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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, 1999
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
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(Address of principal executive offices) (Zip Code)
Registrants' 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 12, 1999 - 92,213,928
shares
Total Pages -13
Exhibit Index Located on Page 11
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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,
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1999 1998 1999 1998
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Revenues $ 45.8 $ 54.2 $ 157.4 $ 191.4
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Costs and expenses:
Cost of sales 32.4 29.3 105.4 112.3
Depreciation and depletion 17.2 17.5 57.8 66.0
General and administrative (0.9) (0.3) (2.9) 0.1
Exploration 0.2 0.4 0.7 3.2
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Total costs and expenses 48.9 46.9 161.0 181.6
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Income (loss) from operations (3.1) 7.3 (3.6) 9.8
Interest expense (2.5) (1.8) (7.4) (20.9)
Interest income 0.6 0.3 1.1 0.8
Other (1.3) -- (1.3) 5.4
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Income (loss) before income tax expense and
extraordinary item (6.3) 5.8 (11.2) (4.9)
Income tax expense (0.9) -- (2.0) --
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Income (loss) before extraordinary item (7.2) 5.8 (13.2) (4.9)
Extraordinary item - loss on early extinguishment of debt -- -- (11.5)
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Net Income (loss) (7.2) 5.8 (13.2) (16.4)
Preferred stock dividends (1.7) (1.7) (5.1) (5.1)
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Income (loss) attributable to common shares $ (8.9) $ 4.1 $ (18.3) $ (21.5)
============================================================================================================================
Income (loss) before extraordinary item (.10) .04 (.20) (.09)
Extraordinary item - loss on early extinguishment of debt -- -- -- (.11)
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Income (loss) per common share $ (.10) $ .04 $ (.20) $ (.20)
============================================================================================================================
Weighted average common shares outstanding 92.2 92.2 92.2 104.9
============================================================================================================================
The accompanying notes are an integral part of these statements.
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KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
CONSOLIDATED BALANCE SHEET
(Dollars in millions except share amounts)
September 30, 1999 December 31,
(Unaudited) 1998
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ASSETS
Cash and equivalents $ 24.9 $ 18.5
Restricted cash -- 0.5
Inventories 48.7 52.5
Receivables 24.6 33.7
Other 2.1 2.0
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Current assets 100.3 107.2
Property, plant and equipment, net 462.0 480.0
Other 13.9 14.8
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Total assets 576.2 602.0
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand loan from parent $ 81.9 $ 90.3
Current maturities of long-term debt 24.5 23.7
Accounts payable, trade 13.9 18.4
Accrued and other current liabilities 15.5 18.8
Reclamation reserve, current portion 2.2 2.6
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Current liabilities 138.0 153.8
Advance from parent 213.2 196.6
Long-term debt 119.0 123.0
Reclamation reserve, noncurrent portion 30.4 28.8
Other 21.8 27.7
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Total liabilities 522.4 529.9
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $1.00 per share, authorized
10,000,000 shares, of which 1,840,000 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 1999 and 1998 0.9 0.9
Paid-in capital 409.4 409.4
Accumulated deficit (358.3) (340.0)
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Total shareholders' equity 53.8 72.1
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Total liabilities and shareholders' equity $576.2 $602.0
======================================================================================================
The accompanying notes are an integral part of these statements.
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KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
Nine Months Ended
September 30,
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1999 1998
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Cash Flows from Operating Activities:
Net Loss $ (13.2) $ (16.4)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and depletion 57.8 66.0
Extraordinary item - loss on early extinguishment of debt -- 11.5
Increase in reclamation reserves 1.6 9.5
Loss on sale of assets -- 0.2
(Increase) decrease in working capital items 5.5 (27.5)
Other (5.0) (1.5)
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Net cash provided by operating activities 46.7 41.8
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Investing Activities:
Capital expenditures (12.7) (12.0)
Business acquisitions (30.1) --
Proceeds from sale of assets 2.1 2.0
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Net cash used in investing activities (40.7) (10.0)
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Financing Activities:
Proceeds from financings 24.0 272.8
Repayments of financings (19.0) (325.8)
Proceeds from liquidation of hedge position -- 45.9
Deferred financing costs -- (0.1)
Merger costs -- (14.8)
Cash dividends paid (5.1) (5.1)
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Net cash used by financing activities (0.1) (27.1)
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Net increase in cash and equivalents 5.9 4.7
Cash and equivalents at January 1 19.0 19.5
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Cash and equivalents at September 30 $ 24.9 $ 24.2
=============================================================================================================
The accompanying notes are an integral part of these financial statements.
