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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[A] 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
KINAM 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.)
185 SOUTH STATE ST., SUITE 820 84111
SALT LAKE CITY, UTAH (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (801) 363-9152
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------- -----------------------------------------
$3.75 SERIES B CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $1.00 PAR VALUE
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 FORM 10-K OR ANY
AMENDMENTS TO THIS FORM 10-K. [X]
AS OF MARCH 28, 2001, THERE WERE 1,840,000 SHARES OF THE REGISTRANT'S $3.75
SERIES B CONVERTIBLE PREFERRED STOCK OUTSTANDING. THE AGGREGATE MARKET VALUE OF
VOTING STOCK HELD BY NON-AFFILIATES (CONSISTING SOLELY OF SERIES B CONVERTIBLE
PREFERRED SHARES), AT THE CLOSING PRICE OF $7.51 ON MARCH 28, 2001 WAS
APPROXIMATELY $13.8 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S INFORMATION STATEMENT TO BE DISTRIBUTED IN
CONNECTION WITH THE REGISTRANT'S ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
DURING 2001 ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT.
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This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve risks and uncertainties. The reader
is cautioned that the actual results of Kinam Gold Inc. will differ (and may
differ materially) from the results discussed in such forward-looking
statements. Factors that could cause or contribute to such differences include
those factors discussed under "Items 1, and 2, Business and Properties - Risk
Factors," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this Report generally.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Kinam Gold Inc. ("Kinam" or the "Company") and its subsidiaries are 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 the
Americas, Russia, and Chile. The Company's share of production from its
operating properties totaled 718,395 ounces of gold equivalent during 2000, and
as of December 31, 2000, its share of proven and probable reserves in all its
properties totaled approximately 167 million tons of ore reserves with an
average grade of 0.028 ounces of gold per ton, or 4.7 million contained ounces
of gold. Except as otherwise expressly indicated in this report, all monetary
amounts are expressed in United States dollars.
The Company was incorporated in Delaware in 1987. On June 1, 1998, the Company
completed a merger with Kinross Gold Corporation ("Kinross") providing for a
combination of their businesses. In the merger, the former holders of common
stock of the Company received common stock of Kinross and the Company issued to
Kinross 92.2 million shares of the Company's common stock, representing all of
the issued and outstanding common shares of the Company. Kinross subsequently
transferred ownership of such shares to Kinross Gold U.S.A., Inc., a
wholly-owned subsidiary of Kinross, which is currently the sole common
shareholder of the Company. On September 18, 1998, the Company adopted an
amendment to its certificate of incorporation to change its name to Kinam Gold
Inc.
The Company's operating properties consist of a 100% interest in the Fort Knox
mine near Fairbanks, Alaska, a 54.7% interest in the Kubaka mine in the Magadan
Oblast situated in Far East Russia and a 50% interest in the Refugio mine in
Chile. The Company also owns the Hayden Hill mine in Lassen County, California,
and a 90% interest in the Guanaco mine in Chile. Mining at Hayden Hill and
Guanaco was completed during 1997 and residual leaching will continue during
2001 at both mines. In addition the Company owns the Haile property in Lancaster
County, South Carolina. The Company also owns a 50% interest in the Sleeper mine
in Humboldt County, Nevada, and the Wind Mountain mine in Washoe County, Nevada,
which are in reclamation. During 1999, the Company acquired a 65% interest in
the True North property located near the Fort Knox mine. Kinam holds its
interest in each of these properties in accordance with industry standards. The
locations of the Company's properties are shown on the map on page 3 and
descriptions are set forth below. Data relating to the Company's domestic and
foreign operations reportable segments, assets and export sales are included in
Note 12 to the Consolidated Financial Statements of the Company.
All reserve information is given as of December 31, 2000. Except as otherwise
noted, references to tons and ounces are to short tons of 2,000 pounds and to
troy ounces of 31.103 grams, respectively. Production is defined as gold or
silver produced in the form of dore plus any inventory in mill carbon circuits.
Gold equivalent production represents gold production plus silver production
computed into gold ounces using market price ratios. The silver to gold price
ratio was 56.33 in 2000, 53.40 in 1999 and 53.17 in 1998. Tons mined include
removal of waste required to access ore. Total cash costs include all operating
costs at the mine site, including overhead, proceeds taxes and royalties, and
exclude reclamation costs.
All of the Company's operating properties are open pit mines. Except for mobile
mining equipment leased by the Company at Fort Knox and Refugio, the Company
owns its mining and processing equipment, which is maintained in good operating
condition. Ore is processed by milling or heap leaching. Milling is the
traditional process for recovering gold from ore. After ore is crushed, the gold
and silver are concentrated and then smelted into dore, which is shipped to
refiners for further processing. The milling process is typically used to
achieve higher recovery from oxide and sulfide ores.
Heap leaching is a lower cost processing method applied principally to oxidized
ores. The heap leach recovery rate is generally lower than for milling. In the
heap leaching process, crushed and/or run-of-mine ore is loaded onto leachpads.
The ore is irrigated with a weak cyanide solution that penetrates the ore,
dissolving the gold and silver. The pregnant solution is collected and pumped
through
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activated carbon or a Merrill Crowe zinc precipitation plant to remove the
metals from the solution. After the gold and silver is stripped from the carbon
or processed from the zinc precipitate, it is smelted into dore, which is
shipped to refiners for further processing.
The terms Kinam and the Company when used herein may refer collectively to Kinam
Gold Inc. and its subsidiaries and affiliates or to one or more of them
depending on the context.
[MAP]
FORT KNOX MINE
The Fort Knox mine is located in the Fairbanks Mining District, 15 air miles
northeast of Fairbanks, Alaska.
Operations. Fort Knox achieved commercial production on March 1, 1997.
Construction of the mine was completed at a capital cost of approximately $373
million, which included approximately $28 million in capitalized interest. The
operation includes an open-pit mine, a conventional 41,000 tons per day (15
million tons per year) mill and process plant, a tailings storage facility and a
fresh water reservoir to supply process water. The process facilities are
designed as a zero discharge system. Power is supplied by the public utility
serving the area over a distribution line paid for by the Company. Access from
Fairbanks is by 21 miles of paved highway and five miles of unpaved road. The
mine and plant are designed to operate year round and to produce approximately
300,000 to 500,000 ounces of gold per year depending on the grade of ore
processed. There were approximately 280 employees as at December 31, 2000. In
1999, following a comprehensive evaluation of the property using estimated
future net cash flows, estimated recoverable ounces and an estimated future gold
price of $300 per ounce, the Company recorded a $72.9 million writedown of the
Fort Knox mine. In 1998, based on an estimated future gold price of $325 per
ounce, the Company recorded a $140.3 million writedown. See Note 5 of the
Consolidated Financial Statements for further discussion of the writedowns.
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The following table presents operating data for the Fort Knox mine for the years
indicated.
FORT KNOX MINE
2000 1999 1998
----------- ----------- -----------
Tons mined 35,606,900 30,349,900 33,293,900
Tons of ore milled 14,994,900 13,816,100 13,741,600
Average mill head grade (oz. per ton) .027 .028 0.029
Mill recovery rate (%) 89 90 90
Equivalent ounces of gold produced 362,959 351,120 365,452
Cost per ounce of gold produced:
Total cash costs $ 203 $ 194 $ 189
Reclamation 3 3 3
Depreciation and depletion 104 110 156
----------- ----------- -----------
Total production costs $ 310 $ 307 $ 348
=========== =========== ===========
The mill operated seven days per week in 2000 and averaged 40,970 tons of ore
processed per operating day. The Fort Knox mine and mill operations have worked
in excess of 0.8 million man hours without a lost time accident.
Property Position. The Fort Knox claim block covers approximately 51,000 acres
and consists of two state mining leases, approximately 1,600 state mining
claims, 1,100 acres of patented federal mining claims, and two unpatented
federal mining claims. The current reserve is located on approximately 1,300
acres of land held under a state upland mining lease that expires in 2014. This
may be renewed for a period not to exceed 55 years. The upland lease is subject
to a 3% Alaska production royalty based on net income and is payable to the
State of Alaska Mental Health Trust. All production from state claims is subject
to the State of Alaska Mine License Tax following a 3 year tax grace period
after production commences. The mine licence tax rate is graduated from 3% to 7%
of taxable income. A 1% net smelter return royalty and a 10% overriding net
profits interest is payable on certain of the patented federal mining claims.
There were no royalties paid during 2000 and 1999. The Fort Knox property has
been pledged as security against the syndicated credit facility which supports
$71.0 million of industrial revenue bonds issued to finance construction of the
Fort Knox solid waste disposal facility.
Geology and Reserves. 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 ten inches wide with 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. The deposit has a dimension of
about 5,000 by 2,500 feet, elongated in an east-west direction and extending to
depths of 1,000 feet. The geology is relatively simple and the rocks are 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, the Company is
mining on a bulk tonnage basis. The following table sets forth the proven and
probable reserves for the Fort Knox mine.
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FORT KNOX MINE
PROVEN AND PROBABLE RESERVES
AS AT DECEMBER 31,
----------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
AVERAGE AVERAGE
GRADE GOLD GRADE GOLD
TONS (OZ PER CONTENT TONS (OZ PER CONTENT
(000's) TON) (000's OZ) (000's) TON) (000's OZ)
------- ------- ---------- ------- ------- ----------
Proven 115,560 0.023 2,678 116,340 0.024 2,803
Probable 7,579 0.023 172 6,968 0.024 165
------- ----- ------- -----
Total 123,139 0.023 2,850 123,308 0.024 2,968
======= ===== ======= =====
The December 31, 2000 Fort Knox reserves were calculated by the Company in
accordance with definitions and guidelines provided by The Society for Mining,
Metallurgy and Exploration ("SMME"). The reserves were calculated using a gold
price of $300 per ounce and a gold cut-off grade of 0.013 ounces per ton. The
Company estimates that mill recovery will continue to be approximately 89%.
Proven and probable reserves decreased by 118,000 ounces of gold in 2000. While
408,000 ounces were consumed by production, pit optimization added 290,000
ounces to reserves.
The property position at the Fort Knox mine was enhanced by the acquisition of a
65% ownership share in the nearby True North property during 1999. In addition,
the remaining 35% of the True North property and the Ryan Lode property were
acquired by Kinross Gold USA, Inc., the parent company of Kinam, and were
transferred to Kinam effective January 1, 2001. The acquisition of the True
North and Ryan Lode deposits will allow the Company to increase annual
production at the Fort Knox operations to approximately 450,000 ounces per
annum. The Company received all of the required permits to develop the
Hindenburg zone which contains 65% of the True North reserve, effective
January 24, 2001. Details of the True North and Ryan Lode property position,
geology and ore reserves are set forth below:
TRUE NORTH PROPERTY
Property Position: The True North Property covers approximately 7,100 acres and
consists of 255 State of Alaska mining claims and one State of Alaska mill site
lease. The State lease and state mining claims surrounding the current reserves
are subject to a 3% Alaska production royalty based on net income. The state
lease and state claims are also subject to the State of Alaska Mine License Tax
following a three year tax grace period after production commences. The mine
license tax is graduated from 3 to 7% of taxable income. In addition the claims
are subject to net smelter royalties ranging from 3.5 to 5%, based on the gold
price less any advanced royalties paid, payable to the claim owners. The
property is located 11 miles from the Fort Knox mill, and will be accessible by
a new all weather road in order to transport ore to the Fort Knox mill.
Construction is proceeding on plan and the access road is scheduled for
completion in March 2001. The True North property has been pledged as security
against the syndicated credit facility which supports $71.0 million of
industrial revenue bonds issued to finance construction of the Fort Knox solid
waste disposal facility.
Geology and Reserves: The True North property is hosted by metamorphic rock of
the Chatanika Terane, including quartz-mica schist, quartzite, eclogite,
amphibolite, marble and argillite. Some units are graphitic. Gold occurs in
nearly flat-lying to moderately dipping shear zones and along faulted contacts.
These zones horsetail and are typically 30 to 50 feet thick. The deposit was
originally identified as occurring in three zones, the Hindenburg, Central, and
Shepard. They now all appear to be part of a single zone with a continuous
strike length of roughly 5,000 feet. Average gold grades are 0.050 ounces of
gold per ton, although higher grades in excess of 1 ounce per ton occur locally.
The following table sets forth the proven and probable reserves for the True
North property.
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TRUE NORTH PROPERTY
PROVEN AND PROBABLE RESERVES
AS AT DECEMBER 31,
---------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------- ------------------------------------------------
GOLD CONTENT GOLD CONTENT
-------------------- ---------------------
(000's OZ) (000's OZ)
-------------------- ---------------------
TONS AVG. GRADE THE COMPANY TONS AVG. GRADE THE COMPANY
(000's) (OZ PER TON) TOTAL 65% SHARE (000's) (OZ PER TON) TOTAL 65% SHARE
------- ------------- ----- ----------- ------- ------------ ----- -----------
Proven -- -- -- -- -- -- -- --
Probable 12,259 0.050 611 397 7,242 0.063 459 298
------ --- --- ----- --- ---
Total 12,259 0.050 611 397 7,242 0.063 459 298
====== === === ===== === ===
The December 31, 2000 True North reserves were calculated by the Company in
accordance with definitions and guidelines provided by SMME. The reserves were
calculated using a gold price of $300 per ounce and a gold cut-off grade of
0.017 ounces per ton. Proven and probable reserves increased by 152,000 ounces
in 2000 due to exploration drilling during the year. The Company estimates the
mill recovery of the True North deposit to be approximately 82%.
On December 31, 2000, the Board of Directors gave approval for the Company to
enter into an agreement with Kinross Gold U.S.A. Inc. to acquire all of the
outstanding common shares of La Teko Resources Inc., a wholly owned subsidiary
of Kinross. The assets of La Teko include the Ryan Lode project and the
remaining 35% of the True North project.
Proven and probable reserves of the Ryan Lode property plus the balance of the
True North property are 6.8 million tons at .064 ounces per ton containing
439,000 ounces of gold.
RYAN LODE PROPERTY
Property Position. The Ryan Lode Property is located on the southeast flank of
Ester Dome, approximately 8 miles west of Fairbanks, Alaska. The property is
comprised of 15 federal claims, 50 State of Alaska mining claims which cover an
area of approximately 1,275 acres and are held under a lease agreement which
calls for a 5% gross mineral value royalty on production and annual royalty
payments, currently $150,000 per year. A 3% net smelter return royalty is
payable on the surrounding Bar and St. Patrick claims comprising a total of 284
acres. The state claims are subject to a 3% State of Alaska production royalty
based on net income and the State of Alaska Mine License Tax, following a three
year tax grace period after production commences. The mine license tax is
graduated from 3 to 7% of taxable income. The property is located 40 miles from
the Fort Knox mill and is accessible by 33 miles of paved highway and 7 miles of
gravel road. The Ryan Lode property has been pledged as security against the
syndicated credit facility which supports $71.0 million of industrial revenue
bonds issued to finance construction of the Fort Knox solid waste disposal
facility.
Geology and Reserves. The principal rock unit in the Ryan Lode area is the
Cleary Sequence member of the Fairbanks Schist, consisting of varied rock types,
including quartz mica schist and quartzite, along with marble, calcareous
quartz-mica schist, and carbonaceous units. Granite intrusions are found near
and within the Curlew deposit, south of the Ryan Shear. The gold in both the
Ryan and Curlew ore bodies occurs in mineralized quartz veins, breccias, and
gouge zones within broad shear zones. The gold occurs with sulfide minerals
including pyrite, arsenopyrite, and local stibnite. Higher-grade gold
mineralization typically occurs next to the hanging wall of the shear, with
lower grade mineralization below this. The Ryan Shear, which reaches 150 feet in
thickness in places, has been traced by drilling for over one half mile and is
contained in metasedimentary and metavolcanic rocks of the Fairbanks Schist. The
Curlew Shear, which may be an offset, southern continuation of the Ryan Shear,
ranges up to 180 feet in thickness. Mineralization is typically oxidized to
depths of 200 to 300 feet. The oxidized zone demonstrates good gold recoveries
by leaching while rates of gold recovery by leaching decrease at increasing
depths below the oxidized zone.
The following table sets forth the proven and probable reserves for the Ryan
Lode property.
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RYAN LODE PROPERTY
PROVEN AND PROBABLE RESERVES
AS AT DECEMBER 31,
-----------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- ----------------------------------------------
GOLD CONTENT GOLD CONTENT
TONS AVG. GRADE (000's OZ) TONS AVG. GRADE (000's OZ)
(000's) (OZ PER TON) (000's) (OZ PER TON)
------- ------------- ------------ -------- ------------- ------------
Proven -- -- -- -- -- --
Probable 2,541 0.089 225 2,413 0.089 214
----- ----- --- ----- ----- ---
Total 2,541 0.089 225 2,413 0.089 214
===== ===== === ===== ===== ===
The December 31, 2000 Ryan Lode reserves were calculated by the Company in
accordance with definitions and guidelines adopted by the SMME. The reserves
were calculated using a gold price of $300 per ounce and a gold cut-off grade of
0.035 ounces per ton. The Company estimates the mill recovery of the Ryan Lode
deposit to be approximately 82%.
KUBAKA MINE
The Company indirectly owns a 54.7% interest in Omolon Gold Mining Company
("Omolon"), a Russian joint stock company, which operates the Kubaka mine.
Kubaka is located in the Russian Far East, approximately 200 miles south of the
Arctic Circle and 600 miles northeast of the major port city of Magadan. Kinam
completed the acquisition of 50% of Kubaka from Cyprus Amax during May 1997. On
December 16, 1998, the Company acquired an additional 3% of Omolon from a
Russian partner in consideration for settling obligations of the Russian partner
for $3.8 million. Repayment of the $3.8 million owing to the Company by the
Russian partner will be made from the Russian partner's share of dividends from
Omolon. The Russian partner has the right to reacquire the 3% interest in Omolon
for approximately $7.5 million. On December 31, 1999 the Company acquired a
further 1.7% of Omolon for $0.3 million. The remaining 45.3% interest in Omolon
is owned by Russian parties. See Notes 5 and 6 to the Consolidated Financial
Statements for further information relating to the acquisition and financing of
the mine.
Operations. Commercial production was achieved at Kubaka on June 1, 1997.
