As filed with the Securities and Exchange Commission on November 1, 1996
Registration No.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
USMX, INC.
(Exact name of registrant as specified in charter)
Delaware USMX, INC. 84-1076625
(State or other 141 Union Blvd., Suite 100 (I.R.S. Employer
jurisdiction of Lakewood, CO 80228 Identification No.)
incorporation or
organization) (303) 985-4665
(Address of principal
executive offices)
Donald P. Bellum
USMX, INC.
141 Union Blvd., Suite 100
Lakewood, CO 80228
(303) 985-4665
(Name, address, and
telephone
number of agent for
service)
Copies of communication to:
Norman F. Findlay, Esq.
Cassels Brock &
Robert M. Bearman, Esq. Blackwell
Bearman Talesnick & 40 King Street West,
Clowdus Suite 2100
Professional Toronto, Canada M5H 3C2
Corporation Telephone: (416) 869-
1200 17th Street, Suite 5300
2600 Facsimile: (416) 360-
Denver, CO 80202-5826 8877
Telephone:(303) 572-6500
Facsimile:(303)572-6511
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:x:
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
Title of each Amount to be Proposed Proposed Amount of
class of registered maximum maximum registration
securities to offering aggregate fee
be registered price per offering price
unit (1)
Common Stock, 5,750,000 $2.00 $11,500,000 $3,965.52
$.001 par shares
value
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 based upon the last reported sale price on
the Nasdaq National Market on October 31, 1996.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cross Reference Sheet
USMX, INC.
Item in Form S-2 Caption in Prospectus
1. Forepart of the Cover Page
Registration Statement and
Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Available Information;
Back Cover pages of Table of Contents
Prospectus
3. Summary Information, Risk The Company; Risk Factors
Factors and Ratio of
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Description of Securities Description of Capital
to be Registered Stock
10. Interest of Named Experts Legal Matters; Experts
11. Information with Respect The Company; Business and
to Registrant Properties
12. Incorporation of Certain Incorporation of Certain
Information by Reference Inforamtion by Reference
13. Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act Liabilities
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 1996
5,000,000 Shares
USMX, INC.
Common Stock
All of the shares of the common stock of the Company, par value $.001
per share (the "Common Stock"), being offered hereby (the "Offering") are
being sold by the Company. The Common Stock is traded on The Nasdaq
National Market ("Nasdaq") under the symbol "USMX" and on The Toronto Stock
Exchange under the symbol "USM". On October 31, 1996, the last reported
sale price of the Common Stock as reported by Nasdaq was $2.00 per share.
See "Price Range of Common Stock".
See "Risk Factors" commencing on page for a discussion of certain
factors that should be considered by prospective purchasers of the Common
Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A FEDERAL OFFENSE.
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Share $ $ $
Total (3) $ $ $
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of payable by the
Company.
(3) The Company has granted the several Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to
purchase up to an additional 750,000 shares of Common Stock to cover
over-allotments, if any. If all of such additional shares are
purchased, the total Price to Public, Underwriting Discount and
Proceeds to Company, will be $ , $ , $ , respectively.
See "Underwriting".
The shares offered hereby are offered by the several Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
the certificates for the shares will be ready for delivery in New York, New
York, on or about December , 1996, against payment therefor in
immediately available funds.
NEWCREST CAPITAL CORP.
The date of this Prospectus is November , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET, SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Shares offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, part of which has been omitted in accordance with the rules and
regulations of the Commission. For further information about the Company and
the Shares offered hereby, reference is made to the Registration Statement and
exhibits filed as a part thereof and otherwise incorporated therein and which
may be inspected and copied in the manner and at the facilities described below.
Statements made in this Prospectus as to the contents of any document referred
to herein are not necessarily complete, and in each instance reference is made
to such document for a more complete description, and each such statement is
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission. The Registration Statement, including the exhibits thereto, as
well as such reports and other information filed by the Company with the
Commission, can be inspected, without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington
D.C., 20549; and at the Commission's Regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports and other information
concerning the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the
Company with the Commission pursuant to the Exchange Act are
incorporated by reference in this Prospectus: (1) the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, (2) the Company's Annual Report on Form
10-K/A filed with the Commission on April 29, 1996 (3)
Company's Quarterly Reports on Form 10-Q for the Quarters
ended March 31, 1996 and June 30, 1996, (4) the Company's
Reports on Form 8-K filed with the Commission on April 29,
1996, and July 24, 1996 (5) the Company's Proxy Statement
dated May 24, 1996 concerning the Company's Annual Meeting
of Stockholders held June 24, 1996, and (6) all other documents
subsequently filed pursuant to Sections 13(a), 13 (c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and before
the termination of this offering, which shall be deemed to
be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing of such documents.
Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement
herein or in any other subsequently filed document which
also is incorporated or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
The Company will provide without charge to each person,
including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request, a copy of any or
all documents incorporated into this Prospectus by reference
(other than exhibits incorporated by reference into such
document which are not specifically incorporated by
reference into such documents). Requests for documents
should be submitted to USMX, INC., 141 Union Blvd., Suite
100, Lakewood, Colorado 80228, Attention: Secretary
(telephone (303) 985-4665). The information relating to the
Company contained in the Prospectus does not purport to be
comprehensive and should be read together with the
information contained in the documents incorporated or
deemed to be incorporated by reference herein.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All statements other than statements of historical fact included
in this Prospectus, including without limitation, the statements
under "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business and Properties" located
elsewhere herein regarding the Company's financial position and
liquidity, the Company's properties, operations and proposed
operations, and other matters, are forward-looking statements.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no
assurance such expectations will prove to have been correct.
Important factors that could cause actual results to differ
materially from the Company's expectations are disclosed in this
Prospectus, including without limitation in conjunction with the
forward-looking statements included in this Prospectus.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this
Prospectus and the accompanying Prospectus and the documents
incorporated by reference therein. Except as otherwise
specified, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
References to the "Company" in this Prospectus include USMX,
Inc. and its subsidiaries.
The Company
USMX, Inc. (the "Company") or ("USMX") is engaged
principally in the exploration for, and development and
operation of precious metal properties. The Company
conducts its operations directly and through various
operating subsidiaries.
The Company's principal focus in 1996 has been the
development of its Illinois Creek Project (the "Project") in
west central Alaska. In February 1996 the Company completed
its feasibility study of the Project and received a
commitment for Project financing. In May key permits
necessary for mining, heap leaching and dam construction
were received and the Company commenced construction of the
mine and related facilities were commenced. In July 1996,
the Company completed its acquisition of the leasehold
interest in the Project from North Pacific Mining
Corporation and entered into credit agreements with NM
Rothschild & Sons Limited ("Rothschild") for a $22,000,000
facility to finance the development and construction costs
of the Project.
The mine and related facilities were substantially
completed in October 1996. Mining contractors are in the
process of placing overliner material and run of mine ore on
the leach pond. Once the overliner is completed and
approximately 150,000 tons of ore are in place, the Company
is required to successfully complete a test to demonstrate
that the synthetic pad liner does not leak. After
completion of this test to the satisfaction of appropriate
regulatory authorities, which could occur in mid-November,
the Company would begin placing cyanide solutions to the
heap with gold production anticipated shortly thereafter.
If this process is completed in a timely manner, the Company
forecasts that it could produce approximately 10,000 ounces
of gold in late 1996 and early 1997. If this time table is
not achieved, then production would be expected to commence
in the spring of 1997.See "Risk Factors", and "Use of Proceeds".
The Company's executive offices are located at 141
Union Boulevard, Suite 100, Lakewood, Colorado 80228 and
its telephone number is (303) 985-4665.
The Offering
Common Stock offered .................. 5,000,000 shares
Common Stock outstanding (1):
Before the Offering ..................... 16,184,182 shares
After the Offering ...................... 21,184,182 shares
Use of Proceeds ........................... To deposit
funds into the Proceeds Account for
the Illinois Creek Project as
required pursuant to credit
agreements with Rothschild, and for
working capital. See "Use of
Proceeds".
Nasdaq Trading Symbol ................... USMX
Toronto Stock Exchange Trading Symbol. USM
(1) Excludes 1,953,750 shares of Common Stock underlying stock
options and shares underlying a convertible debenture issued to
Rothschild. See "Business and Properties-Project Financing".
<PAGE>
<TABLE>
Summary Consolidated Financial Information
(amounts in thousands of US$ except per share and per-ounce
amounts and operating data)
<CAPTION>
Years Ended December 31, Six Months Ended Eight Months Ended
June 30, August 31,
1995 1994 1993 1992 1991 1996 1995 1996 (5) 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue (gold sales
plus net other
income) $ 3,922 $14,866 $24,252(1) $18,043 $ 17,564 $ 885 $ 1,467 $ 1,093 $ 1,672
Gross profit (loss) (605) 1,641 880 1,658 4,505 - (135) - (219)
Prospecting costs 684 739 667 651 522 405 476 484 579
Abandonment and
impairment of
mineral properties 4,431 261 938 21 502 242 1,471 242 1,529
Net income (loss) (6,906) 204 2,602 37 1,928 (1,001) (2,424) (1,658) (2,821)
Net income (loss) per
share ($0.47) $0.01 $0.17 $0.00 $0.14 ($0.07) ($0.16) ($0.01) ($0.19)
Operating Data:
Ounces of gold sold 6,900 35,600 50,400 47,400 43,800 - 2,000 - 2,000
Average realized price
per ounce $388 $383 $360 $360 $376 - $389 - $389
Average market price
per ounce $384 $384 $360 $344 $362 $395 $383 $393 $384
Ounces of gold
produced:
Goldstrike (4) 6,266 34,486 31,934 4,496 - - 3,676 - 5,365
Alligator Ridge area (3) - - 23,454 41,120 36,803 - - - -
Green Springs - - - 2,353 4,984 - - - -
--------------------------------------------------------------------------------------------------
Total 6,266 34,486 55,388 47,969 41,787 - 3,676 - 5,365
==========================================================================================
Cash costs per ounce:
Goldstrike (4) $ 233 $ 229 $ 305 $ 270 $ - $ - $ 204 $ - $ 197
Alligator Ridge area (3) - - 268 285 256 - - - -
Green Springs - - - 198 143 - - - -
------------------------------------------------------------------------------------------
Combined $233 $229 $289 $280 $242 $ - $ 204 $ - $ 197
==========================================================================================
Total cost per ounce:
Goldstrike (4) $ 233 $ 277 $ 326 $ 282 $ - $ - $ 204 $ - $ 197
Alligator Ridge area (3) - - 328 336 290 - - - -
Green Springs - - - 162 148 - - - -
--------------------------------------------------------------------------------------------------
Combined $ 233 $ 277 $ 327 $ 331 $ 290 $ - $ 204 $ - $ 197
==========================================================================================
</TABLE>
<TABLE>
<CAPTION> December 31, June 30, August 31,
1995 1994 1993 1992 1991 1996 1995 1996 1995
Financial Condition ----------------------------------------------------------------------------------------------------
Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Working capital $ 5,094 $14,105 $ 19,362 $12,903 $ 11,427 $(3,715) $11,231 $ 755(6) $ 9,444
Current assets $ 5,834 $14,923 $ 21,573 $16,427 $ 14,140 $ 1,957 $12,316 $ 8,433(6) $ 10,308
Total assets $17,469 $24,190 $ 28,808 $28,741 $ 26,195 $24,803 $21,999 $47,631(7) $ 21,154
Current liabilities $ 740 $ 818 $ 2,211 $ 3,524 $ 2,713 $ 5,692 $ 1,085 $ 7,678 $ 864
Long term liabilities $ 885 $ 361 $ 1,074 $ 3,290 $ 1,680 $ 4,268 $ 361 $ 26,268 $ 361
Stockholders' equity $15,844 $23,011 $ 25,523 $21,927 $ 20,052 $14,843 $20,553 $ 18,185 $ 19,929
</TABLE>
Proven and Probable Mineable Reserves
The following table sets forth the proven and probable
mineable gold ore reserves located on the Illinois Creek
Project as of September 24, 1996. These reserves are based
on a 0.025 ounce of gold equivalent per ton of ore cutoff
grade.
Proven and probable mineable ore reserves are estimates
of quantities and grades of ore which can be economically
recovered based on assumptions of a $400 per ounce future
gold price. These reserves have been prepared by the
Company and have been reviewed by Roscoe Postle Associates
("RPA") which is an independent mining consulting firm. In
the opinion of RPA, the reserves at Illinois Creek are
estimated in accordance with standard engineering methods
and the reserve estimation methods and procedures used are
in keeping with standard industry practice. However, the
ore reserves presented in this Prospectus are estimates only
and may require revisions based on actual production
experience. In particular, RPA has noted some issues which
may impact on the average grade and RPA believes that most of
the reserves should be classified as probable. Fluctuations in
the marketprice of gold, as well as increased production costs
or reduced recovery rates, may render reserves containing
relatively lower grades of mineralization uneconomical to
recover and may ultimately result in a restatement of
reserves. See "Risk Factors".
<TABLE>
<CAPTION>
Contained
Contained Gold Gold
Gold Gold Silver Equivalent Equivalent
Ore Tons Grade Ounces Grade Grade Ounces
- --------- --------- --------- --------- ------------- -----------
<C> <C> <C> <C> <C> <C>
6,219,470(1) .064oz/ton 398,046 1.422oz/ton (2)0.069oz/ton 429,143
<FN>
(1) In addition there are approximately 575,000 tons
of material with grades between 0.015 oz/ton and the
cut-off grade of 0.025 oz/ton which must be stripped and
may be placed on the heap if economics warrant it.
