FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-9137
U.S. GOLD CORPORATION
(Exact name of small business issuer as specified in its charter)
COLORADO
(State or other jurisdiction ofincorporation)
84-0796160
(I.R.S. Employer or organization Identification No.)
55 Madison, Suite 700
Denver, Colorado 80206
(Address of principal executive offices)
(303) 322-8002
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Class: Common Stock, $0.10 par value
Outstanding as of May 10, 1996: 13,806,505
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
(unaudited)
ASSETS March 31, 1996
Current assets:
Cash and cash equivalents $113,702
Accounts receivable 100,481
Interest receivable 36,118
Note receivable, current portion 723,156
Federal tax refund 95,182
Other current assets 13,470
Total current assets 1,082,109
Investment in Tonkin Springs Project Joint Venture 2,262,578
Note receivable, non-current portion 1,151,920
Investment in Gold Capital Common Stock 517,500
Investment in Gold Capital Preferred Stock 3,000,000
Deferred tax assets, net 223,662
Other assets, net of depreciation 64,347
$8,302,116
LIABILITIES, DEFERRED CREDITS AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $10,556
Reserve for reclamation 640,000
Subtotal 650,556
Deferred gain on sale of Tonkin Springs interest 2,912,297
Shareholders' equity:
Common stock, $.10 par value, 15,000,000 shares
authorized; 13,806,505 shares issued
and outstanding 1,380,651
Additional paid-in capital 31,982,099
Accumulated deficit (28,623,487)
Subtotal 4,739,263
$8,302,116
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
March 31, 1996 March 31, 1995
Installment gain on sale of Tonkin
Springs interest $42,222 $ 0
Interest income 39,339 66,179
Dividend income 0 67,500
Other income 0 9,018
Subtotal 81,561 142,697
Costs and expenses:
General and administrative 327,700 142,713
Interest 67 13,187
Depreciation and amortization 2,664 1,508
Total expense 330,431 157,408
Loss before taxes (248,870) (14,711)
Provision for taxes 0 0
Net loss $(248,870) $(14,711)
Per share data:
Net loss $(.02) $(0.00)
Weighted average shares and share
equivalents outstanding 13,806,505 13,768,800
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
March 31, 1996 March 31, 1995
Cash flows from operating activities:
Interest received $1,432 $0
Payment of income tax obligation 0 (60,000)
Cash paid to suppliers and employees (386,788) (86,414)
Cash used in operating activities (385,356) (146,414)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest 76,844 121,380
Cash received for accrued interest
on note 195,572 0
Capital expenditures (7,684) 0
Sale of assets 0 9,018
Cash provided by investing activities 264,732 130,398
Decrease in cash and equivalents (120,624) (16,016)
Cash and equivalents, beginning 234,326 18,257
Cash and equivalents, ending $113,702 $2,241
Reconciliation of net loss to cash
used in operating activities:
Net loss $(248,870) $(14,711)
Items not requiring (providing) cash:
Interest income (36,118) (66,179)
Dividend income 0 (67,500)
Interest payable 0 12,772
Depreciation, depletion and
amortization 2,664 1,508
(Increase) decrease in current
assets related to operations (14,224) (3,857)
Increase (decrease) in current
liabilities related to operations (35,615) (64,849)
Decrease (increase) in other assets,
long term (53,193) 56,402
Cash used in operating activities $(385,356) $(146,414)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, as well as the accounts
of Tonkin Springs Venture Limited Partnership ("TSVLP").
Significant intercompany accounts and transactions have been
eliminated.
The balance sheet of the Company as of March 31, 1996 and the
results of operations and cash flows for the three month periods
ended March 31, 1996 and 1995, have not been examined by
independent certified public accountants. However, in the opinion
of management, the accompanying unaudited consolidated financial
statements contain all necessary adjustments in order to make the
financial statements not misleading.
The preparation of the Company's consolidated financial statements
in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions
that affect the amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. The results of operations for the three month
periods ended March 31, 1996 and 1995 are not necessarily
indicative of the results to be expected for the full years. These
financial statements should be read in conjunction with the
Company's annual report on Form 10-KSB filed with the Securities &
Exchange Commission for the year ended December 31, 1995.
