1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-9025
GRANGES INC.
(Exact name of registrant as specified in its charter)
Province of British Columbia (Not Applicable)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Suite 3000, 370 Seventeenth Street, Denver, Colorado, 80202
(Address of principal executive offices) (Zip Code)
(303) 629-2450
(Registrant's telephone number, including area code)
2230 - 885 W. Georgia Street, Vancouver, B.C. V6C 3E8
(Former name, former address, and former fiscal year, if changed since last
report)
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
46,181,661
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Common Shares, without par value, outstanding at April 5, 1996
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GRANGES INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(i) Consolidated Balance Sheets as at March 31, 1996 and December 31, 1995 3
(ii) Consolidated Statements of Earnings (Loss) for the three months ended March 4
31, 1996 and March 31, 1995
(iii) Consolidated Statement of Deficit for the three months ended March 31, 1996 4
and March 31, 1995
(iv) Consolidated Statements of Changes in Cash Resources for the three months 5
ended March 31, 1996 and March 31, 1995
(v) Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
In this Report, unless otherwise indicated, all dollar amounts are
expressed in United States dollars.
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GRANGES INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31
(US DOLLARS IN THOUSANDS) 1996 1995
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(UNAUDITED) (AUDITED)
----------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 9,097 $ 15,210
Marketable securities 34 179
Accounts receivable and other 3,443 1,432
Inventories 14,970 11,090
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27,544 27,911
Investment in Zamora Gold Corp. 4,008 4,254
Property, plant and equipment 33,818 32,051
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65,370 64,216
============================
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 9,123 $ 6,239
----------------------------
9,123 6,239
Provisions for future reclamation and closure costs 3,509 3,409
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12,632 9,648
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SHAREHOLDERS' EQUITY
Common shares without par value (Note 5) 54,398 54,190
(Issued 1996- 46,181,661 shares; 1995 - 46,042,911 shares)
Retained earnings (deficit) (557) 1,409
Currency translation adjustment (1,103) (1,031)
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52,738 54,568
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$ 65,370 $ 64,216
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Commitments and contingencies (Note 3)
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GRANGES INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31 1996 1995
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(UNAUDITED)
REVENUE $ 6,669 $ 11,702
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EXPENSES
Operating costs 5,616 8,812
Depreciation, depletion and provision for
future reclamation and mine closure 1,114 893
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6,730 9,705
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RESULTS OF MINING OPERATIONS (61) 1,997
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Mineral exploration and property evaluation 1,121 977
Corporate administrative 616 531
Interest income - net (159) (466)
Other expense (income) 195 (138)
Gain on sale of investments (141) --
Equity in loss of Zamora Gold Corp. 320 --
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1,952 904
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EARNINGS (LOSS) BEFORE INCOME TAXES (2,013) 1,093
CURRENT INCOME TAXES (RECOVERY) (47) 43
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NET EARNINGS (LOSS) $ (1,966) $ 1,050
============================
EARNINGS (LOSS) PER SHARE $ (0.04) $ 0.03
============================
WEIGHTED AVERAGE SHARES OUTSTANDING 46,108,515 34,178,750
============================
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(US DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 1996 1995
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(UNAUDITED)
RETAINED EARNINGS (DEFICIT), BEGINNING OF PERIOD (Note 3) $ 1,409 $(55,275)
NET EARNINGS (LOSS) (1,966) 1,050
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DEFICIT, END OF PERIOD $ (557) $(54,225)
====================
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GRANGES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN CASH RESOURCES
(US DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 1996 1995
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(UNAUDITED)
OPERATING ACTIVITIES
Net earnings (loss) $ (1,966) $ 1,050
Items not involving cash:
Depreciation and depletion 964 779
Provision for future reclamation and closure costs 156 125
Gain on sale of investments (141) --
Equity in loss of Zamora Gold Corp. 320 --
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(667) 1,954
Currency translation adjustment (345) (70)
Change in working capital, excluding cash and cash equivalents (2,861) 1,130
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(3,873) 3,014
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INVESTING ACTIVITIES
Property, plant and equipment (2,227) (566)
Deferred stripping (505) (1,682)
Proceeds from sale of investments 284 --
Option payments received -- 29
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(2,448) (2,219)
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FINANCING ACTIVITIES
Long-term debt repayments -- (63)
Deferred amalgamation costs -- (204)
Issue of share-purchase options 208 29
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208 (238)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,113) 557
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,210 33,045
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,097 $ 33,602
====================
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GRANGES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(US DOLLARS IN THOUSANDS UNLESS SPECIFIED OTHERWISE - UNAUDITED)
MARCH 31, 1996
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements of Granges Inc. for the three months
ended March 31, 1996 have been prepared by the Company without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the interim financial information set
forth herein have been made. The results of operations for interim periods are
not necessarily indicative of the operating results of a full year or of future
years.
2. CHANGE IN REPORTING CURRENCY
The consolidated financial statements of the Company have historically been
expressed in Canadian dollars. As a result of sales revenues and a significant
portion of expenses being denominated in United States (U.S.) dollars, the sale
of exploration properties in Canada, the increasing international focus of the
Company's operating activities, and the Company's recent relocation to Denver,
the U.S. dollar has become the principal currency of Granges' business.
