1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to ___________
Commission file number 1-9620
KINAM GOLD INC.
(Formerly Amax Gold Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 06-1199974
- - ---------------------------------------------------- ----------------------------------------------
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
185 SOUTH STATE STREET, SUITE 820, SALT LAKE CITY, UTAH 84111
- - ----------------------------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 363-9152
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Common Stock Outstanding, $0.01 par value, as of November 6, 1998 - 92,213,928
shares
Total Pages -
Exhibit Index Located on Page
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
- - -------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- - -------------------------------------------------------------------------------------------------------------------
Revenues $ 54.2 $ 79.6 $ 191.4 $ 191.3
Costs and expenses:
Cost of sales 29.3 46.6 112.3 115.0
Depreciation and depletion 17.5 27.9 66.0 64.4
General and administrative (0.3) 1.8 0.1 5.7
Exploration 0.4 0.8 3.2 3.1
- - -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 46.9 77.1 181.6 188.2
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 7.3 2.5 9.8 3.1
Interest expense (1.8) (11.4) (20.9) (31.1)
Capitalized interest -- -- -- 4.2
Interest income 0.3 0.5 0.8 1.4
Other -- (0.8) 5.4 (2.0)
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense and cumulative
effect of accounting change and extraordinary item 5.8 (9.2) (4.9) (24.4)
Income tax expense -- (0.1) -- (0.2)
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting
change and extraordinary item 5.8 (9.3) (4.9) (24.6)
Cumulative effect of accounting change -- -- -- 4.5
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 5.8 (9.3) (4.9) (20.1)
Extraordinary item - loss on early extinguishment
of debt -- -- (11.5) --
- - -------------------------------------------------------------------------------------------------------------------
Net Income (loss) 5.8 (9.3) (16.4) (20.1)
Preferred stock dividends (1.7) (1.7) (5.1) (5.1)
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) attributable to common shares $ 4.1 $ (11.0) $ (21.5) $ (25.2)
===================================================================================================================
Per common share:
Income (loss) before cumulative effect of accounting
change and extraordinary item $ .04 $ (.10) $ (0.9) $ (.28)
Cumulative effect of accounting change -- -- -- .04
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item .04 (.10) (0.9) (.24)
Extraordinary item - loss on early extinguishment
of debt -- -- (.11) --
- - -------------------------------------------------------------------------------------------------------------------
Income (loss) per common share $ .04 $ (.10) $ (.20) $ (.24)
===================================================================================================================
Weighted average common shares outstanding 92.2 114.8 104.9 106.0
===================================================================================================================
The accompanying notes are an integral part of these statements.
3
KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
CONSOLIDATED BALANCE SHEET
(Dollars in millions except share amounts)
September 30,
1998 December 31,
(Unaudited) 1997
- - ------------------------------------------------------------------------------------------------------------
ASSETS
Cash and equivalents $ 20.7 $ 16.0
Restricted cash 3.5 3.5
Inventories 58.0 57.1
Receivables 27.7 32.9
Other 2.4 20.2
- - ----------------------------------------------------------------------------------------------------------
Current assets 112.3 129.7
Property, plant and equipment, net 682.3 723.3
Other 15.6 17.6
- - ----------------------------------------------------------------------------------------------------------
Total assets $ 810.2 $ 870.6
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand loan from parent $ 90.3 $ 73.3
Current maturities of long-term debt 26.2 81.4
Accounts payable, trade 11.6 24.2
Accrued and other current liabilities 19.7 39.1
Reclamation reserve, current portion 6.8 8.0
- - ----------------------------------------------------------------------------------------------------------
Current liabilities 154.6 226.0
Advance from parent 200.1 --
Long-term debt 130.8 345.7
Reclamation reserve, noncurrent portion 23.3 13.8
Other 41.5 11.3
- - ----------------------------------------------------------------------------------------------------------
Total liabilities 550.3 596.8
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, of which 1,840,000 shares have been
designated as $3.75 Series B Convertible Preferred Stock,
issued and outstanding 1,840,000 shares 1.8 1.8
Common stock, par value $.01 per share, authorized
200,000,000 shares, issued and outstanding 92,213,928
shares in 1998 and 114,850,103 shares in 1997 0.9 1.1
Paid-in capital 409.4 408.6
Accumulated deficit (152.2) (130.8)
Unearned equity-financing costs -- (6.9)
- - ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 259.9 273.8
- - ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 810.2 $ 870.6
==========================================================================================================
The accompanying notes are an integral part of these statements.