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KINAM GOLD INC.
(FORMERLY AMAX GOLD INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statements of Kinam
Gold Inc. ("the Company") 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, 1998.
On June 1, 1998, the Company completed a merger agreement with Kinross Gold
Corporation ("Kinross") providing for a combination of their businesses. Kinross
currently owns 100% of the Company's outstanding common stock.
2. INVENTORIES
Inventories consist of the following (in millions):
September 30, December 31,
1999 1998
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Gold:
Finished Goods $ 16.0 $ 18.9
Work-in-process 2.6 2.8
Materials and supplies 30.1 30.8
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$ 48.7 $ 52.5
================================================================================
3. LONG-TERM DEBT
During the first nine months of 1999, Refugio entered into capital leases
totaling $3.7 million for the acquisition of the mobile fleet and the new
tertiary crusher.
Debt repayments relating to the Kubaka Mine totalled $7.1 million during the
first nine months of 1999. These payments were made from cash flow provided by
operating activities during the first nine months of 1999. Schedule capital
lease payments at Refugio and Ft. Knox were also made from cash flow provided by
operating activities.
4. HEDGE CONTRACTS
Forward sales contracts, generally on a spot deferred basis, and call option
contracts options are entered into from time to time to protect the Company from
the effect of price changes on precious metals sales. As of September 30, 1999
the Company has no outstanding hedge contracts.
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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.
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5. 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 $50 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operation, including
gold production, production costs, ounces of gold sold and average realized
prices, for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
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1999 1998 1999 1998
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GOLD PRODUCTION (OUNCES)
Fort Knox 95,974 81,866 259,919 275,606
Kubaka 57,234 60,335 184,363 181,235
Refugio 17,193 13,132 67,926 56,388
Guanaco 4,374 3,242 17,277 22,934
Hayden Hill 3,925 9,194 12,774 34,424
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TOTAL GOLD PRODUCTION 178,700 167,769 542,733 571,089
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CASH OPERATING COSTS ($ PER OUNCE OF GOLD PRODUCED)(1)
Fort Knox 184 205 193 180
Kubaka 95 109 96 135
Refugio 307 419 256 321
Guanaco 199 296 162 145
Hayden Hill 171 82 156 94
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AVERAGE CASH OPERATING COSTS 167 182 166 173
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TOTAL CASH COSTS ($ PER OUNCE OF GOLD PRODUCED)(1)
Fort Knox 184 205 193 180
Kubaka 134 155 137 168
Refugio 322 431 270 338
Guanaco 218 317 181 156
Hayden Hill 181 100 167 108
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AVERAGE TOTAL CASH COSTS 182 204 183 187
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TOTAL PRODUCTION COSTS ($ PER OUNCE OF GOLD PRODUCED)(1)
Fort Knox 294 358 304 335
Kubaka 238 271 276 280
Refugio 400 565 344 457
Guanaco 218 317 181 156
Hayden Hill 181 267 167 293
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AVERAGE TOTAL PRODUCTION COSTS 282 340 293 320
====================================================================================================================
OUNCES OF GOLD SOLD 167,141 138,967 552,056 563,203
AVERAGE PRICE PER OUNCE SOLD 274 390 285 340
====================================================================================================================
(1) Cash operating costs at the mine sites include overhead, net of credits
for silver by-products. Total cash costs include cash operating
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costs plus royalties and applicable production taxes. Total production
costs include total cash costs plus reclamation and depreciation and
depletion.
RESULTS OF OPERATIONS
Kinam Gold Inc. reported a third quarter 1999 net loss attributable to common
shares of $8.9 million, or $.10 per share, on revenue of $45.8 million, compared
with 1998 third quarter income attributable to common shares of $4.1 million, or
$.04 per share, on revenue of $54.2 million. Operating loss of $3.1 million for
the third quarter of 1999 compared with operating income of $7.3 million for the
1998 third quarter. Lower gold sales coupled with significantly lower realized
prices, partially offset by lower depreciation rates, contributed to the
operating income decrease.
