UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-9025
VISTA GOLD CORP.
(Exact name of registrant as specified in its charter)
Continued under the laws of the Yukon Territory (Not Applicable)
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 3000
370 Seventeenth Street
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
(303) 629-2450
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
90,715,040
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Common Shares, without par value, outstanding at August 6, 1999
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VISTA GOLD CORP.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
(i) Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998 3
(ii) Consolidated Statements of Earnings (Loss) for the six 4
months ended June 30, 1999 and June 30, 1998
(iii) Consolidated Statements of Deficit for the six months 4
ended June 30, 1999 and June 30, 1998
(iv) Consolidated Statements of Cash Flows for the six months 5
ended June 30, 1999 and June 30, 1998
(v) Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
In this Report, unless otherwise indicated, all dollar amounts are
expressed in United States dollars.
-2-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
JUNE 30 December 31
(U.S. DOLLARS IN THOUSANDS) 1999 1998
--------------------------- ---- ----
(Unaudited) (Audited)
--------------------------
ASSETS:
Cash and cash equivalents $ 3,844 $ 4,786
Marketable securities 75 90
Accounts receivable 4,013 3,958
Gold inventory 4,096 7,318
Supplies and other 2,492 1,849
--------------------------
Current assets 14,520 18,001
Property, plant and equipment, net 56,163 61,093
Investment in and advances to Zamora Gold Corp. - 571
Other assets 1,202 1,213
--------------------------
Long-term assets 57,365 62,877
--------------------------
Total assets $ 71,885 $ 80,878
--------------------------
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 1,848 $ 2,425
Accrued liabilities and other 1,720 1,772
Deferred hedging gains - 1,150
Current portion of long-term debt - Note 2 2,483 2,372
--------------------------
Current liabilities 6,051 7,719
Long-term debt - Note 2 14,217 13,217
Accrued reclamation and closure costs 5,541 6,384
Other liabilities 23 28
--------------------------
Long-term liabilities 19,781 19,629
--------------------------
Total liabilities 25,832 27,348
Capital stock, no par value per share:
Preferred - unlimited shares authorized; no shares outstanding
Common - unlimited shares authorized; shares outstanding:
1999 - 90,715,040; 1998 - 90,715,040 121,146 121,146
Deficit (73,612) (66,076)
Currency translation adjustment (1,481) (1,540)
--------------------------
Total shareholders' equity 46,053 53,530
--------------------------
Total liabilities and shareholders' equity $ 71,885 $ 80,878
--------------------------
--------------------------
Commitments and contingencies - Note 3
Approved by the Board of Directors
/s/ DAVID R. SINCLAIR /s/ PETER WALTON
- --------------------- ----------------
David R. Sinclair Peter Walton
Chairman Director
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
-3-
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Gold sales $ 4,862 $ 11,199 $ 11,272 $ 22,170
Other revenues 30 24 55 3,271
------------------------------ ------------------------------
Total revenues 4,892 11,223 11,327 25,441
COSTS AND EXPENSES:
Mining operations 5,638 7,379 12,169 14,744
Depreciation, depletion and amortization 1,915 1,725 3,423 4,048
Provision for reclamation and closure costs 63 565 92 1,571
Operating leases 44 315 44 920
Mineral exploration, property evaluation and holding 652 119 1,191 290
costs
Corporate administration 152 264 540 653
Investor relations 154 80 192 153
Interest expense 301 190 571 302
Loss (gain) on disposal of assets 5 (176) 5 (185)
Equity in loss and impairment of Zamora Gold Corp. 457 - 601 -
Other expense (income) 2 260 21 258
------------------------------ ------------------------------
Total costs and expenses 9,383 10,721 18,849 22,754
Net earnings (loss) before taxes (4,491) 502 (7,522) 2,687
Income taxes - - 14 7
------------------------------ ------------------------------
Net earnings (loss) $ (4,491) $ 502 $ (7,536) $ 2,680
------------------------------ ------------------------------
------------------------------ ------------------------------
Weighted average shares outstanding 90,715,040 89,152,540 90,715,040 89,152,540
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ (0.05) $ 0.01 $ (0.08) $ 0.03
- ---------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF DEFICIT
Three Months Ended Six Months Ended
June 30 June 30
------- -------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Deficit, beginning of period $ (69,121) $ (62,258) $ (66,076) $ (64,436)
Net earnings (loss) (4,491) 502 (7,536) 2,680
------------------------------ ------------------------------
Deficit, end of period $ (73,612) $ (61,756) $ (73,612) $ (61,756)
------------------------------ ------------------------------
------------------------------ ------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
-4-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Six Months Ended
June 30 June 30
------- -------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (4,491) $ 502 $ (7,536) $ 2,680
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, depletion and amortization 1,915 1,725 3,423 4,048