4
KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine Months Ended
September 30,
- - ------------------------------------------------------------------------------------------
1998 1997
- - ------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (16.4) $ (20.1)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and depletion 66.0 64.4
Cumulative effect of accounting change -- (4.5)
Extraordinary item - loss on early extinguishment of debt 11.5 --
Increase in reclamation reserves 9.5 1.0
Loss on sale of assets 0.2 --
(Increase) decrease in working capital items (27.5) (1.3)
Other (1.5) 1.7
- - ------------------------------------------------------------------------------------------
Net cash provided by operating activities 41.8 41.2
- - ------------------------------------------------------------------------------------------
Investing Activities:
Capital expenditures (12.0) (24.7)
Proceeds from sale of assets 2.0 --
Capitalized interest -- (4.2)
- - ------------------------------------------------------------------------------------------
Net cash used by investing activities (10.0) (28.9)
- - ------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from financings 272.8 102.8
Repayments of financings (325.8) (108.7)
Proceeds from liquidation of Hedge Position 45.9
Deferred financing costs (0.1) (2.4)
Issuance of common stock -- --
Merger costs (14.8) --
Cash acquired in connection with
purchase of Kubaka investment -- 7.0
Cash dividends paid (5.1) (5.1)
- - ------------------------------------------------------------------------------------------
Net cash (used by) provided by financing activities (27.1) (6.4)
- - ------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 4.7 5.9
Cash and equivalents at January 1 19.5 11.1
- - ------------------------------------------------------------------------------------------
Cash and equivalents at September 30 $ 24.2 $ 17.0
==========================================================================================
Non-cash Transaction:
Issuance of common stock for purchase of
Kubaka investment, net of cash acquired:
Working capital, other than cash $ -- $ (10.3)
Property, plant and equipment -- (114.2)
Debt -- 79.5
- - ------------------------------------------------------------------------------------------
$ -- $ (45.0)
==========================================================================================
The accompanying notes are an integral part of these statements.
5
KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
On September 18, 1998, Amax Gold Inc. adopted an amendment to change its name to
Kinam Gold Inc. (the Company).
The accompanying interim unaudited consolidated financial statements include all
adjustments that are, in the opinion of management, necessary for a fair
presentation. Results for any interim period are not necessarily indicative of
the results that may be achieved in future periods. The financial information as
of this interim date should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. The accounting policies of the Company have been
applied consistent with those of prior periods, but differ in certain respects
from those of its parent corporation. For additional information regarding the
different accounting policies, refer to the Information Statement/Prospectus of
the Company dated April 23, 1998 and filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
On June 1, 1998, the Company completed a merger agreement with Kinross Gold
Corporation (Kinross) providing for a combination of their businesses. In the
merger, each outstanding share of the Company's Common Stock (the Common Stock)
was converted into 0.8004 of a share of Kinross Common Stock. Kinross Merger
Corporation, a wholly-owned subsidiary of Kinross (Kinross Merger), 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
92,213,928 shares of the Company's Common Stock, representing all of the issued
and outstanding common shares. Kinross subsequently transferred ownership of
such shares of 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). For additional information regarding the merger, refer to
an Information Statement/Prospectus dated April 23, 1998 filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.
2. CHANGE IN ACCOUNTING POLICIES
As of January 1, 1997, the Company changed its accounting policy to include
depreciation and depletion in inventory, which has the effect of recording
depreciation and depletion expense in the statement of operations as gold is
sold rather than as it is produced. The cumulative effect of this accounting
change was a $4.5 million reduction of the net loss as of January 1, 1997. This
accounting change was made in order to better match current costs with revenues
and to conform with prevailing gold industry practice.
