UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6202-2
Nord Resources Corporation
(Exact name of registrant as specified in its charter)
Delaware 85-0212139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Third St., NW, Suite 1750, Albuquerque, NM 87102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (505) 766-9955
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 twelve 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 shares outstanding as of May 14, 1999: 21,905,488
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - March 31, 1999 and
December 31, 1998 (Unaudited) 3
Statements of Operations - Three months ended
March 31, 1999 and 1998 (Unaudited) 4
Statements of Cash Flows - Three Months ended
March 31, 1999 and 1998 (Unaudited) 5
Notes to Condensed Financial Statements (Unaudited) 6-9
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-11
PART II. OTHER INFORMATION:
ITEM 1-5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K 12
2
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
March 31, December 31,
1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 5,028 $ 6,136
Accounts receivable - Nord Pacific Limited ("NPL") 108 443
Other accounts receivable 17 29
Prepaid expenses 86 73
--------- ---------
TOTAL CURRENT ASSETS 5,239 6,681
INVESTMENT IN AND ADVANCES TO SIERRA RUTILE LIMITED AND ITS
SUBSIDIARIES AND AFFILIATES ("SRL") (notes 2, 3 and 4) -- --
INVESTMENT IN NPL 5,577 5,733
PROPERTY, PLANT AND EQUIPMENT, net 240 247
OTHER ASSETS 5,828 5,730
--------- ---------
$ 16,884 $ 18,391
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 512 $ 471
Accrued expenses 18 104
--------- ---------
TOTAL CURRENT LIABILITIES 530 575
RETIREMENT BENEFITS 7,673 7,657
STOCKHOLDERS' EQUITY:
Common stock 219 219
Additional paid-in capital 81,539 81,539
Accumulated deficit (72,192) (70,714)
Accumulated other comprehensive loss (885) (885)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 8,681 10,159
--------- ---------
$ 16,884 $ 18,391
========= =========
See notes to condensed financial statements
3
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
March 31,
1999 1998
GENERAL AND ADMINISTRATIVE EXPENSES AND
(LOSS) FROM OPERATIONS $ (906) $ (836)
OTHER INCOME (EXPENSE):
Interest and other income 107 264
Interest expense -- (31)
Losses relating to investment in SRL (523) (1,850)
Equity in loss of NPL (156) (193)
---------- ----------
TOTAL OTHER INCOME (EXPENSE) (572) (1,810)
---------- ----------
NET LOSS $ (1,478) $ (2,646)
========== ==========
BASIC LOSS PER SHARE $ (.07) $ (.12)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 21,905 21,905
========== ==========
See notes to condensed financial statements
4
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,478) $ (2,646)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in loss of NPL 156 193
Provision for retirement benefits, net of payments 16 (142)
Depreciation and amortization 11 7
Non-employee compensation expense -- 8
Forgiveness of loans due from officers -- 50
Changes in non-cash working capital 289 (406)
--------- ----------
Net cash used in operating activities (1,006) (2,936)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to other assets (99) (543)
Reduction in obligation under guarantee of loans
payable by SRL -- (2,400)
Purchases of equipment (3) (35)
--------- ----------
Net cash used in investing activities (102) (2,978)
--------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,108) (5,914)
CASH AND CASH EQUIVALENTS - beginning of period 6,136 12,581
--------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 5,028 $ 6,667
========= ==========
See notes to condensed financial statements
5
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1. FINANCIAL STATEMENTS
These interim financial statements are unaudited. In the opinion
of management, all adjustments, which consist of normal recurring
accruals necessary to present fairly the financial position and
results of operations for the interim periods presented, have
been made. The results shown for the first quarter of 1999 are
not necessarily indicative of the results that may be expected
for the entire year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto
included in the Company's December 31, 1998 annual report on Form
10-K
2. BASIS OF PRESENTATION
The Company owns a 50% interest in Sierra Rutile Holdings
Limited, which through its ownership of Sierra Rutile Limited,
owns a rutile mine in Africa. The Company also owns a 28.5%
interest in Nord Pacific Limited ("NPL"), a publicly traded
mining and exploration company engaged in the production of
copper in Australia and the exploration for gold, copper, nickel,
cobalt and other minerals in Australia, Papua New Guinea, North
America and Mexico.
