SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period MARCH 31, 1994
ended ____________________________
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 1-9620
--------------
AMAX GOLD INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1199974
- - -------------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 EAST MINERAL CIRCLE, ENGLEWOOD, COLORADO 80155
- - --------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (303) 643-5500
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
COMMON STOCK OUTSTANDING, $0.01 PAR VALUE, AS OF MAY 13, 1994 - 78,202,502
SHARES
- - --------------------------------------------------------------------------------
Total Pages - 200
Exhibit Index Located on Page 22
1
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
AMAX GOLD INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
- - --------------------------------------------------------------------
1994 1993
- - --------------------------------------------------------------------
Sales $23,800 $ 18,400
- - --------------------------------------------------------------------
Costs and operating expenses-
Costs applicable to sales 21,000 17,100
Depreciation and depletion 5,900 5,800
Selling, general and administrative expenses 1,700 2,000
- - --------------------------------------------------------------------
Total costs and operating expenses 28,600 24,900
- - --------------------------------------------------------------------
GROSS OPERATING LOSS (4,800) (6,500)
EXPLORATION EXPENSES (300) (500)
- - --------------------------------------------------------------------
LOSS FROM OPERATIONS (5,100) (7,000)
Interest expense (2,400) (1,700)
Minority interest 400 -
Interest income and other - 200
- - --------------------------------------------------------------------
LOSS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES (7,100) (8,500)
Income tax benefit 1,300 2,500
- - --------------------------------------------------------------------
LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (5,800) (6,000)
Cumulative effect of accounting changes, net
of income tax benefits of $5,500 in 1993 - (15,200)
- - --------------------------------------------------------------------
NET LOSS $(5,800) $(21,200)
====================================================================
PER COMMON SHARE:
Loss before cumulative $ (.07) $ (.07)
effect of accounting changes
Cumulative effect of accounting changes - (.20)
- - --------------------------------------------------------------------
Net loss $ (.07) $ (.27)
====================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ - $ .02
====================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 78,189 77,202
====================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
2
AMAX GOLD INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE OF STOCK)
MARCH 31, DECEMBER 31,
- - ------------------------------------------------------------------------------------------------
1994 1993
================================================================================================
ASSETS (UNAUDITED)
Cash and equivalents $ 4,900 $ 7,500
Inventories 15,900 16,600
Other assets 9,100 9,800
Receivables on open sales contracts 1,100 4,000
- - ------------------------------------------------------------------------------------------------
CURRENT ASSETS 31,000 37,900
Property, plant and equipment, net 315,000 315,800
Refugio equity investment 22,800 22,700
Other assets 6,900 4,600
- - ------------------------------------------------------------------------------------------------
TOTAL ASSETS $375,700 $381,000
================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $ 3,800 $ 4,000
Accounts payable, affiliates 500 100
Accrued and other current liabilities 15,600 16,400
Reclamation reserve, current portion 2,000 2,000
Current maturities of long-term debt and unearned revenue 16,700 15,100
- - ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES 38,600 37,600
Long-term debt and unearned revenue 110,900 111,800
Note payable to Cyprus Amax 25,400 24,700
Reclamation reserve, noncurrent portion 9,200 8,600
Other noncurrent liabilities 7,900 8,100
- - ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 192,000 190,800
- - ------------------------------------------------------------------------------------------------
Deferred taxes 15,300 16,900
- - ------------------------------------------------------------------------------------------------
Contingencies - -
- - ------------------------------------------------------------------------------------------------
Minority interest 700 -
- - ------------------------------------------------------------------------------------------------
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 78,198,638
shares in 1994 and 78,185,057 shares in 1993 800 800
Paid-in capital 150,900 150,700
Retained earnings 16,000 21,800
Common stock in treasury, at cost (1,991 shares in 1994 and 1993) - -
- - ------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 167,700 173,300
- - ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $375,700 $381,000
================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
3
AMAX GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