Construction of the mine was completed at a total capital cost of approximately
$242 million. This amount includes certain financing costs, working capital and
about $14 million in capitalized interest. The operation consists of an open pit
mine, a conventional 2,500 tons per day (925,000 tons per year) mill and process
plant, a tailings storage facility and a reclaim water retention facility to
supply process water. On-site diesel generators provide power. Facilities
include a permanent camp with access from Magadan provided by fixed wing
aircraft, helicopter and a winter road, which is generally open from January
through April. The Kubaka mine's remote location in the sub-Arctic region
requires the Company to plan for operations in extreme cold and to provide all
services and facilities on-site. The mine and plant are designed to produce
approximately 400,000 to 450,000 ounces of gold per year, depending on grade of
ore processed, of which the Company's share in 2000 was 54.7%. There were
approximately 450 employees at December 31, 2000.
The following table presents operating data for the Kubaka mine for the years
indicated.
KUBAKA MINE
OPERATING DATA
2000 1999 1998
----------- ----------- -----------
Tons mined(1) 12,688,700 10,439,800 11,802,800
Tons of ore milled(1) 944,500 879,200 712,600
Average mill head grade (oz. per ton) 0.475 0.547 0.716
Mill recovery rate (%) 98 98 98
Equivalent ounces of gold produced(2) 244,641 254,625 253,434
Cost per ounce of gold produced
Total cash costs $ 139 $ 143 $ 154
Reclamation 3 3 3
Depreciation and depletion 133 135 107
----------- ----------- -----------
Total production costs $ 275 $ 281 $ 264
=========== =========== ===========
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(1) Figures represent 100% of tons mined and processed.
(2) Reflects the Company's 54.7% share in 2000, 53% share in 1999, 50% share
in 1998.
The mill operated seven days per week in 2000 and averaged 2,580 tons of ore per
operating day. The Kubaka mine and mill operations have worked in excess of 1.8
million man hours without a lost time accident.
Property Position. Omolon holds the license from the Russian government to
operate the Kubaka mine (the "Kubaka License"). The Kubaka License terminates in
2011, subject to extension of up to an additional two years, and limits the
ownership of a foreign owned entity in Omolon to a maximum of 56 %. The Kubaka
License establishes certain production requirements for Kubaka and requires the
payment of a 3% royalty on the total value of gold extracted. In addition, the
Kubaka mine is subject to additional royalty based taxes of 11.9%. Royalty
payments were $7.0 million in 2000 and $12.1 million in 1999.
Geology and Reserves. The Kubaka ore deposit is an epithermal quartz-adularia
vein system hosted by volcanic rocks and their sedimentary derivatives. Kubaka
is older than, but otherwise very similar to, volcanic hosted epithermal gold
deposits found in the North American Western Cordillera. The following table
sets forth the proven and probable reserves for the Kubaka mine.
KUBAKA MINE
PROVEN AND PROBABLE RESERVES
AS AT DECEMBER 31,
---------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------- ------------------------------------------------
GOLD CONTENT GOLD CONTENT
-------------------- ---------------------
(000's OZ) (000's OZ)
-------------------- ---------------------
TONS AVG. GRADE THE COMPANY TONS AVG. GRADE THE COMPANY
(000's) (OZ PER TON) TOTAL 54.7% SHARE (000's) (OZ PER TON) TOTAL 54.7% SHARE
------- ------------- ----- ----------- ------- ------------- ----- -----------
Proven -- -- -- -- -- -- -- --
Probable 1,004 0.457 459 251 1,068 0.467 498 273
----- --- --- ----- --- ---
Total 2,584 0.372 960 525 3,190 0.368 1,173 643
===== === === ===== ===== ===
The December 31, 2000 Kubaka reserves were calculated by the Company in
accordance with definitions and guidelines provided by SMME. The reserves were
calculated using a gold price of $300 per ounce and a gold cut-off grade of
0.093 ounces per ton. The Company's share of proven and probable reserves
decreased by 118,000 ounces in 2000, of which 245,000 ounces were consumed by
production and exploration activities added 127,000 ounces. The Company
estimates that mill recovery will continue to be approximately 98%.
REFUGIO MINE
The Company owns a 50% interest in the Refugio mine, located in the Maricunga
Mining District in central Chile, approximately 75 miles east of Copiapo. The
property, situated between 13,800 feet and 14,800 feet above sea level, is held
by Compania Minera Maricunga ("CMM"), a Chilean contractual mining company
indirectly owned 50% by the Company and 50% by Bema Gold Corporation ("Bema"), a
publicly traded company based in Vancouver, British Columbia.
Operations. The Refugio mine consists of an open-pit mine and a three-stage
crushing and heap leach operation designed to process 33,000 tons of ore per
day, or 12.1 million tons per year. The mine and plant are designed to produce
an estimated 200,000 to 250,000 ounces of gold per year, of which the Company's
share is 50%. Production initially commenced in April 1996; however, startup was
delayed due to mechanical problems with the secondary and tertiary crushers and
the collapse of fill underlying the fine ore storage bin. As a result,
commercial production commenced on October 1, 1996. During the second and third
quarters of 1997, abnormally severe winter weather resulted in the suspension of
mining and crushing operations for nearly three months, which caused lower
production and higher than planned total cash costs. During 1998 and 1999,
mechanical failures associated with the overland conveyance system and the
electrical generation plant resulted in lower production and higher than planned
total cash costs. In 2000,
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the Company continued to experience operational problems and during the fourth
quarter suspended operations when the Company's joint venture partner failed to
fund its share of cash calls. Mining operations remained on standby during this
period, but resumed in mid December 2000. There were approximately 450 employees
at December 31, 2000.
CMM changed from contract mining to self-mining in 1999 in order to lower mining
costs and allow greater flexibility to adapt to changing conditions. In
addition, four tertiary crushers were installed which are capable of producing a
smaller crushed product which will increase production and lower total cash
costs per ounce. The material placed on the leachpad will be more uniform and
smaller in size, which should improve the ultimate recovery. Facilities include
a permanent camp with access to the site from Copiapo provided by gravel road.
Power is supplied by on-site diesel powered generators. Water extraction rights
expected to be sufficient to supply the mine are owned by CMM. The current
operating plan for the Refugio mine is to continue to mine and stack ore on the
leachpad until May 31, 2001. In the event that spot gold prices do not increase
substantially, the Refugio mine will be placed on care and maintenance and
residual leaching will commence. In 2000, following a comprehensive evaluation
of the property using estimated future net cash flows, estimated recoverable
ounces and an estimated future gold price of $300 per ounce the Company recorded
a $26.8 million writedown. In 1999, based on an estimated future gold price of
$300 per ounce, the Company recorded a $10.1 million writedown and in 1998,
based on an estimated future gold price of $325 per ounce, the Company recorded
a writedown of $53.1 million. See Note 5 of the Consolidated Financial
Statements for further discussion.
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The following table presents operating data for the Refugio mine for the years
indicated.
REFUGIO MINE
OPERATING DATA
2000 1999 1998
----------- ----------- -----------
Tons mined(1) 12,811,300 12,701,200 21,713,000
Tons of ore to heap leach(1) 9,702,000 9,850,600 9,082,400
Average grade to heap leach (oz. per ton) 0.027 0.029 0.027
Heap leach recovery rate (%) 64 64 60
Equivalent ounces of gold produced(2) 85,184 90,008 80,660
Cost per ounce of gold produced:
Total cash costs $ 300 $ 277 $ 313
Reclamation 4 5 5
Depreciation and depletion 54 66 103
----------- ----------- -----------
Total production costs $ 358 $ 348 $ 421
=========== =========== ===========
(1) Figures represent 100% of tons mined and processed.
(2) Reflects the Company's 50% share.
Property Position. The Refugio property consists of approximately 14,300 acres,
and includes mineral rights, surface rights and water rights expected to be
sufficient for the mine. The principal ore deposit is situated on mining claims
that 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 its major ore deposits extending onto
surrounding mineral rights and to use the surrounding areas for project needs.
CMM owns or controls surface rights covering the known mineralization and the
currently anticipated mining operation under two leases from the Chilean Army,
which expire in 2001 and 2005 and may be extended for an additional ten years.
The Company, through its 50% ownership of CMM, is responsible for payment of a
net smelter return royalty to the former owners of the Refugio property that is
expected to average 2.5% of total production from the currently defined ore
reserves. An additional sliding scale net smelter return related to net profits
and ranging from 2.5 to 5% is payable on the Company's share of any production
in excess of current reserves. Royalty payments were $1.2 million in both 2000
and 1999.
Geology and Reserves. The Refugio property encompasses the Verde, Pancho, and
Guanaco gold deposits, which are disseminated porphyry gold 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 four identified alteration
types and it is open at depth. Additional exploration potential also exists in
the Guanaco and Pancho deposits. The Refugio property lies at the southern end
of a 90-mile-long belt of Miocene-aged volcanic rocks that contains a number of
large disseminated gold-silver deposits. The following table sets forth the
proven and probable reserves in the Verde deposit.
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REFUGIO MINE
PROVEN AND PROBABLE RESERVES
AS AT DECEMBER 31,
---------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------- ------------------------------------------------
GOLD CONTENT GOLD CONTENT
-------------------- ---------------------
(000's OZ) (000's OZ)
-------------------- ---------------------
TONS AVG. GRADE THE COMPANY TONS AVG. GRADE THE COMPANY
(000's) (OZ PER TON) TOTAL 50% SHARE (000's) (OZ PER TON) TOTAL 50% SHARE
------- ------------- ----- ----------- ------- ------------- ----- -----------
Proven 32,954 0.028 918 459 37,756 0.027 1,028 514
Probable 35,432 0.027 960 480 44,430 0.026 1,140 570
------ ----- --- ------ ----- -----
Total 68,386 0.027 1,878 939 82,186 0.026 2,168 1,084
====== ===== === ====== ===== =====
The December 31, 2000 Refugio reserves were calculated by the Company in
accordance with definitions and guidelines provided by SMME. The reserves were
confined to the Verde Pit Zone. The variable cut-off grades for pit design and
reserve summary were based on a $300 per ounce gold price and costs and
recoveries that vary by rock type and alteration. The Company estimates the
average ultimate recovery for these reserves will be approximately 64%.
HAYDEN HILL MINE
The Hayden Hill mine in Lassen County, California, is located approximately 120
miles northwest of Reno, Nevada.
Operations. Mining was completed in late 1997 and residual leaching is expected
to continue during 2001 as the inventory on the leachpad is drawn down. A
significant portion of the final reclamation work has been completed and
reclamation work will continue in 2001. In 2000, following a thorough review of
the Hayden Hill property and the ultimate costs of closure, the remaining
carrying value and the current environment for surplus mining equipment and
facilities, the Company recorded a $2.9 million writedown.
The following table presents operating data for the Hayden Hill mine for the
years indicated.
HAYDEN HILL MINE
OPERATING DATA
2000 1999 1998
------- ------- -------
Tons mined -- -- --
Tons of ore to heap leach -- -- --
Average grade to heap leach (oz. per ton) -- -- --
Heap leach recovery rate (%) -- -- --
Equivalent ounces of gold produced 9,582 17,020 47,286
Cost per ounce of gold produced:
Total cash costs $ 240 $ 194 $ 97
Reclamation -- -- 156
Depreciation and depletion -- -- --
------- ------- -------
Total production costs $ 240 $ 194 $ 253
======= ======= =======
Property Position. The Hayden Hill mineral property holdings consist of 1,532
acres of 85 unpatented lode claims. Approximately 75% of the production is
subject to a gross receipts net smelter return royalty of 5%.
GUANACO MINE
The Company owns a 90% interest in and operates the Guanaco mine, located in the
Guanaco Mining District in northern Chile, approximately 145 miles southeast of
Antofagasta, Chile.
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Mining was completed in July 1997. Recovery of residual gold from the existing
leachpad is to be completed in 2001 as the leachpad inventory is drawn down.
Reclamation activities will continue in 2001. In 2000, following a thorough
review of the Guanaco property and the ultimate costs of closure, the remaining
carrying value and the current environment for surplus mining equipment and
facilities, the Company recorded a $2.1 million writedown of this property.
The following table presents operating data for the Guanaco mine for the years
indicated.
GUANACO MINE
OPERATING DATA
2000 1999 1998
------- ------- -------
Tons mined -- -- --
Tons of ore to heap leach -- -- --
Average grade to heap leach (oz. per ton) -- -- --
Heap leach recovery rate (%) -- -- --
Equivalent ounces of gold produced 16,029 23,690 34,665
Cost per ounce of gold produced:
Total cash costs $ 278 $ 198 $ 159
Reclamation -- -- --
Depreciation and depletion -- -- --
------- ------- -------
Total production costs $ 278 $ 198 $ 159
======= ======= =======
Property Position. The Guanaco mineral property holdings consist of
approximately 27,000 acres of mineral claims leased from Empresa Nacional de
Mineria (ENAMI), an entity of the Chilean government. The lease expires in 2006
and may be extended by the Company for an additional five-year term thereafter.
In 1999, a lease modification and purchase option agreement was reached with
ENAMI. These agreements provide for more latitude in exploration and management
of the property as well as allowing for the eventual purchase of the property
should exploration efforts be successful.
SLEEPER MINE
The Sleeper mine is located in Humboldt County, Nevada, approximately 28 miles
north of the town of Winnemucca.
The Sleeper mineral property holdings consist of approximately 2,000 acres of
unpatented mining claims. The Company has entered into an agreement with a third
party for further exploration of the Sleeper property. Currently, the third
party has earned a 50% interest in the claims and during 1999 the Company
entered into an agreement granting the same third party the right to earn the
remaining 50% interest in the Sleeper mine. The third party exercised this right
on February 29, 2000. The Company will continue to proceed with the reclamation
of the property in the interim. The third party will fund reclamation activities
and is actively pursuing the replacement of the closure bonds.
Operations. Operations at Sleeper were completed at the end of the third quarter
of 1996. Reclamation activities will continue during 2001. In 2000, following a
thorough review of the Sleeper property and the ultimate costs of closure, the
remaining carrying value, and the current environment for surplus mining
equipment and facilities, the Company recorded a $2.9 million writedown.
HAILE PROPERTY
At December 31, 1998, the Company owned a 62.5% venture interest in the Haile
property in Lancaster County, South Carolina. The remaining 37.5% interest was
owned by Kershaw Gold Company, Inc., a wholly-owned subsidiary of Piedmont
Mining Company, Inc. ("Piedmont"). The Company was involved in a dispute with
Piedmont regarding certain agreements and on March 23, 1999, the Company
acquired Piedmont's 37.5% interest and settled all disputes between the Company
and Piedmont. In 1999, following a comprehensive study of the Haile property,
the Company recorded a writedown of the $16.5 million previously capitalized.
See Note 5 of the Consolidated Financial Statements for further discussion.
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The Haile mineral property holdings cover approximately 3,600 acres and consist
entirely of fee property that is either owned by the Company or leased from
third parties under leases that can be extended or controlled by purchase
agreements.
A closure study was completed in 1999. The first reclamation project involved
construction of a cap for the Chase Hill leachpad, which was completed in 1999.
Reclamation activities continued in 2000 with the capping of the second and
final leachpad and the reclamation of the Champion open pit. The Company will
continue to proceed with reclamation activities in 2001.
EXPLORATION
The Company's primary exploration objective continues to be the acquisition and
evaluation of near-surface gold deposits that can be mined by open pit methods.
The Company is continuing exploration activity on the Fort Knox property and in
the area of the Guanaco mine. In 1999, the Company began an extensive drilling
program looking for alternative mill feed for the Kubaka operations beyond the
then known mine life. In connection with a reserve replenishment tax levied on
Kubaka gold sales, the Company can offset certain exploration expenditures that
are pre-approved by the Russian agency responsible for exploration in the
Magadan region.
In 2000, these efforts have identified remnant ore below the pit bottom and
within the pit wall which have increased the reserve estimates at the end of
2000. In addition, one exploration project, Birkachan, which is located 18 miles
north of the Kubaka processing plant, has encountered encouraging drill results.
The Birkachan drilling program was divided into two phases. Phase one was a
shallow phase of drilling which identified a strong hydrothermally altered zone
in volcanic rock which is similar to those hosting the Kubaka deposit. This zone
is at least one and one half miles long, 300 to 1,000 feet wide, and carries
disseminated, low grade mineralization that is cut by nearly vertical, high
grade, "feeder veins". Phase two of the program is a core drilling program that
began in October 2000 and continues at present. The goal of the second drilling
phase is to confirm down-dip, vertical continuity by targeting the same feeder
veins at depths ranging from 800 to 1,100 feet below surface. Follow-up drilling
will continue into 2001.
Exploration expenditures were $3.3 million in 2000, $1.8 million in 1999, and
$3.9 million in 1998. Exploration expenditures for 2001 are expected to be
approximately $1.7 million.
GOLD MARKET AND PRICES
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, bullion dealers, and refiners. The Company's sales to
major customers that exceeded 10% of total sales were $114 million to 4
customers during 2000, $137 million to four customers in 1999 and $169 million
to three customers in 1998. 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.
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 banks or other large gold bullion holders or
dealers and global and regional political events, particularly in the Middle
East and Asia and major gold-producing countries such as South Africa and the
Commonwealth of Independent States (the former Soviet Union). Gold prices also
are affected by worldwide production levels and on occasion have been subject to
rapid short-term changes because of market speculation.
The following table sets forth for the years indicated the high and low closing
prices of gold, first position, as provided by the Commodity Exchange, Inc.
(COMEX) in New York.
HIGH LOW
------ ------
YEAR (DOLLARS PER OUNCE)
----
1996 414.70 368.00
1997 365.70 282.80
1998 314.50 275.60
1999 327.50 253.20
2000 317.40 263.90
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Declines in the market price of gold and related precious metals also may render
reserves containing relatively lower grades of mineralization uneconomic to
exploit. The price used in estimating Kinam's ore reserves at December 31, 2000
was $300 per ounce of gold. The market price was $274 per ounce of gold at
December 31, 2000, which was below the price at which Kinam has estimated its
reserves. However, Kinam has historically realized prices that are above the
market price of gold as a result of the Company's hedging program which was
initiated in 1988. If Kinam were to determine that its reserves and future cash
flows should be calculated at a significantly lower gold price, there would
likely be a material reduction in the amount of gold reserves. In addition, if
the price realized by Kinam for its gold were to decline substantially below the
price at which ore reserves were calculated for a sustained period of time,
Kinam potentially could experience material writedowns of its investment in its
mining properties.