Investment In and Advances to SRL and its Subsidiaries and
Affiliates
The Company owns a 50% interest in Sierra Rutile Holdings
Limited, which in turn owns 100% of Sierra Rutile Limited and
Sierra Rutile America, and a 50% interest in Sierra Rutile
Services Limited, Titanium Minerals Marketing International and
Titanium Minerals Marketing International, USA (collectively,
"SRL"). SRL produces and markets rutile and ilmenite (titanium
dioxide). These products are sold primarily to the paint pigment
industry in the United States, Europe and the Far East.
Production facilities and raw material supplies for the rutile
operation are located in Sierra Leone, West Africa. As Sierra
Leone is a third-world country, the operations are subject, at
any time, to the potentially volatile effects of political
instability and economic uncertainty often present in such
countries.
In January 1995, rebel forces attacked SRL's mining operation in
Sierra Leone, which had been in operation since 1978. As a
result, SRL was forced to suspend mining operations and
subsequently terminated all nonessential personnel. In April
1996, SRL regained control of the mine site. Maintenance
personnel, protected by a security force, have since resumed
6
activities at the mine. In May 1997, a military coup ousted the
democratically elected government. Although the democratically
elected government of Sierra Leone was restored to power in
February 1998, rebel activity in the country has continued.
The resumption of operations at the mine is dependent upon a
number of conditions including (1) a sustainable acceptable
political environment in Sierra Leone within which to operate,
(2) adequate levels of security in and around the minesite area,
(3) the successful renegotiation of operating agreements between
SRL and the government of Sierra Leone, (4) the existence of a
suitable marketing environment and (5) the receipt of adequate
financing on acceptable terms to cover the costs of resuming
operations. These costs include repair or replacement of assets
which have incurred damage and deterioration during the period of
suspension of operations and costs to re-establish and train a
workforce, replenish supplies and restore and recommission the
facilities. SRL is not able to determine when operations will
resume at the mine.
When the political environment in Sierra Leone stabilizes, SRL
intends to continue discussions with its current lenders to
determine if funds are available to refinance SRL's existing
loans, to finance the rehabilitation program at the mine and to
finance the completion of an expansion program. If these lenders
do not provide the necessary funds to SRL to refinance SRL's
existing loans and to resume operations, SRL intends to pursue
other sources of financing. There can be no assurance that SRL
will be able to obtain sufficient financing to refinance its
existing loans and to resume operations on acceptable terms, if
at all.
The ability of SRL to continue operating as a going concern until
such financing can be obtained and the mine resumes operations is
dependent on receiving additional advances or contributions from
its shareholders to fund its ongoing operations and obligations
as they come due, or SRL's ability to access other sources of
financing. As described in Note 3, SRL is in default of its loan
agreements. The ability of SRL to continue operating as a going
concern is also dependent on its ability to renegotiate the terms
of or refinance its existing loans.
3. INVESTMENT IN SRL
As a result of the initial rebel attack on SRL's mining
operations in Sierra Leone and the continuing uncertainty
resulting from the ongoing rebel activity in the country,
significant uncertainty exists as to the Company's ability to
recover its investment in SRL. Accordingly, the Company has
recorded a provision for impairment of its entire investment in
SRL, including its estimate of amounts it will be required to
advance to SRL for the repayment of loans payable by SRL which it
has guaranteed.
During the three months ended March 31, 1999 and 1998, the
Company advanced $523,000 and $1.9 million, respectively, to SRL
as its 50% share of funding for SRL's cash needs, primarily to
7
fund vendor payments and the ongoing operating cash requirements
of SRL. Amounts advanced to SRL prior to 1998, which were used
to reduce the principal amounts of loans outstanding, were
recorded as a reduction of the obligation under guarantee of
loans payable by SRL. Other amounts were charged to expense as
they were advanced to SRL. Subsequent to 1997, all amounts
advanced to SRL are charged to expense.