- - -------------------------------------------------------------------------------
1994 1993
===============================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,800) $(21,200)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and depletion 5,900 5,800
Increase in reclamation reserves 600 500
Other, net 100 100
Decrease in deferred taxes (1,300) (2,800)
Minority interest (400) -
Cumulative effect of accounting changes - 15,200
Decrease (increase) in working capital, net of
effect of investing and financing activities:
Receivables on open sales contracts 2,900 (500)
Inventories 700 400
Accounts payable, affiliates 400 (600)
Other assets 300 (900)
Accrued and other current liabilities (600) (1,000)
Accounts payable, trade (300) (200)
- - -------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,500 (5,200)
- - -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital and cash acquisition expenditures for property,
plant and equipment (4,100) (8,900)
Other (600) -
Refugio cash acquisition and investment costs (100) (1,000)
Advances to Amax under notes receivable - (10,500)
- - -------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (4,800) (20,400)
- - -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from financings 49,400 19,600
Advances from Cyprus Amax under notes payable 700 -
Repayments of financings (48,700) (4,500)
Deferred financing costs (1,600) -
Other (100) (800)
Cash dividends paid - (500)
- - -------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (300) 13,800
- - -------------------------------------------------------------------------------
NET DECREASE IN CASH AND EQUIVALENTS (2,600) (11,800)
Cash and equivalents at January 1 7,500 23,700
- - -------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT MARCH 31 $ 4,900 $ 11,900
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
4
AMAX GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) FINANCIAL STATEMENT ADJUSTMENTS AND FOOTNOTE DISCLOSURES
--------------------------------------------------------
The accompanying financial statements are unaudited; however, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been made. These
financial statements and notes thereto should be read in conjunction with
the financial statements and related notes included in the annual report on
Form 10-K for Amax Gold Inc. (the "Company") for the fiscal year ended
December 31, 1993 on file with the Securities and Exchange Commission
(hereinafter referred to as "the Company's 1993 10-K"). All amounts are in
United States dollars ("U.S.$") unless otherwise stated.
As discussed in Note 1 to the Company's 1993 10-K Consolidated
Financial Statements, the Company changed its accounting policy from that
of subsequently capitalizing and restoring to earnings prior period
exploration expenses when a property became exploitable to a policy of
expensing exploration expenditures in the period incurred with future
expenditures being capitalized at such time that a property becomes
exploitable. Accordingly, all of the 1993 periods were restated to reflect
the adoption of this policy as of January 1, 1993 and, for the first
quarter of 1993, the Company recognized a $13.4 million after tax charge
(net of an income tax benefit of $4.5 million) relating to the cumulative
effect from such accounting change for periods prior to 1993. Also as
discussed in Note 4 to the Company's 1993 10-K Consolidated Financial
Statements, effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" which resulted in a 1993 first quarter after tax
charge of $1.8 million (net of an income tax benefit of $1.0 million)
related to the cumulative effect of this accounting change.
5
(2) INVENTORIES
-----------
Inventories consist of the following (in thousands):
MARCH 31, December 31,
1994 1993
--------- ------------
Precious metals refined and in-process $ 8,600 $ 9,000
Materials and supplies 7,300 7,600
------- ------
$15,900 $16,600
======= =======
(3) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
The components of property, plant and equipment are as follows (in
thousands):
MARCH 31, December 31,
1994 1993
---------- ------------
Mining plants and equipment $ 163,600 $ 163,200
Mining properties 162,000 159,900
Development properties and
construction-in-progress 200,400 197,900
--------- ---------
526,000 521,000
Less:
Accumulated depreciation and depletion
and 1993 write-downs (211,000) (205,200)
--------- ---------
$ 315,000 $ 315,800
========= =========
6
(4) DEBT
----
The following table summarizes the Company's outstanding debt at March
31, 1994 (in thousands):
Current Noncurrent Total
-------- ---------- --------
Unearned Revenue:
Nevada Gold Mining, Inc. $ 1,600 $ - $ 1,600
Debt:
Lassen Gold Mining, Inc. 11,100 40,800 51,900
AGI Chile Credit Corp., Inc. 1,000 35,000 36,000
Amax Gold Inc. - 30,400 30,400
Compania Minera Amax Guanaco 3,000 4,700 7,700
------- -------- --------
Total unearned revenue and debt 16,700 110,900 127,600
Note payable to Cyprus Amax - 25,400 25,400
------- -------- --------
$16,700 $136,300 $153,000
======= ======== ========
The market value of the total outstanding debt and unearned revenue as
of March 31, 1994 was $3.6 million higher than the carrying value of $153
million.