REFINING AND HEDGING ACTIVITIES
Refining arrangements are in place with third parties for the Company's
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.
Historically, the Company has employed 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. During 2000, 1999, and 1998 the Company's hedging efforts
resulted in average realized prices of $292 per ounce, $289 per ounce and $344
per ounce, respectively, compared with the average COMEX price of $279 per ounce
in 2000, $279 per ounce in 1999 and $294 per ounce in 1998. See Note 7 of the
Consolidated Financial Statements for further discussion.
AGREEMENTS WITH KINROSS
On June 1, 1998, the Company completed a merger agreement with Kinross providing
for a combination of their businesses. In the merger, each outstanding share of
the Company's common stock was converted into 0.8004 of a share of Kinross
common stock. Kinross Merger Corporation, a wholly-owned subsidiary of Kinross
was merged with and into the Company which became a wholly-owned subsidiary of
Kinross. Immediately following the effective time of the merger, the Company, as
the surviving entity of the combination with Kinross Merger, issued to Kinross
92.2 million shares of the Company's common stock, representing all of the
issued and outstanding common shares. Kinross subsequently transferred ownership
of such shares to Kinross Gold U.S.A., Inc., a wholly-owned subsidiary of
Kinross, which is currently the sole common shareholder of the Company. Prior to
the merger, the Company was approximately 59% owned by Cyprus Amax Minerals
Company (Cyprus Amax).
Pursuant to the merger in 1998, Kinross advanced $255.8 million to the Company
for repayment of outstanding debt. In 1999, $16.6 million was advanced to
purchase the assets related to the True North property in Alaska. An additional
$6.7 million was advanced in 2000, primarily for True North property
development. The advances are non-interest bearing and have no fixed terms of
repayment. Kinross has agreed not to seek repayment of these advances during
2001.
Pursuant to the Kinross merger, Kinross also acquired a demand loan of $92.3
million due from the Company which was transferred from Cyprus Amax to Kinross.
Subsequent repayments have reduced the demand loan payable to $73.6 million at
December 31, 1999 and December 31, 2000. The loan is non-interest bearing and is
due on demand.
Kinross has also issued letters of credit to guarantee the Fort Knox Industrial
Revenue Bonds and the Kubaka subordinated debt totaling $83.2 million. See Note
6 of the Consolidated Financial Statements for further discussion.
On December 31, 2000, the Board of Directors gave approval for the Company to
enter into an agreement with Kinross Gold U.S.A. Inc. to acquire all of the
outstanding common shares of La Teko Resources Inc., a wholly owned subsidiary
of Kinross. Consideration will be common shares of Kinam Gold Inc. with the
effective date of the transaction to be January 1, 2001. Since this is a related
party transaction which did not result in a substantive change in ownership,
this transition will be recorded at the carrying value of La Teko's assets which
was approximately $36.0 million at December 31, 2000. The assets of La Teko
include the Ryan Lode project, which is in the advanced exploration stage and
35% of the True North project which is scheduled to commence production in early
2001. It is anticipated that ore from the True North project will be processed
through the Fort Knox mill.
EMPLOYEES
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At December 31, 2000, the Company and its consolidated subsidiaries employed
1,236 persons. The hourly employees at the Guanaco mine are represented by the
Sociedad Contractual Minera Guanaco labor union and are covered by a labor
contract that expires at the end of May 2002. The hourly employees at Refugio
are represented by the Sindicato de Trabajadores de Compania Minera Maricunga
labor union and are covered by a labor contract that expires at the end of May
2003. None of the Company's employees in the United States are members of a
labor union and the Company considers its employee relations to be good. The
Company receives all of its corporate and administrative services from Kinross.
RISK FACTORS
Nature of Mineral Exploration and Mining
The exploration and development of mineral deposits involves significant
financial and other risks over an extended period of time, which even a
combination of careful evaluation, experience and knowledge may not eliminate.
While discovery of a gold-bearing structure may result in substantial rewards,
few properties which are explored are ultimately developed into producing mines.
Major expenses are required to establish reserves by drilling and to construct
mining and processing facilities at a site. It is impossible to ensure that the
current or proposed exploration programs on properties in which the Company has
an interest will result in profitable commercial mining operations.
The operations of the Company are subject to the hazards and risks normally
incident to exploration, development and production of gold, any of which could
result in damage to life or property, environmental damage and possible legal
liability for such damage. The activities of the Company may be subject to
prolonged disruptions due to weather conditions depending on the location of
operations in which the Company has interests. Hazards, such as unusual or
unexpected formations, rock bursts, pressures, cave-ins, flooding or other
conditions may be encountered in the drilling and removal of material. While the
Company may obtain insurance against certain risks, the nature of these risks is
such that liabilities could exceed policy limits or could be excluded from
coverage. There are also risks against which the Company cannot insure or
against which it may elect not to insure. The potential costs which could be
associated with any liabilities not covered by insurance or in excess of
insurance coverage or compliance with applicable laws and regulations may cause
substantial delays and require significant capital outlays, adversely affecting
the future earnings and competitive position of the Company and, potentially,
its financial position.
Whether a gold deposit will be commercially viable depends on a number of
factors, some of which are the particular attributes of the deposit, such as its
size and grade, costs and efficiency of the recovery methods that can be
employed, proximity to infrastructure, financing costs and governmental
regulations, including regulations relating to prices, taxes, royalties,
infrastructure, land use, importing and exporting of gold and environmental
protection. The effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not receiving an adequate
return on its invested capital.
Environmental Risks
The Company's mining and processing operations and exploration activities in the
Americas, Russia, Chile and other countries 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. The Company is
currently in compliance in all material respects with all applicable
environmental laws and regulations. Such compliance requires significant
expenditures and increases the Company's mine development and operating costs.
In all jurisdictions, permits from various governmental authorities are
necessary in order to engage in mining operations. Such permits relate to many
aspects of mining operations, including maintenance of air, water and soil
quality standards. In most jurisdictions, the requisite permits cannot be
obtained prior to completion of an environmental impact statement and, in some
cases, public consultation. Further, the Company may be required to submit for
government approval a reclamation plan and to pay for the reclamation of the
mine site upon the completion of mining activities.
Mining, like many other extractive natural resource industries, is subject to
potential risks and liabilities associated with pollution of the environment and
the disposal of waste products occurring as a result of mineral exploration and
production. Environmental liability may also result from mining activities
conducted by others prior to the Company's ownership of a property. To the
extent the Company is subject to uninsured environmental liabilities, the
payment of such liabilities would reduce funds otherwise available to the
Company and could have a material adverse effect on the Company. Should the
Company be unable to fund fully the cost of
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remedying an environmental problem, the Company might be required to suspend
operations or enter into interim compliance measures pending completion of the
required remedy, which could have a material adverse effect on the Company.
Reserve Estimates
The figures for reserves presented herein are estimates, and no assurance can be
given that the anticipated tonnages and grades will be achieved or that the
indicated level of recovery will be realized. Market fluctuations in the price
of gold may render the mining of ore reserves uneconomical and require the
Company to take a writedown or to discontinue development or production.
Moreover, short-term operating factors relating to the reserves, such as the
need for orderly development of the ore body or the processing of new or
different ore grades, may cause a mining operation to be unprofitable in any
particular accounting period.
Proven and probable reserves at the Company's mines and development projects
were calculated based upon a gold price of $300 per ounce of gold. Recently,
gold prices have been significantly below these levels. Prolonged declines in
the market price of gold may render reserves containing relatively lower grades
of gold mineralization uneconomic to exploit (unless the utilization of forward
sales or other hedging techniques is sufficient to offset such declines) and
could reduce materially the Company's reserves. Should such reductions occur,
material writedowns of the Company's investment in mining properties or the
discontinuation of development or production might be required, and there could
be material delays in the development of new projects, increased net losses and
reduced cash flow.
The estimates of proven and probable gold reserves attributable to a specific
property of the Company are based on accepted engineering and evaluation
principles. The amount of proven and probable gold does not necessarily
represent an estimate of a fair market value of the evaluated properties.
There are numerous uncertainties inherent in estimating quantities of proven and
probable gold reserves. The estimates in this document are based on various
assumptions relating to gold prices during the expected life of production, and
the results of additional planned development work. Actual future production
rates and amounts, revenues, taxes, operating expenses, environmental and
regulatory compliance expenditures, development expenditures and recovery rates
may vary substantially from those assumed in the estimates. Any significant
change in these assumptions, including changes that result from variances
between projected and actual results, could result in material downward or
upward revision of current estimates.
Operations Outside of North America
The Company has mining operations in Russia and Chile and is conducting certain
of its exploration and development activities in Russia. The Company believes
that the governments of these countries generally support the development of
their natural resources by foreign operators. There is no assurance that future
political and economic conditions in these countries will not result in these
governments adopting different policies respecting foreign development and
ownership of mineral resources. Any such changes in policy may result in changes
in laws affecting ownership of assets, taxation, rates of exchange, gold sales,
environmental protection, labor relations, repatriation of income and return of
capital, which may affect both the ability of the Company to undertake
exploration and development activities in respect of future properties in the
manner currently contemplated, as well as its ability to continue to explore,
develop and operate those properties for which it has obtained exploration,
development and operating rights to date. The possibility that a future
government of these countries may adopt substantially different policies, which
might extend to expropriation of assets, cannot be ruled out.
The Company is subject to the consideration and risks of operating in Russia.
The economy of the Russian Federation continues to display characteristics of an
emerging market. These characteristics include, but are not limited to, the
existence of a currency that is not freely convertible outside of the country,
extensive currency controls and high inflation. The prospects for future
economic stability in the Russian Federation are largely dependent upon the
effectiveness of economic measures undertaken by the government, together with
legal, regulatory and political developments.
Russian laws, licenses and permits have been in a state of change and new laws
maybe given retroactive effect. In addition, Russian tax legislation is subject
to varying interpretations and constant change. Further, the interpretation of
tax legislation by tax authorities as applied to the transactions and activities
of the Company's Russian operations may not coincide with that of management. As
a result, transactions may be challenged by tax authorities and the Company's
Russian operations may be assessed additional taxes, penalties and interest,
which could be significant. The periods remain open to review by the tax
authorities for three years.
Of particular significance in Russia is the right of Russian authorities to
purchase gold produced from the Kubaka mine, with payment 50% in U.S. dollars
and 50% in Russian rubles at then current London gold prices. Over the past
year, these authorities have
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regularly refused to make payment in U.S. dollars, therefore the Company is
negotiating a new agreement for payment 100% in rubles. If expenses denominated
in rubles are less than payments in rubles, the Company may be exposed to
currency exchange risks and the risk that viable and adequate currency exchange
mechanisms may not be available. To date the Company has not experienced
problems converting rubles to U.S. dollars. In addition, although the Company
has an agreement stating that any gold that the Russian authorities elect not to
purchase may be exported from Russia and sold to third parties, and the Company
has exported gold on several occasions, there can be no assurance in the future
that the Company will be able to export gold in the event Russian authorities
elect not to purchase gold and do not honour the agreement to permit the Company
to export gold. The Company currently has political risk insurance coverage from
the United States Overseas Private Investment Corporation ("OPIC") and
Multilateral Investment Guarantee Agency ("MIGA") covering a portion of its
investment in the Kubaka mine. However, there is no guarantee that the Company
will continue to qualify for such insurance.
In addition, the economies of the countries of Russia and Chile differ
significantly from the economy of the United States. Growth rates, inflation
rates and interest rates of developing nations have been and are expected to be
more volatile than those of western industrial countries.
Licenses and Permits
The operations of the Company require licenses and permits from various
governmental authorities. The Company believes that it holds all necessary
licenses and permits under applicable laws and regulations and believes it is
presently complying in all material respects with the terms of such licenses and
permits. However, such licenses and permits are subject to change in various
circumstances. There can be no guarantee that the Company will be able to obtain
or maintain all necessary licenses and permits that may be required to explore
and develop its properties, commence construction or operation of mining
facilities and properties under exploration or development or to maintain
continued operations that economically justify the cost.
Gold Prices
The profitability of any gold mining operation in which the Company has an
interest will be significantly affected by changes in the market price of gold.
Gold prices fluctuate on a daily basis and are affected by numerous factors
beyond the control of the Company. The supply and demand for gold, the level of
interest rates, the rate of inflation, investment decisions by large holders of
gold, including governmental reserves and stability of exchange rates can all
cause significant fluctuations in gold prices. Such external economic factors
are in turn influenced by changes in international investment patterns and
monetary systems and political developments. The price of gold has fluctuated
widely and future serious price declines could cause continued commercial
production to be impractical. Depending on the price of gold, cash flow from
mining operations may not be sufficient to cover costs of production and capital
expenditures. If, as a result of a decline in gold prices, revenues from metal
sales were to fall below cash operating costs, production might be discontinued.
History of Losses
The Company had net losses of $53.2 million, $112.7 million and $202.3 million
for 2000, 1999 and 1998, respectively. The Company's ability to operate
profitably in the future will depend on the success of its two principal mines,
Fort Knox and Kubaka, and on the price of gold. There can be no assurance that
the Company will be profitable.
Title to Properties
The validity of mining claims which constitute most of the Company's property
holdings in the United States, Russia and Chile, may, in certain cases, be
uncertain and is subject to being contested. Although the Company has attempted
to acquire satisfactory title to its properties, some risk exists that the
Company's title, particularly title to undeveloped properties, may be defective.
Certain of the Company's United States mineral rights consist of unpatented lode
mining claims. Unpatented mining claims may be located on U.S. federal public
lands open to appropriation, and may be either lode claims or placer claims
depending upon the nature of the deposit within the claim. In addition,
unpatented millsite claims, which may be used for processing operations or other
activities ancillary to mining operations, may be located on federal public
lands that are non-mineral in character. Unpatented mining claims and millsites
are unique property interests, and are generally considered to be subject to
greater title risk than other real property interests because the validity of
unpatented mining claims is often uncertain and is always subject to challenges
of third parties or contests by the federal government of the United States. The
validity of an unpatented mining claim, in terms of both its location and its
maintenance, is dependent on strict compliance with a complex body of U.S.
federal and state statutory and decisional law. In addition, there are few
public records that definitively control the issues of validity and ownership of
unpatented mining claims. The General Mining Law of the United States, which
governs mining claims and related activities on U.S. federal public
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lands, includes provisions for obtaining a patent, which is essentially
equivalent to fee title, for an unpatented mining claim upon compliance with
certain statutory requirements (including the discovery of a valuable mineral
deposit).
Competition
The mineral exploration and mining business is competitive in all of its phases.
The Company competes with numerous other companies and individuals, including
competitors with greater financial, technical and other resources than the
Company, in the search for and the acquisition of attractive mineral properties.
The ability of the Company to acquire properties in the future will depend not
only on its ability to develop its present properties, but also on its ability
to select and acquire suitable producing properties or prospects for mineral
exploration. There is no assurance that the Company will continue to be able to
compete successfully with its competitors in acquiring such properties or
prospects.
Currency Risk
Currency fluctuations may affect the revenues which the Company will realize
from its operations as gold is sold in the world market in United States
dollars. The costs of the Company are incurred principally in United States
dollars, Russian rubles and Chilean pesos. While the Russian ruble and Chilean
peso are currently convertible into United States dollars, there is no guarantee
that they will continue to be so convertible.
Joint Ventures
Some of the mines in which the Company owns interests are operated through joint
ventures with other mining companies. Any failure of such other companies to
meet their obligations to the Company or to third parties could have a material
adverse effect on the joint ventures. In addition, the Company may be unable to
exert influence over strategic decisions made in respect of such properties.
Royalties
The Company's mining properties are subject to various royalty and land payment
agreements. Failure by the Company to meet its payment obligations under these
agreements could result in the loss of related property interests.
Hedging
The Company has historically reduced its exposure to gold and silver price
fluctuations by engaging in hedging activities. There can be no assurance that
the Company will continue the hedging techniques successfully used, or any other
hedging techniques, or that, if they are continued, the Company will be able to
achieve in the future realized prices for gold produced in excess of average
COMEX prices as a result of its hedging activities.
Dividend Policy
For the foreseeable future, it is anticipated that the Company will use
earnings, if any, to finance its growth and that dividends will not be paid to
shareholders, other than dividends payable to the holders of Series B Preferred
Shares in accordance with the respective terms thereof. In August 2000,
cumulative dividends on the Series B Preferred Shares were suspended in the
absence of earnings.
ITEM 3. LEGAL PROCEEDINGS
The Company's 50% owned Chilean contractual mining company CMM has entered into
arbitration proceedings in Chile with the contractor that designed and built the
Refugio mine. CMM contends that the contractor was negligent in both the design
and the construction of the facility, and should be held responsible for the
cost of repairs as well as lost profits. As part of the same proceedings, the
contractor is seeking to recover costs that they allegedly incurred while
building the mine and which, they claim, were outside their scope of work and
responsibility. Although the outcome of the arbitration proceedings cannot be
determined at the current time, management is of the opinion that the outcome
will not materially affect the financial position, results of operations or cash
flows of the Company.
In August 1998, the U.S. Environmental Protection Agency served Kinam with a
Unilateral Administrative Order ("UAO") as a Potentially Responsible Party
("PRP") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and Solid Waste Disposal Act ("SWDA"), requiring that
Kinam, along with other PRPs, remove certain contaminated materials from the PRC
Patterson Inc. site ("the Site") in Patterson, California. Kinam shipped waste
oil to the Site from 1994 to 1996. Subsequent to that order Kinam joined with
certain other PRPs to form the Patterson Environmental Response Trust, an entity
which was created for the purpose of conducting the removal actions required by
EPA. All materials had been removed and disposed of by the Trust by the end of
the year 2000. Kinam's share in removal costs, nominally estimated at 5% of the
total costs incurred,
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will ultimately be determined once confirmation of the actual barrels of used
oil is completed. The Company does not anticipate that this matter will have a
material effect on the Company's financial position or results of operations.