2. Sale of 60% Interest in Tonkin Springs Project
On December 31, 1993 (the "Closing"), TSVLP, a partnership owned by
subsidiaries of U.S. Gold Corporation (the "Company"), sold a 60
percent undivided interest in the Tonkin Springs Properties and
Obligations (the "Properties") to Gold Capital. TSVLP retained a
40 percent undivided interest in the Properties. Immediately after
the conveyance to Gold Capital, TSVLP and Gold Capital each made
their respective interest in the Properties subject to a mining
joint venture, the Tonkin Springs Project Joint Venture ("Project
Joint Venture"), to operate and manage the Properties. Ownership
in the Project Joint Venture is: TSVLP- 40 percent, Gold Capital-
60 percent. Gold Capital is manager of the Properties under the
Project Joint Venture.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP for a purchase price and other consideration
of approximately $7,830,000 representing the estimated fair market
value of the assets. The purchase price included delivery of a
mortgage note in the amount of $3.8 million (the "Promissory
Note"); 300,000 shares of unregistered Gold Capital's Series A
Preferred Stock ("Gold Capital Preferred Stock") having an assigned
value of $3 million, and the assumption of 60 percent of a
reclamation obligation recorded at $960,000.
Through March 31, 1996, TSVLP has received $1,924,924 in principal
payments on the Promissory Note with a balance of $1,875,076
remaining due at March 31, 1996. The Promissory Note, as amended
June 21 1995, is collateralized by Gold Capital's 60% interest in
the Properties and the Project Joint Venture and accrues interest
at a fixed rate of 7.5% on the unpaid principal balance. Interest
on the Promissory Note for fiscal year 1995 in the amount of
$195,572 was received in full in March, 1996. A portion of the
February, 1996 and all of the March, April and May, 1996
note monthly payments from Gold Capital are currently past due.
Remaining principal balance of the Promissory Note is due in
monthly installments of $50,000 until Gold Capital has raised an
aggregate of $4,000,000 in new financing, or until paid in full,
increasing to $75,000 per month until the note is paid in full
subsequent to Gold Capital raising $4,000,000 in new financing.
The future annual minimum principal payments (at the $50,000 per
month level) are as follows:
1996 $573,156
1997 600,000
1998 600,000
1999 101,920
$1,875,076
Effective June 22, 1995, the TSVLP entered into the Commitment and
Agreement to Convert, under which TSVLP agreed to convert its
300,000 shares of Gold Capital Preferred Stock into 1,500,000
shares of Gold Capital common stock at some time after November 30,
1995. Under this arrangement, the mandatory 9% annualized stock
dividend requirement under the Preferred Stock terminated November
30, 1995.
Also effective June 22, 1995, the Company entered into the
Shareholders' Agreement under which:
Royalstar Resources Ltd. ("Royalstar"), as majority owner of Gold
Capital, agreed for a period of five years to support the
nomination and election of certain individuals to Gold Capital's
board of directors, including a member recommended by TSVLP.
TSVLP granted a proxy to Mr. John Young, the President and Chief
Executive Officer of Royalstar, which continues until June, 2000
and provides that Mr. Young can vote all common shares of Gold
Capital standing in the name of TSVLP or the Company in all matters
submitted to shareholders of Gold Capital. This proxy terminates
as to any shares sold or transferred to third parties and in
addition, terminates if Mr. Young is no longer president of
Royalstar or Gold Capital. In addition, TSVLP and the Company gave
to Royalstar a first right of refusal as relates to sales by TSVLP
or the Company of shares of Gold Capital common stock to third
parties.
As noted above, the Gold Capital Preferred Stock, as amended June
22, 1995, required Gold Capital to pay a mandatory annual 9%
dividend through November 30, 1995 (based on the $10 per share
stated value, or $3 million aggregate valuation). The 1994
dividend ($270,000) was satisfied with the issuance of 127,702
shares of common shares of Gold Capital and the 1995 dividend
($247,500 through November 30, 1995) was satisfied by the issuance
of 147,816 shares issued to the Company in February, 1996.