Amortization of deferred stripping - 467 - 1,169
Deferral (amortization) of hedging gains (1,498) (1,191) (1,150) 3,658
Amortization of deferred hedging costs - - - 276
Provision for reclamation and closure costs 63 565 92 1,571
Reclamation and closure costs (399) (320) (935) (634)
Loss (gain) on sale of assets 5 (176) 5 (185)
Equity in loss and impairment of Zamora Gold Corp. 457 - 601 -
Loss (gain) on currency translation 34 (85) 59 (64)
Other non-cash items (3) - (5) 1
-------------------------- --------------------------
(3,917) 1,487 (5,446) 12,520
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Marketable securities (2) - 15 132
Accounts receivable 1,673 (1,750) (55) (3,888)
Gold inventory 746 2,497 3,222 2,549
Supplies and other 2,522 434 2,397 577
Accounts payable 248 (806) (577) (2,688)
Accrued liabilities and other 67 (322) (52) (1,163)
-------------------------- --------------------------
Net cash provided by (used in) operating activities 1,337 1,540 (496) 8,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,244) (1,832) (1,624) (2,608)
Proceeds from disposal of assets 3 2,233 86 2,341
Investment in and advances to Zamora Gold Corp. (15) - (30) -
Other assets (67) - 11 2
-------------------------- --------------------------
Net cash provided by (used in) investing activities (1,323) 401 (1,557) (265)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,500 - 1,500 -
Repayment of debt (46) (1,100) (389) (5,800)
-------------------------- --------------------------
Net cash provided by (used in) financing activities 1,454 (1,100) 1,111 (5,800)
Net increase (decrease) in cash and cash equivalents 1,468 841 (942) 1,974
Cash and cash equivalents, beginning of period 2,376 2,932 4,786 1,799
-------------------------- --------------------------
Cash and cash equivalents, end of period $ 3,844 $ 3,773 $ 3,844 $ 3,773
-------------------------- --------------------------
-------------------------- --------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands unless specified otherwise)
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements of Vista Gold Corp. (the "Corporation")
for the six months ended June 30, 1999 have been prepared by the Corporation
without audit. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary to fairly present the interim
financial information set forth herein, have been made. The results of
operations for interim periods are not necessarily indicative of the
operating results of a full year or of future years.
2. LONG-TERM DEBT
Mineral Ridge Resources Inc. ("MRRI"), a wholly-owned subsidiary of the
Corporation, has outstanding bank loans of $15.2 million. During the six
months ended June 30, 1999, MRRI repaid $0.3 million under the terms of the
loans. The interest rate on the loans is LIBOR plus two percent and the
loans, which are not guaranteed by the Corporation, are collateralized by the
assets of MRRI including $5.0 million of mining equipment contributed by
Vista Gold. At June 30, 1999, LIBOR was 5.2 percent and the current portion
of the MRRI long-term debt was $2.0 million.
In April 1999, Hycroft Resources & Development, Inc. ("Hycroft"), a
wholly-owned subsidiary of the Corporation, entered into a debt agreement
with Finova Capital Corporation through which Hycroft received $1.5 million
in cash. The interest rate on the loan is 10.61 percent and the loan is
collateralized by certain mobile equipment assets at Hycroft. The repayment
terms of the loan require 36 equal monthly instalments commencing in May
1999. At June 30, 1999, Hycroft had repaid $0.1 million of the debt, and the
current portion of the Hycroft long-term debt was $0.5 million.
3. COMMITMENTS AND CONTINGENCIES
As part of its gold hedging program, the Corporation enters into agreements
with major financial institutions to deliver gold. Realization under these
agreements is dependent upon the ability of those financial institutions to
perform in accordance with the terms of the agreements. As of June 30, 1999,
the Corporation's hedging program consisted of forward sales contracts
totalling 100,000 ounces where the Corporation is required to deliver gold at
an average price of $311 per ounce. The forward sales contracts have various
expiration dates up to December 1999. The Corporation has the ability to
defer the date of sale that the related gold is ultimately delivered.
4. GEOGRAPHIC AND SEGMENT INFORMATION
The Corporation operates in the gold mining industry in the United States,
and has exploration and development properties in Latin America. Its major
product and only identifiable segment is gold, and all gold revenues and
operating costs are derived in the United States.
PROPERTY, PLANT AND EQUIPMENT, NET, BY GEOGRAPHIC REGION
JUNE 30 December 31
(U.S. DOLLARS IN THOUSANDS) 1999 1998
--------------------------- ----------- -----------
(Unaudited) (Audited)
U.S. $ 21,470 $ 26,628
Latin America 34,693 34,465
--------------------------
Total property, plant and equipment, net $ 56,163 $ 61,093
--------------------------
--------------------------
-6-
5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The significant differences between generally accepted accounting principles
("GAAP") in Canada and in the United States are as follows:
(A) Under Canadian corporate law, the Corporation underwent a capital
reduction in connection with the amalgamation of Granges Inc.