3. INVENTORIES
Inventories consist of the following (in millions):
September 30, December 31,
1998 1997
- - ------------------------------------------------------------------------------------------------------
Gold:
Finished goods $ 27.3 $ 23.3
Work-in-process 2.8 3.6
Materials and supplies 27.9 30.2
- - ------------------------------------------------------------------------------------------------------
$ 58.0 $ 57.1
======================================================================================================
6
4. LONG-TERM DEBT
In connection with the merger with Kinross, the Company's outstanding $90.3
million demand loan with Cyprus Amax was transferred to Kinross U.S.A. During
June 1998, Kinross U.S.A. advanced the Company approximately $255.8 million
which was used to repay outstanding debt. Approximately $55.7 million of net
advances have been repaid. There is no interest charged to the Company by
Kinross U.S.A. on the demand loan or outstanding advances. As a result of the
early repayment of debt, the Company realized an extraordinary charge of $11.5
million related to writing off unamortized financing costs.
5. HEDGE CONTRACTS
Forward sales contracts, generally on a spot deferred basis, put option
contracts and compound options are entered into from time to time to protect the
Company from the effect of price changes on precious metals sales.
During July 1998, the Company liquidated its hedge position and received
approximately $45.9 million in cash. In connection with the transaction the
Company recognized a gain of $41.7 million, net of costs previously incurred.
The gain is being included in revenue over the period the underlying hedge
contracts were originally scheduled to expire.
During the third quarter of 1998, the Company's realized price was $390 per
ounce on 138,967 ounces of gold, compared with an average spot price of $289 per
ounce.
6. COMMITMENTS AND CONTINGENCIES
Reclamation, site restoration and closure costs are accrued on a
units-of-production basis using estimates based upon current federal, state and
applicable foreign laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and generally
becoming more restrictive. Any changes in these laws and regulations could
impact future estimated reclamation costs. Total reclamation costs for the
Company at the end of current operating mine lives are estimated to be
approximately $49.5 million.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operation, including
gold production, production costs, ounces of gold sold and average realized
prices, for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
- - ------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------------
GOLD PRODUCTION (OUNCES)(1)
Fort Knox 81,866 101,630 275,606 225,685
Kubaka 60,335 52,737 181,235 70,168
Refugio 13,132 9,788 56,388 54,093
Guanaco 3,242 21,803 22,934 79,690
Hayden Hill 9,194 31,823 34,424 83,870
- - ------------------------------------------------------------------------------------------------------------------
TOTAL GOLD PRODUCTION 167,769 217,781 571,089 513,506
- - ------------------------------------------------------------------------------------------------------------------
CASH OPERATING COSTS ($ PER OUNCE OF GOLD PRODUCED)(2)
Fort Knox $ 205 $ 162 $ 180 168
Kubaka 109 160 135 154
Refugio 419 543 321 321
Guanaco 296 191 145 214
Hayden Hill 82 157 94 188
- - ------------------------------------------------------------------------------------------------------------------
AVERAGE CASH OPERATING COSTS $ 182 $ 181 $ 173 $ 192
- - ------------------------------------------------------------------------------------------------------------------
TOTAL CASH COSTS ($ PER OUNCE OF GOLD PRODUCED)(2)
Fort Knox $ 205 $ 162 $ 180 $ 168
Kubaka 155 182 168 177
Refugio 431 558 338 338
Guanaco 317 206 156 227
Hayden Hill 100 165 108 196
- - ------------------------------------------------------------------------------------------------------------------
AVERAGE TOTAL CASH COSTS $ 204 $ 190 $ 187 $ 201
- - ------------------------------------------------------------------------------------------------------------------
TOTAL PRODUCTION COSTS ($ PER OUNCE OF GOLD PRODUCED)(2)
Fort Knox $ 358 $ 334 $ 335 $ 340
Kubaka 271 282 280 277
Refugio 565 658 457 434
Guanaco 317 320 156 358
Hayden Hill 267 242 293 289
- - ------------------------------------------------------------------------------------------------------------------
AVERAGE TOTAL PRODUCTION COSTS $ 340 $ 321 $ 320 $ 336
==================================================================================================================
OUNCES OF GOLD SOLD 138,967 224,314 563,203 519,363
AVERAGE PRICE PER OUNCE SOLD $ 390 $ 355 $ 340 $ 368
==================================================================================================================
(1)Commercial production commenced at Kubaka on June 1, 1997, and at Fort Knox
on March 1, 1997. Mining at Guanaco was completed during the second quarter
of 1997, and mining at Hayden Hill was completed in the fourth quarter of
1997, with residual leaching at both mines continuing during 1998.