Gold Capital is required to fund 100% of the holding, development
and administrative costs relating to the Properties until
commencement of commercial production. Gold Capital shall be
reimbursed for expenditures, up to $6 million ("Reimbursable
Costs"), from a preferential portion of cash flows from the
operations of the Properties, if any. Expenditures in excess of $6
million will be considered contributions to the Project Joint
Venture by Gold Capital. Through March 31, 1996, Gold Capital has
reported that it has incurred approximately $3,407,150 in net
Reimbursable Costs.
The Company is recognizing the gain from the sale of the 60%
interest in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting. For the three month period ended
March 31, 1996, 0.9% ($42,222) of the gain was recognized. No gain
was recognized for the 1995 period since no payments were recieved
on the Promissory Note during that quarter.
3. Tonkin Springs Venture Limited Partnership
The Company holds its interest in the Project Joint Venture through
TSVLP, a partnership which is owned by subsidiaries of the Company,
Tonkin Springs Gold Mining Company ("TSGMC") (99.5% general
partner) and U.S. Environmental Corporation (0.5% limited partner).
The following is the unaudited statement of operations and
condensed balance sheet for TSVLP as of and for the three months
ended March 31, 1996.
STATEMENT OF OPERATIONS Three Months Ended
March 31, 1996
Revenues:
Installment gain on sale of
Tonkin Springs interest $26,165
Interest income 39,318
Subtotal 65,483
Costs and expenses:
General, administrative and other 55,416
Net income $10,067
BALANCE SHEET March 31, 1996
Assets:
Current assets
Cash $96,867
Interest receivable 36,118
Accounts receivable 20,000
Note receivable, current portion 723,156
Subtotal 876,141
Investment in Project Joint Venture 3,283,875
Note receivable, non-current portion 1,151,920
Investment in Gold Capital Common Stock 517,500
Investment in Gold Capital Preferred Stock 3,000,000
Intercompany account 451,660
Other assets 2,302
Total Assets $9,283,398
Liabilities and Partners' Interest:
Current liabilities $365
Reserve for reclamation 640,000
Deferred gain on sale of Tonkin
Springs interest 1,805,077
Subtotal 2,445,442
Partners' interest
Subsidiaries of U.S. Gold-
Initial interest 3,309,902
Allocation of withdrawn interests 3,515,384
Accumulated earnings 12,670
Partners' Interest 6,837,956
Total Liabilities and Partners' Interest $9,283,398
Note A. The partnership agreement has been amended to, among other
things, eliminate the requirement that the general partner fund
TSVLP activities through contributions. The amended agreement
provides at the option of the general partner, the ability to make
secured loans to TSVLP to fund activities.
Note B. TSVLP and Gold Capital are jointly responsible for
reclamation of disturbance of the Properties, proportionate to
their respective interest in the Project Joint Venture. The
current estimate of reclamation cost, on a 100% basis, totals
approximately $1.47 million of which the Company reflects $640,000
on its balance sheet related to its 40% share. Actual reclamation,
generally, will be commenced upon the completion of operations at
the Properties. Bonding of reclamation under various Nevada and
Federal Bureau of Land Management agencies, currently set at $1.3
million, is the responsibility of Gold Capital under the terms of
the Project Joint Venture.
4. Condensed Financial Information of Tonkin Springs Project
Joint Venture
As noted in Footnote 2 above, effective December 31, 1993, TSVLP
sold a 60 percent undivided interest in the Properties to Gold
Capital and the parties each made their respective interest in the
Properties subject to the Project Joint Venture. Gold Capital is
manager of the Properties under the Project Joint Venture. The
following is the unaudited condensed statement of operations and
balance sheet of the Project Joint Venture as of and for the three
months ended March 31, 1996. All costs and expenditures associated
with the Properties have been funded by Gold Capital.