(predecessor of the Corporation) and Hycroft whereby share capital and
contributed surplus were reduced to eliminate the consolidated
accumulated deficit of Granges as of December 31, 1994, after giving
effect to the estimated costs of the amalgamation. Under U.S. corporate
law, no such transaction is available and accordingly is not allowed
under U.S. GAAP.
(B) Under Canadian GAAP, the amalgamation of Granges and Hycroft was treated
in a manner similar to a pooling of interests. Under U.S. GAAP, the
amalgamation did not meet the conditions for a pooling of interest.
Accordingly, the transaction is treated as a purchase under U.S. GAAP,
with the excess of purchase price over the net book value of Hycroft's
net assets allocated to mineral properties.
(C) In 1995, the United States Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", effective for fiscal years beginning after
December 15, 1995. SFAS No. 121 requires that long-lived assets and
associated intangibles be written down to their fair values whenever an
impairment review indicates that the carrying value cannot be recovered
on an undiscounted cash flow basis.
In 1996, under U.S. GAAP, the carrying value of the Hycroft mine,
including the excess of proceeds over the net book value from (B) above,
did not exceed the undiscounted cash flow. Accordingly, the Hycroft mine
carrying value was written down to fair value using the discounted cash
flow method following U.S. GAAP.
(D) In 1997, the carrying values of certain long-lived assets exceeded their
respective undiscounted cash flows. Following Canadian GAAP, the carrying
values were written down using the undiscounted cash flow method. Under
U.S. GAAP, as discussed in (C) above, the carrying values were written
down to their fair values using the discounted cash flow method, giving
rise to a difference in the amounts written down.
Amortization of the remaining carrying values in subsequent periods
following Canadian GAAP must be reduced to reflect the difference in the
amounts written down following U.S. GAAP.
(E) Under U.S. GAAP, items such as foreign exchange gains and losses and
unrealized gains and losses on marketable securities are required to be
shown separately in the derivation of comprehensive income.
-7-
The significant differences in the consolidated statements of earnings (loss)
relative to U.S. GAAP were as follows:
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Three Months Ended Six Months Ended
June 30 June 30
------- -------
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998 1999 1998
- ---------------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net earnings (loss) - Canadian GAAP $(4,491) $ 502 $(7,536) $2,680
Amortization reduction (D) 169 998 498 1,994
Other comprehensive income (E) 168 (30) 22 (69)
--------------------- ---------------------
Net earnings (loss) - U.S. GAAP (4,154) 1,470 (7,016) 4,605
Other comprehensive income (E) (168) 30 (22) 69
--------------------- ---------------------
Comprehensive income (loss) - U.S. GAAP $(4,322) $1,500 $(7,038) $4,674
--------------------- ---------------------
--------------------- ---------------------
Basic earnings (loss) per share - U.S. GAAP $ (0.05) $ 0.02 $ (0.08) $ 0.05
- -------------------------------------------------------------------------------------------------------
The significant differences in the consolidated balance sheets relative to
U.S. GAAP were:
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS) JUNE 30, 1999 December 31, 1998
- --------------------------- ------------- -----------------
PER CDN. PER U.S. Per Cdn. Per U.S.
GAAP ADJ. GAAP GAAP Adj. GAAP
---- ---- ---- ---- ---- ----
Current assets $ 14,520 $ - $ 14,520 $ 18,001 $ - $ 18,001
Property, plant and equipment (D) 57,365 (13,829) 43,536 62,877 (14,327) 48,550
--------------------------------- --------------------------------
$ 71,885 $(13,829) $ 58,056 $ 80,878 $(14,327) $ 66,551
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Current liabilities $ 6,051 $ - $ 6,051 $ 7,719 $ - $ 7,719
Long-term debt 14,217 - 14,217 13,217 - 13,217
Provision for reclamation and
future closure costs 5,564 - 5,564 6,412 - 6,412
--------------------------------- --------------------------------
25,832 - 25,832 27,348 - 27,348
Common shares (A, B) 121,146 76,754 197,900 121,146 76,754 197,900
Contributed surplus (A) - 2,786 2,786 - 2,786 2,786
Retained deficit (A, B, C, D) (73,612) (93,224) (166,836) (66,076) (93,744) (159,820)
Accumulated comprehensive income - (145) (145) - (123) (123)
Currency translation adjustment (1,481) - (1,481) (1,540) - (1,540)
--------------------------------- --------------------------------
$ 71,885 $(13,829) $ 58,056 $ 80,878 $(14,327) $ 66,551
--------------------------------- --------------------------------
--------------------------------- --------------------------------
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in thousands, unless specified otherwise)
This discussion should be read in conjunction with the consolidated financial
statements of Vista Gold Corp. (the "Corporation") for the six months ended
June 30, 1999 and 1998 and the notes thereto, which have been prepared in
accordance with accounting principles generally accepted in Canada.