During the quarter ended March 31, 1994, the Company paid $4.5 million
of interest expense and fees, of which $1.6 million was deferred relating
to the Chilean debt refinancing discussed below. The annualized interest
rate for the $153 million of outstanding debt for the quarter ended March
31, 1994 was 6.2%.
AGI Chile Credit Corp., Inc.
----------------------------
In March 1994, the Company refinanced $34.2 million of outstanding
Chilean short-term bridge loans with a $36 million U.S. term loan agreement
through AGI Chile Credit Corp., Inc. (Chile Credit Corp.), a wholly-owned
domestic subsidiary of the Company. The final maturity date for this new
loan agreement is October 1997, with semi-annual amortization payments
commencing in October 1994. Amounts outstanding under this term loan bear
interest at the LIBOR interest rate plus 1.25%. This loan is
collateralized by guarantees from the Company and, initially, Cyprus Amax
Minerals Company (Cyprus Amax). As of March 31, 1994, Cyprus Amax owned
approximately 31.3 million common
7
shares, or approximately 40%, of the Company's outstanding common stock.
In connection with the refinancing, the Company incurred approximately $1.6
million of interest, fees and expenses which were deferred and will be amortized
into interest expense over the life of the new loan.
Amax Gold Inc.
- - --------------
At March 31, 1994, the Company had outstanding borrowings of 86,863
gold ounces which were sold for $30.4 million. These ounces are scheduled
to be repaid as follows:
MATURITY GOLD AMOUNT
DATE OUNCES (IN THOUSANDS)
-------- ------ --------------
August 1994 15,129 $ 5,000
December 1994 44,183 15,000
February 1995 27,551 10,400
------ -------
86,863 $30,400
====== =======
While the March 31, 1994 market value of the total outstanding gold ounces
borrowed was $3.6 million higher than the $30.4 million carrying value (using
the spot market price for gold as of March 31, 1994), the Company has
contractual agreements with the lenders which set the gold price upon repayment
equal to the carrying value plus a 4% average annualized effective rate of
interest. As a result, the Company does not have any gold market price risk
associated with these borrowings.
During the quarter ended March 31, 1994, Cyprus Amax provided a guarantee
on $10 million of outstanding gold loans. This guarantee allowed the Company to
borrow 27,551 gold ounces in February 1994, which were sold for $10.4 million,
to repay $10 million of outstanding borrowings (or 30,303 gold ounces) due in
February 1994. The $10.4 million borrowing is due in February 1995. In April
1994, the Company reduced the $10.4 million borrowing to $10 million, or 25,708
gold ounces. Also during the quarter ended March 31, 1994, the Company borrowed
and repaid 7,692 gold ounces, which were sold and repaid for
8
$3 million.
In April 1994, the Company borrowed an additional 7,772 gold ounces
which were sold for $3 million. These gold ounces are scheduled to be
repaid in June 1994.
On April 15, 1994, the Company and Cyprus Amax entered into an
agreement pursuant to which Cyprus Amax will provide the Company with a
$100 million double convertible line of credit. The outstanding
indebtedness under this line of credit will bear interest at the LIBOR
interest rate plus 0.3% and may be repaid by the Company issuing up to two
million shares of a newly created $2.25 Series A convertible preferred
stock. The holder of shares of preferred stock will be entitled to receive
dividends at an annual rate of $2.25 per share, which will be cumulative,
accruing without interest and will be payable in cash in equal semi-annual
installments. The Company may elect to pay any dividend due and payable in
shares of common stock in lieu of a cash dividend, unless the holder of
preferred stock delivers written notice stating that such holder elects to
receive cash. The Company will have the right to redeem the convertible
preferred stock by issuing up to 12,099,213 shares of the Company's common
stock at a maximum price of $8.265 per share and a minimum price of $5.854
per share. In the event the full 12,099,213 common shares have been issued
to redeem the preferred stock, any remaining preferred stock would be
redeemed with cash in lieu of the common shares if a full redemption is
desired by the Company, which would be payable in twelve consecutive
substantially equal quarterly installments. Cyprus Amax will have the
right to replace the line of credit and any outstanding indebtedness and/or
preferred stock with the purchase of 12,099,213 shares of the Company's
common stock at a purchase price of $8.265 per share, or $100 million. The
$8.265 per common share price represents a 20% premium to the ten-day
average closing price of the Company's common stock immediately prior to
the February 1994 signing of a commitment letter for the line of credit.