STATEMENT OF OPERATIONS Three Months Ended
March 31, 1996
Revenues $0
Property maintenance costs 212,072
Net loss $(212,072)
BALANCE SHEET March 31, 1996
Assets:
Current assets, cash $75,554
Property, plant, equipment &
development costs 12,135,611
Prepaid royalties 527,823
Deposits and other assets 9,675
Total assets $12,748,663
Liabilities, Reserves and Project
Joint Venturers' Interest:
Current liabilities $283,871
Intercompany account-Gold Capital 2,769,150
Reserve for reclamation 1,469,900
Subtotal 4,522,921
Venturers' Interest-
Gold Capital's interest 5,789,399
TSVLP's interest 2,436,343
Total venturers' interest 8,225,742
Total liabilities, reserves and
venturers' interest $12,748,663
5. Loan Settlement Agreement
On February 21, 1992, in a Loan Settlement Agreement with its
senior secured lender, The French American Banking Corporation
("FABC"), the Company discharged its debt to FABC. As part of the
consideration to FABC under the Loan Settlement Agreement, the
Company entered into an agreement between TSGMC and FABC entitled
"Agreement To Pay Distributions." Under the terms of this
agreement, TSGMC is required to pay to FABC (i) the first $30,000
of distributions, as defined in such agreement, received from
TSVLP, plus (ii) an amount equal to 50% of such retained
distributions after TSGMC has first received and retained $500,000
of such retained distributions. This obligation to FABC shall
terminate after FABC has been paid a total of $2,030,000
thereunder.
6. Short-term Borrowing
Effective August 23, 1993, the Company entered into an unsecured
loan agreement with Placer Dome U.S. Inc. ("PDUS") under which PDUS
loaned $300,000 to U.S. Gold. On July 14, 1995, the Company repaid
this loan along with accrued interest of $30,016. PDUS is
beneficial owner of approximately 7% of the outstanding shares of
common stock of U.S. Gold.
PART II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Changes in Financial Condition
On December 31, 1993 (the "Closing"), TSVLP, a partnership owned by
subsidiaries of U.S. Gold Corporation (the "Company"), sold a 60
percent undivided interest in the Tonkin Springs Properties and
Obligations (the "Properties") to Gold Capital. TSVLP retained a
40 percent undivided interest in the Properties. Immediately
thereafter, TSVLP and Gold Capital each made their respective
interest in the Properties subject to the Tonkin Springs Project
Joint Venture ("Project Joint Venture") to operate and manage the
Properties. Ownership in the Project Joint Venture is: TSVLP- 40
percent, Gold Capital- 60 percent. Gold Capital is manager of the
Properties under the Project Joint Venture.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP for a purchase price and other consideration
of approximately $7,830,000 representing the estimated fair market
value of the assets purchased. The purchase price included
$200,000 in cash at Closing; delivery of a mortgage note in the
amount of $3.8 million (the "Promissory Note"); 300,000 shares of
unregistered Gold Capital's Series A Preferred Stock ("Gold Capital
Preferred Stock") having an assigned value of $3 million, and the
assumption of 60 percent of a reclamation obligation recorded at
$960,000.
Through March 31, 1996, the Company has received $1,924,924 in
principal payments on the Promissory Note with $1,875,076 remaining
due. The Promissory Note as amended, requires monthly payments by
Gold Capital of $50,000 until Gold Capital has raised an aggregate
of $4,000,000 in new financing, or until paid in full, and $75,000
per month until the note is paid in full subsequent to Gold Capital
raising an aggregate of $4,000,000 in new financing. The
Promissory Note as amended, is collateralized by Gold Capital's 60%
interest in the Properties and the Project Joint Venture and
accrues interest at a fixed rate of 7.5% on the unpaid principal
balance. Interest on the Promissory Note for 1995 in the amount of
$195,572 and was received in full during March, 1996.
TSVLP entered into the Commitment and Agreement to Convert with
Gold Capital dated June 22, 1995, whereby it agreed to convert its
300,000 shares of Gold Capital Preferred Stock at some time in the
future into 1,500,000 shares of Gold Capital common stock. The
Preferred Stock accrued mandatory 9% dividend (based on the $10 per
share stated value which totals $3 million aggregate valuation)
through November 30, 1995. The 1994 dividend in the amount of
$270,000 was satisfied with the issuance of 127,702 shares of Gold
Capital common stock, and the 1995 dividend (through November 30,
1995) in the amount of $247,500 was satisfied by the issuance of
147,816 shares of common stock of Gold Capital received by TSVLP in
February, 1996. The aggregate carrying value of the 275,518 shares
of Gold Capital common shares received as dividends is $517,500
($1.88/share), and the market price of such shares as of April 10,
1996 was bid $1.00 and ask $1.38. Pursuant to the Registration
Rights Agreement dated March 27, 1995, Gold Capital has agreed to
use its best efforts to register all common stock received by
TSVLP.