INTRODUCTION
During the six months ended June 30, 1999, the Corporation had two producing
gold mines located in Nevada and one development project located in Bolivia.
At the Hycroft mine, mining activities were suspended in December 1998
because of the continued depression in gold prices. Gold processing and
recovery at the Hycroft mine will continue from inventoried ore during 1999
and into 2000. Hycroft gold production for 1999 is estimated to be
approximately 35,000 ounces.
In October 1998, the Corporation acquired the Mineral Ridge mine. Prior to
the acquisition, the mine had been shut down since December 1997. The
Corporation recommenced mining and processing activities at the Mineral Ridge
mine and gold production is expected to reach planned levels before year end.
Mineral Ridge gold production for 1999 is estimated to be 35,000 ounces.
The Corporation completed an optimized internal feasibility study on the
Amayapampa and Capa Circa project located in Bolivia in early 1999.
Discussions with various lenders regarding project financing were suspended
by the Corporation when gold prices fell below $260 per ounce. The
Corporation is currently minimizing project holding costs in an effort to
preserve the Bolivian assets until gold prices return to higher levels.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 VS. THREE MONTHS ENDED JUNE 30, 1998.
The net loss for the three months ended June 30, 1999 was $4.5 million as
compared to net earnings of $0.5 million for the same period in 1998. The
primary reasons for the decrease in net earnings were lower gold prices,
reduced gold production at the Hycroft mine, start-up costs and low gold
production at the Mineral Ridge mine, and holding costs for the Corporation's
Bolivian property. In addition, the current quarter net loss includes a $0.5
million write-off of the investment in Zamora Gold Corp. Zamora Gold is
continuing to undertake exploration and gold production activities in Ecuador
with funding being provided by the sale of gold and by its controlling
shareholder, Compania Minera Gribipe S.A. However, to reflect the
Corporation's decreased levels of ownership and control, the investment was
conservatively written off.
Gold sales of $4.9 million for the three months ended June 30, 1999 decreased
$6.3 million, or 56 percent, from the same period in 1998. The decrease in
gold sales was directly related to a 49 percent decrease in gold production
combined with a 15 percent decrease in the average gross realized price. Gold
production and gold prices were as follows:
Three Months Ended
1999 1998
---- ----
Hycroft mine gold production (ounces) 10,104 35,171
Mineral Ridge mine gold production (ounces) 7,908 -
------ ------
18,012 35,171
Average gross realized price per ounce $ 270 $ 318
Average spot price per ounce $ 274 $ 300
-9-
At the Hycroft mine, the decrease in gold production was attributable to the
suspension of mining activities in December 1998. All subsequent Hycroft gold
production has been, and will be, from previously mined and inventoried ore.
As the mine continues to produce gold, the remaining unrecovered gold ounces
in inventory will decrease. During this process, the rate of gold production
will decline until all inventoried gold ounces have been recovered.
After acquiring the Mineral Ridge mine, the Corporation recommenced mining
and processing activities during the fourth quarter of 1998. The initial
start-up period lasted approximately four months and, following normal
recovery lead times, the Corporation expects to reach planned gold production
levels before year end.
The cost of mining operations decreased $1.7 million to $5.6 million for the
three months ended June 30, 1999. Significant cost reductions resulting from
the suspension of mining activities at the Hycroft mine were partially offset
by operating and start-up costs at the Mineral Ridge mine. During the initial
start-up period at the Mineral Ridge mine, the Corporation is expensing all
start-up costs as they are incurred. Mine operating costs were as follows:
Three Months Ended
1999 1998
---- ----
Hycroft mine operating costs $2,200 $7,379
Mineral Ridge mine operating costs 3,438 -
------ ------
$5,638 $7,379
At the Hycroft mine, mining activities were suspended in December 1998, and
as a result there were no mining costs during the three months ended June 30,
1999. Processing and other operating costs decreased significantly during
this period reflecting reduced levels of operating activities and lower gold
production. During the quarter ended June 30, the direct cash operating cost
per ounce was $141 in 1999 as compared to $136 in 1998.
At the Mineral Ridge mine, 1.7 million total tons were mined during the
second quarter of 1999 at an average mining cost of $0.77 per ton. As
discussed above, all initial start-up costs are being charged to operations
as incurred. While mine operating costs during the quarter bore 100% of the
current period's start-up costs, gold production during the quarter did not
reach planned levels. As a result, the cash operating cost per ounce was
abnormally high at $432. The Corporation anticipates the cash operating cost
per ounce to decrease as gold production levels increase. The estimated cash
operating cost per ounce when the mine reaches planned production levels is
expected to be approximately $226.