The transactions contemplated under this line of credit are subject to
stockholder approval. A Consent Solicitation Statement will be filed with
the Securities and Exchange Commission and sent to stockholders of record
as of May 13, 1994 for their approval of the transactions contemplated
under the $100 million line of credit and the purchase by Cyprus Amax of
three million Company common shares discussed below. Stockholder approval
for
9
these transactions is expected in June or July 1994.
A portion of this $100 million credit line is expected to be
designated as support for $30 million of outstanding indebtedness under the
Lassen Gold Mining, Inc. financing and as replacement for the Cyprus Amax
guarantee on the new $36 million Chile Credit Corp. U.S. term loan. The
remaining line of credit will be available for working capital to enable
the Company to meet its on-going obligations, including the support of the
$30.4 million of outstanding gold loans. At March 31, 1994, the $30.4
million of outstanding gold loans were classified as long-term based on the
1994 refinancing activities.
Note Payable to Cyprus Amax
---------------------------
At March 31, 1994, $25.4 million was outstanding and payable to Cyprus
Amax under a demand promissory note payable. 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 the
amounts outstanding under such note. This share purchase is evidenced by a
Stock Purchase Agreement dated April 15, 1994 and is subject to stockholder
approval, as discussed above. The $6.888 per share purchase price for
these common shares under the Stock Purchase Agreement represented the ten-
day average closing price of the Company's common stock immediately prior
to the February 1994 signing of a commitment letter for the purchase of the
shares. This share purchase, together with the deferral by Cyprus Amax of
the repayment of the remaining balance until 1995, was the basis on which
the Company classified the $25.4 million outstanding indebtedness as long-
term at March 31, 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%.
(5) HEDGE CONTRACTS
---------------
Precious metal hedge contracts include forward sales contracts, spot
deferred forward sales and put and call options. Forward sales contracts
require the future delivery of gold
10
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 March 31, 1994, the Company's outstanding precious metal hedge
contracts are as follows:
AVERAGE
GOLD PRICE
OUNCES PER OUNCE PERIOD
------- --------- ------
Forward sales contracts/1/ 288,600 $410 April 1994 - June 1994
Option contracts:
Purchased put options 232,000 383 April 1994 - December 1995
Sold put options 67,500 351 April 1994 - November 1995
Purchased call options 112,000 424 April 1994 - March 1995
Sold call options 349,500 459 April 1994 - December 1995
/1/ Represents the net forward sales position which was made primarily on a
spot deferred forward basis which allows the Company to defer the
delivery of gold ounces to a later date at a renegotiated gold price.
The market value of the Company's forward contracts and put and call option
contracts at March 31, 1994 was approximately $5.0 million and $1.6 million,
respectively. Future market valuations for these contracts are dependent on gold
market prices, option volatility and interest rates, which can vary
significantly. These contracts will be utilized in the future to hedge against
continued low gold market prices for the Company's future gold production to
provide cash flow for operations while maintaining benefits in the event of
higher gold market prices.
Interest rate hedge contracts entered into by the Company consist of
interest rate swap, option and cap agreements to reduce the impact of changes in
interest rates on its
11
financing facilities. At March 31, 1994, the Company had five interest rate swap
agreements outstanding with commercial banks having a total principal amount of
$50 million, as follows:
FIXED
BORROWINGS INTEREST RATE PERIOD
---------- ------------- --------------------------
$10 million 4.44% April 1994 - July 1994
$10 million 6.54% April 1994 - November 1994
$10 million 4.40% April 1994 - January 1995
$10 million 5.95% April 1994 - March 1996
$10 million 4.85% April 1994 - March 1996
As of March 31, 1994, the Company would pay approximately $.1 million to
terminate these interest rate swap agreements, given the market interest rates
as of such date. The Company may be exposed to nonperformance by the other
parties to such agreements, thereby subjecting the Company to current interest
rates on its financings. However, the Company does not anticipate nonperformance
by the counterparties.
(6) CONTINGENCIES
-------------
Lassen Gold Mining, Inc. (Lassen Gold), a wholly-owned subsidiary of the
Company that owns the Hayden Hill Mine, received a letter from the California
Regional Water Quality Control Board (the Board), dated March 25, 1994, advising
that, among other things, no new leach pad cells beyond those under construction
will be approved by the Board with the current design. An alternative design for
future cells is required and leaching operations on future cells will require
new waste discharge permits.