Summarized financial data for the Company's 50% share of SRL's
operations are as follows:
Three Months Ended
March 31,
-----------------------
1999 1998
--------- ---------
(In Thousands)
Revenues $ -- $ --
Costs and expenses:
Depreciation and amortization (1,561) (1,790)
Selling, general and administrative (992) (685)
Other expense (income) 33 (1,051)
Income tax expense -- (3)
---------- ---------
Net loss $ (2,520) $ (3,529)
========== ==========
4. INDEBTEDNESS
The Company has guaranteed its share of SRL's loans outstanding
amounting to $6,055,000 as of March 31, 1999. One of the
conditions of the loan agreement between SRL and its lending
institutions is that the Company maintain cash, cash equivalents
or marketable securities with a value equal to 150% of its
guaranteed portion of the outstanding loans. At March 31, 1999,
the Company was in violation of this condition. As a result, the
lenders could demand repayment of the loans, although as of May
14, 1999, they have not done so. Should the lenders demand
repayment of the loans, SRL does not have sufficient funds to
repay the amounts due. Consequently, the Company may be required
to fulfill a portion or all of its obligation under its
guarantee. In that event, it may be required to liquidate
certain of its assets. The consolidated financial statements do
not include any adjustments relating to the value of recorded
asset amounts should the Company be required to liquidate certain
of its assets to fulfill its obligation under the guarantee.
5. EQUITY IN NET LOSS OF NPL
The Company had a 28.5% interest in NPL at March 31, 1999 and
1998. Summary financial data for the operations of NPL is as
follows:
8
Three Months Ended
March 31,
-----------------------
1999 1998
--------- ----------
(In Thousands)
Sales $ 2,919 $ 3,252
Costs and expenses: (3,491) (3,273)
Foreign currency transaction loss (415) (329)
Forward currency exchange contract gains 643 155
Other income 29 82
--------- ----------
Net loss $ (315) $ (113)
========= ==========
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Act of
1995. The statements contained in this report which are not
historical fact are "forward looking statements" that involve various
important risks, uncertainties and other factors which could cause the
Company's actual results for 1999 and beyond to differ materially from
those expressed in such forward looking statements. These factors
include, without limitation, the risks and factors set forth below as
well as other risks previously disclosed in the Company's securities
filings.
Liquidity and Capital Resources
Cash and cash equivalents decreased $1.1 million for the three months
ended March 31, 1999 compared to a decrease of 5.9 million for the
same period in 1998. Cash used by operations was $1.0 million for the
three months ended March 31, 1999 and $2.9 million for the same period
in 1998. Net cash totaling $99,000 in 1999 was used for additions to
other assets, primarily additions to retirement trusts, compared to
$543,000 in 1998. Cash totaling $2.4 million was advanced to SRL for
debt repayment in 1998 and $3,000 was used to fund capital
expenditures in 1999 compared to $35,000 for the three months ended
March 31, 1998.
Due to the suspension of its operations, SRL has relied on and will
continue to rely on funds from the Company and its other 50% owner to
sustain its operations. Funds are expected to continue to be required
by SRL for debt service, maintenance of a limited workforce, payments
to vendors and costs of security at the mine. It is the Company's and
SRL's intention to continue with plans for resumption of SRL's
operations. Among other key factors in that process is the
availability of adequate levels of funding. SRL's preliminary
projections indicate that it may require approximately $90 million
for asset rehabilitation, completion of a new powerhouse and dredge,
mine development and working capital. SRL has held discussions with
its current lenders and other lending sources to determine if funds
would be available from these sources to fund the above requirements.
The Company cannot determine if additional funding will be available
at terms that will be acceptable to SRL and the Company. To the
extent funds are not available from these or other sources, the
Company will be required to contribute its 50% share of SRL's cash
requirements. The Company will not be able to fund a significant
portion of these requirements without obtaining capital from other
sources.
Results of Operations
The Company incurred net losses of $1.5 million and $2.6 million for
the three months ended March 31, 1999 and 1998, respectively. General
and administrative expenses for the three months ended March 31, 1999,
increased compared to the same period in 1998 due to increased legal
fees related to the derivative lawsuit filed in late 1998 and due to
increased professional fees.
10
Interest income decreased in 1999 compared to 1998 due primarily to
decreased funds available for investment in 1999. The net loss for
the three months ended March 31, 1999 included the Company's losses
relating to its investment in SRL of $523,000 compared to losses
related to its investment in SRL of $1.9 million for the three months
ended March 31, 1998. A significantly reduced level of activity
during the three months ended March 31, 1999 compared to 1998
contributed to the reduction in losses related to the Company's
investment in SRL.
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description
27 Financial Data Schedule
12
SIGNATURE
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.
NORD RESOURCES CORPORATION
(Registrant)
By: /s/Ray W. Jenner
Ray W. Jenner
Vice President - Finance
(Principal Financial Officer
and Authorized Officer)
DATE: May 17, 1999
13