U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|x| Annual report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee required)
For the fiscal year ended December 31, 1996
| | Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee required)
For the transition period from to
Commission file number 1-1761
CHIEF CONSOLIDATED MINING COMPANY
(Name of Small Business Issuer in its Charter)
Arizona 87-0122295
(State or Other Jurisdiction (I.R.S.
Employer
of Incorporation or Organization)
Identification No.)
500 Fifth Avenue, New York, New York 10110
(Address of Principal Executive Offices) (Zip
Code)
(212) 354-4044
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange
Act:
Name of Each Exchange
Title of Each Class on which Registered
Common stock, $0.50 par value NASDAQ Small-Cap Market
Pacific Stock Exchange
Securities registered under Section 12(g) of the Exchange
Act:
None
(Title of Class)
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
Check if there is no disclosure of delinquent filers in
reponse to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-
KSB or any amendments to this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year.
$116,010
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days. (See
definition of affiliate in Rule 12b-2 of the Exchange Act.)
$34,700,000 as of March 14, 1997.
Note: If determining whether a person is an affiliate will
involve an unreasonable effort and expense, the issuer may
calculate the aggregate market value of the common equity held by
non-affiliates on the basis of reasonable assumptions, if the
assumptions are stated.
ISSUERSINVOLVEDINTHEBANKRUPTCPROCEEDING
DURINGTHEPASTFIVEYEARS
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date.
Class Outstanding at March 14, 1997
Common Stock $0.50 par value 5,988,109
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference;
briefly describe them and identify the part of the Form 10-KSB
(e.g., Part 1, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2)
any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933 ("Securities Act"). The listed documents should be clearly
described for identification purposes (e.g., annual report to
security holders for the fiscal year ended December 24, 1990):
(3) Registrant's Amended Form S-4 (No. 1) Registration Statement
under the Securities Act of 1933. Registered 372,515 shares of
common stock issued in connection with merger of South Standard
Mining Company into registrant's subsidiary, Chief Gold Mines,
Inc. (See part 1-Item 1. "Description of Business-Merger of South
Standard into Registrant.")
PART I
Item 1. Description of Business.
General.
Registrant is a corporation formed under the laws of Arizona
in 1909. Registrant's mining office is located at Eureka, Juab
County, Utah 84628. In March, 1997, registrant moved its
executive office in New York City to 500 Fifth Avenue, New York,
NY 10110. Registrant has a total of ten employees, seven of whom
are employed in Utah and three in New York.
Registrant is the owner of, or has a vested interest in,
approximately 14,500 acres of patented mining ground in the
Tintic Mining District, Juab and Utah Counties, Utah, and
approximately 200 acres of unpatented mining claims in the same
area. In addition, registrant, through a wholly owned
subsidiary, is the owner of 2,554 acres of patented mining
properties also located in the East Tintic Mining District. See
"Item 2. Description of Property.-Ownership and Interests In
Acreage and Location." for information concerning the
composition and use of said properties. Registrant holds stock
interests in other companies owning mining properties, all of
which are consolidated or unconsolidated subsidiaries of
registrant.
In July, 1996, registrant transferred a substantial portion
of its properties (including the Burgin Mine) to Tintic Utah
Metals LLC, a Colorado limited liability company ("Tintic Utah
Metals") in exchange for a vested 50% membership interest in
Tintic Utah Metals. The other members of Tintic Utah Metals are
a wholly owned subsidiary of AKIKO Gold Resources Ltd.
("Akiko") and a wholly owned subsidiary of Korea Zinc Ltd.
("Korea Zinc"); these members are to provide initial cash
capitalization under the terms of the Operating Agreement between
the members. See "Operating Agreement." and "Tintic Utah
Metals LLC.", below. Beginning in 1994, and up to the time that
registrant transferred the properties to Tintic Utah Metals, mine
development work, including underground drilling and drifting,
was conducted by registrant's employees, which then numbered
fifteen in Utah, and in some instances by outside contractors.
After the transfer of the properties by registrant to Tintic Utah
Metals, Tintic Utah Metals hired its own employees to continue
the drilling work. Tintic Utah Metals has also entered into an
agreement with Thyssen Mining Construction of Canada, Ltd.
("Thyssen Mining") whereunder Thyssen Mining will conduct
preliminary engineering design, budgeting and planning services.
See "Tintic Utah Metals LLC-Agreement With Thyssen Mining",
below and "Item 2. Description of Property- Current Underground
Drilling Program at Burgin Mine."
Tintic Utah Metals LLC-Agreement With Thyssen Mining.
Tintic Utah Metals entered into an agreement dated November
12, 1996 with Thyssen Mining that contemplates several phases of
work by Thyssen. During the first phase, Thyssen Mining will
conduct preliminary engineering design, budgeting and planning
services for the New Burgin Mine shaft sinking, underground
development and contract mining, with the view towards obtaining
a bankable feasibility study. Under the first phase of the
agreement, Thyssen will be reimbursed by Tintic Utah Metals for
Thyssen's expenditures only if project financing is obtained as a
result of Thyssen's feasibility work. The second phase of
Thyssen's work under the agreement, if project financing is
obtained, would involve the completion of all necessary
construction and development work, including construction of the
major additional production shaft and requisite dewatering to
bring the New Burgin Mine into production. If the first two
phases of the agreement were successful, the third phase would
involve Thyssen's contracting with Tintic Utah Metals to operate
the New Burgin Mine, sending Burgin ore production to Korea Zinc
and/or other smelters for smelting, as provided in the Operating
Agreement. Under the terms of the agreement with Thyssen, either
Tintic Utah Metals or Thyssen may terminate the agreement upon
notice to the other. Accordingly, while Thyssen has initiated
its phase one activities under the agreement, Tintic Utah Metals
is, with a view towards completion of a feasibility study,
continuing exploration and development work on its own, hiring
consultants and continuing its underground drilling program.
See "Item 2. Description of Property- Current Underground
Drilling Program at Burgin Mine." and "Item 6. Management's
Discussion and Analysis or Plan of Operation.-PLAN OF OPERATION-
Tintic Utah Metals."
Operating Agreement.
The Operating Agreement, executed as of July 17, 1996, and
amended as of March 11, 1997, encompasses the agreement reached
between registrant, Akiko and Korea Zinc to use Tintic Utah
Metals LLC, a limited liability company ("Tintic Utah Metals")
formed under the Colorado Limited Liability Company Act (the
"Colorado Act") on July 29, 1996, as the vehicle for a joint
venture project for the development of certain properties
contributed by registrant to Tintic Utah Metals. Pursuant to
the terms of the Operating Agreement, registrant has transferred
by mining deed to Tintic Utah Metals, the mining rights to
approximately 8,500 acres of its patented mining property in the
East Tintic Mining District of Utah, including the Burgin Mine,
and approximately 200 acres of unpatented mining claims in the
same vicinity. The Operating Agreement also provides that all the
business and operations relating to the development and mining of
the East Tintic Mining District properties so transferred to
Tintic Utah Metals will be conducted by Tintic Utah Metals.
Registrant has a vested 50% membership interest in Tintic Utah
Metals. Akiko and Korea Zinc will own the other 50% membership
interest, after a total of $6,000,000 of initial cash capital
contributions has been paid to Tintic Utah Metals by Akiko and
Korea Zinc ("Initial Cash Contributions"). Prior to the March
11, 1997 amendment to the Operating Agreement, the said
$6,000,000 of Initial Cash Contributions was to have been paid in
over a period ending no later than August 31, 1998, at which time
Akiko and Korea Zinc would each have been vested with a 25%
membership interest. The March 11, 1997 amendment creates
specified dates by which Akiko and Korea Zinc are to make
installment payments on account of their Initial Capital
Contributions in order to earn their vested membership interests,
with certain percentage membership interests to vest upon the
making of such payments. The amendment does not permit
registrant's membership interest to go below 50%. In certain
instances of nonpayment of installments of capital contribution,
registrant's membership interest would increase above 50%. See
"Capital Contributions.- Initial Capital Contributions.",
below.
Korea Zinc has already made $2,000,000 of its $3,000,000
share of Initial Cash Contributions, leaving $4,000,000 of
Initial Cash Contributions remaining to be paid ($1,000,000 from
Korea Zinc and $3,000,000 from Akiko). When Korea Zinc makes its
remaining $1,000,000 contribution, scheduled for $500,000 on
April 15, 1997 and $500,000 on July 15, 1997, Korea Zinc will
become vested with a 25% membership interest in Tintic Utah
Metals. See "Capital Contributions.- Initial Capital
Contributions.", below: for the dates by which Akiko and Korea
Zinc are required to make their Initial Cash Contributions; the
circumstances under which Akiko loses its right to a full 25%
vested membership interest; and, the circumstances under which
Korea Zinc can increase its vested membership interest above 25%.
If Korea Zinc does not timely make its remaining $1,000,000
Initial Cash Contribution and Akiko does not make any of its
$1,000,000 Initial Cash Contribution installments, Akiko and
Korea Zinc shall be deemed to have resigned as members of Tintic
Utah Metals and full title to the East Tintic Mining District
properties, including the Burgin Mine, contributed by registrant
to Tintic Utah Metals shall revert to registrant, with no
obligation upon registrant to repay any Initial Cash
Contributions previously paid to Tintic Utah Metals by Korea
Zinc. A reverter deed formally returning legal title to the
properties to registrant is being held in escrow for that
purpose. Once Korea Zinc does make the remaining $1,000,000
installment payment of its Initial Cash Contributions, it becomes
vested in a 25% membership interest in Tintic Utah Metals, and
thus has a vested interest in the underlying East Tintic Mining
District properties that are owned by Tintic Utah Metals.
After Korea Zinc and Akiko have contributed the entire
$6,000,000 Initial Cash Contributions to Tintic Utah Metals,
additional cash contributions by all three members of Tintic Utah
Metals shall be made based upon their respective membership
percentage interests in Tintic Utah Metals. Based upon the
membership percentages that will be in effect, assuming that a
total of $6,000,000 of Initial Cash Contributions has been paid
by Korea Zinc and Akiko, registrant's share of such additional
cash contributions will be 50%. However, under certain
circumstances, the percentage of a member's interest could
change. See "Capital Contributions.", below. The exact amount
of these additional cash contributions will depend upon the
program and budgetary requirements of Tintic Utah Metals as
approved by the members.
The primary goal of Tintic Utah Metals is to bring the
Burgin Mine back into production. Under the terms of a March 11,
1994 agreement between registrant and Akiko that was superceded
by the Operating Agreement, registrant was required to initiate
spending of funds on
developmental work and other costs and expenses relating to the
Burgin Mine out of the $2,000,000 proceeds received by registrant
from its sale of 500,000 shares of registrant's common stock in a
private placement to Akiko. Registrant was also required to
spend another $2,000,000 on development work out of the
$2,000,000 proceeds received by registrant from its sale of an
additional 500,000 shares of registrant's common stock in a
private placement to Korea Zinc. Accordingly, in August, 1994,
registrant began shaft rehabilitation and in January, 1995,
registrant initiated an underground drilling program in the west
end of the Burgin Mine, together with additional drifting and the
construction of five new underground drill stations. The
drilling program was designed to confirm previously delineated
reserves and to increase the Burgin Mine's ore reserves in
several peripheral areas of the known Burgin orebody. Registrant
completed its above described expenditures of the $4,000,000
received from the stock sales. See Item 2. Description of
Property.- Current Underground Drilling Program at the Burgin
Mine."
The Operating Agreement contains a comprehensive agreement
between the registrant, Akiko and Korea Zinc that governs the
management and operation of the properties owned by Tintic Utah
Metals and each of the parties rights and obligations as to each
other. The following briefly summarizes some of the important
aspects of the Operating Agreement:
Capital Contributions.
Initial Capital Contributions: Registrant's initial
capital contribution to Tintic Utah Metals is registrant's East
Tintic Mining District properties, including the Burgin Mine, and
all equipment and other mining property and assets and all
information and data relating to same. Akiko's and Korea Zinc's
initial capital contribution to Tintic Utah Metals is to be
$3,000,000 each in cash payable in installments. Korea Zinc has
paid $2,000,000 to date, leaving $1,000,000 remaining to be paid.
As amended, the Operating Agreement provides that Korea Zinc
shall pay the remaining $1,000,000 of its Initial Cash
Contribution in two equal installments: $500,000 on April 15,
1997 and $500,000 on July 15, 1997 (said latter date can be
extended up to 30 days upon agreement of all the members). Korea
Zinc will earn a vested 25% membership interest in Tintic Utah
Metals when it pays in that $1,000,000, bringing its total
Initial Cash Contribution up to $3,000,000. Akiko is to make
its Initial Cash Contribution of $3,000,000 in three equal
installments of $1,000,000 each on or before August 15, 1997,
February 1, 1998 and July 1, 1998. Each time Akiko timely makes
a $1,000,000 Initial Cash Contribution installment payment, it
will become vested with a 8-1/3% membership interest in Tintic
Utah Metals.