Gold Capital is required to fund 100% of the holding, development
and administrative costs relating to the Properties until
commencement of commercial production. Through March 31, 1996,
Gold Capital has reported that it has incurred approximately
$3,407,150 in net costs for the Project Joint Venture. Gold
Capital shall be reimbursed for expenditures, up to $6 million
("Reimbursable Costs"), from a preferential portion of cash flows
from the operations of the Properties, if any. Expenditures in
excess of $6 million will be considered contributions to the
Project Joint Venture by Gold Capital.
During 1996, Gold Capital retained Behre Dolbear & Company, Inc.,
international consultants to the mining industry, to perform a
technical audit of the feasibility study for the Tonkin Springs
Project incorporating the initial 5 year plan of operations. The
feasibility study incorporated estimates, projections and assumptions
related to various items including ore grade, gold recovery rates and
operating and capital costs. Actual results could differ from those
estimates, projections and assumptions. The audit was completed in
April, 1996, and the Conslusions/Recomendation section of the Executive
Summary of the report indicated that the project, "on a 100 percent basis
and pre-tax, has strong economics and a quick payback of capital". Behre
Dolbear projected average cash operating costs for the initial 5 years
of operations at $243.43 per ounce of gold and concluded that the project
economics and technical factors indicate the project should proceed to
commercial production.
The feasibility study included an updated estimate of gold ore
reserves as summarized below by operating processes:
Strip Contained
Ore Tons Grade Ratio Ounces
(000's) (OPT)
Sulfide Milling 2,568 0.102 260,900
Sulfide Heap Leaching 3,575 0.045 160,700
Oxide Heap Leaching 3,690 0.036 132,100
Total 9,833 0.056 2.84 553,700
The Company anticipates that Gold Capital will put the Tonkin
Springs Project into production upon Gold Capital obtaining the
necessary funding and issuance of final operating permits.
Liquidity and Capital Resources
During the remainder of 1996, TSVLP anticipates receipt of a
minimum of $573,156 in principal payments from Gold Capital plus
accrued interest under the Promissory Note which is due December
31, 1996. These payments are the only source of working capital
anticipated during 1996 unless the Tonkin Springs Project commences
commercial production with cash flow, if any, distributed to TSVLP.
Therefore, the sufficiency of the Company's working capital is
dependent upon Gold Capital's continuing performance under the
terms of various agreements. Management plans to monitor Gold
Capital's performance under the various terms of the agreements
and, if required, to exercise its rights as provided in a security
agreement dated December 31, 1993, under which the Company holds a
security interest in Gold Capital's 60% interest in the Properties
and Project Joint Venture.
For the three months ended March 31, 1996, net cash used in
operations increased from $146,414 in the 1995 period to $385,668
during 1996, reflecting the increase in cash paid to suppliers and
employees, and payments during 1995 on a Federal tax obligation.
Cash flow from investing activities increased from $130,398 for
1995 to $264,732 in 1996, primarily reflecting receipt of accrued
interest for 1995 received in 1996 under the note from Gold
Capital.
Results of Operations - 1996 Compared to 1995
The Company is recognizing the gain from the sale of the 60%
interest in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting as the purchase price
consideration from Gold Capital becomes reasonably assured. For
the three month period ended March 31, 1996, 0.9% ($42,222) of the
gain was recognized reflecting principal payment received on the
Promissory Note while in 1995 period, no payments were received.
At March 31, 1996, $2,912,297 of the gain remains deferred and is
anticipated to be recognized as income in the future as provided
under installment sale accounting. During the 1996 period, $39,339
in interest income related to the Promissory Note was recorded,
compared to interest income of $66,179 during the 1995 period as
well as dividend income of $67,500 related to the Gold Capital
Preferred Stock. Dividends on the preferred stock ceased to accrue
effective November 30, 1995.