In April 1994, Lassen Gold submitted a conceptual design for future cell
construction and a final design document is being developed for submittal, which
the Company believes will be acceptable. Formal Board approval of a new waste
discharge permit will be sought in the near future to allow Lassen Gold
sufficient opportunity to construct new cells in a timely manner. The Company
does not anticipate that the foregoing will have a material adverse effect on
its financial condition or results of operations.
12
The Company's mining and exploration activities are subject to various
federal, state and Chilean laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and generally
becoming more restrictive. The Company conducts its operations so as to protect
the public health and environment. The Company has made, and expects to make in
the future, significant expenditures to comply with such laws and regulations.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
The following table sets forth the Company's ounces of gold sold and
average realized prices as well as the ounces of gold production and production
costs for the periods indicated.
THREE MONTHS ENDED
MARCH 31,
- - --------------------------------------------------------------------------------
1994 1993
================================================================================
SLEEPER MINE:
Ounces of gold produced 25,930 23,096
Average cost per ounce produced:
Cash production cost/(1)/ $ 273 $ 318
Depreciation and depletion/(2)/ 92 136
- - --------------------------------------------------------------------------------
Total production cost $ 365 $ 454
- - --------------------------------------------------------------------------------
WIND MOUNTAIN MINE:
Ounces of gold produced 3,274 6,273
Average cost per ounce produced:
Cash production cost/(1)/ $ 189 $ 129
Depreciation and depletion - -
- - --------------------------------------------------------------------------------
Total production cost $ 189 $ 129
- - --------------------------------------------------------------------------------
HAYDEN HILL MINE:
Ounces of gold produced 11,807 12,063
Average cost per ounce produced:
Cash production cost/(1)/ $ 499 $ 653
Depreciation and depletion/(2)/ 105 192
- - --------------------------------------------------------------------------------
Total production cost $ 604 $ 845
- - --------------------------------------------------------------------------------
GUANACO MINE:
Ounces of gold produced/(3)/ 15,592 -
Average cost per ounce produced:
Cash production cost/(1)/ $ 424 $ -
Depreciation and depletion 145 -
- - --------------------------------------------------------------------------------
Total production cost $ 569 $ -
- - --------------------------------------------------------------------------------
WAIHI MINE:
Ounces of gold produced/(4)/ - 6,053
Average cost per ounce produced:
Cash production cost/(1)/ $ - $ 224
Depreciation and depletion/(2)/ - 49
- - --------------------------------------------------------------------------------
Total production cost $ - $ 273
- - --------------------------------------------------------------------------------
TOTAL:
Ounces of gold produced 56,603 47,485
Ounces of gold sold 59,408 46,996
Average price per ounce sold $ 401 $ 391
Average cost per ounce produced:/(5)/
Cash production cost/(1)/ $ 357 $ 366
Depreciation and depletion/(2)/ 104 121
- - --------------------------------------------------------------------------------
Total production cost $ 461 $ 487
================================================================================
(1) Cash production costs include all operating costs at the mine sites,
including overhead, and, where applicable, Nevada net proceeds tax,
royalties and credits for silver by-products.
(2) In September 1993, the Company changed its accounting policy for
exploration expenditures, effective January 1, 1993. Accordingly, the
first quarter of 1993 was restated to reflect the adoption of this
policy and, as a result, the 1993 unit depreciation and depletion costs
are lower.
(3) Production commenced at the Guanaco Mine in April 1993.
(4) Represents the Company's 33.53% share. During June 1993, the Company
completed a transaction which resulted in the realization of all future
economic benefit from its 33.53% interest, effective April 30, 1993.
(5) Average costs weighted by ounces of gold produced at each mine.
14
FIRST QUARTER 1994 COMPARED WITH FIRST QUARTER 1993
- - ---------------------------------------------------
During the first quarter of 1994, the Company recognized a net loss of $5.8
million on revenues of $23.8 million compared to a net loss of $21.2 million on
revenues of $18.4 million for the first quarter of 1993. The first quarter of
1993 included a $15.2 million after tax charge relating to the cumulative effect
of accounting changes. Before these accounting changes, the loss for the first
quarter of 1994 was substantially the same as the loss for the first quarter of
1993. A further discussion of the significant factors affecting the 1994 first
quarter results follows.