(2) Gold Equivalent grade is calculated using a gross
recovery for silver of 29% and a gold to silver price
ratio of 80.
</TABLE>
<PAGE>
RISK FACTORS
Financial Position of the Company; Use of Proceeds
At August 31, 1996, the Company's working capital was $755,000.
During 1996 the Company devoted or committed substantially all of
its liquid resources to development of this Project. During 1996,
the development budget for the Illinois Creek Project increased from
$22.6 million to $28.6 million, principally due to weather-related
delays and other problems arising from the complexities of
developing a mine in Alaska using only air transport. The Company's
lending arrangements with Rothschild require it to maintain minimum
balances in a Proceeds Account for use only in connection with the
Project and to maintain certain financial ratios related to the
Project and to the Company. The Company was required to deposit
$1.5 million to the Proceeds Account by September 30, 1996, which
requirement was not satisfied. Rothschild has agreed with the
Company to waive this default and any defaults related to the
failure by the Company to comply with the financial ratios until
December 31, 1996, provided the Company completes this Offering by
that date and meets other conditions described in "Business and
Properties-Project Financing." If the Company is unable to meet
these conditions or to otherwise maintain compliance with its credit
obligations to Rothschild, it risks a possible foreclosure of
Rothschild's security interest in the Project and legal action for
monetary damages against the Company.
The Company does not presently have capital resources available
to satisfy its obligations to Rothschild. Accordingly, if this
Offering were unsuccessful, the Company would need to obtain other
financing or attempt to merge or engage in another form of business
combinationwith an entity with available cash resources. The Company
has made no such arrangements and there can be no assurance that the
Company would be successful in obtaining any such arrangements.
The Company recently commenced mining operations at the
Project in hopes of achieving gold production in 1996. If
the Company is unsuccessful in obtaining production, it
expects that it will be required to devote substantially all
of the proceeds of this Offering to the Illinois Creek
Project. Any funds deposited to the Proceeds Account by the
Company may not be withdrawn from the Company's general
corporate purposes until "Completion" has occurred. As
defined in the credit agreements with Rothschild, the
requirements for Completion include the construction of the
Project facilities, which facilities and equipment thereon
must be mechanically complete and electrically operable
("Mechanical Completion"), the achievement of production
amounts and grades, costs and reserves similar to the
development plan, and the absence of any default in the
credit agreements. Completion has not occurred, and there can
be no assurance that the conditions for Completion will be
satisfied. Moreover, the Company projects that the earliest
date the conditions could be satisfied would be August,
1997. Accordingly, if the Company is required to devote
substantially all the proceeds of this Offering to the
Illinois Creek Project, the Company would be severely
constrained in its ability to conduct operations and to
pursue other mining opportunities.
Profitability
Although the Company reported net income for each of the three
years ended December 31, 1994, the Company reported a net loss of
$6.9 million for the year ended December 31, 1995. The Company also
incurred a net loss of $1,658,000 for the eight months ended August
31, 1996 as compared to a net loss of $2,821,000 for the eight
months ended August 31, 1995. The Company does not anticipate
obtaining operating revenues in 1997 from any mine other than
Illinois Creek. If those operations were not satisfactory, the
Company's ability to generate revenues would be materially adversely
affected. Future profitability is also dependent upon the Company
successfully locating, acquiring, financing, constructing, and
operating additional mines at a cost that is sufficiently less than
the prevailing price of the commodity being mined, of which there
can be no assurance.
Certain Illinois Creek Project Risks
Completion and operation of the Illinois Creek Project involve
numerous risks, including the following:
Reserves. Ore reserves for the Illinois Creek project which
are presented in this Prospectus are estimates made by the
Company which have been reviewed by Roscoe Postle Associates
Inc. ("RPA"), an independent mining consulting firm. The
Company has not commenced production at this Project, and
there can be no assurance given that the indicated amount of
gold will be recovered. The reserves have been calculated
from drill-hole assay results. Several programs of
trenching, diamond drilling and reverse-circulation drilling
have been carried out on the Project. Assay results have
been analyzed and several checks of the assay data have been
conducted as a quality control procedure. Modeling is used
to yield estimates in reserves determined by optimum
economic mining limits. In the opinion of RPA, the Project
reserves are estimated in accordance with standard
engineering methods and the estimation approach and
procedures used are in keeping with standard industry
practice. However, RPA has noted that there are some issues
which can impact on the estimate of the average grade,
including the handling of high-gold assays, which may result
in the overestimation of the average grade of the deposit in
the order of 10%. RPA has noted that differences of this
magnitude in gold grades are not unusual. RPA also has stated
its belief that most of the reserves should be classified as
probable. Reserve estimates may require revisions based on actual
production experience. Fluctuations in the market price of gold,
as well as increased production costs or reduced recovery rates,
may render reserves containing relatively lower grades of
mineralization uneconomical to recover and may ultimately
result in a restatement of reserves. The reserves for the
Project have been calculated assuming a realizable price of
gold of $400 per ounce. The price of $400 per ounce was
selected based on trading on the gold spot market and the
gold forward market. The Company has entered into certain
hedging arrangements. However, there can be no assurance
with respect to the future price of gold and its effect on
the Company's reserves and operations.
Transportation. The Illinois Creek Project site is located in
the southern Kaiyuh Mountains in the western interior of Alaska.
The Project is located approximately 57 miles southwest of Galena
and 23 miles east of the Yukon River. It is equidistant from
Fairbanks and Anchorage which lie approximately 320 miles to the
east and southeast of the Project, respectively.
Access to the site is by air. Equipment and supplies are
transported to the site by land, sea and air. The most economical
way to transport freight to the site is from Seattle, Washington to
Anchorage, Alaska by barge. From Anchorage, freight moves by truck
or rail to Nenana. From Nenana, it is moved down river on barge to
Galena. From Galena, it is flown to the site. When it is not
possible to use the Yukon River, freight must be flown to the site
from Anchorage. The mine site is connected to the personnel camp
and the airstrip by a 6.5 mile road.
Weather. The climate is subarctic and characterized by large
seasonal extremes in temperature and daylight. Significant periods
of inclement weather could adversely affect future construction and
operations at the Project which would, in turn, delay production and
related cash flow from the Project.
Environment. Mining is subject to potential risks and
liabilities associated with pollution of the environment and the
disposal of waste products occurring as a result of mineral
exploration and production. The Project is permitted as a "zero
discharge facility". As such, operation will require strict control
of the water balance to ensure that no discharge occurs. Upon
closure, reclamation activities will be closely monitored and
effluent from the decommissioned facility will be required to meet
strict water quality standards.
Community Relations. The Company has established good relations
with residents of the local area. If the Company were unable to
continue this rapport, the Project could be negatively impacted.
Project Development Risks
The Company from time to time engages in the development of new
ore bodies. The Company's ability to sustain or increase its
present level of gold production is dependent in part on the
successful development of such new ore bodies and/or expansion of
existing mining operations. The economic feasibility of any such
development project, and all such projects collectively, is based
on, among other things, estimates of reserves, metallurgical
recoveries, capital and operating costs of such projects and future
gold prices. Development projects are also subject to the
successful completion of feasibility studies, issuance of necessary
permits and receipt of adequate financing.
Development projects have no operating history upon which to
base estimates of future cash operating costs and capital
requirements. In particular, estimates of reserves, metal
recoveries and cash operating costs are to a large extent based on
the interpretation of geologic data obtained from drill holes and
other sampling techniques and feasibility studies which derive
estimates of cash operating costs based on anticipated tonnage and
grades of ore to be mined and processed, the configuration of the
ore body, expected recovery rates of metals from the ore, comparable
facility and equipment costs, anticipated climate conditions and
other factors. As a result, it is possible that actual cash
operating costs and economic returns of any and all development
projects may materially differ from the costs and returns initially
estimated.
Thunder Mountain Project, Uncertainty of Future Financing
The Company has filed a Notice of Intent to Operate with the
Idaho Department of Lands describing the Company's proposed gold and
silver mining activities in the Thunder Mountain Project. Depending
upon the Company's progress in obtaining the necessary permits, the
market price of gold, feasibility study and other factors, the
Company may determine to seek to develop the Thunder Mountain
Project. Management estimates that substantial capital would be
required for construction of facilities and other development
activities at Thunder Mountain. The Company has no commitments for
outside financing for the Thunder Mountain Project and there can be
no assurance such financing would be available, or, if available,
that the terms would be beneficial to the Company.
The Company's ability to obtain outside financing for the
Thunder Mountain Project or other future projects will depend, among
other things, upon the price of gold and perceptions of future
prices. Therefore, availability of funding is dependent largely
upon factors outside the Company's control, and cannot be predicted.
The Company does not know from what specific sources it will be able
to derive any required funding. Any such financing, if available,
could increase the indebtedness of the Company or dilute current
stockholders' positions. If the Company acquires such funding
through debt a substantial portion of the Company's cash flow may
need to be devoted to the payment of principal and interest on such
debt which could render the Company more vulnerable to competitive
pressure or economic downturns. If the Company is not able to raise
additional funds (and there can be no assurance that it can, or that
if it can, such funds will be on terms acceptable to the Company) it
will not be able to fund certain exploration and development
activities on its own.
Gold Price Volatility
The Company's results of operations are significantly affected
by changes in the market price of gold. Gold prices fluctuate
widely and are affected by numerous industry factors, such as demand
for precious metals, forward selling by producers, central bank
sales and purchases of gold, and production and cost levels in major
gold producing regions such as South Africa and the former Soviet
Union. Moreover, gold prices are also affected by macro-economic
factors such as expectations for inflation, interest rates, currency
exchange rates, and global or regional political and economic
situations. The current demand for and supply of, gold affect gold
prices, but not necessarily in the same manner as current demand and
supply affect the prices of other commodities. The potential supply
of gold consists of new mine production plus existing stocks of
bullion and fabricated gold held by governments, financial
institutions, industrial organizations and individuals. As mine
production in any single year constitutes a very small portion of
the total potential supply of gold, normal variations in current
production do not necessarily have a significant effect on the
supply of gold or on its price. If gold prices should decline below
the Company's cash costs of production of a producing property or
forecasted cash costs of a property in development and remain at
such levels for any sustained period, the Company could determine
that it is not economically feasible to continue or commence
commercial production.
The Volatility of gold prices is illustrated in the following graph
depicting the annual high low and average London P.M. fix for the
period 1985 through 1995:
Graph Inserted here showing the above.
The London P.M. fix on October 25, 1996 was [$*] per ounce.
Exploration
Mineral exploration, particularly for gold, is highly
speculative in nature, involves many risks and frequently is
unsuccessful. The Company is seeking to expand its reserves through
exploration and development at the Illinois Creek, Alaska and
Thunder Mountain, Idaho properties as well as through exploration in
other parts of North America and in Latin America. There can be no
assurance that the Company's exploration efforts will result in the
discovery of gold mineralization. If reserves are developed, it may
take a number of years and substantial expenditures from the initial
phases of drilling until production is possible, during which time
the economic feasibility of production may change. No assurance can
be given that the Company's exploration programs will result in
reserves.
Competition and Scarcity of Mineral Lands
Although many companies and individuals are engaged in the
mining business, including large established mining companies, there
is a limited supply of desirable mineral lands available for claim
staking, lease or other acquisition in the United States and other
areas where the Company contemplates conducting exploration and/or
production activities. The Company may be at a competitive
disadvantage in acquiring suitable mining properties as it must
compete with these other individuals and companies, many of which
have greater financial resources and larger technical staffs than
the Company. As a result there can be no assurance the Company will
be able to acquire attractive properties.
Hedging Activities
Although the Company had no hedging activities in 1995, it has
historically used and plans to use in the future spot deferred
contracts in its hedging program to protect earnings and cash flows
from the impact of gold price fluctuations. The Company hedged
approximately 141,000 ounces of the expected gold production from
the Project which was required by Rothschild. These transactions
have been designated as hedges of the price of future production
and accounted for as such. Spot deferred contracts are agreements
between a seller and a counterparty whereby the seller commits to
deliver a set quantity of gold, at an established date in the future
and at agreed prices. The established price is equal to the spot
price for gold plus "contango." Contango is equal to the difference
between the prevailing market rate for dollar deposits less the gold
lease rate, for comparable periods, and represents compensation to
the seller for holding gold until a future date. Contango rates
ranged from approximately 0% to 5 1/2% during 1995.
At the scheduled future delivery date, the seller may, at the
option of the counterparty, deliver into the contract or defer the
delivery to a future date. This option allows the seller to
maximize the price realized by selling at the spot market price if
such price at that time were to be higher than the forward contract
price. Each time the seller defers delivery, the forward sales
price is increased by the then prevailing contango for the next
period. Generally, the counterparty will allow the seller to
continue to defer contract deliveries providing that there is
sufficient scheduled production from proven and probable reserves to
fulfill the commitment.
Risk of loss with these spot deferred contracts arises from the
possible inability of a counterparty to honor contracts and from
changes in the Company's anticipated production of gold. However,
nonperformance by any party to such financial instruments is not
anticipated.
The Company is typically required by the counterparties to
maintain a margin account. Should the cumulative liquidation cost
of the Company's spot deferred positions exceed the cumulative value
of such positions by an amount in excess of the margin account, the
Company could be subject to margin call. The liquidation cost is
what the Company would have to pay on the liquidation date to
purchase fixed forward delivery contracts to meet its spot deferred
deliveries. The cost of fixed forward delivery contracts is based
on the spot price on the liquidation date plus contango through the
delivery date. As of October 25, 1996, the liquidation cost of the
Company's existing hedge position was not material. The Company
estimates, based on current circumstances, that the liquidation cost
of the Company's existing hedge position would exceed the $7.5 million
hedging line by approximately $365,000 if the price of gold were to
rise to $440 per ounce.