Depreciation, depletion and amortization ("DD&A") of $1.9 million for the
second quarter of 1999 was $0.2 million more than the same period in 1998. At
the Hycroft mine, a significant portion of the property, plant and equipment
is amortized using the units of production method of depreciation based on
proven and probable reserves. Those assets have been fully amortized and, as
a result, the DD&A expense at the mine decreased substantially from 1998. The
decrease at the Hycroft mine was more than offset by the start-up of the
Mineral Ridge mine, which recorded $1.4 million of DD&A expense.
The provision for reclamation and closure costs decreased $0.5 million from
1998. At the Hycroft mine, reclamation and closure costs were fully accrued
in 1998 and no further provisions are anticipated. At the Mineral Ridge mine,
$63 thousand was accrued for reclamation and closure costs during the second
quarter of 1999. The provision is charged to earnings over the life of the
mine on a unit-of-production basis. As production levels increase at the
Mineral Ridge mine, the amount of the provision for reclamation and closure
costs will increase accordingly.
Corporate administration and investor relations expenditures decreased 11
percent from the second quarter of 1998 as measures taken in 1998 to reduce
the Corporation's overhead costs continue to be effective. Interest expense
increased from $0.2 million in the second quarter of 1998 to $0.3 million in
the second quarter of 1999. In 1998, the Hycroft mine incurred interest
expense on debt that was subsequently retired during the year. The 1999
interest expense was primarily incurred on Mineral Ridge debt which was
amended when the Corporation acquired the Mineral Ridge mine.
SIX MONTHS ENDED JUNE 30, 1999 VS. SIX MONTHS ENDED JUNE 30, 1998.
The net loss for the six months ended June 30, 1999 was $7.5 million as
compared to net earnings of $2.7 million for the same period in 1998. The
primary reasons for the decrease in net earnings include lower gold prices,
reduced gold
-10-
production at the Hycroft mine which was partially offset by new production
from the Mineral Ridge mine, and a one-time hedging gain received in 1998.
The 1998 earnings included a one-time gain from the liquidation of gold
forwards of $3.2 million in other revenues. Excluding the one-time gain, the
Corporation would have incurred a net loss of $0.5 million in 1998.
Gold sales of $11.3 million for the six months ended June 30, 1999 decreased
$10.9 million, or 49 percent, from the same period in 1998. The decrease in
gold sales was directly related to a 47 percent decrease in gold production.
Gold production and gold prices were as follows:
Six Months Ended
1999 1998
---- ----
Hycroft mine gold production (ounces) 25,874 70,188
Mineral Ridge mine gold production (ounces) 11,398 -
------ ------
37,272 70,188
Average gross realized price per ounce $ 302 $ 316
Average spot price per ounce $ 280 $ 297
At the Hycroft mine, the decrease in gold production was attributable to the
suspension of mining activities referred to above. At the Mineral Ridge mine,
the Corporation recommenced mining and processing activities as discussed
above. The Mineral Ridge mine began producing gold on a regular basis in
February 1999 and, following normal recovery lead times, the Corporation
expects to reach planned gold production levels before year end.
The cost of mining operations decreased $2.6 million to $12.2 million for the
six months ended June 30, 1999. At the Hycroft mine, significant cost
reductions resulted from the suspension of mining activities and from the
amortization of deferred stripping. In 1998, the Hycroft mine fully amortized
the remaining $1.2 million of deferred stripping charges. There was no
similar cost in 1999. Cost reductions at the Hycroft mine were partially
offset by operating and start-up costs at the Mineral Ridge mine. As
discussed above, the Corporation is expensing all start-up costs as they are
incurred. Mine operating costs were as follows:
Six Months Ended
1999 1998
---- ----
Hycroft mine operating costs $ 7,426 $14,744
Mineral Ridge mine operating costs 4,743 -
------- -------
$12,169 $14,744
At the Hycroft mine, mining activities were suspended in December 1998 and
processing and other operating activities decreased significantly during the
first six months of 1999. As a result, operating costs decreased by 50
percent as compared to 1998 and the direct cash operating cost per ounce was
$111 for the six months ended June 30, 1999 as compared to $171 in 1998.
At the Mineral Ridge mine, 3.0 million total tons were mined during the first
six months of 1999 at an average mining cost of $0.77 per ton. Mine operating
costs during the six months ended June 30, 1999 were at or below planned
levels, however, gold production during the period did not reach planned
levels. As a result, the cash operating cost per ounce was higher than plan
at $413.
Depreciation, depletion and amortization of $3.4 million for the first six
months of 1999 was $0.6 million less than the same period in 1998. At the
Hycroft mine, the DD&A expense at the mine decreased substantially from 1998
as explained above. The decrease at the Hycroft mine was partially offset by
the start-up of the Mineral Ridge mine, which recorded $2.2 million of DD&A
expense.