General and Administrative expenses increased approximately
$184,987 in the 1996 period compared to 1995, reflecting higher
office rental costs as well as salaries and bonuses paid to
employees. Interest expense during the 1995 period was $13,187,
and related primarily to the Federal tax liability, and interest on
the unsecured note in favor of PDUS paid in full in July, 1995.
PART II
1. No report required.
2. No report required.
3. No report required.
4. No report required.
5. No report required.
6.a(i) Exhibit 10.1 - Executive Summary of Technical Audit of the
Tonkin Springs Gold Property, Eureka County, Nevada, dated
April, 1996, by Behre Dolbear & Company, Inc., Denver,
Colorado.
(ii) Exhibit 11 - Statement of Computation of Weighted Average
Shares Outstanding.
6.b Reports on Form 8-K. Effective February 13, 1996, the
Company file a Form 8-K on Item 4, Change in Registrant's
Certifying Accountant, reporting that BDO Seidman, LLP replaced
Mitchell*Finley and Company, P.C., as the Company's principal
accountants. On January 1, 1996, Mitchell*Finley and Company, P.C.
merged their practice into BDO Seidman, LLP.
SIGNATURES
In accordance with the requirements of the Securities and Exchange
Act of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. GOLD CORPORATION
Dated: May 10, 1996 By: /s/ William W. Reid
William W. Reid, President
and Chairman of the Board
Dated: May 10, 1996 By: /s/ William F. Pass
William F. Pass, Vice President
and Chief Financial Officer
Gold Capital Corporation
TECHNICAL AUDIT OF THE
TONKIN SPRINGS GOLD PROPERTY,
EUREKA COUNTY, NEVADA
APRIL 1996
Prepared by:
Behre Dolbear and Company, Inc.
1601 Blake Street, Suite 301
Denver, Colorado 80202
303-620-0020
1.0 EXECUTIVE SUMMARY
1.1 CONSULTANT'S ROLE
The geologic and mining consulting firm of Behre Dolbear & Company,
Inc. was retained by Gold Capital Corporation to conduct an audit
of plans to restart the Tonkin Springs Gold Project, southwest of
Elko, Nevada. The audit consisted of:
A site visit by a three-man Behre Dolbear team;
A review of a series of documents detailing:
Ore reserves and costs;
The design and description of the processing facilities;
The status of environmental permitting;
Preliminary financial evaluation of the project; and
Discussions with the consultants who had produced the
above documents.
The Behre Dolbear team made a number of changes, mainly minor in
nature, to some of the parameters and assumptions contained in the
documents, and then re-ran the financial evaluation, incorporating
sensitivities to changes in key items.
1.2 PROJECT LOCATIONS
The project location is some 90 miles SW of Elko, Nevada at
elevations ranging from 6,400 to 8,160 feet; is accessible via 54
miles of paved and then 16 miles of well maintained county gravel
roads from Carlin. The area enjoys a climate conducive to mining
operations.
1.3 EXISTING FACILITIES CIL mill (built and then shut down in 1990);
and essentially all elements of infrastructure are in place and can
be operational with a minimum of refurbishing.
1.4 ORE RESERVES
Behre Dolbear has reviewed the ore reserve calculations done by the
Owner's consultant, accepts the figures, and confirms that they
were performed to industry standards.
The primary ore reserves of the project are contained in four
deposits, and are categorized into sulfide milling, oxide heap
leaching and sulfide heap leaching - ores. There appears to be
significant potential for additional reserves, both sulfide and
oxide, adjacent to the four pits as well as possibly on the
remainder of the land holdings, which extend approximately 8 miles
to the north of the northernmost pit (the Rooster), as well as 1
mile to the south of the southernmost pit (the O-15), and on
strike.
Proven and probable diluted mineable reserves as stated by Gold
Capital total 9.83 million tons of ore grading 0.056 ounces of gold
per ton, as shown in Table 1.1.