If Korea Zinc does not complete payment of the
remaining $1,000,000 of its Initial Cash Contribution, it will
receive no vested membership interest in Tintic Utah Metals. See
"Operating Agreement", above. Once Korea Zinc has made the
additional $1,000,000 payment to Tintic Utah Metals, and thus
earned a 25% vested interest in Tintic Utah Metals, it shall also
have the right to acquire an additional 8-1/3% vested interest in
Tintic Utah Metals if Akiko defaults in making a $1,000,000
installment payment of Akiko's Initial Cash Contribution
obligation and Korea Zinc elects to itself make that $1,000,000
payment to Tintic Utah Metals. However, at any point that Akiko
defaults in making a $1,000,000 installment payment and Korea
Zinc does not elect to make that installment payment itself,
Korea Zinc cannot elect to make a payment with respect to a
subsequent installment upon which Akiko has also defaulted. To
the extent that Korea Zinc has so elected to make $1,000,000
installment payments when Akiko has defaulted, Korea Zinc's
vested membership interest will be increased by 8-1/3%, so that
if Akiko defaults in making all three of its installment payments
and Korea Zinc pays an additional $3,000,000 to Tintic Utah
Metals ($6,000,000 in all), Korea Zinc would have a vested
membership interest in Tintic Utah Metals of 50% and Akiko would
be deemed to have resigned as a member without any vested
interest. To the extent that Korea Zinc has not elected to pay a
$1,000,000 installment with respect to which Akiko is in default,
the 8-1/3% membership interest applicable to that installment
will vest in registrant. Thus, if Korea Zinc has paid the
remaining $1,000,000 portion of its own Initial Cash Contribution
and Akiko is in default in payment of Akiko's $1,000,000 Initial
Cash Contribution Installment due August 15, 1997, but Korea Zinc
does not elect to pay the $1,000,000 to Tintic Utah Metals with
respect to Akiko's unpaid installment, the vesting of membership
interests in Tintic Utah Mining would be fixed at that time,
with: registrant being vested with a 75% interest; Korea Zinc
being vested with a 25% interest (having paid in full its own
$3,000,000 Initial Cash Contribution); and Akiko would be deemed
to have resigned as a member without any vested interest. As
indicated above, it is possible that Korea Zinc can end up with
more than a 25% vested membership interest in Tintic Utah Metals,
while Akiko could have less than a 25% vested interest, but under
no circumstances can Korea Zinc and Akiko together have more than
a 50% vested membership interest in Tintic Utah Metals.
Later Capital Contributions: After the $6,000,000 Initial
Cash Contributions have been paid into capital by Korea Zinc and
Akiko, the members, including registrant, will be obligated to
make additional contributions to fund approved programs and
budgets in proportion to the members' respective percentage
interests in Tintic Utah Metals. The failure of a member to meet
its contribution requirement could result in the dilution of that
member's percentage interest or its elimination as a member of
Tintic Utah Metals.
Management Of Tintic Utah Metals.
The management of Tintic Utah Metals will be conducted by
the members through a management committee, with each member
having its representatives on the committee. Each member will
designate one of its representatives on the committee to vote on
matters coming before the committee, which vote shall be in
proportion to the member's respective membership percentage
interest. Unless the Operating Agreement specifically provides
for a unanimous vote, the affirmative vote of the members holding
a majority of the members' percentage interests shall determine
the decisions of the management committee. A majority vote to
approve a program
and budget is needed, but the approval of a program and budget
for major mining development requires the unanimous affirmative
vote of the members.
The Operating Agreement will provide that the members shall
unanimously select an operations director who shall have the
delegated power to manage, direct and control operations of
Tintic Utah Metals in accordance with programs and budgets
approved by the members' management committee and implement the
decisions of the members. The operations director shall be on
the management committee, but shall not have any vote.
Programs And Budgets.
The operations of Tintic Utah Metals shall be conducted,
expenses shall be incurred, and assets shall be acquired only
pursuant to approved programs and budgets. The members, through
the vote of the management committee, shall vote on proposed
programs and budgets. Funds contributed by Akiko and Korea Zinc
during the initial contribution phase will be used in accordance
with approved programs and budgets for operations appropriate to
produce adequate information for the completion of a feasibility
study. The purpose of such a feasibility study will be to assist
the members in deciding whether to bring the Burgin Mine into
production and, if a decision to produce is unanimously made by
the members, to provide the basis for a program of development,
including mine rehabilitation and construction. If a production
program is approved by the members, the operations director will
attempt to arrange project financing for that production program,
which financing may be secured by Tintic Utah Metals's interest
in its properties and other assets. Tintic Utah Metals may
retain consultants and other mining specialists in connection
with the various phases of its operations. See "Tintic Utah
Metals LLC-Agreement With Thyssen Mining.", above.
Tax Implications of Tintic Utah Metals.
It is the intention of the members that Tintic Utah Metals
be treated as a partnership under the Internal Revenue Code of
1986, as amended. Accordingly, registrant will include its
proportionate share of taxable income or loss from Tintic Utah
Metals in registrant's corporate income tax return. A member's
percentage interest in Tintic Utah Metals will determine the
member`s proportionate share of income or loss, except the
Operating Agreement will provide that each member will be
allocated expense deductions emanating from the property such
member has contributed to Tintic Utah Metals. Thus, Akiko and
Korea Zinc will each be allocated the tax deductions that arise
from their respective Initial Cash Contributions and registrant
will be allocated the tax deductions that arise from its
contribution of East Tintic Mining properties, such as cost
depletion, depreciation on equipment, and development costs.
Distributions By Tintic Utah Metals.
Distributions of cash or property by Tintic Utah Metals will
be made to the members on a pro-rata basis in proportion to their
percentage interests on the date of distribution. The Operating
Agreement contains provisions that define the members rights to
receive such distributions.
Right of First Refusal.
If a member desires to sell its interest in Tintic Utah
Metals to a third party, the Operating Agreement provides the
mechanics under which the other members have the prior right to
purchase the selling member's interest on the same terms as
offered by the third party.
Registrant's Contribution Of Additional Property.
Registrant's wholly owned subsidiary, Chief Gold Mines,
Inc., is the owner of 2,554 acres of property in the East Tintic
Mining District that was acquired as a result of a merger
transaction with South Standard Mining Company ("South
Standard") that was consummated in June, 1996. See "Merger Of
South Standard Into Registrant.", below. The parties to the
Operating Agreement have discussed the possibility of a future
transfer by registrant's subsidiary to Tintic Utah Metals of the
property that was acquired as a result of the South Standard
merger, such transfer to be an additional capital contribution by
registrant to Tintic Utah Metals, and any such transfer to be
subject to Tintic Utah Metals reimbursing registrant for certain
costs relating to the merger and work performed by registrant on
those properties.
Projected Costs And Time Involving The Burgin Mine.
If the development work and other aspects of the New Burgin
Mine are successfully completed by Tintic Utah Metals and a
production budget is agreed upon by the members and adequate
financing obtained, registrant estimates that it would be a
minimum of two years before the New Burgin Mine would be in full
production. Limited production from the New Burgin Mine could
result prior to that date if economic ore can be mined above the
water table. Registrant believes that some revenues can also be
realized earlier by Tintic Utah Metals from other areas of Tintic
Utah Metals's properties, such as the Trixie Mine if it is
transferred to Tintic Utah Metals. See "Registrant's
Contribution Of Additional Property.", above. Based upon
current costs, it is estimated that approximately $30 to $40
million of additional financing will be required to bring the New
Burgin Mine into full operation. See "Item 6. Management's
Discussion And Analysis Or Plan Of Operation.- PLAN OF OPERATION-
Tintic Utah Metals." for information concerning the current
value of proven and probable ore reserves of the New Burgin Mine.
Merger of South Standard Into Registrant.
Pursuant to the terms of an Agreement and Plan of Merger
dated as of September 20, 1995 (the "Merger Agreement"), South
Standard was merged with and into Chief Gold Mines, Inc., a
wholly owned subsidiary of registrant, effective June 28, 1996
after the shareholders of South Standard had approved the merger
on June 21, 1996. Approval of the merger by shareholders of
registrant was not required under Arizona law.
As a result of the merger, all of South Standard's assets,
subject to its liabilities, were transferred to registrant's
wholly owned subsidiary. In exchange, each shareholder of South
Standard received 0.3 share of registrant's common stock for each
share of South Standard held by the shareholder. Registrant's
372,515 shares to be issued pursuant to the merger terms were
registered with the U.S. Securities and Exchange Commission under
a registration statement that became effective May 8, 1996.
Registrant hereby incorporates by reference registrant's Amended
Form S-4 (No.1) Registration Statement under the Securities Act
of 1933 filed with the Securities and Exchange Commission.
South Standard had outstanding 1,241,717 shares of common
stock which resulted in a 6.9% increase of the number of
registrant's outstanding shares at the time the merger was
approved by South Standard shareholders. No shareholders of
South Standard exercised the right to dissent from the merger
that was available to them under Utah law. The market value for
the 372,515 shares of registrant's common stock issued to the
South Standard shareholders as a result of the merger was
approximately $3.4 million on June 21, 1996.
See "Item 2. Description Of Property- Property Received
From South Standard As Result Of Merger." for information
concerning South Standard's mining properties received by
registrant's subsidiary as a result of the merger, and which
property may, under certain circumstances, be contributed by
registrant to Tintic Utah Metals. See "Operating Agreement-
Registrant's Contribution Of Additional Property", above.
Main Tintic Mining District Project.
The area known as registrant's Main Tintic Mining District
consists of approximately 6,000 acres owned by registrant. See
"Item 2. Description of Property- Main Tintic Mining District."
Over the past two years, registrant successfully rehabilitated
the Chief No. 2 shaft and certain drifts which had previously
been used to mine the Plutus orebody; the renovation was
completed in October, 1996. In February, 1997, as part of an
underground exploratory drilling program, a successful link-up of
four separate mine shafts located on registrant's Main Tintic
Mining District properties was accomplished by registrant by
means of opening old drifts from one of those mines, the Plutus
Mine. As a result, registrant has gained access via the Chief
No. 2 shaft to the Plutus Mine, the Eagle Mine, the Gemini Mine
and the Chief Consolidated Mine.
Prior production of metals by registrant from the four mines
that had been operated by registrant during the period 1909 to
1957 was 3.7 million tons of ore producing: 210,952 ounces of
gold; 58,395,275 ounces of silver; 455,823,630 pounds of lead;
166,711,652 pounds of zinc; and 12,626,186 pounds of copper.
Production from those mines was stopped in 1957 due to then
existing economic conditions. See "Item 6. Management's
Discussion And Analysis Or Plan Of Operation.- PLAN OF OPERATION
- - -Main Tintic Mining District Project." for assay results of
recent underground drilling and registrant's plan for the
project.
Item 2. Description of Property.
Ownership and Interests In Acreage and Location.
Registrant is the owner of, or has a vested interest in,
approximately 14,500 acres of patented mining ground in the
Tintic Mining District, Juab and Utah Counties, and approximately
200 acres of unpatented mining claims in the same area. In
addition, registrant, through a wholly owned subsidiary, is the
owner of 2,554 acres of patented mining properties also located
in the East Tintic Mining District. Title to patented mining
ground is vested in the owner thereof; unpatented mining claims
are possessory rights to land owned by the U.S. Government and
are subject to annual rental payments and other conditions as to
validity. The location of these properties and the nature of
registrant's ownership and interests is as follows:
East Tintic Mining District. Consists of approximately
8,500 acres of patented ground and 200 acres of unpatented mining
claims. Pursuant to the terms of an Operating Agreement
("Operating Agreement") between registrant, Korea Zinc and
Akiko dated as of July 17, 1996, Tintic Utah Metals LLC ("Tintic
Utah"), a Colorado limited liability company, was formed and
registrant transferred ownership of the aforesaid 8,500 acres of
patented ground and 200 acres of unpatented mining claims to
Tintic Utah Metals. Registrant owns a 50% vested membership
interest in Tintic Utah Metals, which percentage interest could
increase depending upon the amount of Initial Cash Contributions
payments made to Tintic Utah Metals by registrant's co-members,
Korea Zinc and Akiko. See "Item 1. Description of Business.-
Operating Agreement." for a description of the Operating
Agreement, the formation of Tintic Utah Metals, the amounts of
Initial Cash Contributions to be made by Akiko and Korea Zinc and
the conditions upon which registrant's vested interest in Tintic
Utah Metals could increase above 50%.
