ -- -- % $30,000 $26,400 3.9%
======= === ======= ======= ===
1992
Gold loans (2)........... $10,000 4.1% $10,000 $ 8,700 3.7%
======= === ======= ======= ===
- --------
(1) At December 31, 1993 Amax Gold Inc. had $30 million in borrowings
(representing 89,615 gold ounces which were sold for $30 million) that were
scheduled to be repaid in 1994. In February 1994 the repayment of $10
million (or 30,303 gold ounces) was extended to 1995. The repayment of the
remaining $20 million (or 59,312 gold ounces) is expected to be extended
beyond 1994 or refinanced on a long-term basis.
(2) Represented 29,600 outstanding gold ounces which were sold for $10 million.
During 1991 Amax Gold did not have any short-term borrowings.
(3) The sum of the amounts outstanding at each month-end divided by the total
number of months amounts were outstanding.
(4) The total interest expense applicable to the amounts outstanding at each
period (day or month-end) divided by the average balance owing for those
periods.
S-6
SCHEDULE X
AMAX GOLD INC. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COL. A COL. B
- --------------------------------------------------------------------------------
CHARGED TO
ITEM COSTS AND EXPENSES
- --------------------------------------------------------------------------------
1993
Maintenance and repairs...................................... $17,600
-------
Royalties.................................................... 1,400
-------
Taxes, other than payroll and income taxes--
Net proceeds tax........................................... 500
Sales and use tax.......................................... 1,500
Property tax............................................... 1,200
Franchise tax.............................................. 100
-------
3,300
-------
$22,300
=======
1992
Maintenance and repairs...................................... $10,200
-------
Royalties.................................................... 1,400
-------
Taxes, other than payroll and income taxes--
Net proceeds tax........................................... 1,400
Sales and use tax.......................................... 800
Property tax............................................... 1,000
Franchise tax.............................................. 200
-------
3,400
-------
$15,000
=======
1991
Maintenance and repairs...................................... $12,500
-------
Royalties.................................................... 1,500
-------
Taxes, other than payroll and income taxes--
Net proceeds tax........................................... 1,800
Sales and use tax.......................................... 800
Property tax............................................... 500
Franchise tax.............................................. 100
-------
3,200
-------
$17,200
=======
S-7
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
EX-3(i) Restated Certificate of Incorporation of the
Registrant, dated May 21, 1987, as amended up to and
including June 24, 1992, filed as Exhibit 1 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 1-9620) and
incorporated herein by reference.
EX-3(ii) By-laws of the Registrant, adopted on April 2, 1987,
as amended up to and including July 30, 1991, filed as
Exhibit 3(b) to Registration Statement No. 33-43383
and incorporated herein by reference.
EX-4(a) Specimen of Warrant Certificate, filed as Exhibit 4 to
Registrant's Current Report on Form 8-K dated January
6, 1992 (File No. 1-9620) and incorporated herein by
reference.
EX-4(b) Warrant Agreement, dated as of January 6, 1992,
between Amax Gold Inc. and Manufacturers Hanover Trust
Company, as Warrant Agent, filed as Exhibit 28(k) to
Registrant's Current Report on Form 8-K dated January
6, 1992 (File No. 1-9620) and incorporated herein by
reference.
EX-10(a) Management Services Agreement, dated as of June 30,
1987, between AMAX Inc. and Registrant, filed as
Exhibit 10.2 to Registration Statement No.
33-14588 and incorporated herein by reference.
EX-10(b) Amendment to Management Services Agreement, dated as
of November 7, 1989, between AMAX Inc. and Registrant,
filed as Exhibit 7 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989 (File
No. 1-9620) and incorporated herein by reference.
EX-10(c) Exploration Services Agreement, dated as of June 30,
1987, among AMAX Inc., Registrant and Amax
Exploration, Inc., filed as Exhibit 10.4 to
Registration Statement No. 33-14588 and incorporated
herein by reference.
EX-10(d) Put and Call Agreement dated as of January 2, 1992,
between Registrant and AMAX Inc., filed as Exhibit
28(c) to Registrant's Registration Statement No. 33-
43383 and incorporated herein by reference.
EX-10(e) AMAX Inc.'s Corporate Separation Policy for Subsidiary
Executives, filed as Exhibit 21 to AMAX Inc.'s Annual
Report on Form 10-K for the year ended December 31,
1990 (File No. 1-229-2) and incorporated herein by
reference.
EX-10(f) Registrant's Directors' Deferred Compensation Plan,
filed as Exhibit 10.14.2 to Registration Statement No.
33-22645 and incorporated herein by reference.
EX-10(g) Registrant's Excess Benefit Plan, effective as of
November 15, 1993.
EX-10(h) Registrant's Deferred Compensation Plan, effective as
of November 15, 1993.
EX-10(i) Registrant's 1992 Stock Option Plan, filed as Exhibit
A to Registrant's definitive Proxy Statement for the
1993 Annual Meeting of Stockholders (File No. 1-9620),
which Exhibit A is incorporated herein by reference.