Table 1.1
Diluted Mineable Ore Reserves
Ore Tons Grade Contained Waste Tons Strip
(000's) (OPT) Ounces (000's) Ratio
Sulfide Milling 2568 0.1016 260900
Sulfide Heap
Leaching 3575 0.0450 160700
Oxide Heap
Leaching 3690 0.0358 132100
TOTAL 9833 0.0563 553700 27953 2.84
1.5 PROJECT DESCRIPTION
Operations will consist of open pit mining performed by a
contractor, followed by three-stage crushing to a nominal 3/8 inchfor the
sulfide milling and the sulfide heap leaching ores. The oxide ore will
not be crushed and will go directly to Run-of-Mine(ROM)heap leaching.
The sulfide milling ore will go to a pad whereit is bio-oxidized by bacteria
in a sulfuric acid solution and then
returned for grinding and gold recovery in the existing
conventional 2000 tpd CIL plant. The Sulfide Heap Leach ore will
go to a pad for bio-oxidation and is then reclaimed and sent to a
second pad adjacent to the oxide ore heap leach pad, for designed for
the following production rates and start-up dates as
follows:
Production Rates Start-up Dates
Sulfide milling: 2000 tpd or 710000 tpy 1st quarter, Year 1
Sulfide heap
leaching: 2000 tpd or 710000 tpy 4th quarter, Year 1
Oxide heap
leaching: 2620 tpd or 930000 tpy 12th month, Year 1
1.6 PROJECT STATISTICS
Saleable gold is projected to total 420000 ounces. Annual gold
production and sales are shown in Table 1.2.
Table 1.2
Gold Production and Sales
Year Ounces Produced Ounces Sold
1 60200 60000
2 103400 101200
3 103700 103700
4 94500 93200
5 57100 56600
6 0 5400
TOTAL 418900 420100
Note: 1200 ounces are produced in the pre-production year, but
not sold until Year 1.
1.7 FINANCIAL
1.7.1 Capital
Capital costs for processing were developed by Lyntek Incorporated
and, after some small adjustments, are confirmed by Behre Dolbear.
All other capital costs were developed by Gold Capital and again,
after some minor changes, are confirmed by Behre Dolbear. Costs
are shown in Table 1.3.
Table 1.3
Capital Costs by Year
Year $ Millions Capital Cost per
Saleable Ounce
(year 0) 9.163 21.81
Years 1-3 15.133 36.02
Life-of-Project
(5+ years)* 22.046 53.48
* Includes a credit for assumed salvage value of $5 million.
1.7.2 Working Capital
Because the bio-oxidation process is relatively new, it is likely
that a slow start-up will occur and gold sales will be delayed.
Behre Dolbear is therefore recommending that additional working
capital be allowed for. Specifically, Behre Dolbear has included
in its financial evaluations one full month of operating costs
($800000) and one additional month ($800000) as a contingency.
Furthermore, an increase in working capital of $1.5 million (to be
provided by cash flow from operations) is needed at the start of
the sulfide heap leaching and oxide heap leaching processes (4th
quarter of Year 1).
1.7.3 Operating Costs Per Ounce
Operating costs for mining are based on mining contractor bids.
Costs for processing were developed by consultant Lyntek, modified
in two or three areas by Behre Dolbear, and are now verified to be
correct. Costs for G&A were developed by Behre Dolbear and Gold
Capital, and Behre Dolbear verifies that they are correct.
Life-of-mine average operating costs per ounce of saleable gold are
$243.43 and are shown in Table 1.4.
Table 1.4
Cash Operating Costs Per Ounce of Saleable Gold (420,100 oz)
Type of Cost $ Per Ounce
Direct Cash Operating Cost (mining,
processing, G&A, refining, equipment leasing) 224.17
Indirect Cash Operating Cost
(royalties, Nevada taxes) 19.26
TOTAL OPERATING COST 243.43
Life-of-mine, cumulative project cash, net of capital expenditures,
is a pre-tax $44.19 million or $102 per saleable ounce. This is
based on $400 gold, which was used in the pit optimization studies
and is close to the current price.