(2)Cash operating costs at the mine sites include overhead, net of credits for
silver by-products. Total cash costs include cash operating costs plus
royalties and applicable production taxes. Total production costs include
total cash costs plus reclamation and depreciation and depletion.
8
RESULTS OF OPERATIONS
Kinam Gold Inc. reported third quarter 1998 income of $4.1 million after
preferred stock dividends, or $.04 per share, on revenue of $54.2 million,
compared with a third quarter 1997 loss of $11.0 million including preferred
stock dividends, or $.10 per share, on revenue of $79.6 million.
For the first nine months of 1998, the Company had a loss of $21.5 million, or
$.20 per share, on revenue of $191.4 million, compared with a loss of $25.2
million, or $.24 per share, on revenue of $191.3 million, for the same period of
1997. Results for the first nine months of 1998 included an extraordinary loss
of $11.5 million, or $.11 per share, related to writing off unamortized
financing costs on the early extinguishment of debt repaid in connection with
the Kinross merger. Excluding the extraordinary item, the loss for the first
nine months of 1998 was $10.0 million, or $.09 per share. Excluding the $4.5
million cumulative effect of a 1997 first quarter inventory accounting change,
the Company's loss for the first nine months of 1997 was $29.7 million, or $.28
per share. The reduced loss in 1998, excluding special items, primarily resulted
from selling a portion of the Company's foreign tax losses to Cyprus Amax,
reductions in net general and administrative expense, decreased interest expense
and an improvement in operating costs, partially offset by a reduction in
realized gold price and reduction of capitalized interest.
Operating income was $9.8 million for the first nine months of 1998, compared
with $3.1 million for the first nine months of 1997. The increase in operating
income occurred primarily a result of a 11% increase in production coupled with
a 7% decrease in unit operating costs. The improvements in operating costs and
production during the first nine months of 1998 were offset by a decrease in
average gold price realized.
Kinam Gold's average realized price for the third quarter and the first nine
months of 1998 was $390 per ounce and $340 per ounce, respectively, compared
with $355 per ounce and $368 per ounce, respectively, for the comparable 1997
periods. Gold ounces sold during 1998 increased significantly over 1997 as a
result of full production at Fort Knox and Kubaka during the first nine months
of 1998, compared to partial production during the first nine months of 1997,
when both mines achieved commercial production.
Gold production was 167,769 ounces for the third quarter of 1998, compared to
217,781 ounces in the third quarter of 1997. Gold production at Kubaka increased
to 60,335 ounces in the third quarter of 1998, compared to 52,737 ounces in the
third quarter of 1997. Kubaka started commercial production on June 1, 1997.
Production at Fort Knox decreased to 81,866 ounces in the third quarter of 1998
from 101,630 ounces in the third quarter of 1997, primarily as a result of an
expected decline in grade. Fort Knox began commercial production on March 1,
1997. Gold production at Refugio during the third quarter of 1998 increased to
13,132 in the third quarter of 1998, compared to 9,788 in the third quarter of
1997. During the winter quarter of 1997, unusually harsh weather conditions
resulted in the suspension of mining at Refugio for several weeks. Production is
expected to improve at Refugio during the remainder of 1998. Gold production at
Guanaco and Hayden Hill continue to decrease as expected as both mines continue
in residual leaching. Gold production at Guanaco and Hayden Hill is expected to
continue to decline through the remainder of 1998. Gold production in the first
nine months of 1998 increased to 571,089 ounces, compared to 513,506 ounces in
the first nine months of 1997 primarily as a result of a full nine months of
production at Fort Knox and Kubaka during 1998 partially offset by reduced
production at Guanaco and Hayden Hill as a result of residual leaching.
Consolidated average total cash costs for the third quarter of 1998 increased to
$204 per ounce from $190 per ounce in the third quarter of 1997. Total cash
costs at Fort Knox were $205 per ounce in the third quarter of 1998, compared to
$162 per ounce in the third quarter of 1997 as a result of lower grade ore.