Dependence on Key Personnel
The Company is dependent on the service of certain key officers
and employees, including its Chief Executive Officer. Competition
in the mining industry for qualified individuals is intense, and the
loss of any of these key officers or employees, if not replaced,
could have a material adverse effect on the Company's business and
its operations. The Company currently does not have key person
insurance or employment contracts with any persons.
Regulation of Mining Activity
Mining is subject to potential risks and liabilities associated
with pollution of the environment and the disposal of waste products
occurring as a result of mineral exploration and production.
Environmental liability may result from mining activities conducted
by others prior to the Company's ownership of a property. Insurance
for environmental risks (including potential liability for pollution
or other hazards as a result of the disposal of waste products
occurring from exploration and production) is not generally
available at a reasonable price to the Company or other companies
within the industry. To the extent the Company is subject to
environmental liabilities, the payment of such liabilities would
reduce funds otherwise available to the Company and could have a
material adverse effect on the Company.
In the context of environmental compliance and permitting,
including the approval of reclamation plans, the Company must comply
with federal, state and local standards, laws and regulations which
may entail greater or lesser costs and delays depending on the
nature of the activity to be permitted, constructed and operated
and how stringently the regulations are implemented by the regulatory
authority. It is possible that the costs and delays associated with
compliance with such laws, regulations and permits could become such that
the Company would not proceed with the development of a project or the
operation or further development of a mine. Laws, regulations and
regulatory policies involving the protection and remediation of the
environment are constantly changing at all levels of government and
are generally becoming more restrictive and the costs imposed on the
development and operation of mineral properties are increasing as a
result of such changes. The Company has made, and expects to make
in the future, significant expenditures to comply with such laws and
regulations.
The Environmental Protection Agency ("EPA") continues the
development of a solid waste regulatory program specific to mining
operations under the Resource Conservation and Recovery Act
("RCRA"). Of particular concern to the mining industry is a
proposal by the EPA titled "Recommendation for a Regulatory Program
for Mining Waste and Materials Under Subtitle D of the Resource
Conservation and Recovery Act" ("Strawman II") which, if
implemented, would create a system of comprehensive federal
regulation of the entire mine site. Many of these requirements
would be duplicative of existing state regulations. Strawman II as
currently proposed would regulate not only mine and mill wastes but
also numerous production facilities and processes which could limit
internal flexibility in operating a mine. To implement Strawman II
as proposed, the EPA must seek additional statutory authority, which
is expected to be requested in connection with Congress'
reauthorization of RCRA.
The Company is also subject to regulations under (i) the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA" or "Superfund") which regulates and establishes
liability for the release of hazardous substances and (ii) the
Endangered Species Act ("ESA") which identifies endangered species
of plants and animals and regulates activities to protect these
species and their habitats. Revisions to CERCLA and ESA are being
considered by Congress; the impact on the Company of these revisions
is not clear at this time.
Mining Risks and Insurance
The business of gold mining is generally subject to a number of
risks and hazards, including environmental hazards, industrial
accidents, labor disputes, the encounter of unusual or unexpected
geological conditions, slope failures, changes in the regulatory
environment and natural phenomena such as inclement weather
conditions, floods, blizzards and earthquakes. Such occurrences
could result in damage to, or destruction of, mineral properties or
production facilities, personal injury or death, environmental
damage, delays in mining, monetary losses and possible legal
liability. The Company maintains insurance against risks that are
typical in the gold mining industry and in amounts that the Company
believes to be reasonable, but which may not provide adequate
coverage in certain unforeseen circumstances. However, insurance
against certain risks (including certain liabilities for
environmental pollution or other hazards as a result of exploration
and production) is not generally available to the Company or to
other companies within the industry.
Title to Properties
Certain of the Company's mineral rights consist of unpatented
mining claims. Unpatented mining claims are unique property
interests that are generally considered to be subject to greater
title risk than other real property interests. The greater title
risk results from the unpatented mining claims being dependent on
strict compliance with a complex body of federal and state statutory
and decisional law, much of which compliance involves physical
activities on the land, and from the lack of public records which
definitively control the issues of validity and ownership.
No Dividends
The Company anticipates that it will use its earnings, if any,
to finance its operations and growth. The Company does not
anticipate paying dividends and, because of certain debt covenants,
is restricted from paying any dividends to its stockholders.
Volatility of Price for Common Stock
The market prices for shares of the Common Stock have been
highly volatile in recent years. See "Price Range of Common Stock".
The market price may be highly volatile in the future depending on
news announcements of the Company, gold price volatility and changes
in general market conditions.
USE OF PROCEEDS
The net proceeds from the Offering are estimated to be
approximately $ (assuming no exercise of the
Underwriters' over-allotment option) and are intended to be used
primarily in connection with credit arrangements involving the
Illinois Creek Project. The amount of proceeds dedicated to this
Project will depend upon the Company's ability to obtain gold
production from the Project in 1996. If gold production is
achieved, the Company estimates that approximately $6 million will
be deposited into the Proceeds Account maintained with the Company's
lender, Rothschild, to satisfy credit obligations. The balance of
the net proceeds would be available for additional Project expenses,
working capital and general corporate purposes. If gold production
is not achieved, the Company estimates that substantially all of the
net proceeds would need to be deposited into the Proceeds Account
with only approximately $800,000 available for working capital and
general corporate purposes. See "Risk Factors".
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded on The Nasdaq National
Market ("Nasdaq") under the symbol "USMX". The Company's common
stock is also listed on The Toronto Stock Exchange (the "TSE") under
the symbol "USM"; however, trading on the TSE has been limited and
sporadic. The following table sets forth the high and low sale
prices of the Common Stock as reported by Nasdaq for each of the
quarters indicated:
High Low
1994
First Quarter $4.75 $3.75
Second Quarter $4.25 $2.94
Third Quarter $4.25 $2.38
Fourth Quarter $4.19 $2.38
1995
First Quarter $2.75 $2.06
Second Quarter $2.94 $2.13
Third Quarter $2.63 $1.97
Fourth Quarter $2.06 $1.75
1996
First Quarter $3.25 $1.94
Second Quarter $3.13 $2.44
Third Quarter $2.75 $2.06
On October 31, 1996, the last reported sale price of the Common
Stock as reported by Nasdaq was $2.00. As of October 23, 1996,
there were approximately 3,924 stockholders of record of Common
Stock.
DIVIDEND POLICY
The Company has not in the past three years paid any dividends
on its Common Shares. The Company has no present intention of
paying dividends on its Common Shares. It has been the Company's
policy to use funds derived from its earnings for exploration
and development and other business activities. The Company does
not intend to pay cash dividends in the near future. Any
determination to pay cash dividends in the future will be made
by the Company's Board of Directors after consideration of the
Company's fiscal condition, business prospects and other
relevant factors. Pursuant to the terms of the financing commitment
with respect to the Illinois Creek Project, the Company is prohibited
from paying dividends until the financing is repaid.
See "Business and Properties - Project Financing".
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at August 31, 1996, was $755,000.
Cash and cash equivalents amount to $2.8 million. Cash
and cash equivalents decreased during the eight months ended
August 31, 1996 by $2.4 million primarily as a result of
investment in property, plant and equipment of approximately
$18.4 million, including deferred exploration costs of
$0.3 million and development costs of $18.1 million
($17.4 million at Illinois Creek, Alaska and $0.7
million at Thunder Mountain, Idaho), investment in
restricted cash accounts of $10.3 million and cash used in
operations of $1.6 million. These costs were partially
offset by $1.3 million in proceeds from the sale of the
Company's holdings in Alta Gold Co. common stock.
In addition, the Company obtained $4.5 million in
loans from Pegasus Gold Inc. secured by the Company's
interest in the Montana Tunnels property and $22.0 million
in financing from Rothschild for the construction of the
Illinois Creek Mine and related facilities, including
working capital. (See "Business and Properties -
The Illinois Creek Project: Project Financing")
The Company completed its feasibility study of the
Illinois Creek Project in February 1996. After approval of
the project by the Company's Board of Directors, clearing
and grubbing activities began in March 1996. Upon receipt
of a commitment for a $22 million financing facility and
required permits and regulatory approvals in May,
construction of the mine and related facilities was begun.
The original Illinois Creek development budget was
$22.6 million, including $4.7 million in estimated
working capital as a result of greater than anticipated
construction costs, weather induced delays and other
problems arising from the complexities of developing
a mine using only air transport, The Company is now
forecasting a total development cost at Illinois Creek
of approximately 28.6 million.
The Company used internal cash to fund $3.4 million
of the approximately $6 million in forecast cost overruns.
The Company intends to use the proceeds of sale of this
Offering to fund the balance of any cost overruns and to
fund the working capital requirements at Illinois Creek.
The amount of working capital required at Illinois Creek
will be a function of revenues derived from gold production,
if any,during the fall and winter of 1996/1997.
If the Company is able to produce approximately 10,000 ounces
of gold at Illinois Creek during the fall and winter of 1996/1997,
the Company forecasts that the revenues from the
sale of gold produced should be sufficient to provide working
capital for Illinois Creek.
If the Company incurs all projected mining costs in
1996, but fails to produce any gold until the 1997
production season, the Company forecasts that approximately
$2.4 million in working capital will be required for
Illinois Creek.
In addition to construction and working capital
requirements at Illinois Creek, the Company is required by
the terms of the credit agreements with Rothschild to
maintain a fund sufficient to maintain certain financial
ratios of the Project. Based on the development plan
mutually agreed to by the Company and Rothschild the Company
forecasts that a contribution to this fund will be required
at December 31, 1996 of approximately $1.9 million if the
Company succeeds in producing 10,000 ounces of gold in 1996
and $5.1 million if there is no production at Illinois
Creek in 1996.
The Company's lending arrangements with Rothschild also
require it to maintain minimum balances in a
Proceeds Account for use only in connection with the Project.
The Company was required to deposit $1.5 million to the Proceeds
Account by September 30, 1996, which requirement was not satisfied.
Rothschild has agreed with the Company to waive this default and any
defaults related to the failure by the Company to comply
with the financial ratios until December 31, 1996, provided
the Company completes this Offering by that date and meets
other conditions described in "Business and Properties -
The Illinois Creek Project: Project Financing". The Company
intends to use the proceeds of this Offering to maintain compliance
with the credit agreements with Rothschild. If the Company is
unable to meet these conditions or to maintain compliance
thereafter with its credit obligations to Rothschild, it risks
a possible foreclosure of Rothschild's security interest
in the Project and/or legal action for monetary damages against
the Company.
The Company recently commenced mining operations at the
Project in hopes of achieving gold production in 1996. If
the Company is unsuccessful in obtaining production in 1996,
it expects that it will be required to devote substantially
all of the proceeds of this Offering to the Illinois Creek
Project. Any funds deposited to the Proceeds Account by the
Company may not be withdrawn for the Company's general
corporate purposes until "Completion" has occurred. As
defined in the credit agreements with Rothschild, the
requirements for Completion include the construction of the
Project facilities, which facilities and equipment thereon
must be mechanically complete and electrically operable
("Mechanical Completion") the achievement of production
amounts and grades, costs and reserves similar to the
development plan, and the absence of any default in the
credit agreements. None of these conditions could be
satisfied and there can be no assurance that they will be
satisfied. Moreover, the Company projects that the earliest
date the conditions could be satisfied would be August 1997.
Accordingly, if the Company is required to devote
substantially all of the proceeds of this Offering to the
Illinois Creek Project, the Company would be severely
constrained in its ability to conduct operations and to
pursue other mining opportunities.
The Company has filed a Notice of Intent to Operate
with the Idaho Department of Lands describing the Company's
proposed gold and silver mining activities in the Thunder
Mountain Project. Management estimates that the project
would require substantial capital to place it into
production, including working capital. If the project is
sufficiently attractive to warrant continued development and
the necessary permits are obtained, construction could begin
in 1998. Production could begin in 1998 or 1999 depending
on the construction schedule. Management believes that the
Company will need to obtain other capital ( in addition to
the proceeds from this Offering) to put Thunder Mountain
into production. The Company has no arrangements for obtaining
such capital for development of this Project.
The Company's balance sheet at August 31, 1996,
reflects a total of $1.0 million in accrued reclamation
liabilities associated with its acquisition and operation of
the Goldstrike Mine. Reclamation activities in 1996 have
focussed primarily on recontouring, topsoiling and planting
heap number one and completion of rinsing of heap number
two. Commencement of recontouring and topsoiling of heap
number two as well as the dismantling of the process plant
and reclamation of the plant site will begin once the
Company has obtained acceptance by the State of Utah of the
Company's final closure plan, which could occur by the end
of 1996. The goal is to achieve closure by the end of
1997. This reclamation is expected to be financed with
internally available cash balances, cash generated from the
sale of gold produced as a by product of heap rinsing and
approximately $1.7 million cash previously provided to the
State of Utah as reclamation surety.
Results of Operations
Eight Months Ended August 31, 1996 and 1995
The Company realized a net loss of $1,658,000 for the
eight months ended August 31, 1996 compared with a net loss
of $2,821,000 for the comparable period of 1995. The 1995
results includes a gross loss of $219,000 from the sale of
2,000 ounces of gold, whereas there were no gold sales in
the first eight months of 1996.
General and administrative costs incurred during the
first eight months of 1996 were approximately $513,000
higher than those for the comparable period of 1995
principally due to increased salaries and related benefits
of approximately $190,000, severance payments to employees
of the Company's Goldstrike Mine in Utah of approximately
$100,000 and increased legal and accounting fees and fees
of outside consultants.