In October 1996, an alleged shareholder derivative action was filed in the Court
of Chancery of Delaware on behalf of a stockholder of the Company, entitled
Harry Lewis v. Milton H. Ward, et al., C.A. No. 15255-NC, against Cyprus Amax,
the directors of the Company and the Company as a nominal defendant. The
complaint alleges, among other things, that the defendants engaged in
self-dealing in connection with the Company's entry in March 1996 into a demand
loan facility provided by Cyprus Amax. The complaint seeks, among other things,
a declaration that the demand loan facility is not entirely fair to the Company
and damages in an unspecified amount. The Company believes that the complaint is
without merit and intends to defend the matter vigorously.
In March 1994, the U.S. Forest Service notified the Company that it considers
the Company to be a PRP under CERCLA, jointly and severally liable with other
PRP's for damages attributable to alleged releases of hazardous substances from
the Siskon Mine, located in the Klamath National Forest in Siskiyou County,
California. The Company conducted a limited exploration drilling program in the
summer of 1991 on property at the Siskon mine site which the Company believes is
not involved in the alleged releases. Based on facts currently known to
management, the Company does not anticipate that this matter will have a
material effect on the Company's financial condition or results of operations.
The Company is also involved in legal proceedings and claims which arise in the
ordinary course of its business. The Company believes these claims are without
merit and is vigorously defending them. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially affect
the financial position, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON AND PREFERRED EQUITY AND
RELATED STOCKHOLDER MATTERS
Prior to the Kinross merger, the common stock of the Company was listed on the
New York Stock Exchange (AU) and the Toronto Stock Exchange (AXG). Subsequent to
the merger, all of the outstanding shares of Common Stock were converted into
Kinross common stock.. Following the completion of the Kinross merger, the
Company terminated the registration of its common stock under the Exchange Act
and its listing of the common stock on the New York Stock Exchange. There is
currently no public market for the common stock of the Company.
The Series B Convertible Preferred Stock of the Company is listed on the New
York Exchange (KPRB) and the number of stockholders of record as of March 28,
2001 was 56. In the absence of earnings, the Board of Directors has suspended
the quarterly dividends on the Series B Convertible Preferred Stock beginning
with the dividend payable in August 2000. The decision was taken by the Board as
a cash conservation measure due to continuing low gold prices. Regular dividends
totaling $3.4 million were paid in February and May of 2000.
The following table sets forth for the periods indicated the high and the low
sale prices per share of the Series B Convertible Preferred Stock as reported on
the New York Stock Exchange Composite Tape and the dividends paid on such stock.
STOCK PRICES AND DIVIDENDS PER SHARE
SERIES B CONVERTIBLE
PREFERRED STOCK
------------------------------------------
QUARTER HIGH LOW DIVIDENDS
------- -------- ---------
2000
First 31 25 11/16 0.9375
Second 26 9/16 22 1/2 0.9375
Third 24 1/2 7 3/8 -
Fourth 8 7/8 7 -
1999
First 36 5/16 34 0.9375
Second 36 3/4 32 3/8 0.9375
Third 35 1/2 30 0.9375
Fourth 35 7/8 25 7/8 0.9375
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ITEM 6. SELECTED FINANCIAL DATA
KINAM GOLD INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS EXCEPT PER SHARE AMOUNTS AND PERCENTAGES, PRODUCTION AND SALES
OUNCES, AND AMOUNTS PER OUNCE)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
FOR THE YEAR:
Revenues $ 210.8 $ 214.1 $ 268.1 $ 259.5 $ 108.2
(Loss) earnings from operations/(1) (49.9) (107.5) (180.4) 1.9 (42.9)
Net loss before cumulative effect of accounting
changes and extraordinary item(1) (53.2) (112.7) (190.8) (37.9) (39.2)
Net loss before extraordinary item/(1) (53.2) (112.7) (190.8) (33.4) (39.2)
Net loss/(1) (53.2) (112.7) (202.3) (33.4) (39.2)
Per common share:
Loss before cumulative effect of accounting
changes and extraordinary item(1) $ (0.65) $ (1.30) $ (1.94) $ (0.41) $ (0.48)
Loss before extraordinary item/(1) $ (0.65) $ (1.30) $ (1.94) $ (0.37) $ (0.48)
Basic and diluted loss(1) $ (0.65) $ (1.30) $ (2.05) $ (0.37) $ (0.48)
Weighted average common shares outstanding 92.2 92.2 101.7 108.2 96.9
Capital expenditures 16.7 16.9 15.4 30.8 187.7
Cash dividends to common shareholders -- -- -- -- --
Dividends declared per common share -- -- -- -- --
Cash dividends to preferred shareholders 3.4 6.9 6.9 6.9 6.9
Dividends declared per preferred share $ 1.875 $ 3.75 $ 3.75 $ 3.75 $ 3.75
AT YEAR-END:
Current assets 92.8 98.3 107.2 129.7 60.7
Total assets 372.8 463.9 602.0 870.6 762.2
Current liabilities 138.3 143.0 153.8 226.0 212.3
Long-term debt 77.2 110.6 123.0 345.7 272.6
Shareholders equity (104.1) (47.5) 72.1 273.8 259.4
Working capital (deficit) (45.5) (44.7) (46.6) (96.3) (151.6)
KEY OPERATING FACTORS FOR THE YEAR:
Total ounces of gold equivalent produced 718,395 736,463 781,497 729,831 268,331
Total ounces of gold sold 720,738 741,087 778,559 720,889 262,975
Average realized price per ounce sold $ 292 $ 289 $ 344 $ 360 $ 412
Average cost per ounce produced/(2):
Total cash costs/(3) $ 192 $ 186 $ 185 $ 198 $ 225
Reclamation costs 3 3 13 10 16
Depreciation, depletion and amortization 103 108 119 123 110
-------- -------- -------- -------- --------
Total production costs per ounce $ 298 $ 297 $ 317 $ 331 $ 351
======== ======== ======== ======== ========
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(1) In the fourth quarter of 2000, following a comprehensive evaluation of its
mining properties based on an assumed gold price of $300, the Company
determined that the net recoverable amounts of the Refugio mine were less
than the net book value. As a result of this review the Company recorded a
$26.7 million pre-tax writedown of the Refugio mine. In addition, after a
thorough review of various closure costs, the remaining carrying value and
the current environment for surplus mining equipment and facilities, the
remaining book value of the Hayden Hill mine, the Guanaco mine, the Haile
property and other non-core properties, principally the Sleeper and Wind
Mountain mines were written off. These special items increased the net
loss by $37.7 million or $0.41 per common share.
In the fourth quarter of 1999, the Company recorded a $72.9 million
pre-tax writedown of the Fort Knox mine, a $10.1 million pre-tax writedown
of the Refugio mine and a $16.5 million pre-tax writedown of the Haile
property. These special items increased the net loss by $99.5 million, or
$1.08 per common share.
In the fourth quarter of 1998, the Company recorded a $53.1 million
pre-tax writedown of the Refugio mine and a $140.3 million pre-tax
writedown of the Fort Knox mine. In the second quarter of 1998, the
Company recorded an $11.5 million loss on the early extinguishment of
debt. These special items increased the net loss by $204.9 million, or
$2.01 per common share.
In the fourth quarter of 1996, the Company recorded a $35.5 million pre-
tax writedown of the Guanaco mine and an unrelated $10 million deferred
tax benefit. These special items increased the net loss by $25.5 million,
or $.26 per common share.
(2) Average costs weighted by ounces of gold produced at each mine.
(3) The Company follows the Gold Production Cost Standard developed by the
Gold Institute in order to facilitate comparisons among companies in the
gold industry. Total cash costs include royalties and production taxes,
but exclude reclamation costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The Company reported a 2000 net loss of $53.2 million, or $0.65 per share after
preferred dividends on revenues of $210.8 million, compared with a 1999 net loss
of $112.7 million, or $1.30 per share after preferred dividends on revenues of
$214.1 million, and a 1998 net loss of $202.3 million, or $2.05 per share after
preferred dividends, on revenues of $268.1 million. The 2000 results included a
$26.7 million writedown of the Refugio mine and an $11.0 million writedown of
other properties in various stages of closure necessitated by continuing low
gold prices. The 1999 results included a $10.1 million writedown of the Refugio
mine, a $72.9 million writedown of the Fort Knox mine and a $16.5 million
writedown of the Haile property. The 1998 results included a $53.1 million
writedown of the Refugio mine, a $140.3 million writedown of the Fort Knox mine,
and an $11.5 million loss on the early extinguishment of debt. Excluding these
items, the 2000 net loss would be $15.5 million, or $0.24 per share after
preferred dividends, compared with a 1999 net loss of $13.2 million or $0.22 per
share, after preferred dividends. See note 5 of the Consolidated Financial
Statements for further discussion of the writedowns.
The Company's operating loss (excluding the writedown of mineral properties) was
$12.2 million for 2000 compared with a loss of $8.0 million for 1999 and 1998
operating income of $13.0 million. Higher diesel fuel costs and continuing low
gold prices contributed to the 2000 loss.
Revenues decreased to $210.8 million compared with $214.1 million in 1999 and
$268.1 million in 1998. The decrease in 2000 is due to lower gold equivalent
production of 718,395 ounces in 2000 compared with 736,463 equivalent ounces in
1999 and 781,497 equivalent ounces in 1998. Realized prices of $292 in 2000,
$289 in 1999 and $344 in 1998 compared with average spot prices of $279 per
ounce in 2000, $279 per ounce in 1999, and $289 per ounce in 1998. The Company's
realized price exceeded the average spot price due to the positive impact of
hedging activities. See note 7 to the Consolidated Financial Statements for
further discussion on hedging activities.
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The Company's share of equivalent gold production in 2000 from the various mines
in which it holds an interest was as follows:
Gold equivalent 2000 1999 1998
------- ------- -------
Fort Knox 362,959 351,120 365,452
Kubaka 244,641 254,625 253,434
Refugio 85,184 90,008 80,660
Hayden Hill 9,582 17,020 47,286
Guanaco 16,029 23,690 34,665
------- ------- -------
718,395 736,463 781,497
======= ======= =======
Production for Hayden Hill and Guanaco decreased dramatically as mining was
terminated at these properties in 1997. Residual leaching is expected to
continue during 2001.
PRIMARY OPERATIONS
FORT KNOX MINE
Gold equivalent production for 2000 was 362,959 ounces compared with 351,120
ounces in 1999 and 365,452 ounces in 1998. The increase from 1999 was due to the
milling of higher grade ore in the fourth quarter of 2000. In 2000, total cash
costs were $203 per ounce compared with $194 in 1999 and $189 per in 1998. Cash
production costs were higher than planned primarily due to increased diesel fuel
costs, but record mill throughput and nominally higher grade compensated for
most of the increased costs. During 2000, the Company focused on permitting
activities on the nearby True North. The required permits were received in
January 2001 which should allow the Company to achieve planned production
targets at True North by April, 2001. Estimated gold production for 2001 is
450,000 ounces at total cash costs of approximately $196 per ounce.
KUBAKA (54.7% OWNERSHIP INTEREST IN 2000, 53% IN 1999, AND 50% IN 1998)
The Company's share of gold equivalent production was 244,641 ounces in 2000
compared with 254,625 ounces in 1999 and 253,434 ounces in 1998 due to lower ore
grades. In 2000, total cash costs were $139 per gold equivalent ounce compared
with $143 in 1999 and $154 in 1998. The Kubaka mine continues to perform
exceptionally well, having achieved the lowest total cash costs per ounce of the
Company's primary operations due to the high grade nature of the ore body and
its efficient exploitation. Mill throughput increased by 7%, which combined with
lower cash spending compensated for the 13% decrease in the grade of the ore
processed. Estimated gold equivalent production for the Company's ownership
interest in 2001 is 214,000 ounces at total cash costs of approximately $160 per
equivalent ounce.
In 1999, the Company began an extensive drilling program looking for alternative
mill feed for the Kubaka operations beyond the then known mine life. In 2000,
these efforts have identified remnant ore below the pit bottom and within the
pit wall which have increased the reserve estimates at the end of 2000. In
addition one exploration project, Birkachan, located 19 miles north of the
Kubaka processing plant, has encountered encouraging drill results and follow up
drilling will continue into 2001.
REFUGIO MINE (50% OWNERSHIP INTEREST)
The Company's share of gold equivalent production was 85,184 ounces in 2000
compared with 90,008 ounces in 1999 and 80,660 ounces in 1998. Total cash costs
in 2000 were $300 per gold equivalent ounce compared with $277 in 1999 and $313
in 1998. In 2000, the Company continued to experience operational problems and
during the fourth quarter suspended operations when the Company's joint venture
partner failed to fund its share of cash calls. Mining operations remained on
standby during this period, but resumed in mid December. Heap leaching
activities continued throughout this period. The current operating plan for
Refugio is to continue to mine and stack ore on the leachpad until May 31, 2001.
In the event spot gold prices do not increase substantially, the Refugio
operations will commence residual leaching and the mining activities will be
placed on care and maintenance. Assuming the operations commence residual
leaching in June 2001, estimated gold equivalent production attributable to
Kinross' 50% interest for 2001 is 61,000 ounces at total cash costs of
approximately $260 per equivalent ounce. This will be a substantial reduction in
gold production from this mine, but also a significant decrease in the total
cash costs per ounce of gold.
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OTHER OPERATIONS
In addition to its primary operating mines, the Hayden Hill and Guanaco mines
continued residual leaching activities in 2000. Hayden Hill completed mining in
December 1997 and gold equivalent production in 2000 declined to 9,582 ounces at
a total cash cost of $240 per ounce. Guanaco completed mining in July 1997 and
gold equivalent production in 2000 declined to 16,029 ounces at a total cash
cost of $278 per ounce. Residual leaching will continue in 2001 with continuing
decreasing production. After 2001, no meaningful gold production is currently
planned at these operations.
The Company's cost of sales as a percentage of revenue increased to 69% in 2000,
compared with 66% in 1999, and 59% in 1998 primarily due to continued low gold
prices and higher fuel costs. Consolidated total cash cost of $192 per ounce
compared with $186 per ounce in 1999 and $185 per ounce in 1998.
Depreciation, depletion and amortization expense fell to $74.2 million in 2000
compared with $77.8 million in 1999 and $91.1 million in 1998. The consolidated
rate per ounce decreased to $104 per ounce in 2000 compared with $108 in 1999
and $119 in 1998 due to the 1998 and 1999 writedowns. The 2001 consolidated
depreciation rate is expected to decrease due to the 2000 writedowns, as more
fully described in Note 5 to the consolidated financial statements, and
additional reserves at Kubaka.
General and administrative expense was $1.0 million in 2000 compared with $1.5
million in 1999 and $2.9 million in 1998.
Exploration expense was $3.3 million in 2000 compared with $1.8 million in 1999
and $3.9 million in 1998. The increase in 2000 is due to increased exploration
near the Kubaka mine in Russia and the Guanaco mine in Chile.
Interest expense in 2000 was $9.9 million compared with $10.0 million in 1999
and $23.4 million in 1998. The decrease in 2000 and 1999 was attributable to
lower debt balances as a result of debt repayments. In addition, the
inter-corporate advances to the Company from Kinross are non-interest bearing.
Other income was $8.3 million in 2000 compared with $6.2 million in 1999 and
$11.9 million in 1998. The Company earns management fee income from its Kubaka
and Refugio mines. In 2000, the Company also received $2.6 million in insurance
proceeds relating to the Refugio mine.
LIQUIDITY AND CAPITAL RESOURCES
The Company's 2000 cash flow provided from operating activities was $39.8
million compared with $72.1 million in 1999 and $109.8 million in 1998. The
decrease in 2000 is due to higher operating costs due to increased fuel prices,
lower sales and increased reclamation spending. Due to continued low gold
prices, the Company is continuing its policy of reducing spending in all areas
to conserve cash.
Capital spending was $16.7 million in 2000 compared with $16.9 million 1999 and
$15.4 million in 1998. Capital spending at Fort Knox was $12.8 million on
drilling at the True North property, pit dewatering, and equipment fleet
additions compared with $7.8 million in 1999 and $12.3 million in 1998. In 2000,
Kubaka capital spending was $0.1 million compared with $1.1 million in 1999 and
$0.7 million in 1998. Capital spending at Refugio was $3.2 million in 2000,
primarily on a leachpad expansion, compared with $8.0 million in 1999 and $2.4
million in 1998. In 2000, capital spending at Guanaco totaled $0.6 million for a
land purchase.
The Board of Directors suspended the quarterly dividends on the Series B
Convertible Preferred Stock beginning August 2000. The decision was taken by the
Board as a cash conservation measure due to the persistence of low gold prices
and the absence of earnings. Regular dividends totaling $3.4 million were paid
in February and May of 2000.
Pursuant to the merger in 1998, Kinross advanced $255.8 million to the Company
for repayment of outstanding debt. In 1999, $16.6 million was advanced to
purchase the assets related to the True North property in Alaska. An additional
$6.7 million was advanced in 2000, primarily for True North property
development. The advances are non-interest bearing and have no fixed terms of
repayment. Kinross has agreed not to seek repayment of these advances during
2001.
Management has budgeted $17.7 million for capital spending in 2001, of which
$12.3 million is set for bringing the True North property into commercial
production. In addition, the Company anticipates that it will require
approximately $30.5 million for debt
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reduction during 2001. To the extent that funds are not available to meet these
planned expenditures from operations, the Company will be dependent on advances
from its corporate parent, Kinross.
The Company relies solely on Kinross for funding the portion of operating costs,
capital expenditures, general corporate expenditures and debt and interest
payments not funded by cash flow from operating activities. The Company
continues to conserve cash whenever possible including approving only capital
expenditures necessary to sustain operations, continued low exploration
expenditures, suspending the payment of preferred stock dividends and
continually monitoring operating costs at all its operations. Assuming the price
of gold remains at $260 per ounce the Company anticipates additional borrowings
from Kinross in 2001 to fund current debt repayment requirements and planned
capital expenditures, primarily on the True North project. While Kinross has
funded these obligations in the past it is under no obligation to do so, and
there can be no assurance that the Company may not have to seek funding from
other sources in the future.
NEW PRONOUNCEMENTS
Beginning January 1, 2001, the Company will be adopting Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), and the corresponding amendments under
SFAS 138. SFAS 133 requires that all derivative financial instruments be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized in income or shareholders' equity
(as a component of other comprehensive income), depending on whether the
derivative is being used to hedge changes in fair value or cash flows. SFAS 138
amends certain provisions of SFAS 133 to clarify four areas causing difficulties
in implementation. There were no derivative instruments outstanding at December
31, 2000.