Included within the East Tintic Mining District
properties transferred by registrant to Tintic Utah Metals, is
the Burgin Mine that was operated by Kennecott Corporation
("Kennecott"), from 1966 to 1978, as part of property that
Kennecott had leased from registrant and other co-lessors, and a
concentrating mill and various other buildings and support
facilities that were built by Kennecott on the property that was
then leased by Kennecott. See "Leasing History of Burgin
Mine.", below, and "Item 1. Description of Business.-Operating
Agreement." for information on Burgin Mine and registrant's
vested interest in Tintic Utah Metals.
Main Tintic Mining District. Consists of approximately
6,000 acres of patented mining ground owned by registrant and is
not a part of the Operating Agreement or Tintic Utah Metals..
This acreage in the Main Tintic Mining District includes several
sites targeted by registrant for future exploration and
development. Included is the Plutus Mine property upon which
registrant initiated exploratory drilling in 1996. See "Item 1.
Description of Business.-Main Tintic Mining District Project."
and "Item 6. Management's Discussion and Analysis or Plan of
Operation-PLAN OF OPERATION- Registrant's Main Tintic Mining
District Project."
Leasing History of Burgin Mine.
In 1956, registrant and South Standard Mining Company
("South Standard"), together with three other co-lessors who
were subsequently acquired by either South Standard or
registrant, had leased approximately 10,000 acres in the East
Tintic Mining District to Kennecott under a Unit Lease Agreement
("Unit Lease"). In 1983, Kennecott sold its interest in the
Unit Lease to Sunshine Mining Company ("Sunshine").
Registrant contributed 4,733 acres to the Unit Lease
properties in 1956, and in 1978, 1,387 acres owned by registrant
that comprised a part of the properties under the Unit Lease were
removed by amendment and returned to registrant. That latter
acreage included underground mining rights to the Burgin Mine.
South Standard, as part of the amendment to the Unit Lease,
retained a royalty interest in future production from the Burgin
Mine that had been so returned to registrant. South Standard's
Trixie Mine properties were contributed by South Standard to the
Unit Lease properties in 1956 and continued to remain subject to
the Unit Lease after Kennecott sold its interest in the Unit
Lease to Sunshine in 1983, as referred to above.
Registrant had separately entered into a lease agreement
with Sunshine covering underground mining rights to the Burgin
Mine in 1980. Sunshine thus became the lessee of the remaining
properties under the Unit Lease (to which registrant and South
Standard had been lessors) and of the Burgin Mine properties (to
which registrant had been lessor). In 1992, as part of an
agreement with Sunshine, (i) the Unit Lease was canceled, with
registrant and South Standard each receiving back their
respective properties that had been under the Unit Lease, and
(ii) the Burgin Mine lease was canceled and the Burgin Mine
properties were returned to registrant free of any lease. In
1996, South Standard was merged into a wholly owned subsidiary of
registrant, so that all the property that had been leased to
Kennecott under the Unit Lease was owned by registrant and its
subsidiary immediately after the merger. See "Item 1.
Description of Business.-Merger of South Standard Into
Registrant's Subsidiary."
All of registrant's property that was subject to the Unit
Lease when the lease was in existence, including the Burgin Mine,
together with certain other properties owned by registrant, have
been transferred by registrant to Tintic Utah Metals in return
for which registrant has received a 50% vested membership
interest in Tintic Utah Metals under the terms of the Operating
Agreement. The property that had been owned by South Standard
and that was acquired by registrant's subsidiary as a result of
the merger of South Standard may also be transferred to Tintic
Utah in the future. See "Item 1. Description of Business.-
Operating Agreement." and "East Tintic Mining District.",
above.
Production From Burgin Mine While Under Lease To Kennecott.
Kennecott mined 1,870,218 tons of ore from the Burgin Mine
orebody under the Unit Lease over a twelve year period which
produced: 10,929,978 ounces of silver; 338,127,751 pounds of lead
and 349,209,284 pounds of zinc. Kennecott, during that period,
never reported Burgin ore reserve figures to registrant.
Proven And Probable Ore Reserves At The Burgin Mine.
As indicated above, Sunshine acquired the underground mining
rights to the Burgin Mine in 1980. As lessee of the Burgin Mine,
Sunshine conducted extensive surface and underground drilling
programs and computed the property's proven and probable ore
reserves. Sunshine had access to the proven and probable ore
reserves by means of the Burgin Mine's Apex Number 2 shaft. The
shaft, together with the connecting drifts and drill stations,
had been rehabilitated by Sunshine at a cost of approximately $6
million. After the Burgin Mine was returned to registrant in
1992, registrant continued to have access to the reserves through
the Apex Number 2 shaft, and the shaft was utilized by registrant
in its underground drilling program, up to the time registrant
transferred the Burgin Mine properties to Tintic Utah Metals in
July 1996 under the terms of the Operating Agreement. See "Item
1. Description of Business.- Operating Agreement." After the
property was transferred to Tintic Utah Metals, the underground
drilling program was continued by Tintic Utah Metals and
independent consultants were hired to calculate the ore reserves
based on the results of the drilling programs, who substantiated
the earlier Sunshine ore reserve estimates, with essentially the
same grades. Tintic Utah Metals's consultants, as shown in the
chart below, have currently estimated a total of 1,075,000
million tons of proven and probable ore reserves. In addition,
because of extensive drilling results and the fact that the
Burgin Mine deposit was mined for many years by Kennecott, there
is a high degree of confidence by Tintic Utah Metals that
inferred or possible resources currently estimated at 407,000
additional tons will probably be realized. Tintic Utah Metals
is continuing its underground drilling to the north and south of
the main Burgin orebody in an effort to prove-up the likely
extension of the mineralized ore zone in both directions. Tintic
Utah Metals anticipates that the underground drilling program
will be completed in the third quarter of 1997. See "Item 6.
Management's Discussion and Analysis or Plan of Operation.-PLAN
OF OPERATION- Tintic Utah Metals."
Proven and probable ore reserves, to date, of the New Burgin
orebody, as determined by Tintic Utah Metals's independent
consultants, are estimated as follows:
Contained
Contained Contained Contained
Tons of Ounces of Pounds of
Pounds of
Ore Silver
Lead Zinc
Proven and Probable Reserves 1,075,000 17,726,750
452,360,000 143,405,000
Possible resources of the New Burgin orebody, as estimated
by Tintic Utah Metals are:
Contained
Contained Contained Contained
Tons of Ounces of Pounds
of Pounds of
Ore Silver
Lead Zinc
(1)407,000 6,146,576
130,177,
14842,
521,269
Sources tonnage exists where there is strong logic evidence of the existence of
additional ore reserves of a well known deposit, such as, in the case of the
Burgin Mine,
the past history of mining by Kennecott. See "Production From
Burgin Mine While Under Lease To Kennecott.", above. Additional
ongoing drilling results are expected to provide additional data
based upon which the possible resources may be upgraded to the
proven and/or probable categories.
Current Underground Drilling Program At Burgin Mine.
As indicated above, registrant's lease with Sunshine was
terminated in 1992 and the Burgin Mine was returned to registrant
as of January 1, 1993. Registrant then began its efforts to seek
a joint venture partner, culminating in the Operating Agreement
dated July 17, 1996 with Korea Zinc and Akiko and the transfer by
registrant of its East Tintic Mining District properties,
including the Burgin Mine, to Tintic Utah Metals. See "Item 1.
Description of Business.-Operating Agreement." Prior to the
transfer of its properties to Tintic Utah Metals, registrant had,
in January, 1995, initiated an underground drilling program in
the west end of the Burgin Mine, together with additional
drifting and the construction of five new underground drill
stations. The drilling program was designed to confirm
Sunshine's 1989 estimate of 1,032,173 tons of proven and probable
ore reserves, and to increase the New Burgin Mine's proven and
probable ore reserves by enlarging previously delineated reserves
in several areas around the perimeter of the Burgin orebody.
After the Burgin Mine property was transferred to Tintic Utah
Metals in July, 1996, the drilling program was continued by
Tintic Utah Metals. As of the end of February, 1997, a total
of forty-one drill holes had been completed with assays
indicating high grade mineralization intercepts in approximately
one-half of these drillholes. Following are drillhole assays per
ton for several of the more significant drillholes:
104 ft. intercept assaying at 21 ounces of silver, 640
pounds of lead and 80 pounds of zinc, including an 8 ft. segment
assaying at 58 ounces of silver and 960 pounds of lead;
55 ft. intercept assaying at 10 ounces of silver, 640
pounds of lead and 220 pounds of zinc, including a 17 ft. segment
assaying at 16 ounces of silver and 660 pounds of lead;
24 ft. intercept assaying at 48.4 ounces of silver,
260 pounds of lead and 130 pounds of zinc, including a 14 ft.
segment assaying at 74.7 ounces of silver, 336 pounds of lead
and 180 pounds of zinc;
96 ft. intercept assaying at 7.4 ounces
of silver, 156 pounds of lead and 68 pounds of zinc, including a
21 ft. segment assaying at 15.5 ounces of silver, 306 pounds of
lead and 72 pounds of zinc;
92 ft. intercept assaying at 18.8 ounces of silver,
376 pounds of lead and 133 pounds of zinc, including an 11 ft.
segment assaying at 90 ounces of silver, 843 pounds of lead and
98 pounds of zinc;
152.5 ft. intercept assaying at 17.2 ounces of silver
and 218 pounds of lead, including an 8.3 ft. segment assaying at
84 ounces of silver and 774 pounds of lead.
Physical Condition Of The Burgin Mine.
While Kennecott was lessee of the Burgin Mine, it had
expended significant monies for capital improvements at the
Burgin Mine, such as the building of a concentrating mill, three
headframes and hoists, three mine shafts and underground
workings, including the Apex number 2 shaft. When Sunshine
succeeded Kennecott as lessee of the Burgin Mine, Sunshine
expended funds in the further development of the Burgin Mine. As
a result of the termination in 1992 of registrant's Burgin Lease
with Sunshine and the Unit Lease, all of the assets and
improvements built by Kennecott and Sunshine at the Burgin Mine,
became the property of registrant, with registrant also receiving
certain real property, equipment and other personal property from
Sunshine. Registrant estimates that the cost of renovating the
concentrating mill would be approximately $3.5 million, but that
if the owner of the Burgin Mine had to completely build a
similar facility, the replacement cost would be in excess of $30
million. See "Leasing History of Burgin Mine.", above.
Ownership of the capital improvements was transferred to
Tintic Utah Metals by registrant in July, 1996 as part of the
transfer by registrant of its East Tintic mining properties under
the terms of the Operating Agreement. See "Ownership and
Interests In Acreage and Location-East Tintic Mining District.",
above. The capital improvements continue to be used by Tintic
Utah Metals in the New Burgin Mine underground reserve expansion
drilling program.
Rehabilitation of the operating shafts of the New Burgin
Mine has been in progress since the beginning of 1995, with
registrant expending funds for that purpose in addition to the
underground drilling program. Tintic Utah Metals has benefitted
from the use of the rehabilitated Apex Number 2 shaft which
provides access to the underground drilling platforms.
Rehabilitation of the concentrator and additional improvements to
the property will be provided for under a budget of Tintic Utah
Metals. See Item 1. "Description of Business.-Operating
Agreement- Programs And Budgets."
Registrant's Properties After Property Transfer To Tintic Utah
Metals.
The signing of the Operating Agreement and the transfer by
registrant of title to its East Tintic mining properties,
including the Burgin Mine, to Tintic Utah Metals did not affect
registrant's continuing ownership of its Main Tintic Mining
District properties. See "Ownership and Interests In Acreage
and Location- Main Tintic Mining District.", above.
Property Received From South Standard By Registrant's Subsidiary.
South Standard was merged with and into Chief Gold Mines,
Inc., a wholly owned subsidiary of registrant, effective June 28,
1996. See "Item 1. Description of Business- Merger of South
Standard Into Registrant." As a result of the merger, all of
South Standard's assets, subject to its liabilities, were
transferred to registrant's subsidiary. The principal asset
received from South Standard as a result of the merger is 2,554
acres of patented mining properties, including the Trixie Mine,
in the East Tintic Mining District contiguous with the Burgin
Mine.
See "Leasing History Of Burgin Mine.", above, for information
concerning South Standard's participation with registrant as
lessors in the Unit Lease to Kennecott, and subsequently with
Sunshine, until the Unit Lease was terminated in 1992. The 2,554
acres may be transferred by registrant to Tintic Utah Metals as
part of registrant's capital contribution, subject to certain
conditions. See "Item 1. Description of Business- Registrant's
Contribution Of Additional Property."