Exploration costs for the eight months ended August 31,
1996 were $95,000 lower than the comparable period of
1995, reflecting reduced exploration activity during 1996.
Mineral property abandonments and impairments charged
to operations amounted to $242,000 for the eight months
ended August 31, 1996, compared with $1,529,000 for the
same period of 1995. During the first eight months of 1995,
the Company recorded an impairment loss of $1,039,000
related to its Cala Abajo, Puerto Rico property and
abandonment losses totalling $489,000.
Interest income for the first eight months of 1996 was
$282,000 less than the same period of 1995 as a result of
lower cash balances.
Years Ended December 31, 1995, 1994 and 1993
The Company realized a net loss for the year ended
December 31, 1995, of $6,906,000 compared with net income
of $204,000 for 1994 and $2,602,000 for 1993. The loss
for 1995 includes mineral property abandonments and
impairments of $4,431,000. The 1994 results include a
$497,000 income tax credit. This credit is primarily the
result of the difference between the estimated 1993 federal
income tax provision and the actual liability reflected on
the income tax returns which were prepared and filed after
the 1993 financial statements had been issued. The 1993
results include a gain of approximately $5,000,000 from
the sale of the Company's Alligator Ridge assets in two
separate transactions during the year, additional 1992
federal income taxes of $396,000 and property abandonments
totaling $938,000.
Fluctuations in the Company's results of operations
from period to period arise primarily from four factors: (1)
changes in the volume of gold sold and the selling price of
gold, (2) changes in the cost of gold sold, (3) the cost of
mineral properties abandoned during any given period, and
(4) asset dispositions.
Change in the Volume of Gold Sold and Selling Price of
Gold
The following table analyzes the variance in gold sales
revenue for the years ended December 31, 1995, 1994, and
1993:
<TABLE>
Revenue Variance Analysis
Year Ended December 31,
<CAPTION>
1995 1994 1993
---------------- --------------- -------------
<S> <C> <C> <C>
Ounces of gold sold 6,900 35,575 50,429
Average price realized per ounce $ 388 $ 383 $ 360
Change in revenue attributable to:
More (less) ounces sold $ (10,972,000) $ (5,342,000) $1,105,000
Higher (lower) price 35,000 820,000 2,000
Increase (decrease) in gold
sales revenue
compared to the preceding year $ (10,937,000) $(4,522,000) $ 1,107,000
</TABLE>
Change in Costs Applicable to Sales
Cost of gold sold
Cost of gold sold was $2,890,000 or approximately
$419 per ounce in 1995 compared to $11,203,000 or
approximately $315 per ounce in 1994 and $16,226,000 or
approximately $322 per ounce in 1993. The fluctuation in
the cost of gold sold is a result of the change from period
to period in the mix of production from the Company's mines
and the change in the cost of production throughout the life
of each mine as illustrated in the table below.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
------------- ---------- --------------------------------
Alligator Gold-
Goldstrike Goldstrike Ridge(l) strike Total
------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Ounces of gold produced 6,266 34,486 23,454 31,934 55,388
Ounces of gold sold 6,900 35,575 19,299 31,130 50,429
Per ounce statistics:
Cash production costs $ 233 $ 229 $ 268 $ 305 $ 289
Depreciation, depletion,
amortization and
reclamation accruals - 48 60 21 38
------------- ---------- ---------- --------- --------
Production cost per ounce
produced $ 233 $ 277 $ 328 $ 326 $ 327
------------- ---------- ---------- --------- ---------
Gold sales revenue $ 388 $ 383 $ 360 $ 360 $ 360
------------- ---------- ---------- --------- ---------
Production cost per
ounce sold $ 212 $ 269 $ 399 $ 334 $359
Change in inventories
and deferred
production costs 207 46 (13) (52) (37)
------------- ---------- ---------- --------- ---------
Cost of gold sold 419 315 386 282 322
Mining taxes 2 3 3 3 3
Production royalties 55 19 19 16 17
------------- ---------- ---------- --------- ---------
Costs applicable to sales 476 337 409 301 342
------------- ---------- ---------- --------- ---------
Gross profit (loss) $ (88) $ 46 $ (48) $ 59 $ 18
============= ========== ========= ========= =========
<FN>
(1) Sold August 27,1993.
</TABLE>
Cash production costs per ounce of gold produced at the
Company's Goldstrike Mine increased to $233 for 1995 from
$229 for 1994 despite the fact that no mining, crushing or
pad loading costs were incurred after October 1994 because a
significant portion of processing costs are fixed and,
therefore, do not decrease as production decreases. As the
result of a reduction of the estimated remaining recoverable
ounces of gold at the Goldstrike Mine, change in inventories
and deferred production costs increased to $207 per ounce
sold for 1995 from $46 in 1994.
Mining Taxes and Royalties
During 1995, the Company incurred $14,000 in mining
taxes compared to $106,000 in 1994 and $149,000 in 1993.
The decrease in mining taxes in 1995 and 1994 is
attributable to the decrease in ounces sold compared to the
previous year as a result of declining production at the
Goldstrike Mine. Also, the Company incurred $379,000 in
royalty expense for 1995 compared to $665,000 in 1994 and
$882,000 in 1993. The increase in production royalties
per ounce of gold sold is attributable to the monthly
minimum royalty paid at Goldstrike through January 1996.
Cost of Mineral Properties Abandoned and Provisions for
Impairments of Investments in Mineral Properties
The Company periodically reviews the carrying values of
its properties. In 1995, management determined that
properties with an aggregate historical cost of $771,000
no longer held sufficient promise to justify the cost of
maintenance. The properties abandoned in 1995 were Tule
Canyon ($65,000), Divide ($63,000) and four other
properties ($215,000) in the United States and La Cienega
($111,000), Jalisco Copper ($164,000) and four other
properties ($153,000) in Mexico. Property abandonments
were $261,000 and $938,000 in 1994 and 1993,
respectively. The properties abandoned in 1994 were the
Ancho Canyon, New Mexico ($221,000) and the South Pass,
Wyoming ($40,000) placer properties, both of which were
acquired during the year. The properties abandoned in 1993
were the Tombstone, Arizona project ($509,000), Green
Springs ($183,000), Cedar Mountain ($113,000), Emigrant
Springs ($89,000) and three other properties ($44,000).
In 1995, the Commonwealth of Puerto Rico adopted
legislation which amended the mining law to prohibit future
mining of metallic deposits by open pit methods. Although
the Company is considering various strategies and responses,
the effect of the mining law, as currently amended, is to
render uneconomic the Company's plan for development of the
Cala Abajo deposit. As a result, in 1995 the Company
reduced the carrying value of this property to zero and
recorded an impairment loss of $1.0 million.
Gold production at the Company's Goldstrike Mine in
Utah declined sharply in August and September of 1995. This
decline in gold recovery triggered a reevaluation of the
estimated remaining recoverable gold ounces in the heaps.
As a result, the carrying value of Deferred mining and
processing costs was reduced to the fair market value of
the remaining gold bullion and dorE at the refinery and the
Company recorded an impairment loss of $1.6 million.
Because exploration efforts to date have not yet
yielded an economic deposit at the Amargosa polymetallic
prospect in Chihuahua, Mexico, management determined in the
fourth quarter of 1995 to reduce the carrying value of this
property by $ 1.0 million.
Asset Dispositions
In June 1996, the Company and Pegasus agreed to the
sale of the Company's interest in the Montana Tunnels
Property to Pegasus for $4.5 million. The transaction is
subject to the approval of the Company's shareholders.
Pending completion of the transaction, Pegasus provided the
Company with a loan in the amount of $4.5 million secured
by the Company's interest in the Montana Tunnels Property.
Upon closing of the transaction, the Company will transfer
to Pegasus its interest in the Montana Tunnels Property, and
will be relieved of its obligation to repay this loan. The
Company expects to record a gain of approximately $4.5 million
upon closing of this transaction.
In April, 1994, the Company sold its interest in the
Kinsley Mountain Project in Elko County, Nevada to Alta Gold
Co. ("Alta"). In addition to the $20,000 previously
received, the Company received $380,000 in cash and Alta
restricted common stock with a then market value of
$200,000. In April 1995, the Company received a final
cash payment of $400,000 and additional Alta restricted
common stock with a then market value of $200,000. The
Company received, and retained at December 31, 1995, a total
of 352,711 shares of Alta restricted common stock. The cash
proceeds and discounted value of the stock received were
recorded as a reduction to the carrying value of the
property on the Company's books. In 1995, the Company
recorded a loss on this transaction of $1,000. In 1996,
the Company sold all of its shares of Alta for approximately
$1.3 million.
During 1993, the Company sold its mining assets located
at Alligator Ridge in White Pine County, Nevada in two
separate transactions for a total of $20 million cash,
plus the assumption by the buyer of all related obligations,
including reclamation liabilities. After deducting the net
book value of the assets sold of approximately $15
million, the Company recorded gains from these sales
totaling approximately $5.0 million during 1993. The net
book value of the assets sold comprised $8.3 million in
deferred mining, crushing, pad loading and processing costs
associated with ounces of gold in various stages of
production, plus $8.9 million remaining investment in
property, plant and equipment, less recorded reclamation
liabilities of $2.2 million.
Other Factors
General and administrative expenses were higher in 1995
than 1994 principally due to legal and other professional
fees paid relative to the Cala Abajo project and to salaries
and related expenses of additional corporate staff. General
and administrative expenses in 1994 were comparable to those
incurred in 1993.
Prospecting costs in 1995 were lower than 1994 as a
result of the concentrated effort by the Company's
exploration staff to complete development drilling at the
Illinois Creek, Alaska property. Prospecting costs in 1994
were slightly higher than in 1993 due to expanded
investigation of various Latin American properties in 1994.
Higher interest rates in 1995 compensated for
decreasing cash balances during the year. As a result,
interest income for 1995 was comparable to 1994. Interest
income was higher in 1994 than 1993 due to higher interest
rates in 1994.
Income tax expense primarily represents current and
deferred federal regular and alternative minimum taxes. The
entire income tax benefit of $118,000 for 1995 is the
result of an adjustment to federal income taxes receivable
related to 1993 net operating losses carried back to prior
years. See Note 10 to the Consolidated Financial Statements
for a reconciliation of the provision for income taxes for
1995, 1994 and 1993 to the statutory federal income tax
rate.
Trends Which May Affect Future Results of Operations
As previously stated, fluctuations in the Company's
results of operations arise primarily from two factors:
(1) changes in the volume and selling price of gold,(2)
properties abandoned during any given period. The following
is management's view of trends in these factors.
Change in the Volume of Gold Sold and Selling Price of
Gold
Volume
The Company is focused on initiating production at
its Illinois Creek Project, and currently projects production
of approximately 60,000 ounces of gold annually throughout
the approximately six year mine life.
The Company's ability to achieve the forecasted gold
production will be dependent upon many factors, some of
which, such as the price of gold and climate conditions, are
beyond the control of the Company. No assurance can be
given that the indicated amount of gold will be recovered.
As with any development project, there is no operating
history at the Illinois Creek Project upon which to base
estimates of future cash operating costs and continuing
capital requirements. Estimates of mineralization,
metallurgical recovery, and cash operating costs are to a
large extent based on the interpretation of geologic data
obtained from drill holes and other sampling techniques and
feasibility reviews which derive estimates of cash operating
costs based on anticipated tonnage and grades of ore to be
mined and processed, the configuration of the ore body,
expected recovery rates of metals from the ore, comparable
facility and equipment costs, anticipated climate conditions
and other factors. Accordingly, actual cash operating costs
and economic returns of the Illinois Creek Project and other
projects that may be undertaken by the Company may
materially differ from the costs and returns initially
estimated.
The Company is also engaged in the preparation of a
feasibility study regarding the Thunder Mountain property.
In January 1996 the Company submitted a Notice of Intent to
Operate with Idaho Department of Lands, which is currently
being reviewed by that agency and other state and federal
agencies, including the U.S. Forest Service. The Company is
presently conducting a data sufficiency review of prior
studies pertaining to the Project area and previous
operations conducted near the Project area. The Company
intends to thereafter retain an independent environmental
consulting firm to coordinate the submission of an
environmental impact statement. The views of several
governmental agencies, as well as any public comments
received, are expected to be considered in connection with
the review of the environmental impact statement.
A feasibility study by the Company is planned to be
ongoing to refine the Project design and economics. It is
presently anticipated that conventional open pit/heap
leaching techniques will be used. The Company also plans to
conduct additional metallurgical work, finalize the
acquisition of adjacent land, and make preliminary
arrangements for facility construction and mining
operations.
Depending on the Company's determination of whether to
proceed with development, and the availability of financing,
which cannot be assured, the Company's operations at Thunder
Mountain would be subject to all of the operating hazards
and risks normally incident to operation of mineral
properties, such as unusual or unexpected geological
formations, environmental hazards, industrial accidents,
labor disputes, equipment incapability or failures, and
inclement weather conditions. Such occurrences could result
in damage to, or destruction of, mineral properties or
production facilities, personal injury or death,
environmental damage, delays in mining, monetary losses and
possible legal liability. Moreover, the Company's mining
operations would be subject to extensive federal, state and
local laws and regulations governing production, taxes,
labor standards, occupational health, waste disposal,
protection and remediation of the environment, reclamation,
mine safety, toxic substances and other matters.
Compliance with such laws and regulations has increased
the cost of planning, designing, drilling, developing,
constructing, operating and closing other mines and
facilities previously operated by the Company. In addition,
the Company has expended significant resources, both
financial and managerial, to comply with environmental
protection regulations and permitting requirements and
anticipates that it will continue to do so in the future.