Total cash costs at Refugio decreased 23% in the third quarter of 1998 to $431
from $558 in the third quarter of 1997 due to improved weather conditions. Cash
costs are expected to improve throughout the remainder of 1998. Total cash costs
for the third quarter of 1998 at Hayden Hill decreased significantly compared to
the third quarter of 1997 as a result of completing mining during 1997. Total
cash costs at Guanaco increased significantly as a result
9
of lower production due to the completion of mining during 1997. Total cash
costs at Kubaka decreased to $155 per ounce in the third quarter of 1998 from
$182 in the third quarter of 1997 as a result of increased mill throughput and
increased recovery rate offset by a slight decrease in grade. Total average cash
costs for the first nine months of 1998 were $187 per ounce compared with $201
per ounce during the first nine months of 1997, primarily as a result of lower
total cash costs at Kubaka and Refugio.
Depreciation and depletion decreased to $17.5 million during the third quarter
of 1998 from $27.9 million in the third quarter of 1997 primarily as a result of
lower production and the absence of depreciation and depletion in 1998 at
Guanaco and Hayden Hill. Both Guanaco and Hayden Hill completed mining in 1997.
Depreciation and depletion during the first nine months of 1998 was $66.0
million compared to $64.4 million in 1997.
Lower net general and administrative expenses for the third quarter and first
nine months of 1998, compared to 1997 are primarily attributed to offsetting
expenses with the management fee from Kubaka and the reduction of corporate
staff subsequent to the Kinross merger.
Third quarter 1998 exploration expense was $0.4 million, compared to $0.8
million in the third quarter of 1997. Exploration expense for the first nine
months of 1998 was $3.2 million, compared to $3.1 million for the first nine
months of 1997.
Interest expense was $1.8 million for the third quarter of 1998, compared to
$11.4 million in the third quarter of 1997. The Company paid off a substantial
portion of its debt in connection with the Kinross merger. In addition, the
Company is not being charged interest on advances from Kinross effective June 1,
1998. Interest expense for the first nine months of 1998 was $20.9 million,
compared to $31.1 million in the first six months of 1997 including $4.2 million
capitalized on construction projects completed in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Kinam Gold's cash flow from operations for the first nine months of 1998 was
$41.8 million, compared with $41.2 million for the comparable 1997 period. The
increased cash flow was primarily attributed to the additional production at
Fort Knox and Kubaka as well as lower total cash costs.
During April and May 1998, the Company borrowed an additional $17.0 million
under its demand loan facility with Cyprus Amax. In connection with the Kinross
merger, the Company's outstanding $90.3 million demand loan with Cyprus Amax was
transferred to Kinross U.S.A. During June 1998, Kinross advanced the Company
approximately $255.8 million which was used to pay down outstanding debt. There
is no interest charged to the Company by Kinross U.S.A. on the demand loan or
any outstanding advances.
In July 1998, the Company liquidated its hedge position and received
approximately $45.9 million in cash, which was used to reduce advances from
Kinross U.S.A.
Kinam Gold paid regular dividends of $2.8125 on the $3.75 Series B Convertible
Preferred Stock during the nine months of 1998.
Depending upon future gold prices, cash flow from operations for the remainder
of 1998 is expected to be sufficient to fund the Company's remaining cash needs,
including preferred dividends and the Company's share of scheduled third-party
debt service. Any excess cash generated will be used to reduce outstanding
advances.
10
YEAR 2000
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
the year 2000 is processed.
The Company is currently reviewing the implications of the Year 2000 Issue. All
financial systems are expected to be Year 2000 compliant by mid 1999. The review
of operating systems is focused on identifying a critical path which, if failed
would have a material adverse effect on the Company, its operations, employee
safety, or the environment.
To date, nothing may come to management's attention that would indicate that
operating systems in the critical path will not be Year 2000 compliant by the
end of 1999 or that the costs of compliance will be material. The Company will
be mailing a questionnaire to critical business partners during the 4th quarter
of 1998 to assess their year 2000 readiness.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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 mining, gold production, projected quantities of future gold
production, estimated reserves and recovery rates, anticipated production rates,
costs and expenditures, prices realized by the Company, expected future cash
flows, anticipated financing needs, growth plans and sources of financing and
repayment alternatives and the effect of possible business combinations. 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, cost overruns,
construction delays, 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 specifications
or expectations, labor relations, accidents, delays in anticipated start-up
dates, environmental risks, the results of financing efforts and financial
market conditions and other risk factors detailed in the Company's Securities
and Exchange Commission filings. Refer to the Risk Factors on pages 7 to 13 of
Amendment No. 1 to the Company's Registration Statement on Form S-3 (No.