The Trixie Mine, now owned by registrant's subsidiary, had
been South Standard's principal mining asset. As previously
reported by South Standard, since production started from the
Trixie Mine in 1969 and through 1992, 713,478 tons of ore had
been mined containing an average per ton grade of 0.21 ounces of
gold per ton and 6.55 ounces of silver, for a total of 150,048
ounces of gold and 4,670,289 ounces of silver. There has been no
production of ore from the Trixie Mine since 1992, the year that
the Unit Lease was terminated.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting in Lieu of Annual Meeting of registrant's
shareholders was held on December 10, 1996. The proposals voted
upon at the meeting and the results of such voting were as
follows:
(1) Election of directors to serve for the ensuing year and
until their successors are duly elected and qualified.
Management's slate of Directors was elected at the meeting:
Management's Slate
of Directors Elected: Votes Cast Votes Withheld-
Name of Directors For* Individuals
Broker Non-Votes
Leonard Weitz 4,861,680 46,402
320,563
James Callery 4,856,922 51,160
320,563
Paul Hines 4,859,680 53,402
320,563
Edward R. Schwartz 4,859,680 53,402
320,563
Victor V. Tchelistcheff 4,854,680 53,402
320,563
(*Cumulative voting for Directors)
(2) Proposal to approve nonqualified stock options granted to
the directors and officers of the Company was approved by the
shareholders at the meeting:
Votes Cast Votes Abstentions Brokers
For Against Individuals Non-Votes
4,598,440 126,142 - 589,813
The affirmative vote of the holders of 3,014,603 shares,
representing a majority of the shares entitled to vote at the
meeting , was required in proposal 2.
(3) Proposal to approve the selection of the firm of Arthur
Andersen LLP as independent public accountants for registrant for
1996. Proposal (3) was approved by shareholders at the meeting:
Votes Cast Votes Abstentions
Brokers
For Against Individuals Non-Votes
4,856,604 9,413 - 245,526
The affirmative vote of the majority of shares represented
at the meeting was required to approve Proposal 3.
PART II
Item 5. Market for Common Equity and Related Shareholder
Matters.
The principal markets on which registrant's shares of common
stock are traded are the NASDAQ Small-Cap Market under the symbol
CFCM and the Pacific Stock Exchange under symbol CFC.
High and low sales prices of registrant's common stock on
the Pacific Stock Exchange for each quarterly period during the
past two years are as follows:
1996 Market Price High Low
First Quarter......................................... 13-1/2
10-3/8
Second Quarter.................................... 11-1/4
8
Third Quarter....................................... 8-7/8
6-1/8
Fourth Quarter..................................... 9-1/2
6
1995 Market Price High Low
First Quarter..................................... 9-1/4
4-3/4
Second Quarter................................. 8
7
Third Quarter.................................... 8-1/8
6-3/4
Fourth Quarter.................................. 11-
3/8 7
Approximate number of holders of record of registrant's
common stock as of March 14, 1997 - 2,100.
No cash dividends were declared during the years 1996 and
1995.
Item 6. Management's Discussion And Analysis Or Plan Of
Operation.
(a) PLAN OF OPERATION.
Registrant had no revenues from mining operations during the year
1996 or during the period January 1, 1997 to March 14, 1997.
Registrant's total revenues in 1996 consisted of $ 116,010 of
revenues from real estate sales, interest and miscellaneous
sources.
Registrant's total revenues of $290,471 in 1995 consisted of
$194,389 in sales of fluxing materials to smelters and $96,082 of
revenues from real estate sales, interest and miscellaneous
sources.
Registrant's net loss for 1996 was $1,518,093 as compared to a
net loss of $1,294,594 for 1995. The increase of
$223,499 in the loss for 1996 as compared to 1995 was primarily
due to costs and other charges associated with the merger of
South Standard Mining Company into a wholly owned subsidiary of
registrant, as well as increased exploration costs in 1996.
Tintic Utah Metals
See "Item 1. Description of Business.- Operating
Agreement." for a discussion of the principal provisions of the
Operating Agreement pursuant to which Tintic Utah Metals was
formed to effectuate the joint venture type arrangement between
registrant, Korea Zinc and Akiko, with registrant contributing
its East Tintic Mining District properties, including the Burgin
Mine, in exchange for a 50% vested interest in Tintic Utah
Metals. See "Item 2. Description of Property." for a
description of: registrant's East Tintic Mining District
properties that were transferred to Tintic Utah Metals; the
leasing history of the Burgin Mine; ore production from the
Burgin Mine while under lease to Kennecott; current ore reserves
at the Burgin Mine, as estimated by Tintic Utah Metals; and, the
current underground drilling program at the New Burgin Mine.
The ongoing underground drilling program was commenced on
the Burgin Mine properties in 1995 and was continued by Tintic
Utah Metals after registrant transferred its East Tintic Mining
District properties to Tintic Utah Metals in July, 1996. See
"Item 2. Description of Property.-Current Underground Drilling
Program At Burgin Mine." for additional information regarding
the drilling program and drillhole assays per ton on several of
the more significant drillholes. Registrant anticipates that
Tintic Utah Metals will complete its underground drilling program
during the third quarter of 1997. The next principal objective
of Tintic Utah Metals will be to complete the engineering work
which will be incorporated into a feasibility study. See "Item
1. Description of Business.- Tintic Utah Metals LLC- Agreement
With Thyssen Mining." The feasibility study will be prepared
for Tintic Utah Metals by an independent expert and will serve as
the basis for Tintic Utah Metals seeking project financing. Once
project financing is obtained, Thyssen Mining (if its agreement
with Tintic Utah Metals is then still in effect) or another
mining and engineering company would complete all necessary
construction and development work, including construction of the
major additional production shaft and requisite dewatering to
bring the New Burgin Mine into production, followed by Thyssen
Mining or another mining company contracting with Tintic Utah
Metals to operate the New Burgin Mine, sending Burgin ore
production to Korea Zinc and/or other smelters for smelting, as
provided in the Operating Agreement. Based on current costs, it
is estimated that $30 to $40 million of additional financing will
be required to bring the New Burgin Mine into production.
Funds to be used by Tintic Utah Metals for the foregoing
purposes over the next twelve months will be derived from a
portion of the Initial Cash Contributions remaining to be paid to
Tintic Utah Metals by Akiko and Korea Zinc. See Item 1.
"Description of Business.- Operating Agreement." Only a
portion of the foregoing work can be accomplished over the next
twelve months, the extent of which cannot be stated with
certainty by registrant. Nor can registrant state with certainty
that Tintic Utah Metals will be successful in obtaining a
feasibility study that will result in its securing project
financing.
Expressed in terms of current metals prices, the total
current value of Tintic Utah Metals's estimated proven and
probable ore reserves that are set forth at "Item 2. Description
of Property.- Proven And Probable Ore Reserves At The Burgin
Mine." is $400,000,000, which latter amount is determined as
follows:
Contained
Contained Contained Contained
Tons of Ounces of Pounds
of Pounds of Ore
Silver Lead Zinc
Proven and Probable Reserves 1,075,000 17,726,750
452,360,000 143,405,000
Approximate Gross Dollar
Value at Current Prices
$92,000,000 $218,000,000 $90,000,000
The above stated dollar values do not take into account
additional values of the Burgin orebody that may be derived from
the possible resources of an additional 407,000 tons of ore, if
all or part of the possible resources ore tonnage is upgraded to
proven and/or probable reserve categories as a result of
additional underground drilling by Tintic Utah Metals. See
"Item 2. Description of Property.- Proven And Probable Ore
Reserves At The Burgin Mine."
Main Tintic Mining District Project.
See "Item 1. Description of Business.-Main Tintic Mining
District Project." and "Item 2. Description of Property- Main
Tintic Mining District" for information concerning:
registrant's Main Tintic Mining District consisting of
approximately 6,000 acres; the rehabilitation by registrant of
the Chief No. 2 shaft and certain drifts completed in October,
1996; and, the link-up in February, 1997, of four separate mine
shafts, with registrant gaining access via the Chief No. 2 shaft
to the Plutus Mine, the Eagle Mine, the Gemini Mine and the Chief
Consolidated Mine.
A drilling program was started by registrant during the last
quarter of 1996. A significant underground drillhole in the
Chief Consolidated Mine in March, 1997, intersected a 30 foot
wide intercept of high grade silver-lead mineralization which
assayed at a per ton average of 28.1 ounces of silver and 504
pounds of lead. The full width of the drillhole discovery cannot
yet be ascertained because the drill rods broke while they were
in an area of the mineralization zone which contained the highest
grade per ton mineralization of 42.5 ounces of silver and 930
pounds of lead. Registrant projects that the full width of this
mineralized area will be more than 30 feet;
however, further drilling is required before any final conclusion
can be drawn as to whether or not the area of the drillhole is an
extension of the previously mined orebodies.
In addition to the above drillhole results, random high-
grade rock samples from each of the other three mines assayed as
follows:
Plutus Mine: 122 ounces of silver; 504 pounds of lead;
50 pounds of zinc; and 0.03 ounces of gold.
Eagle Mine: 47.4 ounces of silver; 0.20 ounces of
gold; and 106 pounds of lead.
Gemini Mine: 18.7 ounces of silver; and 600 pounds of
lead.
The above rock sample results are of the highest grade
assays and cannot be construed as being representative of average
assays in the area, nor can any determination be made at this
time by registrant as to whether continuations of any of the
previously mined orebodies exist or if any of the four mines will
prove economically viable to be reopened for commercial mining.
However, given the above described drillhole result at the Chief
Consolidated Mine and the significant rock sample grades in the
other three mines, registrant will endeavor to undertake a full
exploration and development program, focusing on possible
extensions of all four previously mined orebodies in the four
separate mines. In order to fund such a program, registrant will
consider various sources for obtaining financing to fund its
operations, through the private placement of its shares or
otherwise, or, in the alternative, registrant will seek a joint
venture partner. It is anticipated that Registrant's initial
drilling and rock sampling program will be completed in April,
1997.
Item 7. Financial Statements.
The Financial Statements of Registrant are filed pursuant to this
item of the report. See index to Financial Statements.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The name and age of each of the registrant's directors and
executive officers and the positions and offices with the
registrant held by him are:
Name of
Registrant's
Directors and Offices with Term
During Which
Executive Officers Age Registrant
Served in Office
Leonard Weitz (1) 67 Director; President,
Director since 1967.
Chairman of the Board
and Chief
Executive Officer
Edward R. Schwartz(1) 86 Director; Secretary-
Director since 1974.
Treasurer
James Callery(1) 59 Director
Director since 1980.
Paul Hines(1) 59 Director
Director since 1994.
Victor V. Tchelistcheff(1) 67 Director
Director since
August, 1996
(1) Elected to serve as a director for the ensuing year and
until his successor is duly elected and qualified at
the meeting of shareholders held on December 10, 1996.
The following is a brief account of the business experience
during the past five years of each director and executive officer
named above:
Leonard Weitz Chairman and Chief Executive Officer of
registrant since 1971; President from
1971 to December, 1993 and from
August, 1996 to present.
Edward R. Schwartz Secretary and Treasurer of
registrant since 1979;
independent consultant since prior to 1992.
James Callery Engaged in management of oil and gas,
forestry, agriculture and other
investments since prior to 1992.
Paul Hines Financial and management consultant and
Managing Director of Westerly Partners,
financial and management
consultants since 1993. Managing Director of The
Leadership Group, consultants to
management, from 1991 to 1992.
Victor V. Tchelistcheff President of VVT Consultants, performs
international management and cross
cultural communications services to
clients in cement, minerals, construction and real estate
development fields since prior to 1992.
During 1993 and 1994, also worked as
volunteer for International Executive
Services Corps, a non-profit organization, as a Country
Director in Moscow, Russia on matters
involving emerging market assistance
programs.
Registrant is not aware of any person who, at any time
during the year 1996 was a director, officer or beneficial owner
of more than 10 percent of Registrant's common stock who failed
to file on a timely basis, reports required by Section 16(a)
during 1996 or prior years.
Item 10. Executive Compensation.
The following information is presented concerning the
compensation of Leonard Weitz, President, Chairman and Chief
Executive Officer of registrant, for each of registrant's last
three completed fiscal years.
SUMMARY COMPENSATION TABLE
Name and Annual Long-Term All
Other
Principal Compensation Compensation
Compensation
Position Year Salary Awards-Options
Leonard Weitz 1996 $152,083(1) (2)
(President*, 1995 $125,000(1)
$50,000 (3)
Chairman and 1994 $125,000(1)
Chief Executive
Officer)
*President from
August 8, 1996
to present.
(1) During each of the years 1994, 1995 and 1996, Leonard Weitz
received annual base salary under the terms of an employment
agreement dated January 4, 1988, which was to expire September
30, 1996. A new employment agreement was entered into between
registrant and
Leonard Weitz, effective as of September 1, 1996. Under the
terms of the new employment agreement, Leonard Weitz will be
employed as Chairman, President and Chief Executive Officer
of registrant for a five year period ending August 31, 2001.