CONTINGENCIES AND RELATED COMMITMENTS
The Company is subject to the considerations and risks of operating in Russia as
a result of its 54.7% ownership of the Kubaka mine located in eastern Russia.
The economy of the Russian Federation continues to display characteristics of an
emerging market. These characteristics include, but are not limited to, the
existence of a currency that is not freely convertible outside of the country,
extensive currency controls and high inflation. The prospects for future
economic stability in the Russian Federation are largely dependent upon the
effectiveness of economic measures undertaken by the government, together with
legal, regulatory, and political developments. Russian tax legislation is
subject to varying interpretations and frequent changes. Further, the
interpretation of tax legislation by tax authorities as applied to the
transactions and activities of the Company may not coincide with that of
management. As a result, transactions may be challenged by tax authorities and
the Company may be assessed additional taxes, penalties and interest, which can
be significant. The fiscal periods remain open to review for three years by the
tax and customs authorities with respect to tax liabilities.
The Company's 50% owned Chilean contractual mining company CMM has entered into
arbitration proceedings in Chile with the contractor that designed and built the
mine. CMM contends that the contractor was negligent in both the design and the
construction of the facility, and should be held responsible for the cost of
repairs as well as lost profits. As part of the same proceedings, the contractor
is seeking to recover costs that they allegedly incurred while building the mine
and which, they claim, were outside their scope of work and responsibility.
Although the outcome of the arbitration proceedings cannot be determined at the
current time, management is of the opinion that the outcome will not materially
affect the financial position, results of operations or cash flows of the
Company.
The Company is also involved in legal proceedings and claims which arise in the
ordinary course of its business. The Company believes these claims are without
merit and is vigorously defending them. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially affect
the financial position, results of operations or cash flows of the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. Such
forward-looking statements include statements regarding expected dates for
commencement of commercial operations, reserve additions, projected quantities
of future gold production, estimated reserves and recovery rates, anticipated
production rates, costs and expenditures, prices realized by the Company and
expected to be realized, expected future cash flows, anticipated financing
needs, growth plans and sources of financing
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and repayment alternatives Factors that could cause actual results to differ
materially include, among others: risks and uncertainties relating to general
domestic and international economic and political conditions, the cyclical and
volatile price of gold, the political and economic risks associated with foreign
operations, currency fluctuations, governmental regulation of investment and
withdrawal of funds, decisions by significant holders of gold reserves,
competition in gold production and competition in uses for gold, cost overruns,
unanticipated ground and water conditions, unanticipated grade and geological
problems, metallurgical and other processing problems, availability of materials
and equipment, the timing of receipt of necessary governmental permits and
approvals, the occurrence of unusual weather or operating conditions, force
majeure events, lower than expected ore grades, the failure of equipment or
processes to operate in accordance with environmental risks, the results of
financing efforts and financial market conditions, and other risk factors
detailed in the Company's filings with the Securities and Exchange Commission.
Many of such factors are beyond the Company's ability to control or predict.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICE RISKS
The Company's revenues are derived primarily from the sale of gold production.
The Company's net income can vary significantly with fluctuations in the market
prices of gold. At various times, in response to market conditions, the Company
has entered into gold forward sales contracts for some portion of expected
future production to mitigate the risk of adverse price fluctuations. The
significant decline in spot gold prices in 1998 increased the value of the
Company's forward sales contracts. The Company closed out these contracts in
1998 for $45.9 million in cash. This gain is being included in revenue over the
period the underlying hedge contacts were originally scheduled to expire. As of
December 31, 2000, $4.7 million of this gain was included in long-term
liabilities. For further details of the remaining deferred revenue and the
period it will be recorded in revenue, see Note 7 of the Consolidated Financial
Statements. At December 31, 2000 the Company had no gold forward sales
contracts. Based on the Company's projected 2001 sales volumes, each $10 per
ounce change in the average realized price on gold sales would have an
approximate $7.25 million impact on revenues and pre-tax earnings.
FOREIGN CURRENCY EXCHANGE RISK
The Company conducts the majority of its operations in the U.S., Russia, and
Chile. Currency fluctuations affect the cash flow that the Company will realize
from its operations as gold is sold in U.S. dollars, while production costs are
incurred in Russian rubles, Chilean pesos and U.S. dollars. The Company's
results are positively affected when the U.S. dollar strengthens against these
foreign currencies and adversely affected when the U.S. dollar weakens against
these foreign currencies. The Company's cash and cash equivalent balances are
held in U.S. dollars. Holdings denominated in other currencies are relatively
insignificant.
The temporal method is used to consolidate the results of operations in Russia.
The major currency -related exposure at any balance sheet date is on ruble
denominated cash balances and working capital. Because the bullion inventory is
denominated in U.S. dollars, there are no related foreign exchange risks. The
foreign exchange exposure on the balance of the working capital items is
nominal. Of particular significance in Russia is the right of Russian
authorities to purchase gold produced from the Kubaka mine, with payment 50% in
U.S. dollars and 50% in Russian rubles at then current London gold prices. Over
the past year, these authorities have regularly refused to make payment in U.S.
dollars, therefore the Company is negotiating a new agreement for payment 100%
in rubles. If expenses denominated in rubles are less than payments in rubles,
the Company may be exposed to currency exchange risks and the risk that viable
and adequate currency exchange mechanisms may not be available. To date the
Company has not experienced problems converting rubles to U.S. dollars. The U.S.
dollars received are used to service the U.S. dollar denominated debt and the
foreign supplies inventory purchases, while the rubles received from the gold
sales are used to pay local operating costs. The Company has and will continue
to convert any excess rubles into U.S. dollars to repay U.S. denominated third
party and inter-corporate debt obligations. Assuming estimated 2001 ruble
payments of 615 million rubles at an exchange rate of 30 rubles to one U.S.
dollar, each 3 ruble change to the U.S. dollar could result in an approximate
$2.0 million change in the Company's pre-tax earnings.
In Chile, the currency of measurement is the U.S. dollar as the majority of
transactions are denominated in U.S. dollars. Local expenditures are recorded
based on the prevailing exchange rate at the time and bullion settlement
receivables are denominated in U.S. dollars. Assuming the Company's share of
estimated 2001 peso payments of 3.4 billion pesos at an exchange rate of 560
pesos
25
26
to one U.S. dollar, each 50 peso change to the U.S. dollar could result in an
approximately $0.6 million change in the Company's pre-tax earnings.
26
27
INTEREST RATE RISK
As at December 31, 1998, the Company held interest rate swaps to fix interest
rates on a portion of its floating rate debt. The costs associated with these
contracts were amortized to interest expense over the terms of the agreements.
For details on the interest rate swap agreements outstanding as at December 31,
1998, see Note 7 to the Consolidated Financial Statements. There were no
outstanding interest rate swaps at December 31, 1999 or 2000.
As at December 31, 2000, the Company had $96.7 million (1999 - $117.7 million)
of variable rate debt, all denominated in U.S. dollars. Interest expense would
change by approximately $1.0 million for every 1% change in interest rates.
27
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The management of the Company is responsible for the integrity and objectivity
of the financial statements and other financial information contained in this
Annual Report on form 10-K. The financial statements were prepared in accordance
with accounting principles generally accepted in the United States and include
estimates that are based on management's best judgment.
The Company maintains an internal control system which includes formal policies
and procedures designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with management's authorization.
Kinam Gold's financial statements have been audited by independent accountants,
whose appointment is ratified yearly by the shareholders at the annual
shareholders' meeting. The independent accountants conducted their audits in
accordance with auditing standards generally accepted in the United States.
These standards include an evaluation of the internal accounting controls in
establishing the scope of audit testing necessary to allow them to render an
independent professional opinion on the fairness of the Company's financial
statements.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with representatives of management and the
independent accountants to review their work and ensure that they are properly
discharging their responsibilities.
Arthur H. Ditto
President
Brian W. Penny
Treasurer
28
29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Kinam Gold Inc.
We have audited the accompanying consolidated balance sheets of Kinam Gold Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity (capital deficiency) and cash
flows for each of the years in the three year period ended December 31, 2000.
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 did not audit the financial statements of Omolon Gold Mining
Company, a 54.7% owned subsidiary, which statements reflect total assets and
revenues constituting 32% and 32%, respectively for 2000, and 32% and 34%,
respectively, for 1999, of the related consolidated totals. Those statements
were audited by other auditors whose report dated February 28, 2001 has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Omolon Gold Mining Company, is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Kinam Gold Inc. and subsidiaries as
of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the years in the three year period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Toronto, Ontario
March 28, 2001
29
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Omolon Gold Mining Company
In our opinion, the accompanying balance sheets and the related statements of
operations, cash flows and changes in shareholders' equity present fairly, in
all material respects, the financial position of Omolon Gold Mining Company at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with auditing standards generally
accepted in the United States of America which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 11 to the financial statements, the Company changed its
method of accounting for insurance spare parts effective January 1, 2000.
PriceWaterhouseCoopers
Moscow, Russia
February 28, 2001
30
31
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
2000 1999 1998
-------- -------- --------
Revenues $ 210.8 $ 214.1 $ 268.1
-------- -------- --------
Costs and operating expenses
Cost of sales 144.5 141.0 157.2
Depreciation, depletion and
amortization 74.2 77.8 91.1
Writedown of property, plant
and equipment 37.7 99.5 193.4
General and administrative 1.0 1.5 2.9
Exploration 3.3 1.8 3.9
-------- -------- --------
260.7 321.6 448.5
-------- -------- --------
Loss from operations (49.9) (107.5) (180.4)
Interest expense (9.9) (10.0) (23.4)
Interest income 2.4 1.5 1.6
Other 8.3 6.2 11.9
-------- -------- --------
Loss before income taxes (49.1) (109.8) (190.3)
Income tax expense (4.1) (2.9) (0.5)
-------- -------- --------
Net loss before extraordinary item (53.2) (112.7) (190.8)
Extraordinary item - loss on early
extinguishment of debt -- -- (11.5)
-------- -------- --------
Net loss (53.2) (112.7) (202.3)
Preferred stock dividends (6.9) (6.9) (6.9)
-------- -------- --------
Loss attributable to common shares $ (60.1) $ (119.6) $ (209.2)
======== ======== ========
Per common share:
Loss before extraordinary item $ (0.65) $ (1.30) $ (1.94)
Extraordinary item -- -- (0.11)
-------- -------- --------
Basic and diluted loss $ (0.65) $ (1.30) $ (2.05)
======== ======== ========
Weighted average number of
common shares outstanding 92.2 92.2 101.7
The accompanying notes are an integral part of these financial statements
31
32
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
2000 1999
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 23.3 $ 25.1
Inventories (Note 4) 45.4 49.2
Receivables 19.9 21.8
Other 4.2 2.2
-------- --------
Current assets 92.8 98.3
Property, plant and equipment, net (Note 5) 266.7 351.0
Other 13.3 14.6
-------- --------
$ 372.8 $ 463.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities
Demand loan (Note 3) $ 73.6 $ 73.6
Current portion of long-term debt (Note 6) 30.5 25.3
Accounts payable, trade 14.0 22.7
Accrued and other current liabilities 16.6 15.2
Current portion of site restoration cost accruals 3.6 6.2
-------- --------
Current liabilities 138.3 143.0
Advance from parent (Note 3) 219.9 213.2
Long-term debt (Note 6) 77.2 110.6
Site restoration cost accruals 30.0 24.6
Other 11.5 20.0
-------- --------
476.9 511.4
-------- --------
Commitments and contingencies (Note 13)
Shareholders' equity (capital deficiency):
Preferred stock, par value $1.00 per share, authorized 10,000,000
shares, 2,000,000 shares designated as $2.25 Series A Convertible
Preferred Stock, no shares issued and outstanding: and 1,840,000
shares designated as $3.75 Series B Convertible Preferred Stock,
issued and outstanding 1,840,000 shares (Note 10) 1.8 1.8
Common stock, par value $.01 per share, authorized 200,000,000
shares, issued and outstanding 92,213,928 shares in 2000
and 1999 (Note 11) 0.9 0.9
Paid-in capital 412.9 409.4
Accumulated deficit (519.7) (459.6)
-------- --------
Total (capital deficiency) (104.1) (47.5)
-------- --------
Total liabilities and shareholders' equity (capital deficiency) $ 372.8 $ 463.9
======== ========
The accompanying notes are an integral part of these statements
32
33
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
2000 1999 1998
------ ------- -------
Cash flow from operating activities
Net loss $(53.2) $(112.7) $(202.3)
Adjustments to reconcile net loss to cash flow provided from operations:
Depreciation, depletion and amortization 74.2 77.8 91.1
Writedown of property, plant and equipment 37.7 99.5 193.4
(Decrease) increase in site restoration cost accruals (2.6) (0.7) 9.5
Amortization of financing costs (*) 0.6 0.6 2.1
Extraordinary loss -- -- 11.5
Deferred revenue realized (7.8) (8.2) (27.4)
Other, net (1.7) 2.1 (1.6)
------ ------ ------
47.2 58.4 76.3
Deferred revenue - hedging gains -- -- 45.9
Decrease (increase) in working capital, net of businesses acquired
Receivables 1.1 11.3 (3.7)
Inventories 0.8 2.2 5.7
Other assets (2.0) (0.2) 8.6
Accounts payable, trade (8.7) (3.6) (6.9)
Accrued and other current liabilities 1.4 4.0 (16.1)
------ ------ ------
Cash flow provided from operating activities 39.8 72.1 109.8
------ ------ ------
Investing:
Capital expenditures (16.7) (16.9) (15.4)
Merger costs -- -- (14.8)
Business acquisitions, net of cash acquired -- (30.4) (3.8)
Decrease in restricted cash -- 0.5 3.0
------ ------ ------
Cash flow used in investing activities (16.7) (46.8) (31.0)
------ ------ ------
Financing:
Demand loan -- (16.7) 17.6
Advance from parent 6.7 16.6 196.6
Proceeds from financings -- 7.0 --
Repayments of financings (28.2) (19.2) (283.7)
Cash acquired in connection with purchase of Kubaka investment -- 0.5 0.7
Preferred dividends paid (3.4) (6.9) (6.9)
------ ------ ------
Cash flow used in financing activities (24.9) (18.7) (75.7)
------ ------ ------
Net (decrease) increase in cash and cash equivalents (1.8) 6.6 3.1
Cash and cash equivalents at January 1 25.1 18.5 16.0
------ ------ ------
Cash and cash equivalents at December 31 $ 23.3 $ 25.1 $ 19.1
====== ====== ======
The accompanying notes are an integral part of these statements
33
34
* During the fourth quarter of 1996, the Company issued $15.2 million in
stock to Cyprus Amax in payment of $5.2 million in interest and a $10
million guaranty and financing fee. The guaranty and financing fee was
recorded as unearned equity and $3.9 million had been amortized through
May 31, 1998. In June 1998, upon repayment of debt, the balance of $6.1
million was expensed as part of the $11.5 extraordinary loss on early
extinguishment of debt.
Cash paid for interest was $10.2 million, $9.9 million and $28.9 million
in 2000, 1999 and 1998, respectively. Cash paid for income taxes was $4.1
million in 2000 and $2.9 million in 1999. There were no income taxes paid
during 1998.
KINAM GOLD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS)
PREFERRED STOCK COMMON STOCK
--------------- ------------------ PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ ------- ----------- --------
Balance at December 31, 1997 1.8 $ 1.8 114.9 $ 1.1 $408.6 $(130.8) $ (6.9)
Net loss -- -- -- -- -- (202.3) --
Issuance of common shares
Employee and Director plans -- -- 0.3 -- 0.8 -- --
Kinross merger -- -- (23.0) (0.2) -- -- --
Amortization of financing costs -- -- -- -- -- -- 0.8
Early extinguishment of debt -- -- -- -- -- -- 6.1
Preferred stock dividends -- -- -- -- -- (6.9) --
------ ------ ------ ------ ------ ------- ------
Balance at December 31, 1998 1.8 1.8 92.2 0.9 409.4 (340.0) --
Net loss -- -- -- -- -- (112.7) --
Preferred stock dividends -- -- -- -- -- (6.9) --
------ ------ ------ ------ ------ ------- ------
Balance at December 31, 1999 1.8 1.8 92.2 0.9 409.4 (459.6) --
Net loss -- -- -- -- -- (53.2) --
Preferred stock dividends -- -- -- -- 3.5 (6.9) --
------ ------ ------ ------ ------ ------- ------
Balance at December 31, 2000 1.8 $ 1.8 92.2 $ 0.9 $412.9 $(519.7) $ --
====== ====== ====== ====== ====== ======= ======
The accompanying notes are an integral part of these statements
34
35
KINAM GOLD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR DOLLAR AMOUNTS ARE IN MILLIONS OF U.S. DOLLARS
EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Kinam Gold Inc. ("Kinam" or the
"Company") are expressed in U.S. dollars and have been prepared in accordance
with accounting principles generally accepted in the United States. Kinross Gold
U.S.A., Inc., a wholly-owned subsidiary of Kinross Gold Corporation ("Kinross"),
owns 100% of the common shares of the Company.
NATURE OF OPERATIONS
The Company is engaged in the mining and processing of gold and silver ore and
the exploration for, and acquisition of, gold-bearing properties, principally in
the Americas and Russia. The Company's products are gold and silver produced in
the form of dore which is shipped to refineries for final processing.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, its
subsidiaries and its proportionate share of joint venture interests consistent
with mining industry practices.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Management's estimates are made in accordance
with mining industry practice. Significant areas requiring the use of management
estimates relate to the determination of mineral reserves, reclamation and
environmental obligations, impairment of assets and useful lives used to compute
depreciation, depletion and amortization. Actual results could differ from those
estimates.
TRANSLATION OF FOREIGN CURRENCIES
Domestic and foreign operations
The Company reports its financial statements in U.S. dollars, while the currency
of measurement for the Company's operations varies depending upon location.
The currency of measurement for the Company's self-sustaining operations in the
U.S. and Chile is the U.S. dollar. Although the operation in Russia is
self-sustaining, the temporal method is used to translate local currency amounts
into U.S. dollars due to the highly inflationary economy in that country. Under
the temporal method, all non-monetary items are translated at historical rates.