Accordingly, the U.S. dollar has been adopted as the reporting currency for the
consolidated financial statements of the Company effective January 1, 1996. The
comparative information for 1995 has been translated into U.S. dollars for the
three months ended March 31, 1995, and at the December 31, 1995 year end at a
rate of one U.S. dollar to Cdn. $1.3652.
3. CONTINGENCIES AND COMMITMENTS
A) The Company is committed to payments under certain operating leases for
mining equipment. Future payments under these leases in each of the next five
years and in the aggregate are:
1996 $1,498
1997 1,998
1998 1,055
1999 --
2000 --
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$4,551
======
Letters of credit totalling $2.8 million (1995-$3.5 million) have been provided
as security under these mine equipment operating leases.
B) As part of its gold hedging program, the company has entered into agreements
with major financial institutions to deliver gold. Realization under these
agreements is dependent upon the ability of those financial institutions to
perform in accordance with the terms of the agreements. As of March 31, 1996,
the Company's consolidated hedging program consists of:
(i) forward sales contracts totalling 53,000 ounces for deliveries up to
November 28, 1997 at an average price of $403 per ounce;
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(ii) matching option contracts for 10,000 ounces of gold under which the
company can require the financial institution to buy gold at $392 per
ounce, while the financial institution can require the company to sell the
same number of ounces at $465 per ounce. These options have various expiry
dates during 1996 and result in no net cost to the company.
4. CAPITAL REDUCTION
At the March 30, 1995 extraordinary meeting, the shareholders of Granges
approved a special resolution to reduce the capital of the Company. Under this
resolution, the share capital and contributed surplus were reduced by $52.5
million and $2.7 million, respectively, with a corresponding decrease to
Granges' accumulated deficit of approximately $55.3 million. The effect of this
capital reduction was to eliminate the consolidated accumulated deficit of
Granges as of December 31, 1994, after giving effect to the estimated costs of
the amalgamation. This deficit was caused primarily by prior write downs of
mining assets.
5. SUBSEQUENT EVENT
On April 25, 1996, a private placement of 9,699,800 Special Warrants was
completed at a price of Cdn. $2.60 per unit for gross proceeds of Cdn.
$25,219,480. Each Special Warrant is exercisable into one common share and one
half of one common share purchase warrant of Granges for no additional
consideration. Each whole common share purchase warrant is exercisable into one
common share of Granges at a price of Cdn. $3.00 per share until October 31,
1997.
One hundred percent of the funds will be held in escrow until final
qualification of the prospectus. If final qualification of the prospectus is
not received within 90 days of the closing of the private placement, holders of
the Special Warrants will be entitled to a return of their initial investment
plus accrued interest.
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GRANGES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial
statements of Granges Inc. for the three months ended March 31, 1996 and the
notes thereto, which have been prepared in accordance with accounting
principles generally accepted in Canada. The U.S. dollar has become the
principal currency of Granges' business. Accordingly, the U.S. dollar has been
adopted as the reporting currency for the consolidated financial statements of
the company effective January 1, 1996 as described more fully in Note 1 to the
consolidated financial statements.
A. RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 VS. THREE MONTHS ENDED MARCH 31, 1995.
Net losses for the three months ended March 31, 1996 were $2.0 million compared
to $1.1 million gain in 1995. The 1996 loss was primarily due to a significant
decrease in gold production.
Revenues for the first three months of 1996 decreased $5.0 million, or 43
percent, from the same period in 1995. Revenue is generated solely from the
Hycroft mine.
1996 1995
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(MILLIONS)
Hycroft mine revenues $ 6.7 $ 11.7
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The decrease in revenues was primarily due to lower gold and silver production
partially offset by a favorable price variance . The gross realized price was
$398 per ounce of gold in 1996 as compared to $385 in 1995.
1996 1995
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(OUNCES)
Gold 16,206 27,493
Silver 39,723 141,867
The decrease in gold production was the result of lower than normal recovery
from a clay-rich ore section combined with delayed recovery from a significant
volume of run-of-mine ore where solution application was held up until haulage
roads could be re-routed off of the fresh ore. Mining in the clay-rich area is
nearly complete and recent ore production has exhibited normal recovery. The
recoverable ounces mined and placed on the leach pads during the first quarter
of 1996 was 25,675 ounces compared to 25,034 ounces for the same period in
1995, again indicating normal leaching expectations for the later quarters.
Direct cash operating costs per ounce produced were $283 in 1996, compared to
$256 in 1995. The increase in direct cash operating costs resulted from lower
gold production.
Depreciation, depletion and provision for future reclamation and mine closure
costs increased $0.2 million from 1995. There was no amortization of deferred
striping for the quarter. Mineral exploration increased $0.1 million while
corporate administrative expenditures increased $0.2 million. Interest income
decreased 66 percent from 1995 reflecting the Company's lower average cash
balances.