Under the new employment agreement, Leonard Weitz will receive an
annual salary of $175,000 and such bonuses as the Board of
Directors of registrant may determine.
(2) See "Options Grants During Fiscal Year Ended December 31,
1996" and "Option Exercises During Fiscal Year Ended December 31,
1996 and Option Values on December 31, 1996, " below, for
information concerning nonqualified options to purchase 60,000
shares granted to Leonard Weitz by the Board of Directors of
registrant on August 8, 1996 and approved by the shareholders on
December 10, 1996.
(3) On September 20, 1995, the Board of Directors of registrant
awarded a $50,000 bonus payment to Leonard Weitz on the condition
that Korea Zinc Co., Ltd. consummate by September 30, 1995 its
purchase of 500,000 shares of registrant's common stock. The
Board also approved on September 20, 1995 a $50,000 three-year
loan to Leonard Weitz, the loan to bear interest at the prime
rate, adjustable quarterly. Said stock purchase was timely made
by Korea Zinc Co., Ltd. See "Item 11. Security Ownership of
Certain Beneficial Owners and Management". The award of the
bonus and approval of the loan were made by the Board of
Directors to Leonard Weitz based upon his indication to the Board
of Directors that he intended to exercise his incentive stock
option to purchase 40,000 shares of registrant's common stock by
November 14, 1995. Leonard Weitz exercised the option on
November 10, 1995 and purchased the 40,000 shares of registrant's
common stock.
OPTION GRANTS DURING FISCAL YEAR ENDED DECEMBER 31, 1996
The information set forth below is being presented concerning the
approval by the shareholders of registrant on December 10, 1996
of nonqualified stock options previously granted by the Board of
Directors of registrant to Leonard Weitz, the grant of said stock
options having been subject to approval by the shareholders. The
following table contains, with respect to said options, the
number of options so granted and approved, the percent the grant
of options in 1996 represents to total options granted to
employees during 1996, the per share exercise price of the
options granted, and the expiration date of the options.
% of Total Options Exercise Expiration
Number of Granted to Price Date
Options Employees in Per of
Name Granted Fiscal Year Share Option
Leonard Weitz 60,000(1)(2) 50% $7.00(3) 8/8/2006
(1) Nonqualifed stock options granted by the Board of Directors
on August 8, 1996 subject to approval by the shareholders and
which approval was given on December 10, 1996.
(2) Leonard Weitz may exercise all or a part of the option as he
continuously remains a director or officer, but in no event later
than expiration date of option, except his personal
representatives may exercise within twelve months from date of
death.
(3) The exercise price was the market price of the common stock
on the date of grant.
OPTION EXERCISES DURING FISCAL YEAR
ENDED DECEMBER 31, 1996 AND OPTION VALUES
ON DECEMBER 31, 1996
The following table contains, with respect to stock options held
by Leonard Weitz, information as to option exercises during the
year 1996, the aggregate dollar value realized upon exercise, the
total number of unexercised options held on December 31, 1996 and
the aggregate dollar value of the in-the-money, unexercised
options held on December 31, 1996.
Shares Number of
Unexercised Value of Unexercised
Acquired or Value Options at
in-the-money options at
Name Exercised Realized December 31,
1996(1) December 31, 1996(3)
Nonqualified:
Leonard Weitz None None
120,000(2) $280,000
(1) All options held are fully exercisable.
(2) Nonqualified stock options approved by shareholders.
(3) Values are calculated by subtracting the exercise price
from the closing price of the registrant's common stock on
NASDAQ on December 31, 1996.
Compensation of Directors
Leonard Weitz, Chairman of the Board and Chief Executive Officer
of registrant, is employed through August 31, 2001 under an
employment agreement dated September 1, 1996. See " Executive
Compensation - Summary Compensation Table", above, for further
details concerning Leonard Weitz's employment agreement.
Each director who is not an officer of registrant receives an
annual fee of $5,000; no attendance fees are paid. Edward R.
Schwartz, the Secretary-Treasurer of registrant, who is a
director, does not receive a salary; he receives a $10,000 annual
fee in lieu of salary. The Board of Directors of registrant has
set a $750 fee per day for services performed by each outside
director of registrant that are in addition to services regularly
performed by him as a director.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) The following table shows as of March 14, 1997, stock
ownership of all persons known to management, to be
beneficial owners of more than 5% of the common stock of the
registrant.
Name and Address of Amount of Nature of
Percentage
Beneficial Owners Beneficial Ownership
of Class
KZ Utah, Inc. 500,000 shares
8.4%
( a subsidiary of
Korea Zinc Co., Ltd.
142 Nonnyon-Dong,
Gangnam-Ku
Seoul, Korea)
No director exercised in 1996 any stock options held by
him. At the meeting of shareholders of registrant held December
10, 1996, shareholders approved the issuance of nonqualified
stock options to the directors of the Company. See "Item 4.
Submission of Matters to a Vote of Security Holders" for the vote
upon the option proposal. See "Item 10. Executive Compensation-
Option Grants During the Fiscal Year Ended December 31, 1996" for
information concerning the noqualified option granted to Leonard
Weitz. See footnotes to "Item 11. Security Ownership of Certain
Beneficial Owners and Management" for information concerning
options held by directors. The Company has never issued any
stock appreciation rights to its officers and directors.
(b) The equity securities of the registrant beneficially owned
by all directors and officers and by directors
and officers of the registrant as a group, as of March
14, 1997, are:
Amount and
Nature of
Name & Address Beneficial
Percent
Title of Class of Beneficial Owner Ownership*
of Class
Common Stock,
$0.50 par value: James Callery 168,468(1)(2)
2.8%
RD #2, Box 2750
Charlotte, Vermont 05445
Paul Hines 125,000(3)
2.0 %
12 Flying Cloud Rd.
Stamford, Connecticut 06902
Edward R. Schwartz 165,100(4)(5)
2.7%
1165 Park Avenue
New York, New York 10128
Victor V. Tchelistcheff
50,200(6) 0.8%
384 De Soto Drive
New Smyrna Beach, Florida 32169
Leonard Weitz 181,010(7)(8)
3.0%
11 Longview Lane
Chappaqua, New York 10514
Owned by all directors 689,778(9)
10.6%
and officers as a group
Preferred
Stock, $0.50
par value: None
* Each director has sole voting and investment power with
respect to shares owned.
(1) Does not include an aggregate of 10,500 shares owned by
James Callery's wife and children, in which shares James
Callery disclaims any beneficial interest.
(2) Includes nonqualified stock options previously approved by
shareholders of registrant to purchase 120,000 shares held by
James Callery.
(3) Includes nonqualified stock options previously approved by
shareholders of registrant to purchase 120,000 shares held by
Paul Hines.
(4) Does not include 200 shares owned by Edward R. Schwartz's
wife, in which shares Edward R. Schwartz disclaims any beneficial
interest.
(5) Includes nonqualified stock options previously approved by
shareholders of registrant to purchase 120,000 shares held by
Edward R. Schwartz.
(6) Includes nonqualified stock options previously approved by
shareholders of registrant to purchase 50,000 shares held by
Victor V. Tchelistcheff.
(7) Does not include 18,000 shares owned by Leonard Weitz's
wife, in which shares Leonard Weitz disclaims any beneficial
interest.
(8) Includes 40,000 shares owned jointly with Leonard Weitz's
wife and nonqualified stock options previously approved by
shareholders of registrant to purchase 120,000 shares held by
Leonard Weitz.
(9) Includes options to purchase an aggregate of 530,000 shares
as referred to at Notes
(2), (3), (5), (6) and (8) above. Each of said options is
exercisable by the optionee in whole or in part at any time until
the expiration of the option.
Item 12. Certain Relationships and Related Transactions.
Registrant retained Howard Weitz P.C. as general counsel
during 1995 and 1996. Howard Weitz, Esq., the sole stockholder
of Howard Weitz, P.C., is the brother of Leonard Weitz, the
Chairman, President and Chief Executive Officer of Registrant.
Registrant believes that the fees earned by Howard Weitz, P.C.
during 1995 and 1996 were fair and reasonable in view of the
level and extent of legal services rendered pertaining to the
Tintic Utah Metals LLC joint venture and the merger with South
Standard Mining Company. Legal fees earned by Howard Weitz, P.C.
were $75,900 during the fiscal year ended December 31, 1995 and
$96,600 during the year 1996. However, registrant was reimbursed
$36,000 on August 28, 1996 by Tintic Utah Metals LLC for said
services performed to the joint venture, thus reducing the 1996
fee to registrant to a net fee of $60,600.
Item 13. Exhibits and Reports on Form 8-K.
(a) Description of Exhibits required to be filed by
Item 601 of Regulation S-B
(The numbers shown below next to each exhibit are keyed
to Exhibit Table of Item 601 of Regulation S-B)
"(2)" Not applicable
"(3)" Articles of Incorporation and By-Laws:
Registrant hereby incorporates by reference the Articles
of Incorporation and By-Law previously filed with
the Commission.
"(4)" Not applicable
"(9)" Not applicable
"(10)" Material Contracts:
A. AKIKO Agreement - (i) Agreement (in form of a
Letter Agreement) dated March 11, 1994 between
registrant and AKIKO Gold Resources Ltd. Registrant
hereby incorporates by references said Letter Agreement with
AKIKO dated March 11, 1994, copies of which were filed
with the Commission by registrant as part of its
1993 Form 10-KSB Report.
(ii) Amendment to AKIKO Agreement in form of a letter
from registrant to AKIKO dated September 1, 1994.
Registrant hereby incorporates by reference said
letter dated September 1, 1994, copies of which were filed
with the Commission by registrant as part of its 1994 Form
10-KSB Report.
B. Operating Agreement of Tintic Utah Metals LLC
dated as of July 17, 1996 by and among registrant, Akiko
Resources (Utah) Inc. and K Z Utah, Inc., a copy of
which is filed with this Report and marked as Exhibit "A".
C. Amendment to Operating Agreement of Tintic Utah
Metals LLC dated as of March 11, 1997 by and among
registrant, Akiko Resources (Utah) Inc. and KZ
Utah, Inc., a copy of which is filed with this Report and marked
as Exhibit "B".
D. Articles of Organization of Tintic Utah Metals
LLC, a copy of which is filed with this Report and
marked as Exhibit "C".
E. Agreement dated as of November 12, 1996 between
Tintic Utah Metals LLC and Thyssen Mining
Construction of Canada. Ltd., a copy of which is filed
with this Report and marked as Exhibit "D".
"(11)" Not applicable.
"(13)" 1996 Annual Report not yet furnished to
security holders as of filing date of this
Report.
"(16)" Not applicable
"(18)" Not applicable.
"(21)" Not applicable.
"(22)" Not applicable.
"(23)" Not applicable.
"(24)" Not applicable.
"(27)" Not applicable.
"(28)" Not applicable.
"(99)" Not applicable.
(B) Reports filed on Form 8-K:
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Chief Consolidated Mining Company
(Registrant)
By /s/ Leonard Weitz
(Signature and Title)
Leonard Weitz
Chairman of the Board of Directors, President and Chief
Executive Officer
Date March 28, 1997
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
By /s/ Edward R. Schwartz
(Signature and Title)
Edward R. Schwartz
Director, Secretary and Treasurer, Principal
Financial Officer and
Principal Accounting Officer
Date March 28, 1997
By/s/ James Callery
(Signature and Title)
James Callery
Director
Date March 28, 1997
Index to Financial Statements for the Years Ended December 31,
1996 and 1995
Chief Consolidated Mining Company
Page
Report of Independent Public Accountants F-2
Financial Statements:
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
Tintic Utah Metals LLC
Page
Report of Independent Public Accounts F-20
Financial Statements:
Balance Sheet F-21
Statement of Operations F-22
Statement of Member's Capital F-23
Statement of Cash Flow F-24
Notes to Financial Statements F-25
Schedules are omitted either because they are not required or
because the required information is contained in the financial
statements or notes thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chief Consolidated Mining Company:
We have audited the accompanying consolidated balance sheet of
Chief Consolidated Mining Company (an Arizona corporation) and
subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note 1, a substantial portion of the assets of
the Company consist of investments in a joint venture and mining
claims and properties for which significant additional
development costs must be incurred to bring the mining properties
controlled by the joint venture or the Company into operation.