Monetary assets and liabilities are translated at actual exchange rates in
effect at the balance sheet date, revenues and expenses are translated at
average rates for the year and gains and losses on translation are included in
income.
Foreign currency transactions
Monetary assets and liabilities are translated at the rate of exchange
prevailing at the balance sheet date. Non-monetary assets and liabilities are
translated at historical rates. Revenue and expenses are translated at the
average rate of exchange for the year. Exchange gains and losses are included in
income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and 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.
INVENTORIES
Gold inventory is valued at the lower of aggregate cost, computed using a
three-month rolling average method, or market. Materials and supplies are valued
at average cost less reserves for obsolescence.
35
36
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Costs associated with
properties which are in the development stage are deferred, on a project basis,
until the economic viability of the project is determined. Once commercial
production is reached, the deferred costs of the project are amortized over
their economic lives, on the basis described below.
Where the mine operating plan calls for production from well-defined ore
reserves, the unit-of-production method of amortization is applied.
Plant and equipment that have useful lives shorter than the mine life are
depreciated on a straight-line basis over their estimated useful lives of up to
five years.
PROPERTY EVALUATIONS
Annually, the Company reviews the carrying values of its portfolio of mining
properties and advanced stage exploration properties. The impairment analysis is
performed on an undiscounted basis in order to determine whether an impairment
exists. If the undiscounted cash flow is less than the carrying value of the
related mines, the Company uses a discounted cash flow analysis to determine the
amount of the writedown. The estimated future net cash flows from each property
are calculated using estimated recoverable ounces of gold, estimated future gold
price realization (considering historical and current prices, price trends and
related factors), and operating, capital and reclamation costs. Estimated future
cash flows are subject to risks and uncertainties. It is possible that changes
could occur which may affect the recoverability of property, plant and
equipment.
LONG-TERM INVESTMENTS
Long-term investments in shares of associated companies, over which the Company
has the ability to exercise significant influence, are accounted for using the
equity method. The cost method is used for entities in which the Company owns
less than 20%. The Company periodically reviews the carrying value of its
investments. When a decline in the value of an investment is other than
temporary, the investment is written down accordingly.
FINANCIAL INSTRUMENTS
The Company enters into derivative financial instrument contracts to manage
certain market risks which result from the underlying nature of its business.
The Company uses spot deferred contracts and fixed forward contracts to hedge
exposure to commodity price risk for gold and silver; foreign exchange forward
contracts to hedge exposure to fluctuations in foreign currency denominated
operating costs; and interest rate swaps to hedge exposure to changes in
interest rates. The Company uses written gold call options to economically hedge
exposure to commodity price risk for gold. Non-option derivative financial
instruments are accounted for using the accrual method as management views the
contracts as effective hedges and has designated the contracts as hedges of
specific exposures. Hedge effectiveness is assessed based on the degree to which
the cash flows on the derivative contracts are expected to offset the cash flows
of the underlying position or transaction being hedged.
Realized and unrealized gains or losses on derivative contracts, that qualify
for hedge accounting, are deferred and recorded in income when the underlying
hedged transaction is recognized. The premiums received at the inception of
written call options are recorded as a liability. Changes in the fair value of
the liability are recognized currently in earnings. Gains or losses (realized or
unrealized) for derivative contracts which no longer qualify as hedges for
accounting purposes or which relate to a hedged transaction that has been sold
or terminated are recorded in income.
Gains on the early settlement of gold hedging contracts are recorded as deferred
revenue on the balance sheet and included in income over the original delivery
schedule of the hedged production.
PENSION, POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS
Pension expense, based on management assumptions, consists of the actuarially
computed costs of pension benefits in respect of the current year's service;
imputed interest on plan assets and pension obligations; and straight-line
amortization of experience gains and losses; assumption changes and plan
amendments over the expected average remaining service life of the employee
group.
The expected costs of post-retirement and post-employment benefits, other than
pensions, to active employees are accrued for in the financial statements during
the years employees provide service to the Company.
36
37
REVENUE RECOGNITION
Gold revenues are recorded when bullion is shipped to the refineries and title
has passed to the customer.
SITE RESTORATION COSTS
Estimated costs of site restoration are accrued and expensed over the estimated
life of the mine on a unit-of-production basis. Ongoing environmental protection
expenditures are expensed as incurred. Estimates of the ultimate site
restoration costs are based on current laws and regulations and expected costs
to be incurred, all of which are subject to possible changes thereby impacting
current determinations.
MINERAL EXPLORATION
Mineral exploration expenditures are charged to income as incurred. Property
acquisition costs relating to exploration properties and expenditures incurred
on properties identified as having development potential are deferred on a
project basis until the viability of the project is determined. Costs associated
with economically viable projects are depreciated and amortized in accordance
with the policies described above. If a project is not viable, the accumulated
project costs are charged to income in the year in which that determination is
made.
INCOME AND MINING TAXES
The provisions for income and mining taxes are based on the liability method.
Deferred income taxes arise from the recognition of the tax consequences of
temporary differences by applying statutory tax rates applicable to future years
to differences between the financial statements carrying amounts and the tax
bases of certain assets and liabilities. The Company records a valuation
allowance against any portion of those deferred income tax assets that it
believes will, more likely than not, fail to be realized. On business
acquisitions, where differences between assigned values and tax bases of assets
acquired and liabilities assumed exist, the Company recognizes the deferred
income tax assets and liabilities for the tax effects of such differences.
Future withholding taxes are provided on the unremitted net earnings of foreign
subsidiaries and associates to the extent that dividends or other repatriations
are anticipated in the future and will be subject to such taxes. The income
statement effect is derived from current taxes payable and changes in deferred
income taxes on the balance sheet.
PER SHARE INFORMATION
Basic loss per common share has been calculated using the weighted average
number of common shares outstanding during the year.
NEW PRONOUNCEMENTS
Beginning January 1, 2001, the Company will be adopting Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), and the corresponding amendments under
SFAS 138. SFAS 133 requires that all derivative financial instruments be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized in income or shareholders' equity
(as a component of other comprehensive income), depending on whether the
derivative is being used to hedge changes in fair value or cash flows. SFAS 138
amends certain provisions of SFAS 133 to clarify four areas causing difficulties
in implementation. There were no derivative instruments outstanding at December
31, 2000.
STATEMENTS OF COMPREHENSIVE INCOME
There are no differences between comprehensive loss and net loss as reported in
the Consolidated Statements of Operations for the years ended December 31, 2000,
1999, and 1998.
1999 AND 1998 FIGURES
Certain of the 1999 and 1998 figures have been reclassified to conform to the
2000 presentation.
2. ECONOMIC DEPENDENCE
The Company relies solely on Kinross for funding the portion of operating costs,
capital expenditures, general corporate expenditures and debt and interest
payments not funded by cash flow from operations. Assuming the gold price
remains at current levels the Company anticipates additional borrowings from
Kinross in 2001. While Kinross has funded these obligations in the past it is
under no obligation to do so, and there can be no assurance that the Company may
not have to seek funding from other sources in the future. Kinross has agreed to
continue to support the Company for the next twelve months.
37
38
3. TRANSACTIONS WITH AFFILIATES
On June 1, 1998, the Company completed a merger agreement with Kinross providing
for a combination of their businesses. In the merger, each outstanding share of
the Company's common stock was converted into 0.8004 of a share of Kinross
common stock. Kinross Merger Corporation ("Kinross Merger"), a wholly-owned
subsidiary of Kinross was merged with and into the Company which became a
wholly-owned subsidiary of Kinross. Immediately following the effective time of
the merger, the Company, as the surviving entity of the combination with Kinross
Merger, issued to Kinross 92.2 million shares of the Company's common stock,
representing all of the issued and outstanding common shares. Kinross
subsequently transferred ownership of such shares to Kinross Gold U.S.A., Inc.,
a wholly-owned subsidiary of Kinross, which is currently the sole common
shareholder of the Company. Prior to the merger, the Company was approximately
59% owned by Cyprus Amax Minerals Company (Cyprus Amax).
Pursuant to the merger in 1998, Kinross advanced $255.8 million to the Company
for repayment of outstanding debt. In 1999, $16.6 million was advanced to
purchase the assets related to the True North property in Alaska. An additional
$6.7 million was advanced in 2000, primarily for True North property
development. The advances from parent are non-interest bearing and have no fixed
terms of repayment. Kinross has agreed not to seek repayment of these advances
during 2001 from parent.
Pursuant to a financing arrangement with Cyprus Amax, approved by the Company's
shareholders in September 1996, Cyprus Amax had guaranteed the Company's $250.0
million Fort Knox loan until economic completion of the Company's Fort Knox
mine. In connection with the Kinross merger, the balance of the $250.0 million
loan was repaid on June 1, 1998. Upon repayment, the Company expensed $11.5
million in unamortized financing costs.
Pursuant to the Kinross merger, Kinross assumed a demand loan of $92.3 million
which was transferred from Cyprus Amax to Kinross. Subsequent repayments have
reduced the demand loan payable to $73.6 million at December 31, 1999 and
December 31, 2000. The demand loan is non-interest bearing and is due on demand.
Kinross has issued letters of credit under a syndicated credit facility to
guarantee the Fort Knox Industrial Revenue Bonds and the Kubaka subordinated
totaling $83.2 million. See Note 6 of the Consolidated Financial Statements for
further discussion.
4. INVENTORIES
Inventories at December 31, 2000 and 1999, consisted of the following:
2000 1999
------- -------
Gold:
Finished goods $ 10.6 $ 14.4
Work-in -process 2.2 2.7
Materials and supplies 32.6 32.1
------- -------
$ 45.4 $ 49.2
======= =======
5. PROPERTY, PLANT AND EQUIPMENT AND WRITEDOWNS
The components of property, plant and equipment at December 31, 2000 and 1999,
were as follows:
2000 1999
-------- --------
Plant and equipment $ 720.9 $ 719.5
Mineral properties 456.4 452.1
Development properties and
construction-in-progress 22.0 18.8
-------- --------
1,199.3 1,190.4
Less accumulated depreciation,
depletion and writedowns (932.6) (839.4)
-------- --------
$ 266.7 $ 351.0
======== ========
38
39
Acquisitions
2000
There were no business acquisitions during the year.
1999
On March 1, 1999, the Company acquired 100% of Kershaw Gold Company, Inc.
("Kershaw") for $2.0 million, thereby increasing its ownership interest in the
Haile property from 62.5% to 100%.
On June 28, 1999, the Company acquired a 65% interest in the True North property
in Alaska for cash of $28.1 million.
On December 31, 1999, the Company acquired a further 1.7% of Omolon Gold Mining
Company ("Omolon") for cash of $0.3 million.
1998
In December 1998, the Company acquired an additional 3% of Omolon in
consideration for settling obligations of the Russian partner for $3.8 million.
Repayment of the $3.8 million owing to the Company by the Russian partner will
be made from the Russian partner's share of dividends from Omolon. The Russian
partner has the right to reacquire the 3% interest in Omolon for approximately
$7.5 million.
Writedown of Property, Plant and Equipment
Annually, the Company reviews the carrying values of its portfolio of mining
properties and advanced stage exploration properties. Through this process the
Company determined that the following assets had suffered a permanent impairment
in value and therefore have been written down to their estimated recoverable
amounts. The impairment analysis is performed on an undiscounted basis in order
to determine whether an impairment exists. Because the undiscounted cash flow
was less than the carrying value of the related mines, the Company used a
discounted cash flow analysis to determine the amount of the writedown. The
estimated future net cash flows from each property are calculated using
estimated recoverable ounces of gold, estimated future gold price realization
(considering historical and current prices, price trends and related factors),
and operating, capital and reclamation costs. Estimated future cash flows are
subject to risks and uncertainties. It is possible that changes could occur
which may affect the recoverability of property, plant and equipment.
2000 1999 1998
------ ------ ------
Fort Knox min$ -- $ 72.9 $140.3
Refugio min 26.7 10.1 53.1
Haile property -- 16.5 --
Hayden Hill min 2.9 -- --
Guanaco min 2.1 -- --
Other non-core properties 6.0 -- --
------ ------ ------
$ 37.7 $ 99.5 $193.4
====== ====== ======
In the fourth quarter of 2000, following a comprehensive evaluation of its
mining properties based on an assumed gold price of $300, the Company determined
that the net recoverable amounts of the Refugio mine were less than the net book
value. As a result of this review the Company recorded a $26.7 million pre-tax
writedown of the Refugio mine. In addition, after a through review of various
closure properties, the remaining carrying value and the current environment for
surplus mining equipment and facilities, the remaining book value of the Hayden
Hill mine, the Guanaco mine, the Haile property and other non-core properties,
principally the Sleeper and Wind Mountain mines were written off.
In the fourth quarter of 1999, following a comprehensive evaluation of its
mining properties based on an assumed gold price of $300, the Company determined
that the net recoverable amounts of the Fort Knox and Refugio mines and the
Haile property were less than the net book value of the related assets. As a
result of this review the Company recorded a $72.9 million pre-tax writedown of
the Fort Knox mine, a $10.1 million pre-tax writedown of the Refugio mine and a
$16.5 million pre-tax writedown of the Haile property.
39
40
In the fourth quarter of 1998, following a comprehensive evaluation of its
mining properties based on an assumed gold price of $325, the Company determined
that the net recoverable amounts of the Fort Knox and Refugio mines were less
than the net book value of the related assets. As a result of this review the
Company recorded a $140.3 million writedown of the Fort Knox mine and a $53.1
million writedown of the Refugio mine.
Principal repayment schedule
Interest --------------------------------------
rates 1999 2000 2001 2002 2003 Thereafter
-------- -------- ------ ------ ------ ------ ----------
Kubaka project-financing debt Variable $ 36.9 $ 20.0 $ 20.0 $ -- $ -- $ --
Kubaka subordinated debt Variable 8.0 5.7 5.7 -- -- --
Kubaka subordinated working capital debt Variable 1.8 -- -- -- -- --
Fort Knox industrial revenue bonds Variable 71.0 71.0 -- 45.0 -- 26.0
Capital leases 8.0%-9.5% 18.2 11.0 4.8 5.1 1.1 --
-------- ------ ------ ------ ------ ------
135.9 107.7 $ 30.5 $ 50.1 $ 1.1 $ 26.0
====== ====== ====== ======
Less current portion 25.3 30.5
-------- ------
$ 110.6 $ 77.2
======== ======
The European Bank of Reconstruction and Development ("EBRD") and the U.S.
Overseas Private Investment Corporation ("OPIC") provided project-financing debt
on the Kubaka mine. As at December 31, 1998, this debt was $92.5 million. In
1999, Omolon repaid $25.0 million of these obligations, and in 2000 repaid $30.9
million leaving $36.6 million outstanding as at December 31, 2000 (December 31,
1999 - $67.5 million). The Company's 54.7% proportionate share of these
obligations is $20.0 million as at December 31, 2000 (December 31, 1999 - $36.9
million). Interest on the project-financing debt is variable based upon LIBOR
and as at December 31, 2000 is approximately 11.8% per annum (December 31, 1999
- - 10.5%). The project-financing debt has become recourse solely to Omolon after
completion tests were passed in late 1999.
A bank licensed to do business in Russia has provided subordinated debt to
finance the Kubaka mine. As at December 31, 2000, $10.4 million remains
outstanding on this debt (December 31, 1999 - $14.6 million). The Company's
54.7% proportionate share of these obligations is $5.7 million as at December
31, 2000 (December 31, 1999 - $8.0 million). Interest on the subordinated debt
is variable based upon LIBOR and as at December 31, 2000 is approximately 12%
per annum (December 31, 1999 - 12%). The loan is repayable in semi-annual
payments through June 15, 2003. The Company anticipates repaying the entire
obligations in 2001 from Kubaka generated cash flow. The subordinated debt is
supported by a letter of credit from Kinross.
A bank licensed to do business in Russia had provided subordinated working
capital debt for the Kubaka mine operations to a maximum of $10.0 million. As at
December 31, 2000, no balance was outstanding and the facility was cancelled
(December 31, 1999 - $3.3 million was outstanding).
The solid waste disposal facility at the Fort Knox mine has been financed by
$71.0 million of tax-exempt industrial revenue bonds. The variable rate bonds,
maturing in May 2009, were issued by the Alaska Industrial Development and
Export Authority and are supported by a letter of credit issued by Kinross. The
floating interest rate on the bonds is approximately 4.5% as at December 31,
2000.
The Company has capital leases for certain production equipment at Fort Knox and
Refugio. Interest on there leases ranges from 8.0% - 9.5% per annum.
40
41
In 1999, Kinross had a $50.0 million credit facility with a major chartered bank
at commercial rates. As at December 31, 1999, Kinross had utilized $43.0 million
of this facility. In March 2000, Kinross arranged a new syndicated credit
facility for $110 million. The primary purpose of this facility is to provide
credit support that enables Kinross to issue letters of credit on the Fort Knox
industrial revenue bonds and the Kubaka subordinated debt. During the life of
the syndicated credit facility Kinross must either reduce its letters of credit
according to an agreed upon amortization schedule or post cash in order to
decrease the debt. This syndicated credit facility matures in December, 2002.
The repayment schedule presented above reflects Kinross and the Company's
expectation that the maturity date on the $30.0 million of the Kinross
syndicated credit facility will be extended beyond 2002.
Loan Amortization Schedule
Date Amortization Credit Facility Balance
---- ------------ -----------------------
December 2000 $ -- $ 90.0
February 2001 20.0 70.0
January 2002 20.0 50.0
June 2002 20.0 30.0
As at December 31, 2000, the loan facility had been reduced to $90.0 million.
The letters of credit issued on behalf of the Company under the Kinross
syndicated facility at December 31, 2000 were as follows:
Amount Purpose
------ -------
$72.3 Credit Support for Fort Knox industrial revenue bonds
10.9 Credit Support for Kubaka subordinated debt
-----
$83.2
=====
7. DERIVATIVE CONTRACTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company manages its exposure to fluctuations in commodity prices, foreign
exchange rates and interest rates by entering into derivative financial
instrument contracts in accordance with the formal risk management policy
approved by the Company's Board of Directors. The Company does not hold or issue
derivative contracts for speculative or trading purposes.