The provision for reclamation and closure costs decreased $1.5 million from
1998. At the Hycroft mine, reclamation and closure costs were fully accrued
in 1998 and no further provisions are anticipated. At the Mineral Ridge mine,
$92 thousand was accrued for reclamation and closure costs during the first
six months of 1999. The provision is
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charged to earnings over the life of the mine on a unit-of-production basis.
As production levels increase at the Mineral Ridge mine, the amount of the
provision for reclamation and closure costs will increase accordingly.
Corporate administration and investor relations expenditures decreased nine
percent from the first six months of 1998 as measures taken in 1998 to reduce
the Corporation's overhead costs continue to be effective. Interest expense
for the six months ended June 30 increased from $0.3 million in 1998 to $0.6
million in 1999. In 1998, the Hycroft mine incurred interest expense on debt
that was subsequently retired during the year. The 1999 interest expense was
primarily incurred on Mineral Ridge debt which was amended when the
Corporation acquired the Mineral Ridge mine.
YEAR 2000
As the year 2000 approaches, there are uncertainties concerning whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or fail.
A significant portion of the Corporation's computer systems and software are
already configured to accommodate dates beyond the year 2000. The Corporation
believes that the year 2000 will not pose significant operational problems
for the Corporation's computer systems. At present, the Corporation has
established a plan to identify and resolve potential year 2000 issues. The
plan includes the following five key elements:
- to test and evaluate the hardware components of the Corporation's
computer systems;
- to test and evaluate the software components of the Corporation's
computer systems;
- to test and evaluate any date/time sensitive components of the
Corporation's operating assets and control systems;
- to evaluate and prioritize the potential impact of any third-party
computer systems; and
- to take corrective actions where necessary.
The Corporation has identified potential year 2000 issues and the resolution
of those issues will be dependent on the nature of the issue. However, where
any internal equipment or software is concerned, the Corporation is
responding by modifying, upgrading, or replacing any features that are not
year 2000 compliant. Where possible, the Corporation will attempt to
incorporate redundancy in its computer systems to reduce the likelihood of
any total system failures related to year 2000 issues, and the Corporation
will implement contingency plans to minimize the effects of any year 2000
failures. Additionally, printed and electronic back-ups are kept of all
material transactions, reports, systems and software where the effects of
year 2000 failures could adversely impact the Corporation.
The Corporation has completed its assessment of the majority of its systems,
and has initially assessed the year 2000 status of the major third parties
with which it deals. While it is not possible at this time to assess the
effect of a third party's inability to adequately address year 2000 issues,
the Corporation does not believe the potential problems associated with year
2000 will have a material effect on its financial results.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's consolidated cash balance on June 30, 1999 was $3.8
million, a decrease of $0.9 million from December 31, 1998. Operating
activities used $0.5 million of cash, investing activities used $1.5 million
and financing activities provided $1.1 million of cash.
Net cash required for operating activities during the first six months of
1999 was as follows.
1999
----
Hycroft mine $ 2,280
Mineral Ridge mine (1,343)
Bolivian holding costs (879)
Corporate administration and investor relations (554)
--------
$ (496)
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At the Hycroft mine, operating activities for the first six months of 1999
generated $3.9 million of cash before reclamation expenditures of $0.9
million, accounts payable reductions of $0.4 million and exploration and
other expenditures of $0.3 million. The resulting net cash provided by
operating activities was $2.3 million and reflects the low operating costs
achieved by the mine after suspending mining operations in 1998. As gold
production rates are expected to decrease over the remainder of the year,
cash flows from operating activities will similarly decline.
At the Mineral Ridge mine, operating activities for the six months ended June
30, 1999 consumed $3.7 million of cash before exploration expenditures of
$0.1 million and cash generated from hedging transactions of $2.5 million.
The resulting net cash used for operating activities of $1.3 million was
directly related to lower than planned gold production combined with low gold
prices. The mine plan currently calls for an additional $1.3 million of cash
to be generated from hedging transactions before the end of the year. This
cash resource will be used to fund operating shortfalls until gold production
reaches planned levels. The Corporation expects to reach planned gold
production levels before year end.
Investing activities of $1.5 million consisted of Mineral Ridge capital
expenditures of $1.2 million and Bolivian evaluation expenditures of $0.3
million. Mineral Ridge capital expenditures during the first six months of
1999 were primarily for the planned expansion of the heap leach pad and for
the replacement of a critical ore feeder, which was identified as inadequate
during start-up.