Although the Company believes that it has made adequate
provision for the cost of compliance with such regulations,
there can be no assurance that additional significant costs
and liabilities will not be incurred to comply with current
and future environmental protection regulations. Moreover,
it is possible that future developments, such as
increasingly strict environmental protection laws,
regulations and enforcement policies, and claims for damages
to property and persons resulting from the Company's
operations, could result in substantial costs and
liabilities in the future. (See Risk Factors)
Price of Gold
Another significant uncertainty facing the Company
which could potentially impact its financial position,
profitability and liquidity in the short term is the price
of gold. The gold price is a function of a number of
factors including investors' expectations with respect to
inflation, the strength of world currencies, decisions by
central banks regarding their gold reserves, and supply and
demand factors, none of which is under the control of
Company management. After trending downward over several
years, making a six year low during the fourth quarter of
1992, the price of gold rebounded in 1993 reaching a high of
$403 on August 3, 1993. The average market price of gold
was $384 an ounce during 1995 and 1994 compared to $360
an ounce during 1993. The average market price of gold
during the first eight months of 1996 and 1995 was $393
and $384, respectively.
Cost of Mineral Properties Abandoned
The cost of mineral properties abandoned in any period
is a function of the results of the Company's exploration
efforts and economic considerations. The Company makes
every effort to maximize the results of its exploration
efforts. However, exploration for economically recoverable
metals involves significant risk. Accordingly, while it is
probable there will be abandonment losses in the future, it
is not possible to predict either their timing or amount.
BUSINESS AND PROPERTIES OF THE COMPANY
Introduction
The Company was founded in 1979. The Company engaged in
exploration for precious metal properties until 1988 when it
developed the Green Springs Mine in east central Nevada. During the
period 1988 through 1995, the Company produced approximately 273,000
ounces of gold from various projects. During that period the
Company also developed three additional mines and successfully
closed and reclaimed the Green Springs Mine. Also during that
period, the Company was the recipient of numerous awards for its
performance in the areas of environmental protection, reclamation
and safety. Mining was completed in October 1995 at the Company's
remaining production unit, the Goldstrike Mine, in southwestern Utah.
The Company expects to complete reclamation of The Goldstrike Mine
in 1997.
The Company views exploration as an important means of growth,
and it typically actively explores several projects annually. In
1996, the Company's exploration efforts in the United States were
concentrated on expanding the mineralization at Illinois Creek and
Thunder Mountain. In addition, the Company continued its
exploration efforts outside of the United States, principally in
Mexico.
The Company's principal focus in 1996 is the development of its
Illinois Creek Project (the "Project") in west central Alaska. In
February the Company completed its feasibility study of the Project
and received a commitment for project financing. In May key permits
necessary for mining, heap leaching and dam construction were
received and the Company commenced construction of the mine and
related facilities. The Air Quality Permit was received in June.
Effective July 11, 1996, the Company acquired leasehold and other
property interests in the Project from North Pacific Mining
Corporation ("NPMC"), a subsidiary of Cook Inlet Region ("CIRI"), in
exchange for 1,540,663 shares of Common Stock of the Company.
As a result of this transaction, NPMC owns approximately 9.5% of the
Company's issued and outstanding Common Stock. In addition, NPMC
received a 5% net returns royalty on production from the Illinois
Creek Upland Mining Lease. Also effective July 11, 1996, the Company
entered into credit agreements with N M Rothschild & Sons Limited
("Rothschild") for a $22,000,000 facility to finance the development
and construction costs of the Project.
In 1996 the Company completed construction of a 90-person man
camp, a 6.5 mile road to connect this man camp with the ore deposit
and the site of the process facility, a double synthetic, modified
valley fill heap leach pad, as well as process and administration
facilities.
Placement of high-grade ore as overliner material has commenced,
setting the stage for the loading of approximately 500,000 tons of
ore in 1996. Leaching is scheduled to commence about mid-November
upon completion of the first ore leach cell and leakage testing of
the liner system. If the leak test is successful and normal weather
prevails, the first gold production is anticipated by the end of
November. If this timetable is met, the Company forecasts that gold
production could be approximately 10,000 ounces in late 1996 and
early 1997. If the timetable is not achieved, production would be
expected to commence in the Spring of 1997. See "Risk Factors"; and
"Use of Proceeds".
The following map depicts the location of the Company's
operating property, royalty interest, principal exploration and
development properties, and offices.
Map inserted here showing the above.
History of Operations
The Company's first producing mine, the Green Springs Mine,
commenced production in June 1988. The Company completed mining
crushing and stacking operations at Green Springs in June 1990.
Reclamation of pits, haul roads and waste dumps commenced in 1990
and continued through 1993. Rinsing of the heaps was initiated
during 1992 to meet final closure requirements. During 1993,
rinsing of the heaps and reclamation of the heaps and the plantsite
were completed. During the life of the Green Springs Mine, the
Company received several environmental and safety awards for this
operation while producing a total of 69,331 ounces of gold. The
Company was particularly gratified to receive the 1992 State of
Nevada Governor's Award for Excellence in Mine Reclamation in
connection with several of the Company's Nevada mines (described
below), including the Green Springs Mine. The award, made jointly
by the State of Nevada, U.S. Bureau of Land Management and U.S.
Forest Service was given to the Company in recognition of
outstanding achievement in innovative design, superior mine planning
and commitment to reclamation from project commencement to closure.
The Company commenced open pit mining at its Casino Mine in
Nevada in June 1990 and completed mining in May 1991. In July 1991,
the Company commenced mining at the Winrock Mine. Mining and
crushing were completed at the Winrock Mine in June 1992. The
Casino and Winrock Mines shared a common heap leaching facility.
The Company produced a total of 48,953 ounces of gold from the
Casino/Winrock project prior to its sale on August 27, 1993.
In May 1990, the Company completed the purchase of the Alligator
Ridge Mine in Nevada, which included partially leached gold ore on
heaps, gold recovery facilities, a mining fleet, a mill, and
approximately 26,000 acres of mineral interests in the Alligator
Ridge trend. During its tenure at the Alligator Ridge Mine, the
Company produced 50,188 ounces of gold. Construction of the crushing
and gold recovery facilities at a satellite facility, designated the
Yankee Mine, was completed during the first quarter of 1992. The
Company produced 26,220 ounces of gold at the Yankee Mine between
the time of initial gold production in June 1992 and its sale on
August 27, 1993. The Company's Casino/Winrock, Alligator Ridge and
Yankee Mines, together with surrounding exploration prospects, were
sold in two separate transactions in 1993 for a total of $20 million
cash, plus the assumption by the buyer of related obligations,
including reclamation liabilities.
Effective November 1, 1992, the Company acquired from Tenneco
Corporation (Tenneco), the stock of Tenneco Minerals Company-Utah
(TMC-Utah), owner and operator of the Goldstrike Mine located
approximately 35 miles northwest of St. George, Utah. Soon after
the acquisition, the name of this wholly owned subsidiary was
changed to USMX of Utah, Inc. Gold production from the Goldstrike
Mine since November 1, 1992, has been 77,182 ounces, including 6,266
ounces of gold produced in 1995. During 1995, the Company was
recognized for its reclamation efforts at the Goldstrike Mine when
it received the 1995 Earth Day Award from the State of Utah Board
and Division of Oil, Gas and Mining.
The Goldstrike property consists of approximately 2,600 acres of
unpatented mining claims. Access to the Goldstrike Mine is by State
Highway 212 to a point approximately 21 miles northwest of St.
George, then by well-maintained gravel road over a distance of
approximately 14 miles. Mining operations at the Goldstrike Mine
were completed in October 1994. Leaching was completed in December
1995. All disturbed areas at the Goldstrike Mine were reclaimed
during 1995 except for the heaps and the plant site. Reclamation
of one of the two heaps was begun near the end of 1995. Rinsing of
the second heap commenced in January 1996 and is expected to
continue into 1997. Once rinsing of the second heap is complete,
the heap will be recontoured, covered with topsoil and seeded with
various native plant species. In addition, the process plant will
be dismantled and the plant site reclaimed. Management believes
that adequate provision has been made for the cost of completing the
reclamation of the Goldstrike Mine.
The Company's investment in the Goldstrike Mine as of August 31,
1996, was approximately $87,000 in undepreciated property, plant and
equipment and approximately $1,700,000 in cash provided to the State
of Utah as reclamation surety.
The Illinois Creek Project
History
The Illinois Creek Project in west central Alaska is a near
surface gold-silver deposit. It consists of two State of Alaska
Mining Leases,totaling 62,480 acres. The Illinois Creek Project is
part of a large polymetallic hydrothermal district covering 400 square
miles in the southern Kaiyuh Mountains. The area was first explored by
Anaconda Minerals as part of a joint venture with CIRI in 1980.
Subsequent to Anaconda Minerals' activities, the area was explored
by Goldmor Group, Ltd., NPMC, and Echo Bay in association with CIRI.
The Company commenced its exploration activities in August 1994.
The Company has drilled 61 core holes and 89 reverse circulation
holes, totaling approximately 32,000 feet. This drilling succeeded
in increasing the minable reserve to about 429,000 contained
equivalent ounces of gold and provided geotechnical information
necessary for pit design and engineering.
The Company made initial payments to NPMC totaling $100,000 in
1994 to evaluate the Illinois Creek property. The Company entered
into an agreement with NPMC effective December 16, 1994, which was
amended on February 6, 1996 (the "Agreement"). Pursuant to the
Agreement, the Company agreed to make a $1,000,000 non-refundable
payment to NPMC in cash or shares of the Company's $0.001 par value
Common Shares. The Company elected to make the payment in Common
Shares, and based upon the average market price of the Common Shares
on The Nasdaq Stock Market as provided in the Agreement, the Company
was required to issue to NPMC 449,754 Common Shares. The Company
also agreed that, upon obtaining the necessary permits and if no
adverse material adverse economic change had occurred, the Company
would make a production decision and issue to NPMC an additional
$3,000,000 in cash or Common Shares. The Company received the key
permits related to the Project in May 1996, and determined that no
material adverse economic change had occurred with respect to the
Project economics. The Company made a production decision and agreed
to issue to NPMC an additional 1,090,909 Common Shares. The
calculation of the number of shares was based on the average market
price of the Common Shares on The Nasdaq Stock Market as provided in
the Agreement.
Effective July 11, 1996, the Company issued the aggregate of
1,540,663 Common Shares to NPMC. As a result of this transaction,
NPMC owns approximately 9.5% of the Company's issued and outstanding
Common Shares. The Company also granted a security interest to NPMC
in the property, which is subject to a subordination arrangement
with the Company's Lender on the Project. (See below). The Company
had also agreed with NPMC to file a Registration Statement relating
to the resale of these shares, which Registration Statement has been
filed and declared effective by the Securities and Exchange
Commission. The Company has agreed to use its best efforts to keep
the Registration Statement effective until NPMC has sold these
shares or until June 1999, whichever occurs sooner.
In addition to the Common Shares, NPMC had the right to enter
into a mining venture agreement with the Company pursuant to which
the Company would transfer to NPMC an undivided 25% interest in the
Illinois Creek Mining Leases, or to receive a 5% net returns
royalty. NPMC chose to receive a 5% net returns royalty on
production from the Illinois Creek Upland Mining Lease. No decision
has been made regarding the property covered by the Roundtop Upland
Mining Lease, as the Company has not completed significant
exploration work there.
If the Company delineates the existence of additional ore
reserves on the lease known as the Illinois Creek Upland Mining
Lease, which increases the total proven ore reserves to at least
1,000,000 ounces of equivalent gold ore reserves beyond the
mineralization stated in the Company's February 1996 feasibility
report, then NPMC will have the right to elect to participate in
subsequent mining operations with respect to those additional
reserves for a 25% working interest by reimbursing the Company 120%
of NPMC's 25% share of exploration, development and capital costs
incurred by the Company subsequent to February 1996 which are
directly related to delineation and/or production of the additional
reserves.
Pursuant to the Agreement with NPMC, the Company has until
December 16, 1997 to achieve "Commercial Production" which is
defined as the delivery to a bona fide purchaser of minerals
produced for a minimum period of 45 consecutive days at not less
than 70% of the pro forma production capacity as set forth in the
Project feasibility report. This period may be extended at the
option of the Company for two additional one-year periods upon
payment by the Company of a $300,000 advance royalty, adjusted for
inflation, for each one-year extension. The Agreement terminates on
December 16, 1999, if the Company has not achieved commercial
production by that date.
Location, Access, Terrain and Climate
The Illinois Creek Project site is located in the southern
Kaiyuh Mountains in the western interior of Alaska. The Project is
located approximately 57 miles southwest of Galena and 23 miles east
of the Yukon River. It is equidistant from Fairbanks and Anchorage
which lie approximately 320 miles to the east and southeast of the
Project respectively.
Access to the site is by air. Equipment and supplies are
transported to the site by land, sea and air. The most
economical way to transport freight to the site is
from Seattle, Washington to Anchorage, Alaska by barge.
From Anchorage, freight moves by truck or rail to Nenana. From Nenana,
it is moved down river on barge to Galena. From Galena, it is flown
to the site. When it is not possible to use the Yukon River, freight
must be flown to the site from Anchorage. The mine site is connected
to the personnel camp and airstrip by a 6.5 mile road.
The local area consists of moderate hills (elevations ranging
from 200 to 1,000 feet), the flood plains of the Little Mud and
Innoko Rivers, Illinois Creek, local warm springs and California
Creek south of the site, and the wetlands to the west of the Project
site along the Yukon River. These wetlands are not expected to be
affected by the Project facilities.