Revenues for the 1994 first quarter increased by 29% from the prior year
quarter. This increase was due to higher production and sales volumes and a
higher average realized selling price. The increased production and sales
volumes were primarily attributable to 1994 production from the Guanaco Mine.
The Guanaco Mine commenced production in April 1993 and, as a result, there was
no production from Guanaco in the first quarter of 1993. The increased
production from Guanaco together with increased production from the Sleeper Mine
more than offset the elimination of production from the Waihi Mine as a result
of a transaction completed in June 1993, declining residual heap leach
production from the Wind Mountain Mine and slightly lower production from the
Hayden Hill Mine.
The Company realized an average selling price of $401 per gold ounce in the
1994 first quarter compared to $391 per gold ounce in the 1993 first quarter.
The average realized price for both periods included hedging benefits from
closing forward sales contracts and gold options at prices above market. The
average COMEX gold price for the 1994 first quarter was $384 per ounce compared
to $330 per ounce for the 1993 first quarter.
Production from the Sleeper Mine during the 1994 first quarter increased by
12% over the prior year quarter primarily due to higher average mill head grades
and increased mine efficiencies. Sleeper's 1994 first quarter average mill head
grade was 0.099 gold ounce per ton compared to 0.077 gold ounce per ton in the
1993 quarter. Total tons mined also increased to approximately 4.7 million tons
from approximately 4.0 million tons in the
15
comparable quarter of 1993.
The Hayden Hill Mine was converted to a heap leach operation during the
last half of 1993. As of the end of the first quarter of 1994, the Hayden Hill
Mine had not achieved the designed level of production.
Costs applicable to sales rose by $3.9 million in the 1994 quarter compared
to the 1993 quarter, representing a 23% increase, primarily because of higher
sales volumes. Overall unit cash production costs decreased from $366 per ounce
in the 1993 first quarter to $357 per ounce in the 1994 first quarter. This
improvement was primarily the result of increased production from the Sleeper
Mine along with lower production costs from Hayden Hill due to the conversion of
that mine to a heap leach operation in 1993. These improvements were somewhat
offset by high production costs from the Guanaco Mine, which has not yet
achieved the optimum level of production due to water shortages, the elimination
of the lower cost production from the Waihi Mine and declining residual heap
leach production from the Wind Mountain Mine.
Unit depreciation and depletion costs declined by $17 per gold ounce.
Increased depreciation and depletion due to higher production was almost
entirely offset by a lower 1994 depreciation rate as a result of 1993 write-
downs of the Hayden Hill and Sleeper assets.
Selling, general and administrative expenses declined from $2.0 million in
the first quarter of 1993 to $1.7 million in the first quarter of 1994. On a per
gold ounce basis, selling, general and administrative expenses were $30 per gold
ounce produced in the 1994 first quarter compared to $42 per gold ounce produced
in the 1993 first quarter. These improvements were the result of the management
changes, staff reductions and the relocation of the headquarters office to the
Cyprus Amax headquarters office.
Interest expense for the 1994 quarter was $.7 million higher than the 1993
quarter as a result of increased borrowings to fund the Company's operating and
development
16
activities together with the capitalization of approximately $.5 million of
interest in the 1993 quarter related to the construction of the Guanaco Mine.
Income tax benefits were recognized at an effective tax rate of 18% for the
1994 quarter compared to 29% for the 1993 quarter. The 1994 quarter reflected
higher losses from foreign operations than the 1993 quarter for which deferred
tax benefits are not being provided.
The 1993 quarter reflects a $13.4 million after tax ($17.9 million pre-tax)
charge relating to the cumulative effect of a change in the Company's
exploration accounting policy for periods prior to 1993 and $1.8 million after
tax ($2.8 million pre-tax) charge relating to the adoption of a new accounting
standard for postemployment benefits. Both of these accounting policy changes
were effective as of January 1, 1993.