In 1998, the Corporation purchased Mineral Ridge. As part of the transaction,
Mineral Ridge's bank debt agreement was amended. At June 30, 1999, the
amended bank debt was approximately $15.2 million. The interest rate on the
debt is LIBOR plus two percent and the loans, which are not guaranteed by the
Corporation, are collateralized by the assets of Mineral Ridge, including
$5.0 million of mining equipment that was contributed by the Corporation.
During the first six months of 1999, the Mineral Ridge mine repaid $0.3
million of the outstanding debt balance.
In April 1999, the Hycroft mine entered into a debt agreement with Finova
Capital Corporation through which Hycroft received $1.5 million in cash. The
interest rate on the loan is 10.61 percent and the loan is collateralized by
certain mobile equipment assets at the Hycroft mine. The repayment terms of
the loan require 36 equal monthly installments commencing in May 1999, and
through June 30, 1999, the Hycroft mine repaid $0.1 million of the
outstanding debt balance.
At June 30, 1999, the Corporation had forward sales commitments covering
100,000 ounces of gold at an average price of $311 with various expiration
dates up to December 1999. The Corporation has the ability to defer the date
that the related gold is ultimately delivered.
RECLAMATION AND ENVIRONMENTAL COSTS
Management estimates the reclamation and closure costs for the Corporation's
mines as follows:
Hycroft mine $4.9 million
Mineral Ridge mine 1.8 million
------------
$6.7 million
------------
------------
These costs are charged to earnings over the lives of the mines and the
provision to date is $5.5 million. In April 1995, the Nevada Bureau of Land
Management ("BLM") approved an amended Hycroft mine reclamation plan that
included the Brimstone deposit, and a surety bond in the amount of $5.1
million was posted to secure reclamation obligations under the plan. During
the first six months of 1999, the Corporation incurred $0.9 million in
reclamation and closure related expenditures at the Hycroft mine. To date,
Hycroft has reclaimed over 500 acres, or approximately 25 percent, of the
disturbances on the entire mine site. Reclamation will continue in areas
which would not be affected by the potential re-start of mining operations as
discussed below.
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In September 1996, the BLM approved the Mineral Ridge mine plan of operations
and a surety bond in the amount of $1.6 million was posted. Cash collateral
in the amount of $0.9 million has been posted as security for the surety bond.
REGULATORY COMPLIANCE AND OTHER MATTERS
During the first six months of 1999, there were no material environmental
incidents or non-compliance events with any applicable environmental or other
regulations.
OUTLOOK
The Corporation is proceeding with a $0.4 million exploration program at the
Hycroft mine and the start-up of the Mineral Ridge mine. Financing activities
for the Bolivian Amayapampa project have been temporarily suspended by the
Corporation until gold prices return to higher levels.
At the Hycroft mine, gold production from previously inventoried ore is
continuing at above-plan rates and is now expected to be 35,000 ounces for
the year. A reconciliation of the Brimstone ore reserve model confirmed that
actual gold production exceeded projected gold production by more than 30
percent. Following the results of the reconciliation, the Board of Directors
approved a $0.4 million exploration program, to be completed by September
1999. The program includes approximately 6,000 feet of diamond drilling and
11,000 feet of angled reverse circulation drilling to determine if the
positive variance extends to the remaining Brimstone gold resource. A
positive conclusion could add significantly to the Corporation's mineable
reserves and allow the Hycroft mine to resume operations when gold prices
return to higher levels.
After acquiring the Mineral Ridge mine in October 1998, the Corporation
recommenced mining activities immediately with a planned start-up period
leading to full production by the end of the first quarter of 1999. During
start-up, many plant and crushing design deficiencies were identified which
required correction and resulted in lower than expected gold production in
the first half of 1999. The major corrections have been completed and
crushing operations are nearing planned capacity. The Corporation has revised
its 1999 estimates and, following normal recovery lead-times, gold production
at the Mineral Ridge mine is expected to reach planned levels during the
second half of 1999 and is estimated to be 35,000 ounces for the year. The
Corporation has reviewed its long-term forecast for the project and at a $260
per ounce gold price, the project generates cash flows at levels similar to
those that were projected at the time of its acquisition.
In Bolivia, the Corporation completed studies on a revised development plan
for the Amayapampa project. The study, which was completed in February 1999,
evaluated the economics of combining the nearby Capa Circa project with the
Amayapampa project. The revised study demonstrated a significant enhancement
over previous studies at a gold price of $300 per ounce. The revised project
is forecast to have an average production rate of 50,100 ounces per year over
the first five years of its 12 year life. The proven and probable reserve at
Amayapampa is 548,000 ounces of gold calculated at a $300 per ounce gold
price. The estimated cash production costs of the project will be $157 per
ounce of gold and the initial capital cost will be approximately $26 million.
The Corporation was focusing its efforts on arranging the financing for this
project. However, recent gold price declines have impaired the Corporation's
efforts to finance the project. As a result, the Corporation is attempting to
minimize holding costs for the Bolivian properties in order to preserve the
assets until gold prices return to higher levels.