The climate is sub-arctic and characterized by large, seasonal
extremes in temperature and daylight. Average winter temperatures
are -7% F to 20%F; mean summer temperatures range from 35%F to 67%F.
Regional extremes are -63%F to 93%F. Precipitation averages 15 to
18 inches annually, including 81 inches of snow. Snow depth at the
site ranges from 24 to 36 inches during a typical winter.
Historically, August is the heaviest rainfall month with an average
of 5.3 inches.
Freeze-up on the Yukon River normally occurs in late October to
early November; breakup normally occurs in early to mid May.
Accordingly, the shipping schedule on the Yukon River will typically
be limited to a period between approximately May 25 and September
25.
Proven and Probable Mineral Reserves
The company has estimated that the deposit contains 6.2 million
tons of mineable reserves at a gold grade of 0.062 ounces of gold
per ton and 1.422 ounces of silver per ton, yielding a gold equivalent
grade of 0.069 ounces of gold per ton. The calculation was based
on a gold price of $400 per ounce and a 0.025 ounce gold equivalent per
operating ton cutoff grade. The average stripping ratio over the planned
life of the project is 2.28 to 1. In addition, there are approximatley
575,000 tons of material with grades between 0.015 oz/ton and the cutoff
grade of 0.025 oz/ton which must be stripped and may be placed on the
heap if economics warrant it. No assurance can be given that the
indicated level of recovery of gold will be realized. See "Risk Factors".
Metallurgy
Metallurgical recovery from the run-of-mine ore is projected to
be approximately 80% of contained gold and 25% of contained silver.
Year round leaching will be conducted if it proves to be economic.
Geology
The deposit occurs as a large gossan zone striking east-
northeast and dipping 40% to 70% to the southeast, hosted within a
thick sequence of quartzites which are carbonate rich. The gossan
has been intersected by drilling over a strike length of 12,000 feet
and to a depth of greater than 1,500 feet. Oxidation of the
mineralization is complete to a depth of at least 1,100 feet below
the present surface. Economic gold-silver mineralization is present
in portions of the gossan, and is associated with elevated levels of
copper and/or lead, hydrothermal or remobilized silica, earthy
hematite, and poorly defined structural features. Supergene
enrichment of both gold and silver in near surface locations is also
apparent.
Plan of Operations
The Company has constructed a 90-person camp north of an
airstrip which is 6.5 miles by road from the mine site. A well
provides potable water for the camp. Water for processing comes from
a source located near the mid-point of the main access road from the
airfield to the mine site. Electrical power is generated using
diesel powered generator sets. Waste heat from the generators will
be used to heat the process building. In addition to the process
building, a modular assay laboratory, a truck maintenance shop and a
modular administration building have been constructed.
Communications are by satellite.
The deposit has been developed as a conventional open-pit mine.
The Company currently plans to conduct mining during the warmest six
months of the year, normally May through October. Depending on
weather conditions, the Company may attempt to expand this season.
Trucks and front-end loaders will be used to mine, haul and stack
the ore in a valley fill lined impoundment. Heap leaching followed
by carbon adsorption/desorption/electrowinning will be used to
extract the gold. The process system is designed to recover the
annual scheduled amount of gold production in eight months. Lime is
being produced on-site utilizing a local source of dolomitic
limestone because it is less expensive than purchasing and
transporting lime to the site. This limestone is baked in a diesel-
fired rotary kiln which has been erected and is operating at the
site.
The mine operating schedule will be ten hours per shift, two
shifts per day, six days per week. Three crews will rotate on a
four-week on, two-week off schedule. The Company currently expects
to employ approximately 54 people at Illinois Creek, with a like
number of personnel to be employed by the mine contractor.
Total pre-production capital costs, including approximately $4.1
million in working capital, are currently estimated at about $28.6
million, exclusive of property acquisition costs of $4 million paid
to NPMC as outlined above. As of August 31, 1996, the Company's
investment in Illinois Creek was approximately $25.5 million.
Project Financing
Effective July 11, 1996, the Company entered into credit
agreements with N M Rothschild & Sons Limited ("Rothschild") for a
$22,000,000 facility to finance the development and construction
costs of the Project. The Company transferred its interest in the
Project to its wholly-owned subsidiary, USMX of Alaska, Inc. ("AK")
which is the borrower of $19.5 million of the $22 million facility.
Under certain circumstances, the loan to AK may be in the form of a
gold loan, in which event the maximum credit amount would be the
number of ounces of gold equal to $19,500,000 divided by the price
of gold in London. However, the Company has agreed with NPMC that
it will not convert the loan to a gold loan until such time as the
Project has achieved Commercial Production as defined in the
Agreement with NPMC.
Advances are made by Rothschild solely to an account dedicated
to the Project operations and only if certain conditions related
principally to Project operations are satisfactory to the Lender.
In addition, AK is required to maintain a minimum balance in the
Proceeds Account equal to the sum of (i) the greater of $1,500,000
or a formula amount based on the present value of future net cash
flow from the Project, (ii) the lesser of $250,000 or interest
payable to Rothschild for the following three months, and (iv) any
other payments due to the lender for the following three months. As
of August 31, 1996, the balance of the Proceeds Account was $8.9
million which represents the portion of the facility which had been
drawn as of that date, but which had not yet been disbursed. As
more fully discussed below in connection with the October 1996
letter agreement with Rothschild, the Company and Rothschild have
agreed on disbursement procedures for the balance of the credit
facility.
AK is not permitted to make withdrawals from the Proceeds
Account for its general corporate purposes or to pay dividends until
"Completion" has occurred. The requirements for completion include
the construction of the Project facilities, which facilities and the
equipment thereon must be mechanically complete and electrically
operable ("Mechanical Completion"), the achievement of production
amounts and grades, costs and reserves similar to the development
plan, and the absence of any default in the credit agreement. The
note evidencing the $19.5 million obligation bears interest, payable
quarterly, at 2.25% above LIBOR until Completion and 1.879%
thereafter for the remainder of the approximate four-year term of
the loan. Principal payments will be made in seven amortized
installments on September 30 and December 31, of each year,
commencing September 30, 1997.
Subject to satisfaction of the requirements for maintenance of
the Proceeds Account, advances will be made by Rothschild to AK
until the first to occur of September 30, 1997, or Mechanical
Completion. AK paid an establishment fee of $292,500 to Rothschild.
AK will also be required to pay a commitment fee of one-half of one
percent of the difference between the principal amount outstanding
and the maximum credit amount.
The balance of the facility is represented by a $2.5 million
note made by the Company which originally provided for conversion
into Common Stock at the conversion price of $3.40 per share at the
option of Rothschild at any time during the approximate four-year
term of the note. The Company may also require conversion if the
note is not in default and the daily closing price of the Common Stock
on The Nasdaq Stock Market exceeds $4.75 for 30 consecutive trading
days. As more fully discussed below, the Company has agreed with
Rothschild to reduce the conversion price to the price per share of
the Common Stock in this Offering or in a private placement.
The Company has also agreed to register the Common Stock for
resale under certain circumstances. The $2.5 million loan bears
interest at 2% above LIBOR, payable no less frequently than
semi-annually.
In accordance with the requirements of the related credit
agreements, the Company deposited the entire proceeds of the $2.5
million loan into the Proceeds Account and such proceeds are not
available for general corporate purposes. Payments may be made to
the Company from the Proceeds Account in an amount sufficient for
the Company to make interest payments. AK will not be permitted to
repay the $2.5 million to the Company or other advances by the
Company in the approximate amount of $3.4 million unless certain
conditions are satisfied, principally related to repayment of the
notes to Rothschild and satisfactory operation of the Project. The
Company has pledged to Rothschild its shares in AK as well as its
notes from AK for advances made by the Company.
The Company is also a guarantor of the $19.5 million loan to AK
until it has demonstrated that the Project is operating in a manner
satisfactory to Rothschild. In addition, the Company will be a
continuing guarantor of AK's covenant to comply with environmental
laws.
AK must deliver to Rothschild, among other things, financial
information, reserve, hedging and operating reports, and must use
all commercially reasonable efforts to maintain, develop and operate
the Project in accordance with the present development plan and
prudent mining industry practices. AK must comply with applicable
laws and maintain its property rights in the Project, including
payment of royalties which may become due to NPMC. In addition,
except for limited circumstances, without Rothschild's consent, AK
may not incur any additional indebtedness, permit any liens on the
Project, assume or guarantee indebtedness of others, invest in
others, merge or change its capital structure, sell the assets of
the Project, or permit Project reserves or future net cash flows to
decline materially from the present development plan. AK must also
achieve Mechanical Completion by July 31, 1997, and Completion by
November 30, 1997.
The Company has also agreed with Rothschild that, so long as the
$2.5 million note made by the Company is unpaid, or any other
obligation of the Company remains unsatisfied, including the
Company's guarantee of the loan to AK, the Company will, among other
things, comply with all applicable laws, provide Rothschild with
financial reports and continue to engage principally in the mining
business. In addition, except for limited circumstances, without
Rothschild's consent, the Company may not incur indebtedness (other
than indebtedness after Completion to develop mining properties
where the sole recourse of the lender is the mining property being
developed), permit any liens on the Project, assume or guarantee
indebtedness of others, invest in others, merge (unless after
Completion and the Company is the survivor of the merger) or change
its capital structure, pay any dividends or sell the assets of the
Project.
The Company has also agreed with Rothschild that it shall not
permit its (a) current ratio to be less than 2.0 to 1.0; (b)
consolidated tangible shareholders' equity to be less than
$17,500,000; and (c) total consolidated liabilities to exceed 175%
of its consolidated tangible shareholders' equity, and that it would
deposit $1,500,000 in the Proceeds Account by September 30, 1996,
which it was unable to do. Rothschild agreed with the Company to
waive these conditions and to not take any actions until December
31, 1996, conditioned upon the Company's agreements to, among other
things, (A) file this Prospectus by November 1, 1996 with appropriate
securities regulatory authorities and complete this Offering by
December 31, 1996, (B) adjust the price at which Rothschild may elect to
convert the $2.5 million loan into the Company's Common Stock to the
price at which the Shares offered hereby (or in a private placement)
are sold and (C) to pay to Rothschild a fee of $100,000 which fee is
payable upon the first to occur of (i) a date upon which such
payment can be made without materially reducing the working capital
reasonably required by the Company for continued operations or (i)
April 15, 1997. In addition, the Company agreed that of the $7.5
million then on deposit in the Proceeds Account, approximately $2.4
million would be distributed to pay accounts payable, approximately
$4.5 million would be transferred back to Rothschild and available
to be advanced in accordance with the credit agreements and
approximately $.6 million would remain in the Proceeds Account and
available for disbursement in accordance with the credit agreements.
The Company has also agreed that it will establish an additional
proceeds account with its presently available cash and disburse
these funds in accordance with a budget agreed to by Rothschild.
The Company will also establish arrangements for the monitoring by
Rothschild of completion of the Project and payment of associated
costs.
The Thunder Mountain Project
Introduction
The Company proposes to conduct gold and silver mining
activities at the Dewey Mine in the Thunder Mountain Mining District
in eastern Valley County, Idaho, approximately 100 miles northeast
of Boise, Idaho. The proposed Dewey mining operations are part of
the Thunder Mountain Project and consist of the development of a
gold and silver ore deposit located on patented mining claims
administered by the Idaho Department of Lands. In January 1996, the
Company submitted a Notice of Intent to Operate ("NOI") with the
Idaho Department of Lands, which is currently being reviewed. A
feasibility study will be ongoing throughout 1996 and 1997 to refine
the project design and economics.
History
Gold was discovered in the Thunder Mountain area in 1894 at the
site of what is now known as the Dewey Mine. During the period from
the initial discovery until 1942, various operators reportedly
produced approximately 31,000 ounces of gold and 16,000 ounces of
silver from both underground and surface placer workings. Renewed
interest in the district began in earnest during the early 1970's
due to rising gold prices. After exploration by several major mining
companies, a portion of the property, the Sunnyside Mine area, was
placed into production by Coeur d'Alene Mines Corporation (Coeur
d'Alene,) as an open pit, heap leach operation in 1986. Between 1986
and 1990, Coeur d'Alene reportedly produced 120,000 ounces of gold
and 240,000 ounces of silver from the combined Sunnyside, Goldbug
and Lightning Peak pits. After reclaiming the property, Coeur
d'Alene terminated its leases with Thunder Mountain Gold, Inc. in
December 1990. At the adjacent Dewey Mine, the Dewey Mining Company
constructed a 450 ton per day mill and the property was operated as
an open pit mine (Golden Reef Joint Venture) during 1981. In the mid
1980's, the Dewey Mine became the subject of litigation which was
resolved in favor of the Dewey Mining Company late in 1991.
Effective July 9, 1993, the Company entered into an Exploration
and Option to Purchase Agreement ("Agreement") with Dewey Mining
Company, Thunder Mountain Gold, Inc. and two individuals (the
foregoing companies and individuals described below collectively as
"Owners"). The Owners control approximately 5,500 acres in the
Thunder Mountain Mining District consisting of both patented and
unpatented mining claims. Pursuant to the terms of the Agreement,
the Company was granted the sole and exclusive right to explore for
and develop minerals on the property in exchange for advance royalty
payments totaling $100,000. In addition, the Company committed to
spend, and did spend, a minimum of $500,000 evaluating the property
prior to April 1, 1995.