(a) Commodity risk management
The profitability of the Company is directly related to the market price of gold
and silver. The Company uses spot deferred contracts, fixed forward contracts
and option contracts to hedge against the unfavorable changes in commodity
prices for a portion of its forecasted gold and silver production. Spot deferred
contracts are forward sale contracts with flexible delivery dates that enable
management to choose to deliver into the contract on a specific date or defer
delivery until a future date. If delivery is postponed, a new contract price is
established based on the old contract price plus a premium (referred to as
"contango"). Use of these instruments has resulted in a realized price per ounce
of gold $292 in 2000 as compared with $289 in 1999 and $344 in 1998. These
realized prices compare with average spot gold prices of $279 per ounce in 2000,
$279 per ounce in 1999 and $294 per ounce in 1998.
On June 1, 1998, the commodity derivative contract portfolio held by Kinam had a
fair value of $46 million. Subsequent to the Kinross merger the Company closed
out the contracts and realized approximately $46 million in cash. Net of costs
previously incurred, the $41.7 million gain is being included in revenue over
the period the underlying hedge contracts were originally scheduled to expire.
As at December 31, 2000, $4.7 million (December 31, 1999 - $10.2 million) of
this gain is included in other long-term liabilities. There were no outstanding
hedge contracts as at December 31, 2000 or 1999.
In December, 1997, the Company refinanced the Refugio gold loan realizing a gain
of $6.0 million. This gain, net of approximately $2.0 million in deferred
financing costs is being taken into income over the schedule set out in the loan
agreement. The deferred portion of this gain at December 31, 2000 amounted to
$1.4 million and will be recognized in income in 2001.
On June 1, 1998, the Company repaid the gold loan portion of the Fort Knox
project financing realizing a gain of $3.6 million. The gain is being taken into
income over the original delivery schedule set out in the loan payments. The
deferred portion of this gain at December 31, 2000 amounted to $1.0 million and
will be recognized in income in 2001.
41
42
(b) Interest rate risk management
The Company is exposed to interest rate risk as a result of its issuance of
variable rate debt. There are no interest rate hedging transactions outstanding
as at December 31, 2000.
42
43
(c) Credit risk management
Credit risk relates to bullion settlements and other accounts receivable and
derivative contracts and arises from the possibility that a counterparty to an
instrument in which the Company has an unrealized gain fails to perform. The
Company only transacts with high-rated counterparties and a limit on contingent
exposure has been established for each counterparty based on the counterparty's
credit rating. At December 31, 2000, the Company's credit exposure was limited
to accounts receivable of $19.9 million (1999 - $21.8 million).
(d) Foreign currency risk management
All sales revenues for the Company are denominated in U.S. dollars. The Company
is exposed to currency fluctuations on expenditures which are denominated in
Russian rubles and Chilean pesos. These potential currency fluctuations could
have a significant impact on the cost of producing gold and the profitability of
the Company. This risk is reduced, from time to time, through the use of foreign
exchange forward contracts to lock in the exchange rates on firmly committed
future operating costs.
There were no outstanding foreign exchange forward contracts at December 31,
2000 or 1999.
(e) Fair values of financial instruments
Carrying values for primary financial instruments, including cash and cash
equivalents, receivables, demand loan, accounts payable, accrued and other
current liabilities, approximate fair values due to their short-term maturities.
The carrying value for long-term debt approximates fair value primarily due to
the floating rate nature of the debt instruments.
The fair value of the advance from parent cannot be readily determined as there
is no available market data for these instruments due to the unique nature of
these related party amounts.
The fair value of the outstanding preferred shares at December 31, 2000 was
$13.8 million (1999 - $48.5 million).
43
44
8. INCOME TAXES
Loss before income taxes consists of the following:
2000 1999 1998
-------- -------- --------
Domestic $ (0.8) $ (98.1) $ (153.1)
Foreign (48.3) (11.7) (48.7)
-------- -------- --------
$ (49.1) $ (109.8) $ (201.8)
======== ======== ========
The income tax expense consists of the following:
Current
Federal $ -- $ -- $ 0.2
State -- -- --
Foreign 4.1 2.9 --
-------- -------- --------
4.1 2.9 0.2
-------- -------- --------
Deferred
Federal -- -- --
State -- -- --
Foreign -- -- 0.3
-------- -------- --------
-- -- 0.3
-------- -------- --------
Income tax expense $ 4.1 $ 2.9 $ 0.5
======== ======== ========
The components of deferred tax (assets) liabilities are as follows:
2000 1999 1998
-------- -------- --------
Deferred tax assets
Property, plant and equipment $ (83.1) $ -- $ --
Site restoration cost accruals (8.9) (9.3) (6.1)
Net operating loss carry forwards (111.4) (106.0) (68.1)
Minimum tax credit carry forwards (1.3) (5.1) (5.1)
Other (2.9) -- (7.9)
-------- -------- --------
Total deferred tax assets (207.6) (120.4) (87.2)
Valuation allowance 207.6 82.3 62.6
-------- -------- --------
Net deferred tax assets -- (38.1) (24.6)
Deferred tax liabilities
Other -- 0.1 5.1
Property, plant and equipment -- 38.0 19.5
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 35% in 2000 (1999 - 35%, 1998 - 34%) to the loss
before taxes and the income tax expense:
44
45
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 35% in 2000 (1999 - 35%, 1998 - 34%) to the loss
before taxes and the income tax expense:
2000 1999 1998
------ ------ ------
Income taxes at statutory rate $(17.2) $(38.4) $(68.8)
Increases (decreases) resulting from:
Losses with no expected tax benefit 17.2 38.4 68.8
State income taxes, net of federal benefit -- -- --
Percentage depletion -- -- --
------ ------ ------
Income tax expense -- -- --
Foreign losses with no expected tax benefit -- -- --
Other 4.1 2.9 0.5
------ ------ ------
Income tax expense $ 4.1 $ 2.9 $ 0.5
====== ====== ======
The valuation allowance increased by $125.3 million in 2000 due to uncertainties
of realizing the benefit of all deductible temporary differences, loss carry
forwards and income tax reductions in the future.
At December 31, 2000, the Company has federal tax net operating loss carry
forwards of approximately $205.3 million and alternative minimum tax net
operating loss carry forwards of $135.1 million expiring in the years 2004
through 2020 and minimum tax credit carry forwards of $3.7 million, which do not
expire. The use of the federal and alternative minimum tax loss carry forwards
will be limited in any given year as a result of a previous change in ownership.
At December 31, 2000, the Company has Chilean tax net operating loss carry
forwards of $192.0 million, which do not expire. At December 31, 2000, the
Company also has Russian tax net operating loss carry forwards of $12.7 million
which expire in 2003.
9. EMPLOYEE PENSION AND RETIREMENT PLANS
Defined Contribution Pension and Retirement Plans
The Company has several defined contribution pension plans covering
substantially all employees in the United States and certain foreign countries.
Under these plans the Company either contributes a set percentage of the
employees salary or matches a percentage of the employees contributions. The
employees are able to direct the contributions into a variety of investment
funds offered by the plans. Company contributions to these plans amounted to
$1.2 million in 2000, $0.8 million in 1999, and $0.3 million in 1998.
Defined Benefit Pension Plans
Prior to the Kinross merger all employees in the United States were covered by a
non-contributory defined benefit pension plan. Benefits are based generally on
years of service and compensation levels prior to retirement. The plan was
frozen on June 1,1998 and all active employees were transferred into the Kinross
defined contribution pension plan. The Company makes contributions to the plan
in accordance with the requirements of the Employee Retirement Income Security
Act of 1974 (ERISA). Plan assets are invested in a balanced fund and small
market equity fund.
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46
Net annual pension expense includes the following components:
2000 1999 1998
---- ---- -----
Service cost $ -- $ -- $0.2
Interest cost 0.4 0.3 0.4
Expected return on assets (0.4) (0.3) (0.3)
Curtailment credit -- -- (0.5)
Net amortization of prior service costs and losses -- -- 0.1
---- ---- -----
Net periodic expense $ -- $ -- $(0.1)
==== ==== =====
The following table summarizes the change in benefit obligations:
2000 1999
------- -------
Benefit obligation beginning of year $ 4.2 $ 5.3
Service cost -- --
Interest cost 0.4 0.3
Actuarial loss (gain) 0.5 (1.3)
Curtailments -- --
Benefits paid (0.1) (0.1)
------- -------
Benefit obligation, end of year $ 5.0 $ 4.2
======= =======
The following table summarizes the funded status of the plan and related amounts
recognized in the Company's financial statements at December 31:
2000 1999
------- -------
Projected benefit obligations $ (5.0) $ (4.2)
Plan assets at fair value 4.0 3.3
------- -------
Plan assets less than projected benefit obligations (1.0) (0.9)
Estimated additional liability -- 0.7
Unrecognized net gain (loss) 0.1 (0.7)
------- -------
Accrued pension cost $ (0.9) $ (0.9)
======= =======
The following table summarizes the change in fair value of plan assets
2000 1999
------- -------
Fair value of plan assets,beginning of year $ 3.3 $ 2.9
Actual return 0.1 --
Employer contributions 0.7 0.5
Benefits paid (0.1) (0.1)
------- -------
Fair value of plan assets, end of year $ 4.0 $ 3.3
======= =======
The following assumptions were used in calculating the funded status of the plan
at December 31 and the pension cost for the subsequent year:
2000 1999
---- ----
Expected long-term rate of return on assets 9.0% 9.0%
Discount rate 7.75% 8.0%
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47
Post Retirement Benefits Other Than Pensions
The Company also provides certain health care and life insurance benefits for
retired employees in the United States. The postretirement health care plans are
contributory in certain cases based upon years of service, age and retirement
date. The Company currently does not fund postretirement benefits and may modify
plan provisions at its discretion. Net periodic post retirement costs for the
years ended December 31, 2000, 1999 and 1998 were insignificant.
The following table sets forth the status of the plan and the related amounts
recognized in the Company's financial statements at December 31:
2000 1999
------- -------
Accumulated post-retirement benefit obligation:
Retirees $ 1.6 $ 1.5
Active plan participants -- --
------- -------
Total accumulated post-retirement benefit obligation 1.6 1.5
Plan assets at fair value -- --
Accumulated post-retirement benefit obligation in ------- -------
excess of plan assets (1.6) (1.5)
Unrecognized prior service cost -- --
Unrecognized net gain -- (0.1)
------- -------
Accrued post-retirement benefit cost $ (1.6) $ (1.6)
======= =======
The accumulated post-retirement benefit obligation was determined using a
weighted average annual discount rate of 7.75% in 2000 and 8% in 1999. The
assumed health care trend rate for 2001 is 11% declining gradually to 5.50% in
2017 when Company costs associated with the plan are capped. A 1% increase in
the health care cost trend rate used would have resulted in an insignificant
increase in the 2000 post-retirement benefit cost and the accumulated benefit
obligation at December 31, 2000.
Postemployment Benefits
The Company has a number of postemployment plans covering severance, disability
income, and continuation of health and life insurance for disabled employees. At
December 31, 2000 and 1999, the Company's liability for postemployment benefits
totaled $2.3 million and $1.9 million respectively, and is included in other
liabilities.
10. PREFERRED STOCK
The Preferred Stock is redeemable at the option of the Company at any time on or
after August 15, 1997, in whole or in part, for cash, initially at a redemption
price of $52.625 per share declining ratably annually to $50.00 per share on or
after August 15, 2004, plus accrued and unpaid dividends. Annual cumulative
dividends of $3.75 per share are payable quarterly on each November 15, February
15, May 15 and August 15, as and if declared by the Board of Directors. In the
absence of earnings, the Board of Directors has suspended the quarterly
dividends on the $3.75 Series B Convertible Preferred Stock effective August
2000. The decision has been taken by the Board as a cash conservation measure
due to the persistence of low gold prices. Regular dividends totaling $3.4
million were paid in February and May of 2000.
11. COMMON STOCK
On June 1, 1998, the Company completed the merger with Kinross whereby Kinross
acquired 100% of the issued and outstanding common shares of the Company. As a
result of the merger all plans to purchase common stock of Kinam were cancelled
and all stock options were adjusted to reflect the exchange ratio of .8004.
Substitute Kinross options were issued. As at December 31, 2000 and 1999 there
are no plans that require the issuance of the Company's stock.
12. SEGMENTED INFORMATION
47
48
The Company operates five gold mines: Fort Knox, located in Alaska; Kubaka,
located in Russia; Refugio, located in Chile, Hayden Hill, located in
California; and Guanaco, located in Chile. In addition to its producing gold
mines, the Company has several other gold mining assets in various stages of
reclamation, closure, care and maintenance, and development. The accounting
policies used by these segments are the same as those described in the Summary
of Significant Accounting Policies (see Note 2).
As the products and services in each of the reportable segments, except for the
corporate activities, are essentially the same, the reportable segments have
been determined at the level where decisions are made on the allocation of
resources and capital, and where complete internal financial statements are
available.
REPORTABLE OPERATING SEGMENTS
------------------------------------------------------------ CORPORATE
HAYDEN AND
FORT KNOX KUBAKA REFUGIO HILL GUANACO OTHER (b) TOTAL
-------- -------- ------- ------- ------- ---------- --------
(in millions)
2000
Mining revenue $ 104.1 $ 68.4 $ 25.8 $ 2.8 $ 4.1 $ 5.6 $ 210.8
Interest income -- 2.1 -- -- 0.1 0.2 2.4
Interest expense 5.7 3.5 0.7 -- -- -- 9.9
Depreciation, depletion and
amortization 37.6 32.0 4.6 -- -- -- 74.2
Writedown of mineral properties -- -- 26.7 2.9 2.1 6.0 37.7
Segment profit (loss)(a) (13.7) 0.7 (30.5) (2.3) (2.6) (0.7) (49.1)
Segment assets 236.7 118.9 11.4 1.1 4.5 0.2 372.8
Capital expenditures 12.8 0.1 3.2 -- 0.6 -- 16.7
1999
Mining revenue 97.0 73.5 26.6 4.6 6.5 5.9 $ 214.1
Interest income 0.3 0.8 0.1 -- 0.1 0.2 1.5
Interest expense 5.7 3.2 1.1 -- -- -- 10.0
Depreciation, depletion and
amortization 38.0 33.9 5.9 -- -- -- 77.8
Writedown of mineral properties 72.9 -- 10.1 -- -- 16.5 99.5
Segment profit (loss)(a) (88.8) 1.2 (16.5) 12.1 3.6 (21.4) (109.8)
Segment assets 258.3 147.6 40.5 3.4 7.8 6.3 463.9
Capital expenditures 7.8 1.1 8.0 -- -- -- 16.9
1998
Mining revenue 117.2 72.7 25.5 17.0 10.0 25.7 $ 268.1
Interest income -- 0.3 0.1 -- 0.1 1.1 1.6
Interest expense 15.7 5.0 1.7 -- 1.0 -- 23.4
Depreciation, depletion and
amortization 56.2 26.6 8.3 -- -- -- 91.1
Writedown of mineral properties 140.3 -- 53.1 -- -- -- 193.4
Segment profit (loss)(a) (162.4) 4.5 (63.0) 2.1 9.8 18.7 (190.3)
Segment assets 335.5 199.4 45.1 6.9 8.9 6.2 602.0
Capital expenditures 12.4 7.8 2.4 -- -- -- 22.6
(a) Segment profit (loss) includes writedown of mineral properties
48
49
RECONCILIATION OF REPORTABLE OPERATING SEGMENT LOSS TO NET LOSS FOR THE YEAR:
2000 1999 1998
--------- --------- ---------
Segment loss $ (48.4) $ (88.4) $ (209.0)
Add (deduct) items not included in segment loss:
Corporate and other (0.7) (21.4) 18.7
--------- --------- ---------
Loss before income taxes (49.1) (109.8) (190.3)
Income tax expense (4.1) (2.9) (0.5)
Extraordinary item - loss on early extinguishment of debt -- -- (11.5)
Dividends on convertible preferred stock (6.9) (6.9) (6.9)
--------- --------- ---------
Net loss for the year $ (60.1) $ (119.6) $ (209.2)
========= ========= =========
ENTERPRISE-WIDE DISCLOSURE:
Geographic information:
PROPERTY, PLANT
REVENUE AND EQUIPMENT
----------------------------------------- -------------------------
2000 1999 1998 2000 1999
--------- --------- --------- --------- ---------
Russia $ 68.4 $ 73.5 $ 72.7 $ 50.2 $ 79.3
Chile 29.9 33.1 35.5 -- 25.7
--------- --------- --------- --------- ---------
Total foreign 98.3 106.6 108.2 50.2 105.0
United States 112.5 107.5 159.9 216.5 246.0
--------- --------- --------- --------- ---------
Total $ 210.8 $ 214.1 $ 268.1 $ 266.7 $ 351.0
========= ========= ========= ========= =========
13. CONTINGENCIES AND RELATED COMMITMENTS
The Company is subject to the considerations and risks of operating in Russia as
a result of its 54.7% ownership of the Kubaka mine located in eastern Russia.
The economy of the Russian Federation continues to display characteristics of an
emerging market. These characteristics include, but are not limited to, the
existence of a currency that is not freely convertible outside of the country,
extensive currency controls and high inflation. The prospects for future
economic stability in the Russian Federation are largely dependent upon the
effectiveness of economic measures undertaken by the government, together with
legal, regulatory, and political developments. Russian tax legislation is
subject to varying interpretations and frequent changes. Further, the
interpretation of tax legislation by tax authorities as applied to the
transactions and activities of the Company may not coincide with that of
management. As a result, transactions may be challenged by tax authorities and
the Company may be assessed additional taxes, penalties and interest, which can
be significant. The fiscal periods remain open to review for three years by the
tax and customs authorities with respect to tax liabilities.
The Company's 50% owned Chilean contractual mining company CMM has entered into
arbitration proceedings in Chile with the contractor that designed and built the
mine. CMM contends that the contractor was negligent in both the design and the
construction of the facility, and should be held responsible for the cost of
repairs as well as lost profits. As part of the same proceedings, the contractor
is seeking to recover costs that they allegedly incurred while building the mine
and which, they claim, were outside their scope of work and responsibility.
Although the outcome of the arbitration proceedings cannot be determined at the
current time, management is of the opinion that the outcome will not materially
affect the financial position, results of operations or cash flows of the
Company.