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OUTLOOK
Gold production and mine operating costs at the Hycroft mine are expected to
return to normal levels as mining in the clay-rich area is completed, and the
year's production is estimated at 95,000 ounces. Exploration, corporate
administrative and other costs are expected to remain at current levels.
Management's outlook for the future growth of Granges is through the
acquisition of additional precious metals reserves, primarily in the form of
producing or near-production properties, as well as through the exploration
efforts of the company. Granges is actively searching for acquisition targets
in North and South America. On February 29, 1996, the Company entered into a
Letter of Intent to enter into an Option Agreement with L.B. Mining Company to
acquire the Guariche gold project in southeastern Venezuela. Subject to due
diligence and the Company satisfying itself that, during the four-month option
period, the project contains 500,000 ounces of proven and probable reserves,
the Company will acquire the property for $15 million of which $5 million is
payable in Granges shares and the balance in cash. Depending on when additional
proven and probable mineable gold reserves are discovered, any additional
proven and probable reserves above the 500,000 ounces will cost $30 per ounce
or attract a 7.5 percent net smelter royalty. The expenditure commitment is
$600,000 during the option period, an additional $1.0 million within the first
12-month period after the property is acquired, and a further $1.0 million
within the following 12-month period.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash balance as of March 31, 1996 was $9.1 million,
a decrease of $6.1 million from December 31, 1995. The decrease is primarily
the result of inventory increases of $3.9 million, Brimstone pre-production
stripping of $0.3 million, property, plant and equipment additions of $1.9, and
deferred stripping costs of $0.5 million, while the sale of marketable
securities and exercise of share purchase options generated $0.5 million.
During the first three months of 1996 the Company, through its subsidiary,
arranged a secured stand-by credit facility. The facility is available for
drawdown until December 31, 1996, in dollars or as a gold loan, to a maximum of
$13.0 million or the gold ounce equivalent thereof (not to exceed 35,000
ounces). Drawdowns under the facility bear interest at LIBOR plus 1.60 percent
for dollar loans and gold lease rates plus 1.60 percent for gold loans. The
loan is repayable in seven semi-annual instalments commencing the earlier of 12
months after the first drawdown or June 30, 1997. In the event the Company
generates cash surpluses after debt service, it is required to make annual
mandatory prepayments equal to 25 percent of excess cash flow, up to a maximum
of $2.5 million annually and 5.0 million in aggregate.
In addition to the loan facility, the Company has also arranged a hedging
facility for up to 275,000 ounces of gold for deliveries up to the year 2001.
Both the hedging and credit facilities are secured by the assets at the Hycroft
mine and parent company guarantee.
Subsequent to March 31, 1996, the Company completed a private placement for
gross proceeds of Canadian $25 million as described more fully in Note 3 to the
consolidated financial statements.
C. RECLAMATION AND ENVIRONMENTAL
As reported in the Company's Form 10-K for 1995, the Nevada Department of
Environmental Protection (NDEP) and the Nevada Bureau of Land management (BLM)
were notified of Granges' intent to begin mining the private lands associated
with the Brimstone deposit. The NDEP Bureau of Mining Regulation
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and Reclamation has granted their approval for this action. Pre-stripping of
the Brimstone deposit commenced in February 1996.
During the first three months of 1996, there were no material environmental
incidents or non-compliance with any applicable environmental regulations.
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GRANGES INC.
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re: computation of per share earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K
(i) The Company has filed a report on Form 8-K dated January 10,
1996 which reported under Item 5 (Other Events) the appointment
of A.J. Ali as Chief Financial Officer of the Registrant, the
resignation of Janis D. Busse as General Counsel and Corporate
Secretary and the appointment of Nancy A. Larson as Corporate
Secretary of the Registrant, and the move of the Company's head
office to Denver, Colorado.
(ii) The Company has filed a report on Form 8-K dated February 19,
1996 which reported under Item 5 (Other Events) on the ruling of
the arbitrator in the arbitration involving the Registrant, its
subsidiaries Hycroft Resources & Development Corporation and
Hycroft Lewis Mine, Inc. and Frank W. Lewis and F.W. Lewis, Inc.
(iii) The Company has filed a report on Form 8-K dated February 28,
1996 which reported under Item 5 (Other Events) assay results
from three recently completed drill holes at the Gold Bar
project and the letter agreement dated February 29, 1996 between
the Registrant and L.B. Mining Company relating to the proposed
option agreement to acquire the Guariche gold property in
Venezuela.
(iv) The Company has filed a report on Form 8-K dated March 13, 1996
reporting under Item 5 (Other Events) its 1995 year end results.
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GRANGES INC.
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.
GRANGES INC.
(Registrant)
Date: May 13, 1996 By: signed "Michael B. Richings"
-----------------------------------
Michael B. Richings
President and Chief Executive
Officer
Date: May 13, 1996 By: signed "A.J. Ali"
-----------------------------------
A.J. Ali
Vice President Finance and Chief
Financial Officer
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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11 Statement re: computation of per share earnings.
27 Financial Data Schedule