EX-10(j) Registrant's Performance Share Plan, filed as Exhibit
B to Registrant's definitive Proxy Statement for the
1993 Annual Meeting of Stockholders (File No. 1-9620),
which Exhibit B is incorporated herein by reference.
E-1
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
EX-10(k) Gold Bullion Loan Agreement, dated March 31, 1987,
between Nevada Gold Mining, Inc. and various banks,
filed as Exhibit 10.12.1 to Registration Statement No.
33-14588 and incorporated herein by reference.
EX-10(l) Deed of Trust and Security Agreement, dated March 31,
1987, between Nevada Gold Mining, Inc. and First
American Title Company of Nevada, filed as Exhibit
10.12.2 to Registration Statement No. 33-14588 and
incorporated herein by reference.
EX-10(m) Pledge and Trust Agreement, dated March 31, 1987,
between AMAX Inc. and various banks, filed as Exhibit
10.12.3 to Registration Statement No.
33-14588 and incorporated herein by reference.
EX-10(n) Assignment and Assumption Agreement relating to Gold
Bullion Loan Agreement, dated May 27, 1987, filed as
Exhibit 10.12.4 to Registration Statement No. 33-14588
and incorporated herein by reference.
EX-10(o) Agreement, dated May 27, 1987, between AMAX Inc. and
Registrant, relating to the Consideration for the
Assignment and Assumption Agreement, filed as Exhibit
10.12.5 to Registration Statement No. 33-14588 and
incorporated herein by reference.
EX-10(p) Amendment and Supplement to Gold Bullion Loan
Agreement, dated as of September 2, 1987, between
Nevada Gold Mining, Inc. and various banks, filed as
Exhibit 44 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1987 (File No. 1-9620)
and incorporated herein by reference.
EX-10(q) Amendment to Pledge and Trust Agreement, dated as of
September 2, 1987, between Nevada Gold Mining, Inc.
and various banks, filed as Exhibit 45 to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1987 (File No. 1-9620) and incorporated herein by
reference.
EX-10(r) Supplemental Deed of Trust and Security Agreement,
dated as of September 2, 1987, between Nevada Gold
Mining, Inc. and First American Title Company of
Nevada, filed as Exhibit 46 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1987 (File No. 1-9620) and incorporated herein by
reference.
EX-10(s) Amendment and Consent, dated as of February 28, 1991,
to the Gold Bullion Loan Agreement, the Deed of Trust
and Security Agreement and the Pledge and Trust
Agreement, referenced above as Exhibits 10(k), 10(l)
and 10(m), respectively, filed as Exhibit 37 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 (File No. 1-9620) and
incorporated herein by reference.
EX-10(t) Amendment and Consent, dated as of December 11, 1992,
to the Gold Bullion Loan Agreement and Pledge and
Trust Agreement, referenced above as Exhibits 10(k)
and 10(m), respectively, filed as Exhibit 30 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 1-9620) and
incorporated herein by reference.
EX-10(u) Supplemental Deed of Trust and Security Agreement,
dated as of December 11, 1992, between Nevada Gold
Mining, Inc. and First American Title Company of
Nevada, filed as Exhibit 31 to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992 (File No. 1-9620) and incorporated herein by
reference.
E-2
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
EX-10(v) Mining Lease, dated as of April 2, 1987, between Amax
Exploration, Inc. and TMB Associates, relating to the
Wind Mountain mine, including Assignment to the
Company and related documents, filed as Exhibit 10.25
to Registration Statement No. 33-22645 and
incorporated herein by reference.
EX-10(w) Amendment to Mining Lease, dated August 4, 1988,
between TMB Associates and Registrant, amending the
Mining Lease referenced as Exhibit 10(v) above, filed
as Exhibit 46 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1990 (File No.
1-9620) and incorporated herein by reference.
EX-10(x) Lease dated August 22, 1983, between Joe Munkhoff and
Delphina Munkhoff and Tim Watt, d/b/a Fischer Watt
Mining Company, relating to the Hayden Hill mine,
with Addendums and Assignments to Lassen Gold Mining,
Inc., filed as Exhibit 32 to Registrant's Report on
Form 10-K for the year ended December 31, 1992 (File
No. 1-9620) and incorporated herein by reference.
EX-10(y) Bullion Loan Agreement, dated as of March 21, 1991,
between Lassen Gold Mining, Inc., Registrant, and
various banks relating to the financing of the Hayden
Hill mine, filed as Exhibit 1 to Registrant's From
10-Q for the Quarter ended March 31, 1991 (File No.
1-9620) and incorporated herein by reference.
EX-10(z) Deed of Trust, Mortgage, Security Agreement (Personal
Property Including Mineral Ore and Products Thereof),
Assignment of Production and Fixture Filing, dated as
of March 21, 1991, between Lassen Gold Mining, Inc.
and Ticor Title Insurance Company of California,
filed as Exhibit 2 to Registrant's Form 10-Q for the
Quarter ended March 31, 1991 (File No. 1-9620) and
incorporated herein by reference.