49
50
The Company is also involved in legal proceedings and claims which arise in the
ordinary course of its business. The Company believes these claims are without
merit and is vigorously defending them. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially affect
the financial position, results of operations or cash flows of the Company.
14. SUBSEQUENT EVENT
On December 31, 2000, the Board of Directors gave approval for the Company to
enter into an agreement with Kinross Gold U.S.A. Inc. to acquire all of the
outstanding common shares of La Teko Resources Inc., a wholly owned subsidiary
of Kinross. Consideration will be common shares of Kinam Gold Inc. with the
effective date of the transaction to be January 1, 2001. Since this is a related
party transaction which did not result in a substantive change in ownership,
this transaction will be recorded at the carrying value of La Teko's assets
which was approximately $36.0 million at December 31, 2000. The assets of La
Teko include the Ryan Lode project, which is in the advanced exploration stage
and 35% of the True North project which is scheduled to commence production in
early 2001. It is anticipated that ore from the True North project will be
processed through the Fort Knox mill.
ITEM 8(a) SUPPLEMENTARY FINANCIAL DATA
1. QUARTERLY DATA (UNAUDITED)
Quarterly data for the years ended December 31, 2000 and 1999 are as
follows:
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- --------- ---------
2000 QUARTERS
Revenue $ 55.9 $ 48.7 $ 44.7 $ 61.5 $ 210.8
Income (loss) from operations (4.1) (3.4) (1.4) (41.0) (49.9)
Net loss (6.5) (6.7) (5.0) (35.0) (53.2)
Loss attributable to common shares (8.2) (8.4) (6.7) (36.8) (60.1)
Per common share:
Basic and fully diluted $ (0.09) $ (0.09) $ (0.07) $ (0.40) $ (0.65)
1999 QUARTERS
Revenue $ 57.7 $ 53.9 $ 45.8 $ 56.7 $ 214.1
Income (loss) from operations 0.5 (1.0) (3.1) (103.9) (107.5)
Net loss (1.8) (4.2) (7.2) (99.5) (112.7)
Loss attributable to common shares (3.5) (5.9) (8.9) (101.3) (119.6)
Per common share:
Basic and fully diluted $ (0.04) $ (0.06) $ (0.10) $ (1.10) $ (1.30)
Fourth quarter 2000 results included a $26.7 million pre-tax charge due to the
writedown of the Refugio mine, a $2.9 million pre-tax charge due to the
writedown of the Hayden Hill mine, a $2.1 million pre-tax charge due to the
writedown of the Guanaco mine and a $6.0 million pre-tax charge due to the
writedown of other non-core assets.
Fourth quarter 1999 results included a $72.9 million pre-tax charge due to the
writedown of the Fort Knox mine, a $10.1 million pre-tax due to the writedown of
the Refugio mine and a $16.5 million pre-tax charge due to the writedown of the
Haile property.
50
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2. RESERVE DATA (UNAUDITED)
The following tables present reserve data for each of its properties:
Kinam Gold Inc. share at December 31, 2000
PROVEN AND PROBABLE RESERVES
PROVEN PROBABLE TOTAL
-------------------------------- ------------------------------- -----------------------------
KINAM TONS GRADE CONTAINED TONS GRADE CONTAINED TONS GRADE CONTAINED
PROPERTY SHARE (%) (000) (OPT) OUNCES (000) (000) (OPT) OUNCES (000) (000) (OPT) OUNCES
- --------- --------- ------- ----- ------------ ----- ----- ------------ ------- ----- ---------
Gold
Producing mines
Fort Knox 100.0% 115,560 0.023 2,678 7,579 0.023 172 123,139 0.023 2,850
Kubaka 54.7% 864 0.317 274 549 0.457 251 1,413 0.372 525
Refugio 50.0% 16,477 0.028 459 17,716 0.027 480 34,193 0.027 939
True North 65.0% -- -- -- 7,968 0.050 397 7,968 0.050 397
------- ----- ----- ----- ----- --- ------- ----- -----
132,901 0.026 3,411 33,812 0.038 1,300 166,713 0.028 4,711
------- ----- ----- ----- ----- --- ------- ----- -----
Silver
Kubaka 54.7% 864 0.396 342 549 0.470 258 1,413 0.425 600
RESERVE NOTES
1. RESERVES. That part of a mineral deposit that could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves have been calculated by competent persons using a $300 per ounce
gold price at all properties.
PROVEN RESERVES. Reserves for which (a) 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 (b)
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. 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.
These definitions comply with definitions used in the Society for Mining,
Metallurgy and Exploration Inc.'s Guide for Reporting Exploration
Information, Mineral Resources and Mineral Reserves dated March 1, 1999.
2. Reserves are based on an assumed long-term price per ounce of US $300 for
gold and US $5.00 for silver.
3. Each property has a unique cutoff grade(s) that is calculated using
industry standard practices.
4. The impact of a $25/oz. reduction in the long-term gold price to $275/oz.
would result in an estimated 12% decrease in reserve gold ounces.
Alternately, the impact of a $25/oz. rise in the long-term gold price to
$325/oz. results in an estimated 8% increase in reserve gold ounces.
51
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3. VALUATION AND QUALIFYING ACCOUNTS
Site restoration costs: Estimated costs of site restoration are expensed and
accrued over the estimated life of each property on a unit of production basis.
Details of the site restoration accrual are as follows:
Balance Writedown of Balance
December 31, Annual property plant Cash December 31,
1999 expense and equipment expenditures 2000
------------ ------- -------------- ------------ ------------
Site restoration cost accruals $ 30.8 $ 2.4 $ 5.4 $ (5.0) $ 33.6
======= ====== ====== ====== =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEMS 10, 11, 12 AND 13
These items are incorporated by reference to the Company's definitive
information statement relating to the Company's annual meeting of shareholders
to be held during 2001. The definitive information statement will be filed with
the Commission not later than 120 days after December 31, 2000, pursuant to
Regulation 14C of the Securities Exchange Act of 1934, as amended.
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 Management 26
Independent Auditors Report - Deloitte & Touche LLP 27
Report of Independent Accountants - PricewaterhouseCoopers 28
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 2000 29
Consolidated Balance Sheets at December 31, 2000 and 1999 30
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2000 31
Consolidated Statements of Shareholders' Equity for each of the three years in the period
ended December 31, 2000 32
Notes to Consolidated Financial Statements 33 - 47
2. Financial Statement Schedules
Financial statement schedules are not included in this Annual Report on Form 10-K because
they are not applicable.
52
53
3. Exhibits
3.1 Certificate of Incorporation, dated April 13, 1995, and filed with the Secretary of State of
the State of Delaware on April 26, 1995, filed as Appendix F to the Company's Proxy Statement
for the 1995 Annual Meeting of Stockholders, dated April 27, 1995, and incorporated herein by
this reference.
3.2 Certificate of Amendment to the Certificate of Incorporation, dated September 17, 1998, and
filed with the Secretary of State of the State of Delaware on September 18, 1998 filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and incorporated herein by reference.
3.3 By-Laws, filed as Exhibit 3(ii) to the Company's Registration Statement on Form 8-B filed June
21, 1995 and incorporated herein by this reference.
4.1 Certificate of Designations for the $2.25 Series A Convertible Preferred Stock, filed as
Exhibit 4.1 to the Company's Registration Statement on Form 8-B filed June 21, 1995 and
incorporated herein by reference.
4.2 Certificate of Designations for the $3.75 Series B Convertible Preferred Stock, filed as
Exhibit 4.2 to the Company's Form 8-B filed June 21, 1995 and incorporated herein by
reference.
4.3 Certificate of Amendment of Certificate of Designations of $3.75 Series B Convertible
Preferred Stock, filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference.
10.1 The Company's 1992 Stock Option Plan, filed as Exhibit A to the Company's Proxy Statement for
the 1993 Annual Meeting of Stockholders and incorporated herein by reference. First Amendment
to the Kinam Gold Inc. 1992 Stock Option Plan, filed as Exhibit (10)(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by
reference.
10.2 Loan Agreement, dated as of May 1, 1997, between Alaska Development Export Authority and
Fairbanks Gold Mining, Inc.; Reimbursement Agreement, dated as of May 1, 1997, between
Fairbanks Gold Mining, Inc. And Union Bank of Switzerland, New York Branch; Guaranty, dated
May 22, 1997, of Cyprus Amax in favor of Union Bank of Switzerland, New York Branch; and
Reimbursement Agreement, dated May 22, 1997, of the Company in favor of Cyprus Amax, filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, and incorporated herein by reference.
10.3 Finance Agreement, dated as of June 30, 1995, between Omolon and Overseas Private Investment
Corporation ("OPIC"); First Amendment to Finance Agreement, dated as of April 22, 1996,
between Omolon Gold Mining Company and OPIC, amending the Finance Agreement dated June 30,
1995 between Omolon and OPIC; and Second Amendment to Finance Agreement, dated as of January
28, 1997, between Omolon and OPIC, amending the Finance Agreement dated June 30, 1995 between
Omolon and OPIC, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated herein by reference.
10.4 Loan Agreement, dated as of June 30, 1995, between Omolon and European Bank for Reconstruction
and Development ("EBRD"); Amendment Agreement to Loan Agreement, dated November 7, 1995,
between Omolon and EBRD, amending the Loan Agreement dated June 30, 1995 between Omolon and
EBRD; Second Amendment Agreement to Loan Agreement, dated April 22, 1996, between Omolon and
EBRD, amending the Loan Agreement dated June 30, 1995 between Omolon and EBRD; and Third
Amendment to Loan Agreement, dated November 20, 1996, between Omolon and EBRD, amending the
Loan Agreement dated as of June 30, 1995 between Omolon and EBRD, filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference.
10.5 Loan Agreement, dated as of November 29, 1996, between Omolon and ABN Amro Bank (Moscow) Ltd.;
and Guaranty and Indemnity Agreement, dated as of November 26, 1996, by Cyprus Amax in favor
of ABN Amro Bank NV, filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by reference.
10.6 Merger Agreement among Kinross Gold Corporation, Kinross Merger Corporation, and Kinam Gold
Inc., dated February 9, 1998. Filed as Exhibit 10.25 to the Company A.R. 10-K, etc. 1998.
Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998 and incorporated herein by reference.
10.7 Stockholder Agreement dated as of February 9, 1998, among Kinross Gold Corporation, Kinross
Merger Corporation, Cyprus Amax Minerals Company and each of the other persons identified on
Exhibit A. Filed as
53
54
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and incorporated herein by reference.
10.8 Agreement for sale of stock among Piedmont Mining Company, Inc., seller, Kershaw Gold Company
Inc., company, and Lancaster Mining Company, Inc., buyer, dated as of March 1, 1999. Filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference.
10.9* Credit Agreement, dated as of March 8, 2000 between The Bank of Nova Scotia as Administrative
Agent, and the Bank of Nova Scotia and other financial institutions as Lenders, and Kinross
Gold Corporation, Kinross Gold U.S.A., Inc. and Fairbanks Gold Mining, Inc. as Borrowers;
First Amending Agreement to Credit Agreement dated March 8, 2000 amending the Credit Agreement
dated March 8, 2000 between The Bank of Nova Scotia as Administrative Agent, and the Bank of
Nova Scotia and other financial institutions as Lenders, and Kinross Gold Corporation, Kinross
Gold U.S.A., Inc. and Fairbanks Gold Mining, Inc. as Borrowers; and Second Amending Agreement
dated February 7, 2001 amending the Credit Agreement dated March 8, 2000 between The Bank of
Nova Scotia as Administrative Agent, and the Bank of Nova Scotia and other financial
institutions as Lenders, and Kinross Gold Corporation, Kinross Gold U.S.A., Inc. and Fairbanks
Gold Mining, Inc. as Borrowers.
21 Subsidiaries of the Company. Filed as Exhibit 21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated herein by reference.
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of PricewaterhouseCoopers*
*Filed herewith
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 2000.
54
55
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.
KINAM GOLD INC.
Date: March 28, 2001 By /s/ Arthur H. Ditto
-----------------------------------
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 indicated on March 29, 2000.
/s/ Arthur H. Ditto President
- --------------------------------------
Arthur H. Ditto
/s/ John W. Ivany Vice President
- --------------------------------------
John W. Ivany
/s/ Robert W. Schafer Vice President
- --------------------------------------
Robert W. Schafer
/s/ Brian W. Penny Treasurer
- --------------------------------------
Brian W. Penny
/s/ Shelley M. Riley Secretary
- --------------------------------------
Shelley M. Riley
/s/ John A. Brough Director
- --------------------------------------
John A. Brough
/s/ John M.H. Huxley Director
- --------------------------------------
John M.H. Huxley
/s/ John W. Ivany Vice President
- --------------------------------------
John W. Ivany
/s/ Cam Mingay Director
- --------------------------------------
Cam Mingay
55
56
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation, dated April 13, 1995, and filed with the Secretary of State of
the State of Delaware on April 26, 1995, filed as Appendix F to the Company's Proxy Statement
for the 1995 Annual Meeting of Stockholders, dated April 27, 1995, and incorporated herein by
this reference.
3.2 Certificate of Amendment to the Certificate of Incorporation, dated September 17, 1998, and
filed with the Secretary of State of the State of Delaware on September 18, 1998 filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and incorporated herein by reference.
3.3 By-Laws, filed as Exhibit 3(ii) to the Company's Registration Statement on Form 8-B filed June
21, 1995 and incorporated herein by this reference.
4.1 Certificate of Designations for the $2.25 Series A Convertible Preferred Stock, filed as
Exhibit 4.1 to the Company's Registration Statement on Form 8-B filed June 21, 1995 and
incorporated herein by reference.
4.2 Certificate of Designations for the $3.75 Series B Convertible Preferred Stock, filed as
Exhibit 4.2 to the Company's Form 8-B filed June 21, 1995 and incorporated herein by
reference.
4.3 Certificate of Amendment of Certificate of Designations of $3.75 Series B Convertible
Preferred Stock, filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by reference.
10.1 The Company's 1992 Stock Option Plan, filed as Exhibit A to the Company's Proxy Statement for
the 1993 Annual Meeting of Stockholders and incorporated herein by reference. First Amendment
to the Kinam Gold Inc. 1992 Stock Option Plan, filed as Exhibit (10)(c) to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by
reference.
10.2 Loan Agreement, dated as of May 1, 1997, between Alaska Development Export Authority and
Fairbanks Gold Mining, Inc.; Reimbursement Agreement, dated as of May 1, 1997, between
Fairbanks Gold Mining, Inc. And Union Bank of Switzerland, New York Branch; Guaranty, dated
May 22, 1997, of Cyprus Amax in favor of Union Bank of Switzerland, New York Branch; and
Reimbursement Agreement, dated May 22, 1997, of the Company in favor of Cyprus Amax, filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, and incorporated herein by reference.
10.3 Finance Agreement, dated as of June 30, 1995, between Omolon and Overseas Private Investment
Corporation ("OPIC"); First Amendment to Finance Agreement, dated as of April 22, 1996,
between Omolon Gold Mining Company and OPIC, amending the Finance Agreement dated June 30,
1995 between Omolon and OPIC; and Second Amendment to Finance Agreement, dated as of January
28, 1997, between Omolon and OPIC, amending the Finance Agreement dated June 30, 1995 between
Omolon and OPIC, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated herein by reference.
10.4 Loan Agreement, dated as of June 30, 1995, between Omolon and European Bank for Reconstruction
and Development ("EBRD"); Amendment Agreement to Loan Agreement, dated November 7, 1995,
between Omolon and EBRD, amending the Loan Agreement dated June 30, 1995 between Omolon and
EBRD; Second Amendment Agreement to Loan Agreement, dated April 22, 1996, between Omolon and
EBRD, amending the Loan Agreement dated June 30, 1995 between Omolon and EBRD; and Third
Amendment to Loan Agreement, dated November 20, 1996, between Omolon and EBRD, amending the
Loan Agreement dated as of June 30, 1995 between Omolon and EBRD, filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference.
10.5 Loan Agreement, dated as of November 29, 1996, between Omolon and ABN Amro Bank (Moscow) Ltd.;
and Guaranty and Indemnity Agreement, dated as of November 26, 1996, by Cyprus Amax in favor
of ABN Amro Bank NV, filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, and incorporated herein by reference.
10.6 Merger Agreement among Kinross Gold Corporation, Kinross Merger Corporation, and Kinam Gold
Inc., dated February 9, 1998. Filed as Exhibit 10.25 to the Company A.R. 10-K, etc. 1998.
Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998 and incorporated herein by reference.
10.7 Stockholder Agreement dated as of February 9, 1998, among Kinross Gold Corporation, Kinross
Merger Corporation, Cyprus Amax Minerals Company and each of the other persons identified on
Exhibit A. Filed as
57
EXHIBIT
NUMBER DESCRIPTION
------- -----------
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and incorporated herein by reference.
10.8 Agreement for sale of stock among Piedmont Mining Company, Inc., seller, Kershaw Gold Company
Inc., company, and Lancaster Mining Company, Inc., buyer, dated as of March 1, 1999. Filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999
and incorporated herein by reference.
10.9* Credit Agreement, dated as of March 8, 2000 between The Bank of Nova Scotia as Administrative
Agent, and the Bank of Nova Scotia and other financial institutions as Lenders, and Kinross
Gold Corporation, Kinross Gold U.S.A., Inc. and Fairbanks Gold Mining, Inc. as Borrowers;
First Amending Agreement to Credit Agreement dated March 8, 2000 amending the Credit Agreement
dated March 8, 2000 between The Bank of Nova Scotia as Administrative Agent, and the Bank of
Nova Scotia and other financial institutions as Lenders, and Kinross Gold Corporation, Kinross
Gold U.S.A., Inc. and Fairbanks Gold Mining, Inc. as Borrowers; and Second Amending Agreement
dated February 7, 2001 amending the Credit Agreement dated March 8, 2000 between The Bank of
Nova Scotia as Administrative Agent, and the Bank of Nova Scotia and other financial
institutions as Lenders, and Kinross Gold Corporation, Kinross Gold U.S.A., Inc. and Fairbanks
Gold Mining, Inc. as Borrowers.
21 Subsidiaries of the Company. Filed as Exhibit 21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated herein by reference.
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of PricewaterhouseCoopers*
*Filed herewith