The Thunder Mountain Agreement requires that, before the Company
can put the property into commercial production, it must prepare and
deliver to the owners a feasibility study regarding the project. The
Company has extended the term of the agreement through April 30,
1997 by making additional advance royalty payments in the aggregate
amount of $350,000. The Thunder Mountain Agreement further provides
the Company with the option for a final extension until April 30, 1998,
in exchange for an additional advance royalty payment of $250,000. The
advance royalty payments made may be recovered by the Company for
seven years after payment should the Owners elect to receive
royalties under options (a) or (c) below. The Thunder Mountain
Agreement terminates if the Company fails to deliver a feasibility
study to the Owners by the end of the last year's extension under
the Agreement or if the Company exercises its right to terminate the
Thunder Mountain Agreement at any time.
Within 90 days after the Company provides the Owners with a
feasibility study, the Owners may elect to (a) participate in
subsequent efforts to the extent of a 30% working interest, plus
receive a 1.5% royalty, or (b) receive a 30%a net profits interest,
or (c) receive a 5% net returns royalty from production. If the
Owners elect to receive a 5% net return royalty, the Company will be
obligated to make advance royalty payments of: (1) $200,000 within
thirty days after commencement of Commercial Production (as defined
in the Thunder Mountain Agreement), and (2) $250,000 each year
thereafter. If the Owners fail to notify the Company of their
election prior to the end of the 90 day election period they will be
deemed to have made an election to receive a 5% net returns royalty.
The Thunder Mountain Agreement provides that once the Owners
have made their election, the Company shall have one year within
which to achieve Commercial Production. If the Company fails to
achieve Commercial Production within one year, the Company must
either reconvey the property to the Owners or extend by one year the
time period within which Commercial Production must commence by
paying an advance royalty of $200,000 to the Owners. If Commercial
Production has not begun by the end of the extension period, the
Company may obtain one final extension of one year within which to
achieve Commercial Production by paying the Owners an additional
advance royalty of $250,000.
In addition to the advance royalty payments and the work
commitments outlined above, the Company is obligated to pay all fees
necessary to maintain the unpatented mining claims through August 31
of the calendar year in which the extension year expires.
The area of the Company's primary activity lies approximately
4,000 feet west of the Sunnyside deposit previously mined by Coeur
d'Alene. The results of the Company's drilling in 1993 were
favorable, including a number of intersections that exceed 100 feet
in thickness and average in excess of 0.10 ounces of gold per ton.
The Company was also successful in extending the deposit along
strike into an area that was not previously drilled. During 1994,
the Company drilled a total of 104 exploration and development holes
on the property, helping to define the margins and high grade core
of the Dewey deposit. As of August 31, 1996, the Company has
expended a total of $3.0 million on the property.
Location, Access, Terrain and Climate
The Dewey Mine lies within the Thunder Mountain District in
eastern Valley County, Idaho. Access to the District is obtained via
U.S. Highway 95 to Cascade, Idaho, then east 42 miles to Landmark,
Idaho on Forest Highway 22, then north and east approximately 57
miles on U.S. Forest Service roads to the property. The Thunder
Mountain Mining District is currently accessible by vehicle about
seven months out of the year from late May to late November.
Local elevations range from approximately 7,300 to 9,000 feet.
The District forms a 5,980-acre enclave of patented and unpatented
land within the Frank Church Wilderness Area administered by the
Krassel District of the Payette National Forest.
Due to the location of the property, and based on the experience
of operations previously conducted at the Dewey Mine and at nearby
existing operations, future mining operations of the Company would
be seasonal, except that processing could be conducted year around.
Plan of Operations
The Dewey Mine deposit is a bulk tonnage, heap-leachable ore
body located on patented lode mining claims in the central portion
of the Thunder Mountain Mining District. The Company is currently
conducting a feasibility study to determine the optimum design by
which to profitably exploit this deposit. It is presently
anticipated that conventional open pit/heap leach techniques would
be used. The fluid management system would be designed as a zero
discharge system. Due to the remote location of the deposit the
Company would be required to generate its own electrical power.
The Company plans to use a contract miner to develop and operate
the open pit mine. The preliminary production schedule is for a six
to eight month per year mining system, two shifts per day, seven
days per week. The number of mine operating days is estimated at
210 to 240, depending on weather. Processing would occur at least
250 days per year, and perhaps would run throughout the year. The
Company would expect to use approximately 75 to 100 people at the
Dewey Mine, including mining contractor personnel.
Geology
The Thunder Mountain Mining District is localized in the central
portion of a caldera complex underlain by challis volcanics as well
as graben-fill, pyroclastic-derived sediments. The Dewey Dome ore
deposit is hosted by the pyroclastic sediments, and the Sunnyside,
Goldbug and Lightning Peak deposits mined by Coeur d'Alene were
hosted by the volcanics. Known concentrations of economic gold
mineralization are controlled by a combination of structure and
stratigraphy. Drill indicated reserves for the Dewey Deposit include
a geologic resource of 6,439,000 tons at 0.044 ounces per ton gold
and minable reserve of 5,369,000 tons at 0.047 ounces per ton gold
(252,343 ounces) with an average strip ratio of 1.04:1 waste to ore
for a total of 10,969,000 tons of material. Metallurgical
feasibility studies indicate that the Dewey ore is amenable to the
heap leach process. The ore reserve model was created by Miner
Reserves Associates of Wheatridge, Colorado.
Permitting
During 1995, limited geotechnical and baseline environmental
work was conducted while the Company was re-evaluating the project
based on heap leaching of the ore for recovering gold. On January
31, 1996, based on favorable preliminary findings, the Company
submitted a Notice of Intent to Operate ("NOI") with the Idaho
Department of Lands ("IDL") and U.S. Forest Service-Payette National
Forest ("PNL").
Permits, plans and approvals from federal, state and local
agencies are to be obtained utilizing the Idaho Joint Review
Program, details of which are published in a February 1996 State of
Idaho publication titled "Joint Review Program". This program was
initiated on January 31, 1996 with the publication of the NOI which
was forwarded to the IDL. A joint review of the NOI by the IDL and
the PNL determined that a Federal Environmental Impact Statement and
Record of Decision would be required for the Project prior to
initiation of further development. A third-party consultant,
Science Applications international Cooperation, was selected to
develop the Environmental Impact Statement.
Subsequently, topic meetings were organized by the IDL and the
PNL in which permit requirements, baseline data requirements and
design standards were discussed on air, climate, soils and subsoils,
geology, engineering for the waste rock facility, roads and heap
leach facility, all of which included discussion of waste
geochemical evaluation and reclamation plans, surface and ground
water, fisheries and aquatics, vegetation and wildlife. These
various topic meetings were attended by the state and federal
regulatory agencies having jurisdiction in specific areas. The
purposes of the meetings were to inform agencies of the baseline
data currently available for the Project, identify additional
baseline data which will be required for various permits and to
assist in developing short term goals for the project. Baseline
data requirements were completed in the summer of 1996. Since
permitting has only recently commenced, it is difficult to predict
when necessary permits might be received.
Feasibility Study
A feasibility study is intended to be ongoing to refine the
project design and economics. Substantially all the field work for
the feasibility study has been completed and it is the Company's
goal to complete an internal feasibility study by June 1997. To the
extent that production at the Company's Illinois Creek Project is
limited in 1996 and the proceeds of this Offering are required to
fund working capital requirements, work on the feasibility study and
permitting at Thunder Mountain may be delayed.
Montana Tunnels
The Montana Tunnels property is located in the Colorado Mining
District, Jefferson County, Montana, 22 miles south of Helena.
Montana Tunnels consists of approximately 9,300 acres of patented
ground plus about 1,000 acres of other mineral rights. This
property was developed and is operated by Pegasus Gold Inc.
("Pegasus") pursuant to an agreement with the Company. Mine and
mill construction commenced in March 1986, milling operations began
in March 1987, and full operating status was achieved by Pegasus in
October 1987.
The Montana Tunnels Mine involves open pit mining operations and
conventional milling technology. The Montana Tunnels ore is
processed through a circuit which incorporates crushing, grinding,
and selective flotation to produce lead and zinc concentrates, and a
gravity circuit for recovery of free gold. The majority of gold and
silver value is associated with the base metal concentrates. As of
December 31, 1995, Pegasus estimates that the Montana Tunnels Mine
has proven and probable ore reserves of approximately 24,000,000
tons.
Pending completion of the sales transaction described below, the
Company owns a net profits interest in the Montana Tunnels Mine.
The Company is entitled to the greater of a five percent net profits
royalty interest or minimum advance royalties of $60,000 per month
until certain construction, land acquisition and associated
financing and other costs have been recovered by Pegasus
("Payback"), and a 50 percent net profits royalty interest
thereafter. Payback is defined in the agreement with Pegasus to
occur when 90 percent of net profits equals the sum of $250,000,
plus the project costs incurred subsequent to January 1, 1986, plus
interest costs imputed on these costs until September 30, 1987, the
date of full operation status. Net profits, as defined, include
deduction from revenues of such costs as direct operating and
administration expenses, allowable new capital expenditures,
property payments, management fees, interest on debt and equity
financing, repayment of gold loans, repayment of certain debt
obligations, and taxes other than income taxes. Based on information
provided by Pegasus, the Company estimates that, as of December 31,
1995, the remaining net profit recoverable costs were $26,539,000.
Accordingly, Payback has not been achieved. During 1995, the
Company received the minimum royalty of $720,000.
In order to obtain additional funding for its operations and to
partially fund the cost overruns experienced at the Illinois Creek
Project, the Company borrowed $2.5 million from Pegasus in May 1996.
The obligation is secured by the Company's royalty interest in the
Montana Tunnels Property. In June 1996 the Company and Pegasus
agreed to the sale of the Company's interest in the Montana Tunnels
Property to Pegasus for $4.5 million. The transaction is subject to
the approval of the Company's stockholders. Pending completion of
the transaction, Pegasus provided the Company an additional $2
million which was deemed an amendment to the terms of the
outstanding $2,500,000 loan. Upon the closing of the transaction,
the Company will transfer to Pegasus its interest in the Montana
Tunnels Property, and will be relieved of its obligation to repay
these loans.
Exploration
Due to continued threat of adverse amendment to or replacement
of the U.S. mining laws as well as to other existing regulations,
the Company continued to direct its exploration activity to the
evaluation of private lands in the United States, and opportunities
in Latin America. Exploration for minerals, particularly for gold,
is highly speculative in nature, involves many risks and frequently
is non-productive. There can be no assurance that the Company's
mineral exploration efforts will be successful. Once mineralization
is discovered, it usually takes a number of years from the initial
phases of exploration until production is possible, during which
time the economic feasibility of production may change. Substantial
expenditures are required to establish ore reserves through
drilling, to determine metallurgical processes to extract the metal
from the ore and, in the case of new properties, to construct mining
and processing facilities. As a result of these uncertainties, no
assurance can be given that the Company's exploration programs will
result in the expansion or replacement of existing reserves.
Ophir
This property is located in western Alaska, approximately 250
miles northwest of Anchorage. In July 1996 the Company was granted
the right to explore 13,000 acres in the Ophir Mining District
pursuant to an Exclusive Mineral Exploration Permit with the State
of Alaska Mental Health Trust Unit, a division of the Alaska
Department of Natural Resources. Access to the property is by
charter air service from Anchorage to public or private airstrips,
then over state maintained roads to the property. Alternative
transport is by barge up the Kuskokwim River to Sterling, the
eastern terminus of the current road system.
Placer gold production from the District has been significant
and is estimated at greater than 600,000 troy ounces, including over
200,000 troy ounces from streams proximal to the property.
Production is continuing from five drainages in the District.
In the District, Cretaceous graywackes and mudstones have been
intruded by late Cretaceous to early Tertiary gold-mineralized
granite porphyry sill, dikes, and small stocks. These instrusive
rocks and/or their alteration zones are the source of gold in the
placer deposits. The exploration objective will be to define ore or
more areas in bedrock with sufficient size potential and gold grade
to justify development.
During August 1996, the Company conducted preliminary geological
mapping, geochemical sampling and geophysics, with additional
exploration activities planned for 1997. The Company's investment
in this property was approximately $42,000 at August 31, 1996.
Cala Abajo, Puerto Rico
During 1992, 1993 and 1994, the Company acquired an equity
interest currently totalling approximately 80% of the outstanding
common stock of Southern Gold Resources (USA), Inc. ("Southern
Gold"), a Colorado corporation. On October 5, 1992, Southern Gold
was granted an exclusive exploration permit by the Puerto Rican
government covering 2,170 acres that include the Cala Abajo
copper/gold deposit in western-central Puerto Rico. The prospecting
permit may be extended year to year for a maximum 10 year period and
gives Southern Gold the exclusive right to conduct exploration and
environmental studies and to negotiate a mining lease covering the
permit area. In September 1996 the permit was extended by the
Puerto Rican government through September 1997. Through 1995, the
Company incurred approximately $1.0 million in drilling,
metallurgical test work, engineering and base line environmental
studies.
In 1995, the Commonwealth of Puerto Rico amended its mining law
to prohibit open pit mining of metal deposits on the island. The
effect of the mining law, as currently amended, was to render
Southern Gold's plan for development of the Cala Abajo deposit
uneconomic. Accordingly, the Company's investment was written off
in 1995. Southern Gold has notified the Puerto Rican government of
its belief that the government's action was unjustified and harmful
to Southern Gold. Southern Gold is considering whether any other
action is warranted.
Other United States Mineral Properties
The Company has additional mineral properties, located in Utah,
Montana, Wyoming, Alaska and Nevada in the United States. These
additional properties are currently being explored solely by the
Company.