The Corporation plans to complete the exploration of the Hycroft Brimstone
ore reserve, operate the Mineral Ridge mine and hold the Bolivian properties
using its existing financial resources. While the Corporation has positioned
itself to operate in the current gold price environment, there are no
assurances that it will be able to do so indefinitely or that gold prices
will not deteriorate further. Such further deterioration could have adverse
consequences on the Corporation.
-14-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
The Corporation is engaged in gold mining and related activities, including
exploration, extraction, processing, refining and reclamation. Gold bullion
is the Corporation's principal product. Changes in the price of gold could
significantly affect the Corporation's profitability and cash flows. Gold
prices may fluctuate widely from time to time. For a description of factors
that affect gold prices, see note 1(a) to the consolidated financial
statements for the year ended December 31, 1998 filed under "Form 10-K, Item
8. Consolidated Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements".
Using current 1999 estimates of production at an estimated average gold price
of $260 per ounce, including the effects of the Corporation's hedging
position and management's estimate of expected operating expenses, a $10
change in the gold price would result in an increase or decrease of
approximately $0.4 million in net income and cash flows.
The Corporation occasionally utilizes derivative commodity instruments to
manage the Corporation's exposure to the risks associated with fluctuations
in the price of gold by protecting the selling price of a portion of its
production. The commodity instruments are not used for trading purposes. The
market risk of these commodity instruments to the Corporation's cash flow is
related to the possible failure of all counterparties to honor their
contractual obligations. Precious metals contracts between the Corporation
and various counterparties involve the requirement that the Corporation
deliver gold to the counterparty at agreed-upon prices. If the counterparty
is unable to fulfill its purchase obligations, there is no guarantee that the
Corporation will be able to receive the agreed-upon sales price in the open
market. If the Corporation is unable to produce sufficient gold to meet its
hedging contract obligations, it may be obligated to purchase such gold in
the open market. For further information regarding the Corporation's hedging
program, see note 3 to the consolidated financial statements for the three
months ended June 30, 1999 under "Item 1. Financial Statements - Notes to
Consolidated Financial Statements".
At June 30, 1999, the Corporation had outstanding forward sales contracts for
100,000 ounces at an average price of $311 per ounce. The contracts require
the Corporation to deliver the gold at various dates up to December 31, 1999.
The Corporation has the ability to defer the date the related gold is
ultimately delivered. During the first six months of 1999, the Corporation
closed out various forward sales contracts for cash consideration of
approximately $2.5 million. The closed out contracts were replaced with new
forward sales contracts for the same amount of ounces at lower average prices.
INTEREST RATE RISK
At June 30, 1999, the interest rate on the significant majority of the
Corporation's long-term debt was LIBOR plus two percent. The interest rate on
this debt is variable and can be fixed for specific periods of time of up to
180 days at the option of the Corporation. As a result, management does not
believe that the Corporation is exposed to significant interest rate risk and
the Corporation does not utilize market risk sensitive instruments to manage
its exposure to this risk.
FOREIGN CURRENCY EXCHANGE RATE RISK
The price of gold is denominated in U.S. dollars, and all of the
Corporation's revenues and a significant majority of its expenses are
incurred in U.S. dollars. As a result, management does not believe that the
Corporation is exposed to significant foreign currency exchange rate risk and
the Corporation does not utilize market risk sensitive instruments to manage
its exposure to this risk.
-15-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.01 Statement re: Computation of per Share Earnings.
27.01 Financial Data Schedule.
99.01 Second Quarter 1999 Report to Shareholders
(b) Reports on Form 8-K
The following documents were filed under cover of Form 6-K and
Form 8-K during the quarter ended June 30, 1999:
1. Press release dated April 1, 1999 announcing the 1998
financial results filed under cover of Form 6-K on April 1,
1999.
2. Press release dated May 12, 1999 announcing merger
discussions with Metallica Resources Inc. filed under cover
of Form 6-K on May 14, 1999.
3. Press release dated May 18, 1999 announcing first quarter
1999 results filed under cover of Form 8-K on May 21, 1999.
4. Press release dated June 2, 1999 announcing termination of
merger discussions with Metallica Resources Ltd. filed
under cover of Form 8-K on June 3, 1999.
-16-
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.
VISTA GOLD CORP.
(Registrant)
Date: August 6, 1999 By: /s/ Michael B. Richings
-------------------------------------
Michael B. Richings
President and Chief Executive Officer
Date: August 6, 1999 By: /s/ Roger L. Smith
-------------------------------------
Roger L. Smith
Vice President Finance
-17-
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
11.01 Computation of per Share Earnings 19
27.01 Financial Data Schedule 20
99.01 Second Quarter 1999 Report to Shareholders 21
-18-