17
LIQUIDITY AND FINANCIAL POSITION
For the first quarter of 1994, the Company had operating cash flow of $2.5
million primarily due to the improved performance of the Sleeper Mine and the
continued low cost residual heap leach production from the Wind Mountain Mine,
which were somewhat offset by high cost production from both the Guanaco and
Hayden Hill mines. The operating cash flow together with existing cash balances
were more than sufficient to fund $4.2 million of capital expenditures and
Refugio investment costs. However, as a result of the Company's utilization of
its current assets to develop its long-term mining assets, the Company had
negative working capital of $7.6 million at March 31, 1994 compared to positive
working capital of $.3 million at December 31, 1993.
The $4.2 million capital and investment cash outlay for the March 1994
quarter represented $2.8 million of sustaining capital at the Hayden Hill,
Guanaco and Sleeper mines, $1.0 million of Fort Knox development costs, $.3
million of Haile development costs and $.1 million of Refugio investment costs.
Capital expenditures for fiscal 1994 are currently estimated to be approximately
$38 million, with $10 million representing sustaining capital for the Hayden
Hill, Guanaco and Sleeper mines and $28 million representing development
expenditures for the Fort Knox, Refugio and Haile projects. The development
expenditures are subject to receiving the necessary financing.
During the quarter ended March 31, 1994, the Company made additional
borrowings of $50.1 million, substantially all of which were utilized to
refinance existing indebtedness. At March 31, 1994, the Company had outstanding
debt obligations of $153 million, up from $151.6 million at December 31, 1993.
While the Company expects that its operating mines will generate positive
cash flow in 1994 (depending upon the performance of its Guanaco, Hayden Hill
and Sleeper mines), the Company recognized that it would be unable to service
its existing debt obligations and to continue development work on its new
projects without raising additional financing. In order to provide the Company
with more financial strength and flexibility to meet its
18
outstanding debt obligations, a commitment letter was signed in February 1994
for Cyprus Amax to provide the Company with a $100 million double convertible
line of credit. The commitment letter also provided for the issuance of three
million shares of the Company's common stock to Cyprus Amax as repayment for
approximately $20.7 million of the $25.4 million outstanding amount owed to
Cyprus Amax under a demand promissory note as of March 31, 1994. On April 15,
1994, a definitive agreement for the $100 million double convertible line of
credit was signed. A Consent Solicitation Statement will be filed with the
Securities and Exchange Commission and sent to stockholders for their approval
of the transactions contemplated under the $100 million line of credit and the
purchase by Cyprus Amax of three million shares of the Company's common stock.
Stockholder approval for these transactions is expected in June or July 1994.
See Note 4 in Item 1 for a further discussion.
In addition to the $100 million line of credit and three million common
share issuance, as of March 31, 1994 Cyprus Amax had provided $53.7 million of
guarantees of the Company's indebtedness. It is expected that upon stockholder
approval of the transactions contemplated under the $100 million line of credit,
a portion of the line of credit would be designated as replacement for $36
million of such guarantees.
With the support of Cyprus Amax through the $100 million line of credit,
the three million common share issuance and debt guarantees, the Company expects
to be able to sustain its current operations, its 1994 operating mine capital
requirements and its current debt service requirements. However, additional
financings will be required to fund the total capital required to bring its Fort
Knox, Refugio and other development projects into production. While the Company
intends to seek additional equity and other 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 $183 million of capitalized
acquisition and development
19
costs as of March 31, 1994. The Company intends to seek institutional financing
to fund a significant portion of the required future capital. In February 1994,
certain Alaska state permits were received. In May 1994, the U. S. Army Corps of
Engineers issued its dredge and fill permit under Section 404 of the Clean Air
Act. With this permit, the Company plans to perform detailed engineering for the
project, upgrade the access road to the project site and begin initial site
preparation. Timing of the construction is dependent on obtaining the final air
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 the Company's
share is $60 million to $70 million. This is in addition to the Company's $22.8
million of capitalized exploration and acquisition costs as of March 31, 1994.
The Company and its 50% partner are attempting to secure institutional 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.
An updated status report and revised reserve estimate incorporating results
from the 1993 drilling program are expected to be completed in the second
quarter of 1994 for the Haile joint venture. 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.
The Company's share of 1994 development costs on the Haile project are estimated
to be approximately $3 million.
The 1994 first quarter results indicate improvements from the 1993 results
which are expected to continue in fiscal 1994. Production from the Hayden Hill
Mine is rising and unit production costs are declining as this heap leach
operation moves towards design capacity. Mill head grades at the Sleeper Mine
have increased resulting in higher production at lower unit production costs.