EX-10(aa) First Amendment to Deed of Trust described in Exhibit
10(z), dated as of September 30, 1991, between Lassen
Gold Mining, Inc. and Ticor Title Insurance Company
of California, filed as Exhibit 62 to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9620) and incorporated
herein by reference.
EX-10(bb) Security Agreement, dated as of March 21, 1991,
between Lassen Gold Mining, Inc. and The Chase
Manhattan Bank, N.A., as Agent for various banks,
filed as Exhibit 3 to Registrant's Form 10-Q for the
Quarter ended March 31, 1991 (File No. 1-9620) and
incorporated herein by reference.
EX-10(cc) Guarantee and Pledge Agreement, dated as of March 21,
1991, between Registrant and The Chase Manhattan
Bank, N.A., as Agent for various banks, filed as
Exhibit 4 to Registrant's Form 10-Q for the Quarter
ended March 31, 1991 (File No. 1-9620) and
incorporated herein by reference.
EX-10(dd) Martha Hill Joint Venture Agreement, dated July 17,
1987, among Amax Gold Mines New Zealand Limited, AUAG
Resources Limited, Welcome Gold Mines Limited,
Goodman Mining Limited and Waihi Gold Mining Company
Limited, relating to the Waihi mine, filed as Exhibit
10.8.3 to Registration Statement No. 33-14588 and
incorporated herein by reference.
EX-10(ee) Modification, dated April 3, 1991, to the Martha Hill
Joint Venture Agreement, filed as Exhibit 2 to
Registrant's Form 10-Q for the Quarter ended June 30,
1991 (File No. 1-9620) and incorporated herein by
reference.
E-3
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
EX-10(ff) Share Sale Agreement dated 4 June 1993 between the
Registrant and Waihi Financing Limited, relating to
the Waihi mine.
EX-10(gg) Share Subscription Agreement dated 4 June 1993
between ACM (New Zealand) Limited, Waihi Financing
Limited and the Registrant, relating to the Waihi
mine.
EX-10(hh) Call Option Agreement dated 4 June 1993 between the
Registrant and Poseidon Gold Limited, relating to the
Waihi mine.
EX-10(ii) Deed of Guarantee dated 4 June 1993 between the
Registrant and Poseidon Gold Limited, relating to the
Waihi mine.
EX-10(jj) Deed of Indemnity dated 4 June 1993 between the
Registrant and ACM (New Zealand) Limited, relating to
the Waihi mine.
EX-10(kk) Letter dated June 4, 1993, from Poseidon Gold Limited
to the Registrant relating to the Waihi mine and the
transactions evidenced by Exhibits 10(ff) through
10(jj) above.
EX-10(ll) Amendment (dated May 16, 1991) to Leasing Agreement
between Empresa Nacional de Mineria ("ENAMI") and
Minera Guanaco Limitada covering Guanaco project
mineral claims--including transfer of Leasing
Contract from Sociedad Contractual Minera Guanaco to
Compania Minera Amax Guanaco and ENAMI, filed as
Exhibit 1 to Registrant's Form 10-Q for the Quarter
Ended June 30, 1992 (File No. 1-9620) and
incorporated herein by reference.
EX-10(mm) Lease Agreement dated June 21, 1946 between James P.
Beckwith and Haile Mines, Inc., covering the
principal mineral rights for the Haile project--
including Assignment of Interest in Lease dated May
1, 1992 by and between Mineral Mining Company, Inc.
and Lancaster Mining Company, Inc., filed as Exhibit
2 to Registrant's Form 10-Q for the Quarter ended
June 30, 1992 (File No. 1-9620) and incorporated
herein by reference.
EX-18 Letter dated September 15, 1993, from the Company's
independent accountants regarding their concurrence
that a newly adopted method of accounting for
exploration expenditures, expensing such expenditures
in the period incurred until such time as a property
becomes exploitable with subsequent expenditures
being capitalized, is preferable to the method
previously applied, filed as an exhibit to the
Registrant's Form 8-K dated September 15, 1993 (File
No. 1-9620) and incorporated herein by reference.
EX-21 Subsidiaries of Registrant.
EX-23(a) Consent of Coopers & Lybrand to the incorporation by
reference in Registrant's Registration Statements No.
33-43076, No. 33-43383, and No. 33-36612 of certain
reports of the firm described therein.
EX-23(b) Consent of Derry, Michener, Booth & Wahl to the
incorporation by reference in Registrant's
Registration Statements No. 33-43076, No. 33-43383,
and No. 33-36612 of certain reports of the firm
described therein.
EX-24 Powers of Attorney.
E-4
APPENDIX
Graphic and Image Material
A map depicting the location of the Company's mines and projects appears on
page 2. The locations are described in Part I, Item 1. "Business."