The realization of these investments is dependent upon the
ability of the Company and/or its joint venture partners to
obtain the required capital to complete the development of the
mining properties.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Chief Consolidated Mining Company and subsidiaries as of
December 31, 1996 and the results of their operations and their
cash flows for the years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 14, 1997
F-2
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash
$ 52,250
U.S. treasury bills, at cost which
approximates market value
621,214
Accounts receivable
2,991
Other current assets
39,800
- - -----------
Total current assets
716,255
INVESTMENT IN TINTIC
3,975,873
INVESTMENT IN CENTRAL STANDARD CONSOLIDATED
MINES
79,961
ADVANCES TO CENTRAL STANDARD CONSOLIDATED
MINES
25,150
MINING CLAIMS AND PROPERTIES, less accumulated
depletion of $819,444
1,602,395
MACHINERY AND EQUIPMENT, less accumulated
depreciation of $21,607
38,151
OTHER ASSETS
8,473
- - -----------
Total assets
$ 6,446,258
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$ 17,708
Accrued liabilities
21,555
- - -----------
Total current liabilities
39,263
- - -----------
MINORITY INTEREST
42,029
- - -----------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 7)
SHAREHOLDERS' EQUITY:
Preferred stock - $.50 par value; 1,500,000
shares authorized,
5,200 shares outstanding
2,600
Common stock - $.50 par value; 20,000,000
shares authorized,
6,004,750 shares issued, and 5,988,109
shares outstanding
2,994,055
Additional paid-in capital
11,566,944
Deferred compensation
(46,089)
Notes receivable from shareholders
(87,500)
Accumulated deficit
(8,065,044)
- - -----------
Total shareholders' equity
6,364,966
- - -----------
Total liabilities and shareholders'
equity
$ 6,446,258
===========
F-3
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996
1995
REVENUES:
Interest
$ 74,804
$ 77,308
Sale of flux materials
- - -
194,389
Land sales and other
41,206
18,774
- - -----------
- - -----------
Total revenues
116,010
290,471
- - -----------
- - -----------
EXPENSES:
General and administrative
709,916
633,202
Exploration costs
435,187
92,132
Other operating costs
480,829
652,647
Cost of sales of flux materials
- - -
169,431
Taxes other than income taxes
8,171
37,653
- - -----------
- - -----------
Total expenses
1,634,103
1,585,065
- - -----------
- - -----------
NET LOSS
$(1,518,093)
$(1,294,594
)
===========
===========
NET LOSS PER COMMON SHARE
$ (.26)
$
(.25)
===========
===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
5,947,028
5,176,881
===========
===========
F-4
The accompanying notes to consolidated financial statements are
in integral part of this consolidated balance sheet.
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Preferred S
tock
Shares
Amount
Common Sto
ck
Shares
Amount
Addition
al
Paid-in
Capita
l
Deferred
Compensa
tion
Notes
Receivab
le
From
Sharehol
ders
Accumula
ted
Defici
t
Balance at December 31, 1994
5,65
3
$2,82
7
4,874,5
56
$2,437,
278
$7,619,5
81
$ -
$ -
$(5,252,
357)
Sale of common stock at
net
proceeds of $4.00 per
share
- - -
- - -
750,000
375,000
2,625,00
0
- - -
- - -
- - -
Issuance of common stock
to an
officer of the Company
in exchange
for services at an
average equivalent
price of $6.44 per share
- - -
- - -
3,000
1,500
17,813
- - -
- - -
- - -
Issuance of common stock
to two
employees as an
incentive bonus at an
equivalent price of
$6.50 per share
- - -
- - -
2,000
1,000
12,000
- - -
- - -
- - -
Issuance of common stock
in exchange
for consulting services
at an
average equivalent price
of $5.74
per share
- - -
- - -
3,100
1,550
16,250
- - -
- - -
- - -
Sale of common stock in
connection
with the exercise of
stock options
at exercise prices of
$2.50 and $5.46
per share
- - -
- - -
180,000
90,000
670,800
- - -
- - -
- - -
Exercise of stock options
- - -
- - -
- - -
- - -
75,000
(75,000)
- - -
- - -
Loans issued to
shareholders for the
exercise of stock
options
- - -
- - -
- - -
- - -
- - -
- - -
(87,500)
- - -
Exchange of preferred
stock for
common stock
(453
)
(227)
453
227
- - -
- - -
- - -
- - -
Amortization of deferred
compensation
- - -
- - -
- - -
- - -
- - -
3,726
- - -
- - -
Net loss
- - -
- - -
- - -
- - -
- - -
- - -
- - -
(1,294,5
94)
- - ----
- - -
- - -----
- - -
- - -------
- - --
- - -------
- - ---
- - --------
- - ---
- - --------
- - -
- - --------
- - -
- - --------
- - ---
Balance at December 31, 1995
5,20
0
$2,60
0
5,813,1
09
$2,906,
555
$11,036,
444
$
(71,274)
$
(87,500)
$(6,546,
951)
- - ----
- - -
- - -----
- - -
- - -------
- - --
- - -------
- - ---
- - --------
- - ---
- - --------
- - -
- - --------
- - -
- - --------
- - ---
Page 2 of 2
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Preferred S
tock
Shares
Amount
Common Sto
ck
Shares
Amount
Addition
al
Paid-in
Capita
l
Deferred
Compensa
tion
Notes
Receivab
le
From
Sharehol
ders
Accumula
ted
Defici
t
Balance at December 31, 1995
5,20
0
$2,60
0
5,813,1
09
$2,906,
555
$11,036,
444
$
(71,274)
$
(87,500)
$(6,546,
951)
Sale of common stock in
connection
with exercise of stock
options at
an exercise of $3.00 per
share
- - -
- - -
175,000
87,500
437,500
- - -
- - -
- - -
Grant of an option to
purchase 20,000
shares of common stock
at an exercise
price of $7.00 per share
- - -
- - -
- - -
- - -
93,000
- - -
- - -
- - -
Amortization of deferred
compensation
- - -
- - -
- - -
- - -
- - -
25,185
- - -
- - -
Net loss
- - -
- - -
- - -
- - -
- - -
- - -
- - -
(1,518,0
93)
- - ----
- - -
- - -----
- - -
- - -------
- - --
- - -------
- - ---
- - --------
- - ---
- - --------
- - -
- - --------
- - -
- - --------
- - ---
Balance at December 31, 1996
5,20
0
$2,60
0
5,988,1
09
$2,994,
055
$11,566,
944
$
(46,089)
$
(87,500)
$(8,065,
044)
====
=
=====
=
=======
==
=======
===
========
===
========
=
========
=
========
===
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Increase (Decrease) in Cash and Cash Equivalents
1996
1995
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$(1,518,0
93)
$(1,294,594)
Adjustments to reconcile net loss
to
net cash used in operating
activities-
Noncash expense related to
issuance of
common stock options
93,000
- - -
Issuance of common stock for
services rendered
- - -
50,113
Depreciation
16,838
25,703
Amortization of deferred
compensation
25,185
3,726
Increase in accounts
receivable
29,237
69,929
(Decrease) increase in other
assets
5,630
(7,725)
Increase (decrease) in
accounts payable
(193,069)
11,248
Increase in accrued
liabilities
1,565
7,985
- - ---------
- - --
- - -----------
Net cash used in operating
activities
(1,539,70
7)
(1,133,615)
- - ---------
- - --
- - -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net decrease (increase) in U.S.
treasury
2,058,557
(1,334,617)
Mining property development costs
(1,084,26
1)
(1,419,526)
Purchase of property and equipment
- - -
(95,118)
Increase in investment in
affiliate
- - -
(4,560)
Advances to affiliates
(4,000)
- - -
- - ---------
- - --
- - -----------
Net cash provided by (used
in)
investing activities
970,296
(2,853,821)
- - ---------
- - --
- - -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from sale of common
stock
525,000
3,673,300
Decrease in minority interest
(172)
(206)
- - ---------
- - --
- - -----------
Net cash provided by
financing
activities
524,828
3,673,094
- - ---------
- - --
- - -----------
(44,583)
(314,342)
CASH AT BEGINNING OF YEAR
96,833
411,175
- - ---------
- - --
- - -----------
CASH AT END OF YEAR
$
52,250
$ 96,833
=========
==
===========
F-7
The accompanying notes to
consolidated financial statements
are an integral part of these
consolidated statements.
Page 2 of 2
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
During 1996, the Company contributed $3,923,510 of net mineral
properties
and $52,363 of net property and equipment as an investment in
the Tintic
Utah Metals LLC joint venture (see Note 1).
During 1996, the Company issued an option to purchase 20,000
shares of
common stock to the executive director of Tintic Utah Metals
LLC at an
option price of $7 per share. The option had a fair value of
$4.65
per share. In connection with the issuance of this option,
the Company
recognized noncash expense of $93,000.
During 1995, the Company loaned a total of $87,500 to an
officer and an
employee in connection with their exercise of options to
purchase
common stock.
During 1995, the Company issued 3,000 shares of its common
stock (market
price of $19,313 at the time of issuance) to its former
president
and chief operating officer for services rendered in
connection
with
his employment with the Company.
During 1995, the Company issued 3,100 shares of common stock
(market
price of $17,800 at the time of issuance) to an entity as
partial
payment for professional services rendered in connection with
providing
environmental compliance consultation to the Company.
During 1995, the Company issued 2,000 shares of common stock
(market price
of $13,000 at the time of issuance) to two employees as an
incentive
bonus in connection with their employment with the Company.
F-8
CHIEF CONSOLIDATED MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND RECENT INVESTMENTS
Chief Consolidated Mining Company ("Chief") was incorporated in
the state of Arizona in 1909. The Company currently owns 8,554
acres of patented mining property in the Tintic Mining District
in Utah County and Juab County, Utah. Chief and its subsidiaries
(collectively, the "Company") operate as a mineral resource
company actively engaged in the exploration and development of
their mining claims and properties.
The Company owns approximately 23 percent of the outstanding
capital stock of Central Standard Consolidated Mines.
On March 11, 1994, the Company entered into a letter agreement
(the "Agreement") with Akiko Gold Resources Ltd. ("Akiko")
providing for the eventual creation of a joint venture and the
sale by the Company of a total of 1,035,000 shares of its common
stock to Akiko. On September 11, 1995, Akiko and KOREA Zinc Co.,
Ltd. ("Korea Zinc") entered into a letter of intent wherein
Akiko would assign 50 percent of its potential joint venture
ownership to Korea Zinc in exchange for Korea Zinc purchasing the
remaining 500,000 shares of the Company's common stock that Akiko
was obligated to purchase and for a contribution of $3,000,000 to
the proposed joint venture on account of Akiko's obligation to
contribute $6,000,000 to the proposed joint venture. The sale of
stock to Akiko and Korea Zinc was transacted through private
placement transactions at a price of $4 per share. During 1995
and 1994, Akiko purchased 250,000 and 285,000 shares,
respectively, of the Company's common stock for a total of
$2,140,000 in cash. During 1995, Korea Zinc purchased 500,000
shares of the Company's common stock for a total of $2,000,000 in
cash.
Under a certain operating agreement dated July 17, 1996, the
Company, Akiko and Korea Zinc formed Tintic Utah Metals LLC
("Tintic"), a Colorado limited liability company. The Company
contributed $3,975,873 of its mining claims and properties and
machinery and equipment for 50 percent membership interest in
Tintic. Akiko and Korea Zinc were obligated under the July 17,
1996 operating agreement to contribute $3,000,000 each at which
time they would receive a 25 percent vested membership interest
in Tintic. On March 11, 1997, the Company, Akiko and Korea Zinc
entered into an amendment of the Tintic operating agreement. The
amendment provides for Akiko and Korea Zinc to vest in their
membership interests in Tintic as they each contribute the
$3,000,000 to Tintic in accordance with an agreed-upon schedule.
The amendment also provides that if Akiko does not make timely
contributions to Tintic, Korea Zinc can make the required
contribution and increase its respective interest in Tintic, so
long as Korea Zinc has paid its entire $3,000,000 contribution
cobligation.
F-
If Korea Zinc does not make a contribution to Tintic that was
originally scheduled to be made by Akiko, then Korea Zinc and
Akiko are deemed to have relinquished any further right to
acquire additional interest in Tintic and the Company's
membership interest would increase correspondingly. During 1996,
Korea Zinc contributed $2,000,000 to Tintic. Korea Zinc will
vest its 25 percent interest in Tintic upon contribution of its
remaining $1,000,000 cash obligation. The currently remaining
$4,000,000 in contributions will be contributed in various stages
in 1997 and 1998.
The Company's contribution was made at the historical bases of
the related mining properties and machinery and equipment for
financial reporting purposes. No gain recognition or step-up in
basis was recorded in the accompanying consolidated financial
statements as a result of the transaction. The investment,
classified under the caption "Investment In Tintic," is
accounted for using the equity method.
On June 28, 1996, South Standard Mining Company ("South
Standard"), a Utah Corporation, merged with and into Chief Gold
Mines, Inc. ("Chief Gold"), a Delaware corporation and wholly
owned subsidiary of the Company with Chief Gold being the
surviving corporation. The 1,241,717 outstanding shares of South
Standard common stock were converted into 372,515 shares of the
Company's common stock. The transaction was accounted for as a
pooling of interests and the consolidated financial statements
have been retroactively restated for all periods prior to the
merger to include the operations of South Standard. South
Standard owned 214 patented mining claims containing
approximately 2,554 acres and ten fractional unpatented claims
containing ten acres in the East Tintic Mining District in Utah
County and Juab County, Utah.