333-22598) as filed with the Securities and Exchange Commission on March 26,
1997, for a more detailed discussion of risks. 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.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, a purported 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 Minerals Company, a
former majority stockholder of the Company (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.
On February 13, 1998, a purported class action was filed in the
Court of Chancery of Delaware by two Company stockholders entitled
Joseph Ratzerdorfer and Victoria Shaev, IRA v. Milton H. Ward, et
al., C.A. No. 16189-NC, against Cyprus Amax, the Company's
directors, and the Company as a nominal defendant. The complaint
alleges, among other things, that the defendants breached their
fiduciary duties of loyalty and due care in connection with Amax
Gold's entry into the Kinross merger agreement. The complaint
seeks, among other things, an order rescinding the transaction
and/or awarding damages in an unspecified amount. Amax Gold
believes that the complaint is without merit and intends to defend
the matter vigorously.
The Company has been named in a compliant filed in the United
States District Court for the District of South Carolina, Rock Hill
Division, by Kershaw Gold Company, Inc. (Kershaw), a subsidiary of
Piedmont Mining Company (Piedmont) that owns 37.5% of the Haile
project in which the Company is participating. The complaint
alleges that the Company tortiously interfered with the performance
by its subsidiaries, Lancaster Mining Company Inc. (Lancaster) and
Haile Mining Company (Haile), of their obligations under certain
agreements. The Company was awarded judgment notwithstanding the $9
million jury verdict in the case. The plaintiff has appealed the
decision to the U.S. Court of Appeals for the Fourth Circuit. The
litigation is part of the lawsuit filed originally in South
Carolina Circuit Court in March 1995 by Piedmont and Kershaw
against the Company, Lancaster and Haile, alleging breach of
contract, fraud and tortious interference with contract rights. In
response to motions filed by the defendants, all claims of Piedmont
and Kershaw were dismissed on the grounds that jurisdiction was to
be determined by arbitration, except the claim of Kershaw against
the Company described above. Piedmont and Lancaster have appealed
the April 1998 order of the South Carolina Circuit Court denying
their motion for reconsideration of dismissal of certain claims
against the Company and certain subsidiaries. The motion for
reconsideration is currently pending.
Pursuant to certain agreements among Piedmont, Kershaw and the
Company, Piedmont and Kershaw indemnified the Company from all
environmental and other liabilities arising from Piedmont's
operations or other conditions existing on the Haile property prior
to July 1, 1992. Following Piedmont's and Kershaw's continued
refusal to pay environmental costs that the Company believes were
covered by the indemnity, the Company submitted to arbitration its
claim for $1.4 million, the amount of such costs incurred through
August 1995. The Company prevailed in the matter and has received
the $1.4 million arbitration award, including accrued interest. In
November 1997, the Company submitted to arbitration its claim for
$1.7 million, the amount of
12
environmental costs from August 1995 through October 1997, which
the Company believes are covered by the indemnity and cash
contributions to property maintenance and operations which the
Company has made on behalf of Kershaw.
In September of 1998, the Company entered into an agreement with
Piedmont to purchase all of the outstanding shares of the capital stock of
Kershaw and settle all issues between the Company and Piedmont in consideration
of the Company paying Piedmont $2.0 million. The agreement is subject to
negotiation and execution of formal documentation and approval of the
shareholders of Piedmont.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
In connection with recent revisions to Rule 14a-8 and related rules
promulgated under the Securities Exchange Act of 1934, as amended, the Company
has elected to provide the following information regarding discretionary proxy
voting at the Company's 1999 annual meeting of shareholders (the "1999
Meeting"). If a shareholder desiring to advance a proposal for consideration at
the Company's 1999 Meeting fails to notify the Company of the proposal at least
45 days prior to the month and day of mailing the Company's proxy statement
relating to the 1998 annual meeting of shareholders, then management proxies
will be allowed to use their discretionary voting authority when the proposal is
raised at the 1999 meeting, without any discussion of the matter in the
Company's proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Exhibit
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KINAM GOLD INC.
By /s/Brian W. Penny
----------------------------------------
Vice President - Finance and
Chief Financial Officer
(principal accounting officer)
Dated: November 16, 1998