1.7.5 Internal Rate of Return and PV15
The before tax internal rate of return is 62.60 percent; the before
tax PV15 (net present value, calculated at a discount rate of 15
percent) is $19.4 million.
1.8 SENSITIVITIES
Sensitivities have been run for the four parameters shown in Table
1.5. The project is most sensitive to changes in the gold price
and in operating costs, but it is not unduly sensitive to changes
in any of the above parameters. It is least sensitive to changes
in capital costs.
Table 1.5
Project Sensitivities
Parameter Cash Cost Internal Rate Project Net
Per Ounce of Return Cash Flow
($) (%) ($ millions)
Base Case 243.43 62.60 44.19
Operating Costs
+-10% +-21.35 +-12.60 +-9.00
Capital Costs
+-10% No change +-8.40 +-2.11
Recoveries:
+-5% +-10.45 +-10.95 +-7.65
Gold Price:
+-$25 +-2.15 +-13.75 +-9.60
1.9 ENVIRONMENTAL TIMETABLE
The revised plan of operations (POO), the water pollution control
permit and the air quality operating permit are all due to be
submitted to the BLM on or before June 1, 1996. Behre Dolbear
believes that approval to proceed will take at least 104 days,
which makes the earliest start-up date for mining around mid-
September 1996. Behre Dolbear does not, however, see a likelihood
of significant problems or delays.
Behre Dolbear believes that this project has the usual complement
of upsides and downsides. These are as follows:
1.10.1 Upsides
The likely discovery of additional ore reserves in all three
categories, leading to one or more years of additional life.
Increased treatment capabilities, both in the mill and in both
sulfide and oxide heap leach operations. An increase of 10
percent seems a reasonable goal.
Possibly higher recoveries in the mill (1-2 percent) and in the
oxide ore heap leaching operations (1-3 percent).
1.10.2 Downsides
Start-up difficulties with the bio-oxidation process, leading
to lower gold recoveries and lower sales in the first 3-6
months.
A possibly lower recovery in the sulfide heap leaching process,
where testing of the specific ore grade has been insufficient,
but where this is in the process of being corrected by
additional testing. The downside could be of the order of a
5-10 percent reduction for the sulfide heap leaching ore, but
overall, the effect on the project economies is not great.
Behre Dolbear does not see any significant problems in the areas
of:
Tons and grade of ore;
Capital costs; or
Operating costs.
1.11 CONCLUSIONS/RECOMMENDATIONS
The Tonkin Springs Project, on a 100 percent basis and pre-tax, has
strong economics and a quick payback of capital (two years).
Important information concerning the commercial operation of the
bio-oxidation pads can be obtained from a larger (i.e. 36-inch
diameter of suitable height) column test on the sulfide ore. It is
therefore recommended that an additional test be run during the
construction period to gain this information.
Because the bio-oxidation process is relatively new, provision
should be made for $800,000 in additional working capital (total of out to
be slower than predicted in this analysis, and especially if
start-up occurs in the winter months.
Behre Dolbear believes that the project economics and technical
factors indicate the project should proceed to commercial
production.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 3/31/96 FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<CIK> 0000314203
<NAME> U. S. GOLD CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 113702
<SECURITIES> 0
<RECEIVABLES> 136599
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1082109
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8302116
<CURRENT-LIABILITIES> 10556
<BONDS> 0
0
0
<COMMON> 4739263
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8302116
<SALES> 81561
<TOTAL-REVENUES> 81561
<CGS> 0
<TOTAL-COSTS> 330431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> (248870)
<INCOME-TAX> 0
<INCOME-CONTINUING> (248870)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (248870)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
U.S. GOLD CORPORATION
Exhibit 11 to Form 10-Q
for the Three Month Period Ended March 31, 1996 and 1995
Computation of Weighted Average Shares Outstanding Used
in Earnings Per Share Calculations:
1996 1995
(1) (1)
Total shares issued 13,806,505 13,768,800
Weighted average of common
stock equivalents:
Unexercised stock options 0 0
Less: Buy back of common shares
under treasury stock method
using average price. 0 0
13,806,505 13,768,800
(1) Common stock equivalents not considered in either period
since their effect would be antidilutive.