Net revenues and net loss of the separate companies for the
periods preceding the acquisitions were as follows:
Net
Revenues
Net
Loss
Year ended December 31,
1995:
Chief Consolidated, as
previously reported
$ 90,390
$(1,178,88
4)
South Standard
201,699
(115,710)
Intercompany royalties
(1,618)
-
- - --------
- - ----------
- - -
Combined, as reported
in the
accompanying
financial
statements
$290,471
$(1,294,59
4)
========
==========
=
The Company's unrecovered investment in mining claims and
properties, net of applicable depletion, is $1,602,395 as of
December 31, 1996, representing approximately 25 percent of total
assets. The Company's investment of $3,975,873 in Tintic
represents the historical basis of the mining properties and
machinery and equipment it contributed to the joint venture and
represents approximately 62 percent of total assets.
F-10
During the years ended December 31, 1996 and 1995, the Company
has not generated significant revenues and has incurred net
losses. The Company's operating activities used $1,539,707 and
$1,133,615 of cash during the years ended December 31, 1996 and
1995, respectively. Significant additional development costs
must be incurred to bring the Company's and Tintic's mining
properties into operation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries.
Investments, including Tintic and Central Standard Consolidated
Mines, in which the Company's interest is 50 percent or less and
where it is deemed that the Company's ownership gives it
significant influence are accounted for using the equity method.
U.S. Treasury Bills
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company has classified all investments
in U.S. treasury bills as "available for sale." SFAS No. 115
provides for recording of "available for sale" investments at
current market value with an offsetting adjustment to
shareholders' equity. At December 31, 1996 and 1995, cost
approximated market value for these treasury bills.
Mining Claims and Property
Costs of developing mining properties (upon completion of
exploration) are capitalized. Exploration costs are expensed as
incurred. When a mining property reaches the production stage,
the related capitalized costs will be amortized using the units
of production method on the basis of proven and probable ore
reserves. The Company's mining properties are periodically
assessed for impairment of value and any losses are charged to
operations at the time of impairment. No mineral depletion
provisions have been made since 1978 as a result of suspension of
mining on the Company's properties.
Property and Equipment
Property and equipment are recorded at cost. Major additions and
improvements are capitalized while minor replacements,
maintenance and repairs that do not increase the useful lives of
the assets are expensed as incurred. Provision for depreciation
of property and equipment has been computed using the straight-
line method over estimated useful lives ranging from 3 to 20
years.
F-11
Income Taxes
The Company follows the provisions of SFAS No. 109, "Accounting
for Income Taxes," which requires that income tax accounts be
computed using the liability method. Deferred taxes are
determined based upon the estimated future tax effects of
differences between the financial statement and tax bases of
assets and liabilities given the provisions of currently enacted
tax laws.
Net Loss Per Common Share
The Company's net loss per common share has been calculated based
on the weighted average number of shares of common stock
outstanding during the year. Common stock equivalents were
excluded from the calculation of the weighted average number of
shares outstanding for the years ended December 31, 1996 and 1995
because they were antidilutive, thereby decreasing the net loss
per common share.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncement
During 1996, the Company adopted SFAS No. 121, "Accounting For
The Impairment Of Long-Lived Assets And For Long-Lived Assets To
Be Disposed Of." The adoption of SFAS No. 121 had no impact on
the Company's financial position or results of operations.
Reclassifications
Certain reclassifications have been made to the December 31, 1995
consolidated financial statements in order to conform to the
current year presentation.
(3) CAPITALIZATION
The Board of Directors of the Company has authorized the
issuance, at the stockholders' option, of common stock in
exchange for preferred stock on a share-for-share basis.
Preferred shares obtained in the exchange are retired. During
1996 and 1995, 0 and 453 preferred shares, respectively, were
exchanged for common shares.
The shares of preferred stock and common stock of the Company are
equal in the right to receive dividends, to vote, and in all
other respects except that upon liquidation the preferred shares
are entitled to a preferential payment of $.50 per share.
F-12
During the first quarter of 1995, the Company agreed to
compensate its former president and chief operating officer (the
"Former President") through cash and/or issuance of common stock
at the Former President's election. During
1995, the Company issued 3,000 shares of common stock to the
Former President for services rendered. The common stock was
issued at an agreed-upon value of an average of $4.56 per share
during 1995 which was below the market price of the Company's
common stock for the period the services were rendered. As a
result, the Company recognized additional compensation expense of
$5,625 in the accompanying 1995 consolidated statement of
operations in connection with the issuance of these shares. The
additional compensation represents the difference between the
market price of the Company's common stock during the period the
services were rendered and the agreed-upon value per share.
During the year ended December 31, 1995, the Company issued 3,100
shares of common stock to an entity as partial payment for
professional services rendered in connection with environmental
compliance consultation provided to the Company. The shares were
issued at a price equal to the market price of the common stock
on the date of issuance.
During the year ended December 31, 1995, the Company issued 2,000
shares of common stock to two employees as incentive compensation
in exchange for previous services rendered. The shares were
issued at a price equal to the market price of the common stock
on the date of issuance.
(4) STOCK OPTIONS
The Company applies APB Opinion 25 ("APB 25") and related
interpretations in accounting for its stock-based compensation
plans. Accordingly, no compensation cost has been recognized for
stock options granted to officers, directors and other key
employees. Had compensation cost been determined based on the
fair value at the grant date for awards under its plans
consistent with the method required by SFAS No. 123, the
Company's net loss and loss per share would have been increased
to the pro forma amounts indicated below:
1996
1995
Net loss:
As
reported
$(1,518,093
)
$(1,294,59
4)
Pro forma
(2,819,793)
(1,294,594
)
Net loss per
common share:
As
reported
$ (.26
)
$ (.2
5)
Pro forma
$ (.47
)
$ (.2
5)
The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1996:
Risk-free interest rate of 6.2 percent; expected dividend yields
of 0 percent; expected lives of 10 years; expected volatility of
42 percent.
Because the SFAS No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative
of that to be expected in future years.
F-13
Incentive Stock Options
In June 1982, the shareholders approved an Incentive Stock Option
Plan (the "Plan") for key employees which provided for the
Board of Directors to grant options to purchase up to 100,000
shares of the Company's common stock. The Plan expired in June
1992.
During the year ended December 31, 1995, the Company loaned an
officer and an employee $50,000 and $37,000, respectively, to
facilitate their exercise of stock options issued under the Plan.
The issuance of the loans to the employees created a new
measurement date for financial reporting purposes. The Company
recorded deferred compensation of $75,000 (the difference between
the market value of the stock and exercise price of the options
on the date the loan was issued) in the accompanying 1995
statement of shareholders' equity. The deferred compensation is
being amortized over the three-year life of the note receivable.
During the years ended December 31, 1996 and 1995, $25,185 and
$3,726 of expense related to the amortization of the deferred
compensation was recognized in the accompanying statements of
operations.
During the year ended December 31, 1995, two officers and an
employee exercised a total of 75,000 options at exercise prices
of $2.50 per share.
As of December 31, 1995, no incentive stock options remained
outstanding under the Plan.
Nonqualified Stock Options
From time to time, the shareholders have approved the issuance of
nonqualified stock options to officers, directors and a key
employee. The nonqualified stock options are immediately vested
and must be exercised within ten years from the date of grant.
During 1996, the shareholders approved the granting of
nonqualified stock options for the purchase of 120,000 shares of
common stock to certain officers and directors of the Company.
These options have an exercise price of $6.94 per share (which
was the market price on the date of grant) and expire on December
5, 2005. During 1996, the shareholders approved the granting of
nonqualified stock options for the purchase of 170,000 shares of
common stock to certain officers and directors of the Company.
These options have an exercise price of $7.00 per share (which
was the market price on the date of grant) and expire on August
7, 2006.
F-1
A summary of the status of the nonqualified stock options at
December 31, 1996 and 1995 and changes during the years then
ended is presented in the table and narrative below:
1996
1995
Shares
Wtd. Avg.
Exercise
Prices
Shares
Wtd. Avg.
Exercise
Prices
Outstanding at
beginning of
year
320,000
$3.50
320,000
$3.50
Granted
290,000
6.97
- - -
-
Exercised
- - -
- - -
- - -
-
Forfeited
(60,000
)
3.50
- - -
-
- - -------
- - -------
Outstanding at end
of year
550,000
5.33
320,000
3.50
=======
=======
Exercisable at end
of year
550,000
5.33
320,000
3.50
=======
=======
Weighted average
fair
value of options
granted
4.49
- - -
Of the 550,000 options outstanding and exercisable at
December 31, 1996, 260,000 have an exercise price of $3.50, with
a weighted average remaining contractual life of 7.5 years. The
remaining 290,000 of the 550,000 options outstanding and
exercisable at December 31, 1996 have exercise prices ranging
between $6.94 and $7.00, with a weighted average exercise price
of $6.97 and a weighted average remaining contractual life of 9.4
years.
F-15
Other Stock Options
In addition to the incentive and nonqualified stock options
previously discussed, the Company has granted stock options to
investors and the executive director of Tintic at various times.
A summary of the status of the nonqualified stock options at
December 31, 1996 and 1995 and changes during the years then
ended is presented in the table and narrative below:
1996
1995
Shares
Wtd. Avg.
Exercise
Prices
Shares
Wtd. Avg.
Exercise
Prices
Outstanding at
beginning of
year
394,300
$6.63
599,300
$6.23
Granted
20,000
7.00
- - -
-
Exercised
(175,00
0)
3.00
(105,00
0)
5.46
Forfeited
- - -
- - -
(100,00
0)
5.46
- - -------
- - -------
Outstanding at
end
of year
239,300
9.31
394,300
6.63
=======
=======
Exercisable at
end
of year
239,300
9.31
394,300
6.63
=======
=======
Weighted average
fair
value of
options
granted
4.65
-
Of the 239,300 options outstanding and exercisable at
December 31, 1996, 20,000 have an exercise price of $7.00, with a
weighted average remaining contractual life of 9.6 years. The
remaining 219,300 of the 239,300 options outstanding and
exercisable at December 31, 1996 have an exercise price of $9.52
and a weighted average remaining contractual life of .8 years.
During the year ended December 31, 1996, the Company recorded
compensation expense of $93,000 in the accompanying consolidated
statement of operations for the options granted to Tintic's
executive director.
F-16
(5) INCOME TAXES
The income tax provisions for 1996 and 1995 differ from the
amounts computed by applying the statutory federal income tax
rate to the loss before provision for income taxes as follows:
1996
1995
Statutory federal income
tax rate
(35.0)%
(35.0)%
State income taxes, net
of federal benefit
(3.3)%
(3.3)%
Nondeductible expenses
- %
- %
Valuation allowance
38.3 %
38.3 %
- - -----
- - -----
Effective income tax rate
- %
- %
=====
=====
The tax effects of temporary differences and the related
valuation allowance against the deferred income tax asset as of
December 31, 1996 were as follows:
Deferred income tax assets:
Net operating loss carryforward
$2,534,100
Future deductible expenses related
to issuance of common stock
options
187,021
Acquisition costs capitalized for
income tax purposes
69,838
Other
1,836
- - ----------
Total deferred income tax assets
2,792,795
Valuation allowance
(2,665,073)
- - ----------
Deferred income tax assets, net of
valuation allowance
127,722
Deferred income tax liability:
Tax over book depreciation
(1,318)
Amortization of development costs
(126,404)
- - ----------
Net deferred income taxes
$ -
==========
F-17
The Company has net operating loss carryforwards ("NOLs") for
federal tax reporting purposes of $6,625,098. The NOLs expire as
follows:
Year of Expiration Amount
1997 $ 78,095
1998 161,465
1999 245,953
2000 192,858
2001 232,305
2002 197,762
2003 133,291
2004 204,917
2005 510,052
2006 256,031
2007 181,150
2008 772,649
2009 929,998
2010 1,213,554
2011 1,315,018
----------
$6,625,098
==========
The Tax Reform Act of 1986 contains provisions which limit net
operating loss carryforwards available based upon certain changes
in ownership. In connection with the acquisition of South
Standard during 1996, changes in the ownership of South Standard
triggered limitations on all pre-existing net operating loss
carryforwards. Additionally, the South Standard net operating
losses are available for use only by South Standard. At December
31, 1996, management estimates that approximately $270,000 of net
operating loss carryforwards are limited to be used only by South
Standard. Of this amount, approximately $180,000 of these net
operating loss carryforwards are available for use each year. If
the annual limited amount is not utilized in any particular year,
it remains available on a cumulative basis through the expiration
date.