These operational improvements have somewhat been offset, however, by declining
residual heap leach production from the Wind Mountain Mine and an insufficient
water supply at the Guanaco Mine. Programs are currently
20
underway to develop additional water supplies for the Guanaco Mine. Despite the
expected improvements in operating results for fiscal 1994 compared to fiscal
1993, combined with lower general and administrative expenses and exploration
expenditures, net losses are expected to continue to be realized in fiscal 1994,
assuming an average selling price of $400 per gold ounce. The expected 1994 net
loss is primarily the result of losses from operations as the total 1994 unit
production costs, including depreciation and depletion, are expected to exceed
the assumed 1994 average realized price per gold ounce sold.
The Company expects to realize a 1994 average selling price in the range of
$390 to $450 per gold ounce, depending upon the market price for gold. The
Company has an active hedging program in place which is intended to provide some
protection against low gold market prices while maintaining most of the
potential benefit in the event of higher market prices. The Company believes
that, given its current hedge positions, it could realize the benefit from
rising market prices for fiscal 1994 and 1995 up to a market price of $450 per
gold ounce. The Company also believes it can continue to obtain an average
realized sales price for fiscal 1994 and 1995 of at least $390 per ounce if gold
market prices decline to as low as $320 per ounce. However, the Company's
ability to sustain an average realized price substantially above the market
price for fiscal 1996 and beyond may be significantly diminished as its current
hedge positions are depleted and new positions are put in place at lower prices.
The Company's focus for the remainder of 1994 will be to maximize the
operating performance at all of its mines while at the same time attempting to
minimize capital and operating cash outlays and to secure the additional
financings required to further advance its development properties.
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PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
On February 1, 1994 certain litigation affecting the Registrant,
certain other affiliated corporations and several unnamed corporations
and individuals which had been filed in the Nevada State Court for
Washoe County by TMB Associates ("TMB"), a Nevada general partnership,
was effectively terminated as a result of the Court's denial of TMB's
motion for reconsideration of the Court's Order of August 1993 which
granted Registrant's motion to stay the litigation pending arbitration.
This litigation was previously reported in Registrant's Form 10-K for
fiscal year ended December 31, 1994 filed with the Securities and
Exchange Commission in March 1993. To date, no demand for arbitration
has been received by the Company and, 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
arbitration, if subsequently initiated by TMB.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS -
Exhibit No. Exhibit
----------- -------
EX-10(a) State of Alaska, Department of
Natural Resources, Division of
Mining, Upland Mining Lease, dated
February 15, 1994.
EX-10(b) Fairbanks Gold Mining, Inc.
Millsite Permit for Fort Knox Mine
Project, dated February 15, 1994.
EX-10(c) Term Loan Agreement Among AGI
Chile Credit Corp., Inc., NM
Rothschild & Sons Limited and
Citibank, N.A. - including
Continuing Corporate Guaranty of
Amax Gold Inc. and Continuing
Corporate Guaranty of Cyprus Amax
Minerals Company.
22
EX-10(d) Revolving Credit Agreement,
dated as of April 15, 1994, by
and between Amax Gold Inc. and
Cyprus Amax Minerals Company.
EX-10(e) Stock Purchase Agreement, dated
as of April 15, 1994, among
Amax Gold, Inc. and Cyprus Amax
Minerals Company.
(B) REPORTS ON FORM 8-K -
(i) Dated March 8, 1994, reporting a change in the Company's
independent accountants for fiscal 1994. On March 1, 1994,
the Company's Board of Directors, acting on the recommendation
of its Audit Committee, decided to appoint Price Waterhouse as
the Company's independent accountants for fiscal year 1994,
subject to ratification by the stockholders at the Annual
Meeting of Stockholders to be held May 5, 1994. Price
Waterhouse replaces Coopers & Lybrand who have been the
Company's independent accountants since the Company's
inception in 1987. Price Waterhouse are the independent
accountants for Cyprus Amax and have served as such since
1985. The change was made to realize certain synergies
between the Company and Cyprus Amax.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMAX GOLD INC.
By /s/ Pamela L. Saxton
---------------------------------------
Pamela L. Saxton
Vice President and Controller (principal
accounting officer)
Dated: May 13, 1994
24