For the first nine months of 1999 the Company had a loss attributable to common
shares of $18.3 million, or $.20 per share, on revenue of $157.4 million,
compared with a loss attributable to common shares of $21.5 million, or $.20 per
share on revenue of $191.4 million for the first nine months of 1998. The
Company had a nine month operating loss of $3.6 million compared with income of
$9.8 million for the same period of 1998.
Kinam Gold's average realized price in the third quarter and first nine months
of 1999 was $274 per ounce and $285 per ounce, respectively, compared with $312
per ounce and $323 per ounce, respectively, for the comparable 1998 periods due
to the closing of the Company's hedge position in 1998 coupled with lower spot
prices. The average spot price for the third quarter 1999 of $259 per ounce was
$15 per ounce lower than the $274 per ounce realized due to the amortization of
the gain realized when the hedge position was closed in 1998.
The Company's third quarter 1999 gold production increased to 178,700 ounces
compared with 167,769 ounces in the 1998 third quarter. The 53% owned Kubaka
mine reported production of 57,234 ounces for Kinam Gold's account during the
third quarter of 1999 compared with 60,335 ounces in the third quarter of 1998
when Kinam's ownership was 50%. Production at the Kubaka mine continues to
exceed expectations due to higher mill feed grades and higher mill throughput .
Fort Knox's production of 95,974 ounces in the third quarter of 1999 compared
with 81,866 ounces in the same period of 1998. Management believes the recent
acquisition of the True North property in Alaska will provide higher grade ore
and allow Ft. Knox to increase production once permitting activities have been
completed. At Refugio, the Company's 50% share of quarterly production was
17,193 ounces in the third quarter of 1999, compared with 13,132 ounces for the
1998 third quarter. Mining was completed at both Hayden Hill and Guanaco during
1997, which resulted in the decrease in production at each mine. The Company
anticipates that production at Hayden Hill and Guanaco will continue to decline
during 1999 as residual leaching continues.
The Company's third quarter 1999 cost of sales increased to $32.4 million,
compared with $29.3 million in the third quarter of 1998. Consolidated total
cash costs decreased to $182 per ounce for the third quarter of 1999, compared
with $204 per ounce in the third quarter of 1998. Fort Knox's cash costs of $188
per ounce for the 1999 third quarter compared with $205 per ounce in the third
quarter of 1998 primarily due to higher production levels associated with higher
grades. As a result of higher mill throughput, Kubaka's third quarter 1999 cash
costs of $134 per ounce were lower than 1998 third quarter cash costs of $155
per ounce. Refugio's cash costs improved to $322 per ounce for the third quarter
of 1999, compared with $431 per ounce in the third quarter in 1998. The Company
commenced self-mining and also became operator of the Refugio mine during the
third quarter of 1999. In addition to purchasing the mobile fleet further
capital expenditures to complete the replacement of the tertiary crusher will
occur during 1999. The company believes that substantially lower production
costs will be seen in the foreseeable future. Hayden Hill and Guanaco third
quarter 1999 cash costs were $181 per ounce and $218 per ounce, respectively,
compared with cash costs of $100 per ounce and $317 per ounce, respectively for
the third quarter of 1998. Consolidated nine month cash costs of $183 per ounce
in 1999 compared with $187 per ounce in 1998.
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In the third quarter of 1999 depreciation and depletion decreased to $17.2
million from $17.5 million in the third quarter for 1998 due primarily to lower
depreciation rates due to the 1998 write downs, partially offset by increased
sales.
General and administrative income increased $0.6 million to $0.9 million for the
third quarter of 1999.
The $0.2 million decrease in exploration expense to $0.2 million for the third
quarter of 1999 resulted from decreased exploration activity in order to
conserve cash due to continued low gold prices.
Interest expense increased to $2.5 million for the third quarter of 1999,
compared with $1.8 million for the 1998 third quarter.
LIQUIDITY AND CAPITAL RESOURCES
Kinam Gold's cash flow from operating activities for the first nine months of
1999 increased to $46.7 million, compared with $41.8 million for the comparable
1998 period due to lower interest payments, lower cash costs at Kubaka and
Refugio, partially offset by lower realized gold prices and lower sales.