(6) RELATED-PARTY TRANSACTIONS
As discussed in Note 4, the Company loaned $50,000 to an officer
and $37,500 to an employee who are also shareholders of the
Company. The loan to the officer bears interest at the prime
rate (8.25 percent at December 31, 1996) and interest is payable
quarterly. The loan to the employee is noninterest bearing. The
principal balance of both notes receivable is due on November 7,
1998. These notes receivable are secured by certain shares of
the Company's common stock.
F-18
(7) COMMITMENTS AND CONTINGENCIES
Environmental Matters
Prior to 1993, the Company leased its mining properties to other
companies for operation, exploration and development. Under the
terms of the leases, these other companies were obligated to
comply with all federal, state and local environmental laws and
regulations affecting the mining industry. All reclamation costs
related to the Company's properties prior to 1993 are the
responsibility of the prior operators (Lessees). Management is
not aware of any current environmental contamination and clean-up
costs related to its mining properties resulting from activities
subsequent to 1992.
Under the Company's agreement with Akiko and Korea Zinc, the
Company, Akiko and Korea Zinc would become liable for
environmental aspects of future operations on the Tintic
properties. Tintic will be required to apply for the necessary
State of Utah permits ("permitting") in connection with various
aspects of its development and future mining activities,
including its plans for de-watering that portion of the Burgin
ore body that is located beneath the water table. Since no final
plans will be formulated until additional work and studies at the
Tintic properties have been completed, no assessment can be made
at this time by the Company concerning potential issues that may
be raised by the authorities regarding environmental laws with
respect to the permitting.
Office Lease
The Company leased office space under a month-to-month operating
lease until March 1997. Lease payments were $1,554 per month.
Total rent expense for office space was $18,654 during each of
1996 and 1995.
In March 1997, the Company signed a long-term, noncancelable
operating lease for its New York City office space. The lease
expires on May 31, 2001. Lease payments are $1,850 per month.
Future minimum lease payments under this lease are due as
follows:
Year ending December 31,
1997 $18,500
1998 22,200
1999 22,200
2000 22,200
2001 9,250
-------
$94,350
=======
F-19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee and Members
of Tintic Utah Metals LLC:
We have audited the accompanying balance sheet of Tintic Utah
Metals LLC (a Colorado limited liability corporation in the
development stage) (the "Company") as of December 31, 1996, and
the related statements of operations, members' capital and cash
flows for the period from inception (July 17, 1996) to December
31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
As discussed in Note 1, a substantial portion of the assets of
the Company consist of investments in mining claims and
properties for which significant additional development costs
must be incurred to bring these properties into operation. The
realization of these investments is dependent upon the ability of
the Company to obtain the required capital to complete the
development of the mining properties.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Tintic Utah Metals LLC as of December 31, 1996 and the results
of its operations and its cash flows for the period from
inception (July 17, 1996) to December 31, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 14, 1997
F-2
TINTIC UTAH METALS LLC
(A Development Stage Company)
BALANCE SHEET
AS OF DECEMBER 31, 1996
Contribut
ed
Fair
Value
Adjustment
for
Historical
Predecessor
Basis
Historical
Predecesso
r
Basis
ASSETS
CURRENT ASSETS:
Cash
$
862,239
$ -
$
862,239
Accounts receivable
11,708
- - -
11,708
- - ---------
- - --
- - -----------
- - ----------
- - -
873,947
- - -
873,947
- - ---------
- - --
- - -----------
- - ----------
- - -
MINING CLAIMS AND
PROPERTIES
7,019,081
(2,024,127)
4,994,954
- - ---------
- - --
- - -----------
- - ----------
- - -
MACHINERY AND EQUIPMENT,
less
accumulated depreciation
of $1,694
13,551
- - -
13,551
- - ---------
- - --
- - -----------
- - ----------
- - -
$
7,906,579
$(2,024,127)
$
5,882,452
=========
==
===========
==========
=
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable
$
116,144
$ -
$ 116,144
Accrued liabilities
38,595
- - -
38,595
- - ---------
- - --
- - -----------
- - -----------
154,739
- - -
154,739
- - ---------
- - --
- - -----------
- - -----------
COMMITMENTS AND
CONTINGENCIES
(Notes 1 and 4)
MEMBERS' CAPITAL
7,751,840
(2,024,127)
5,727,713
- - ---------
- - --
- - -----------
- - -----------
$
7,906,579
$(2,024,127)
$ 5,882,452
=========
==
===========
===========
F-21
TINTIC UTAH METALS LLC
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JULY 17, 1996)
TO DECEMBER 31, 1996
REVENUES
$ -
GENERAL AND ADMINISTRATIVE EXPENSES
(269,637)
OTHER INCOME, net
21,477
- - ---------
NET LOSS
$(248,160)
=========
F-22
TINTIC UTAH METALS LLC
(A Development Stage Company)
STATEMENT OF MEMBERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (JULY 17, 1996)
TO DECEMBER 31, 1996
Contributed
Fair Value
Adjustment
for
Historical
Predecessor
Basis
Historical
Predecesso
r
Basis
Balance at inception
(July 17, 1996)
$ -
$ -
$ -
Contribution of mining
property and
equipment
6,000,000
(2,024,127)
3,975,873
Contribution of cash
2,000,000
- - -
2,000,000
Net loss incurred
during
the development
stage
(248,160)
- - -
(248,160)
- - -----------
- - -----------
- - ----------
- - -
Balance at December 31,
1996
$ 7,751,840
$(2,024,127)
$
5,727,713
===========
===========
==========
=
F-23
The accompanying notes to financial statements are an integral
part of this statement.
TINTIC UTAH METALS LLC
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 17, 1996)
TO DECEMBER 31, 1996
Increase (Decrease) in Cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$ (248,160)
Adjustments to reconcile net loss to net
cash used
in operating activities-
Depreciation
1,694
Change in assets and liabilities-
Increase in accounts receivable
(11,708)
Increase in accounts payable and
accrued liabilities
154,739
- - -----------
Net cash used in operating
activities
(103,435)
- - -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery and equipment
(15,245)
Mining property development costs
(1,019,081)
- - -----------
Net cash used in investing
activities
(1,034,326)
- - -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Member capital contributions
2,000,000
- - -----------
Net cash provided by financing
activities
2,000,000
- - -----------
NET INCREASE IN CASH
862,239
CASH AT BEGINNING OF PERIOD
- - -
- - -----------
CASH AT END OF PERIOD
$ 862,239
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
In connection with the formation of the Company, Chief
Consolidated Mining
Company contributed mining properties and machinery and
equipment with a
contributed fair value of $6,000,000 (historical basis of
$3,975,873) to
the Company in exchange for 50 percent interest in the
Company.
F-24
The accompanying notes to financial statements are an integral
part of this statement.
TINTIC UTAH METALS LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(1) FORMATION OF JOINT VENTURE AND NATURE OF OPERATIONS
Tintic Utah Metals LLC (the "Company") was organized in
the state of Colorado in connection with a operating
agreement signed on July 17, 1996 between Chief Consolidated
Mining Company ("Chief"), Akiko Resources (Utah) Inc.
("Akiko") (a subsidiary of Akiko Gold Resources Ltd.) and
KZ Utah, Inc. ("Korea Zinc") (a subsidiary of Korea Zinc
Company, Ltd.).
Under the operating agreement, Chief received a 50 percent
vested membership interest and Akiko and Korea Zinc will,
upon making the required cash capital contributions, each
receive a 25 percent vested membership interest in the
Company. In exchange for its 50 percent membership
interest, Chief contributed approximately 8,700 acres of
patented mining property and related mining equipment to the
Company (which had an agreed upon fair value of $6,000,000
and an historical basis of $3,975,873). Akiko and Korea
Zinc were each obligated to contribute $3,000,000 in cash to
the Company prior to August 31, 1998, at which time they
would receive their membership interests. On March 11,
1997, Chief, Akiko and Korea Zinc entered into an amendment
of the Tintic operating agreement. The amendment provides
for Akiko and Korea Zinc to vest in their interests in
Tintic as they contribute the $6,000,000 to Tintic in
accordance with an agreed upon time schedule. Korea Zinc
will vest its 25 percent membership interest in the Company
upon contribution of its remaining $1,000,000 cash
obligation. Akiko will vest 8.33 percent of its membership
interest each time it contributes $1,000,000 to the Company.
The amendment also provides that if Akiko does not make
timely contributions to Tintic, Korea Zinc can make the
required contribution and increase its membership interest
in Tintic accordingly, so long as Korea Zinc has paid in its
full $3 million contribution. If Korea Zinc does not make a
contribution to Tintic that was originally scheduled to be
made by Akiko, then Korea Zinc and Akiko are deemed to have
relinquished any further right to acquire additional
membership interest in Tintic and Chief's membership
interest would increase correspondingly.
The Company owns approximately 8,500 acres of patented
mining property in the Tintic Mining District in Utah County
and Juab County, Utah. Additionally, the Company owns
unpatented mining claims covering approximately 200 acres in
the vicinity of its patented properties. The Company's
primary objective is to bring the Burgin Mine back into
production. Since the date of inception, the Company has
continued the development of the Burgin ore body that was
previously conducted by Chief. In addition, as
circumstances permit, the Company anticipates conducting
further exploration and potentially acquiring additional
mineral properties in the Tintic Mining District.
F-25
The Company is in the development stage and has not
generated any operating revenues to date. There can be no
assurance of future revenues. The developmental nature of
the Company's activities is such that inherent risks exist
in the Company's operations. The Company's unrecovered
investment in mining claims and properties is $7,019,081 as
of December 31, 1996 representing approximately 89 percent
of total assets (at contributed fair value). The Company's
operating and investing activities used $1,137,761 of cash
during the period from inception to December 31, 1996.
Significant additional development costs must be incurred to
bring the Company's mining properties with proven and
probable reserves into operation. Akiko and Korea Zinc are
obligated to contribute an additional $3,000,000 and
$1,000,000 in cash, respectively, to fund the continued
operations of the Company. Successful future operations are
dependent upon (among other factors) the continued funding
by the Company members, obtaining necessary regulatory
approvals, successful completion of a bankable feasibility
study and obtaining necessary debt or equity funding.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mining Claims and Property
Costs of developing mining properties (upon completion of
exploration) are capitalized. Exploration costs are
expensed as incurred. When a mining property reaches the
production stage, the related capitalized costs are
amortized using the units of production method on the basis
of proven and probable ore reserves. The Company's mining
properties are assessed for impairment of value and any
losses are charged to operations at the time of impairment.
Machinery and Equipment
Machinery and equipment are recorded at cost. Major
additions and improvements are capitalized while minor
replacements, maintenance and repairs that do not increase
the useful lives of the assets are expensed as incurred.
Provision for depreciation of machinery and equipment has
been computed using the straight-line method over estimated
useful lives ranging from 3 to 10 years.
Reclamation Costs
Reclamation costs are accrued and expensed, principally by
the units-of-production method based on estimated proven and
probable ore reserves.
Reclamation liabilities are expensed upon determination.
Income Taxes
Federal and state income tax regulations require that the
income of a limited liability corporation be included in the
tax returns of the members; accordingly, there are no
liabilities or provisions for income taxes recorded in the
accompanying financial statements.
Pervasiveness of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities
F-26
and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Recent Accounting Pronouncement
During 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting For
The Impairment Of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The adoption of SFAS No. 121
did not have any impact on the Company's financial position
or results of operations.
(3) ENVIRONMENTAL MATTERS
Under the operating agreement, Chief has indemnified the
Company from liabilities resulting from any activities
carried on by or on behalf of Chief on the contributed
properties prior to September 30, 1995. The Company is
responsible for environmental aspects of operations
subsequent to September 30, 1995 on the Company's
properties. The Company will be required to apply for the
necessary State of Utah permits ("permitting") in
connection with various aspects of its development and
future mining activities, including its plans for de-
watering that portion of the Burgin ore body that is located
beneath the water table. Since no final plans will be
formulated until additional work and studies at the
Company's properties have been completed, no assessment can
be made at this time by the Company concerning potential
issues that may be raised by the authorities regarding
environmental laws in connection with the permitting. The
Company cannot estimate the future costs associated with
compliance with the permits or related laws and regulations.
(4) COMMITMENTS
Vehicle Lease
The Company leased a vehicle under a noncancelable operating
lease through October 1999. The lease payments on the
vehicle are $285 per month and the remaining obligation as
of December 31, 1996 was $9,405 to be paid as follows:
Year ending December
31,
1997
$3,420
1998
3,420
1999
2,565
- - ------
$9,405
======
F-27
The accompanying notes to consolidated financial statements
are an integral part of this consolidated balance sheet.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
The accompanying notes to financial statements
are an integral part of this balance sheet.
The accompanying notes to financial statements
are an integral part of this statement.
The accompanying notes to financial statements
are an integral part of this statement.