Capital spending of $12.7 million for the first nine months of 1999 compared
with $12.0 million spent during the first nine months of 1998. Approximately
$6.0 million was spent at Refugio during the first nine months of 1999 to
purchase the mobile fleet and replace the tertiary crusher. Due to low gold
prices, the Company continues to only spend capital on sustaining projects. Fort
Knox capital of $5.9 million included mobile equipment, pit dewatering and
development of the True North projects. Additionally $0.8 million was spent at
Kubaka.
No additional funds were borrowed under the demand loan facility during the
third quarter of 1999. Scheduled debt payments were made with cash flow provided
by operating activities.
YEAR 2000
The Year 2000 review and impact analysis of the Company's operating facilities
is proceeding according to the plan that was disclosed in the Company's 1998
Annual Report on Form 10K. The Fort Knox, Refugio and Kubaka mines have
completed the review, analysis and remediation work to their process control
systems and these systems are now considered Year 2000 compliant.
Remediation of business information systems and ancillary application packages
has successfully been completed at the Fort Knox and Kubaka mines. Remediation
at the Refugio Project is 90% complete with a planned completion date of
December 1, 1999.
No issues have been identified with the Company's critical vendors.
Year 2000 contingency planning is currently taking place at each of the
Company's project sites and the Company's plans will be updated as circumstances
change throughout the remainder of the year. The supply of electrical power to
various sites still remains a concern despite information from various
electrical utilities that they are Year 2000 compliant. Contingency plans will
take this into consideration and the Company is presently engaged in efforts to
determine the best method to maintain operations utilizing standby power
generators.
Total project spending estimates for the Company's Year 2000 project remain in
line with previous estimates.
No serious issues have been identified by the assessments, and it is the
Company's belief that there will not be
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any serious operational problems caused by the advent of the Year 2000 and that
the Company has taken the necessary steps to resolve any Year 2000 issues.
However, there can be no assurance that the Company will not experience
unforeseen operational or information system failures or that any one or more
such failures would not have a material adverse effect on the Company. Actual
outcomes and results could be affected by future factors including, but not
limited to, the availability of skilled personnel, the Company's ability to
locate software problems, the response of critical suppliers and subcontractors
and the ability and willingness of customers and suppliers to take timely action
in response to Year 2000 issues.
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 gold
sales, 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 and repayment alternatives timing and results of the
pending business combinations and anticipated effects of the advent of the Year
2000. Factors that could cause actual results to differ materially from such
forward-looking statements 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, 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,
environmental risks, the results of financing efforts and financial market
conditions and other Risk Factors on pages 11 to 15 of the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
1. 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. Based on the Company's projected 1999 sales
volume, each $10 per ounce change in the average realized price on gold sales
would have an approximate $7.1 million impact on revenues and pre-tax earnings.
2. 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 realizes from
its operations as gold is sold in U.S. dollars, while production costs are
incurred in Russian rubles and U.S.
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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
equivalent balances are held in U.S. dollars. Holdings denominated in other
currencies are relatively insignificant.
In the last half of 1998, the Russian ruble weakened against the U.S. dollar and
the Company benefited primarily through lower Russian labour and material costs.
In Russia, the temporal method is used to consolidate the financial results. The
major currency-related exposure at any balance sheet date is on
ruble-denominated cash balances and working capital. Because the Company's
bullion inventory is denominated in U.S. dollars, there are no related foreign
exchange risks. The Company believes its foreign exchange exposure on the
balance of the Company's working capital items is nominal. Gold sales during
1998 were denominated 50% in U.S. dollars and 50% in rubles. The dollars
received were used to service the U.S. dollar denominated debt and the foreign
supplies inventory purchases, while the rubles received from the gold sales were
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 1999 ruble payments of 350
million rubles at an exchange rate of 20 rubles to one U.S. dollar, each 2
rubles change to the U.S. dollar could result in an approximate $1.0 million
change in the Company's pre-tax earnings.
In Chile, the currency 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. The vast majority of expenditures
are denominated in U.S. dollars resulting in little peso-related exposure.
Interest Rate Risks
The Company has interest rate swaps to fix interest rates on a portion of its
floating rate debt. The costs associated with these contracts are amortized to
interest expense over the terms of the agreements. As at September 30, 1999, the
Company carried $124.8 million of variable rate debt, all denominated in U.S.
dollars. Interest expense would change by approximately $1.0 million for every
one percent change in interest rates.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is 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 2. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
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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
------------------------------------
Treasurer and Director
(principal financial officer)
Dated: November 12, 1999
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