Investment
as of
December 31,
Property State Status 1995
- ------------------------ -------- ------------- -------------
Goldstrike Area Utah Drilling $358,000
scheduled
Baggs Creek/ Hidden Hand Montana Has small 69,000
resource
Hartville Wyoming Assembling 14,000
land package
Roundtop Alaska Part of 45,000
Illinois
Creek
Jack Springs Nevada Has small res -0-
ource
Mexico
The Company is investigating several opportunities
located primarily in the northern Mexican states of Sonora,
Chihuahua and Coahuila. The more significant projects the Company is
currently evaluating are described below.
Amargosa
This property is located approximately 95 kilometers southeast
of Juarez in the state of Chihuahua. The property is accessible from
Juarez on Highway 2, southeast for 90 kilometers to El Porvenir,
then via poorly maintained dirt roads to the project. The Company
controls by denouncement approximately 15,100 acres. The Company
must meet certain minimum work requirements arising from Mexican
mining law to maintain its rights to the properties. In addition, if
the properties are placed into production, the Company will be
obligated to pay net smelter return royalties varying from 2.75% to
3.25% on production from most of the properties.
A significant amount of exploration was conducted on the
Amargosa polymetallic massive sulfide targets in 1994. Results of
this drilling at Amargosa were geologically interesting, but no
significant economic widths were encountered, or continuity between
holes demonstrated by the three holes drilled.
A strong magnetic anomaly was partially defined at the edge of a
ground geophysical survey. The anomaly is caused by a pyrrohite
body. Massive sulfide mineralization is associated with and
adjacent to the anomaly.
Although this property continues to hold a
great deal of geologic interest, no economic mineralization has yet
been identified. Accordingly, management recorded an impairment loss
of $1.0 million in 1995. As of August 31, 1996, the Company's
remaining investment in this property was approximately $326,000.
Boludo Goldfields
Early in 1994, the Company acquired by lease and purchase option
approximately 5,400 acres in the Boludo Goldfields placer district
located approximately 121 kilometers southwest of Nogales in
northwest Sonora. Access to the property is via paved highway and
well maintained dirt road. During 1994, 328 backhoe pits were dug at
Boludo by the Company to test for placer gold. In addition, several
drill holes were put down in the hard rock targets. This drilling
failed to identify significant mineralization. However the placer
sampling identified a resource estimated to contain about 10.5
million cubic meters with an average grade of 0.015 ounces gold per
cubic meter or about 159,000 ounces of contained gold. The original
land package was trimmed back to this resource area to reduce
holding costs. In 1995, the Company entered into an agreement with
Resource Trend Pty Ltd, an Australian mining company, which firm has
informed the Company that it intends to commence production in the
near future. The Company retains a royalty interest on future
production from the property. The Company's investment in this
project was approximately $437,000 as of August 31, 1996.
Noche Buena
The Noche Buena Project was acquired by the Company in 1992.
The Company controls by denouncement of concessions, approximately
18,800 acres, subject only to Mexican mineral property fees and taxes.
The property is located in northwestern Sonora approximately 45
kilometres northwest of the city of Caborca in the state of Sonora.
Access from Caborca is via Highway 2 north for 60 kilometres then
west via dirt roads for approximately 10 kilometres.
The Company conducted exploration on the concessions in 1993 and
1994 outlining a drill indicated gold resource of 70,000 ounces, which
is open in all directions. The project was joint ventured to Minera
Kennecott, the Mexican entity of RTZ-CRA, on July 15, 1995, under
terms whereby Kennecott can earn majority interest in the project by
paying the Company $850,000 and spending $2,500,000 over a period of five
years. Kennecott paid the Company $100,000 on July 15, 1996.
The Company has the option to participate in the joint venture at
35% or elect a 4 to 4.5% net smelter royalty depending on gold price.
Kennecott has expanded on the drilling conducted by the Company
as well as completed geochemical and geophysical surveys over the property.
Based on the encouraging results of this work, it is expected that
Kennecott will conduct additional drilling on this property. As of
August 31, 1996 the Company's investment in Noche Buena was
approximately $257,000.
Samalayuca
Samalayuca is located approximately 40 kilometers south of
Juarez in the state of Chihuahua, and is accessed via Highway 45 to
the town of Samalayuca then via dirt roads west a few kilometers to
the property. The Company controls by lease agreement and
denouncement approximately 19,000 acres. The lease, executed on
August 12, 1992, provides for a twenty year term. If the exploration
work is successful, the owners will be paid a 3% net smelter return
royalty on base metals and a 4% net smelter return royalty on
precious metals produced and sold from the property. The Company
makes annual advance royalties of $25,000 and must meet certain
minimum work requirements.
The property is a sediment hosted, stratabound copper/silver
property with primary chalcocite mineralization. In the past (pre
1975), local miners shipped copper bearing quartzite to the El Paso
smelter as flux. These miners were paid for the copper content of
this material which ranged from one to three percent. Mining ceased
when copper prices fell in the mid 1970's.
The Company has conducted short hole air track drilling as well
as limited rotary and core drilling since acquisition of the
property. Results of this work have been inconclusive due to
structural complexity and associated oxidation and to depletion of
copper values near the surface.
During 1995, the property was joint ventured with a subsidiary
of Phelps Dodge Corporation. Phelps Dodge has conducted geophysical
surveys over the property and has recently commenced drilling. As of
August 31, 1996, the Company had invested a total of $509,000 in the
property.
Sierra Mojada
This property is located approximately 200 kilometers north of
Torreon in the state of Coahuila. Access is via improved dirt road
north from Torreon or by railroad from Monclova. The Company
controls by denouncement approximately 11,800 acres in the district.
Production from the district in the past has been significant,
consisting of copper, zinc, lead and silver. The district was
discovered in 1878 with most of the past production occurring
between 1890 and 1945. Currently, oxide zinc is being mined by
others in the district and shipped to a smelter in Monterey, Mexico.
The exploration objective consists of defining new polymetalfic
deposits similar to those previously exploited, as well as
evaluating the remaining resource in the current mines.
On July 26, 1996 the Company entered into a joint venture
agreement with Metalline Mining Company to further explore and
develop the property. The Company may elect to participate for a
35% working interest or receive a net smelter royalty after earn-in
by Metalline. The Company's investment in this project was
approximately $36,000 as of August 31, 1996.
Other Mexican Mineral Properties
The Company has additional mineral properties in Mexico as
follows.
Property State Status Investment
as of August
31, 1996
- ------------------- -------- -------------- ------------
Altar, Los Apaches Sonora Available for $240,000
lease
El Ocuca, Las Rastras, Sonora Under lease $182,000
San Miguel
Ecuador
In 1995, the Company acquired all of the outstanding capital
stock of Mega Minerals S.A., an Ecuadorian company. The assets of
the company at the time of acquisition consisted of title to eight
exploration concessions comprising approximately 80,600 acres and
the right to acquire title to four additional exploration
concessions comprising approximately 5,900 acres. The twelve
concessions are located in the Nambija-Zamora gold belt of southern
Ecuador. Initial exploration on these concessions has yielded
encouraging results. Follow-up geological mapping and geochemical
sampling of stream sediments anomalous in base and precious metals
have identified a two kilometer by three kilometer zone of skarn
type alteration with associated base metals and gold mineralization.
An exploration program is being planned to further evaluate the
discovery. The Company is seeking to interest other mining
companies in participating in a joint venture. The Company's
investment in Ecuador as of August 31, 1996 totaled $286,000.
Chile
In 1995, USMX acquired its first exploration project in Chile
through its wholly-owned subsidiary, Compania Minera USMX de Chile.
The Putu property is located approximately 160 miles southwest of
Santiago, Chile near the coastal city of Constitution. Ten
concessions totaling 7,410 acres were staked by USMX to cover the
Putu Gold Mine, as well as several other small prospects. A
magnetite rich, felsic volcanic, exhalite horizon was previously
mined for gold at Putu by underground methods.
The Company has conducted a ground magnetic geophysical program
and soil geochemical survey over the immediate mine area. Regional
exploration has identified other showings of the mineralized
exhalite that upon weathering have generated placer gold deposits
which have been mined by the local inhabitants.
The Putu project is located in a forested area near sea level
with very limited outcrop exposures, similar to the Pacific
Northwest of the United States. Evaluation of the survey data shows
a low level gold anomaly in soils over the immediate mine area as
well as the edge of the survey. Additional geochemical sampling is
planned to further delineate the anomaly. The Company's investment
in Chile as of August 31, 1996, was approximately $41,000.
MANAGEMENT
The directors and executive officers of the Company, their
respective positions and ages, and the year in which each director
was first elected, are set forth in the following table. Additional
information concerning each of these individuals follows the table:
Name Age Position with the Company Direct
or
Since
Donald J. Bellum(1) 63 President 1992
George J. Allen(3) 67 Director 1990
Phillips S. Baker 36 Director 1995
James P. Geyer 43 Director 1996
Terry P.McNulty(2) 57 Director 1990
Werner G. 41 Director 1992
Nennecker(1)(3)
Gregory Pusey(1)(3) 44 Director 1979
Robert Scullion(2) 56 Director 1987
Paul L. Blair 54 Vice President-Operations for
Latin America
John R. Haigh 66 Vice President-Investor
Relations and Public Affairs
Dennis L. Lance 51 Vice President-Exploration
Donald E. Nilson 51 Vice President-Finance,
Secretary and Chief Financial
Officer
Thomas M. Smagala 45 Treasurer
Paul B. Valenti 46 Senior Vice President
(1) Members of the Executive Committee.
(2) Members of the Audit Committee.
(3) Members of the Compensation Committee.
Donald P. Bellum became Chairman of the Board of Directors and
Chief Executive Officer of the Company on May 1, 1996 and President
on July 1, 1996. From 1991 to 1996 Mr. Bellum was an independent
consultant in the mining industry. From 1987 to 1991 he was
Executive Vice President of Cyprus Minerals Company and he served as
President of Cyprus Coal Company from 1980 to 1987. Prior to
joining Cyprus, he had 22 years experience with other mining
companies, including Kennecott Copper Corporation.
George J. Allen has served as President of Allen Engineering
since 1983. From 1951 to 1983, he served in various positions with
Kennecott Corporation, including Vice President and Director of
Tolling.
Phillips S. Baker joined Pegasus Gold in January 1994 as Vice
President, Finance and Chief Financial Officer. Prior to joining
Pegasus, Mr. Baker worked seven years for Battle Mountain Gold
Company, most recently as Treasurer. He also worked as an
accountant for Arthur Andersen LLP. Mr. Baker is an Attorney,
Certified Public Accountant and Certified Cash Manager.
Terry P. McNulty, has served as President of T.P. McNulty &
Associates, a consulting firm, since 1988. From 1983 to 1988, he
was President of Hazen Research, Inc.
Werner G. Nennecker, joined Pegasus Gold Inc. in
September 1992 as Senior Vice President and Chief Operating
Officer. In November 1992, Mr. Nennecker assumed the position
of President and Chief Executive Officer of Pegasus. Prior to
joining Pegasus, Mr. Nennecker worked 15 years in the mining
industry with Ranchers Exploration and Santa Fe Pacific Gold
Corporation. Most recently, he held the positions of Executive
Vice-President of Santa Fe Pacific Minerals Corporation and
President of Santa Fe Pacific Gold Corporation. He has
extensive experience in all aspects of the mining business. Mr.
Nennecker is also a director of Pegasus Gold Inc., Zapopan NL,
the Gold Institute, and the National Mining Hall of Fame.
Gregory Pusey, served as the Company's Chief Financial
Officer from May 1989 until January 1990 and he also has served as
the Secretary and Treasurer of the Company. Since 1983, Mr. Pusey
has been engaged in private investment activities. He has served
as President of Livingston Capital, Ltd. and President of the
General Partner of Graystone Capital, Ltd, a venture capital firm.
He is also President and a Director of Cambridge Holdings, Ltd. and
a Director of Nutrition For Life International, Inc.
Mr. Pusey was a founder of the Company.
James P. Geyer joined Pegasus Gold in 1987 and was appointed
Vice President, Operations in October 1995. Prior to joining
Pegasus, Mr. Geyer worked 13 years for ASARCO and AMAX in various
operating and engineering positions. Mr. Geyer is a mining engineer
from the Colorado School of Mines. Mr. Geyer is a Director of
Wheaton River Minerals Ltd.
Robert Scullion has been a partner in Scullion, Strasheim &
Company, a firm of Certified Public Accountants, since 1975. He is
a Certified Public Accountant licensed in the United States as well
as a Scottish Chartered Accountant.
Paul L. Blair joined the Company in April 1995. Mr. Blair has
35 years experience in the mining industry. He served as President
and General Manager of Golden Queen Mining Co., Inc. from December
1993 to April 1995. For the preceding seven years, Mr. Blair served
as General Manager of Cactus Gold Mines Co.
John R. Haigh has served as Vice President - Investor Relations
and Public Affairs of the Company since June 1996. Mr. Haigh has 36
years experience in the mining industry and from July 1991 until
June 1996 was manager of Investor Relations of the Company. Mr.
Haigh is a degreed geologist and prior to June 1991 was the Chief
Executive Officer and Director of a public gold and diamond mining
company that he created in 1973.
Dennis L. Lance has served as Vice President -- Exploration of
the Company since May 1989. He also served as Secretary of the
Company from January 1990 to December 1990. He has served as a
geologist with the Company since June 1986. Prior thereto, he was
an independent consulting geologist.
Donald E. Nilson has served as Vice President -- Finance and
Secretary of the Company since his employment in October 1990. Mr.
Nilson has been a Certified Public Accountant since 1968 and holds a
graduate degree in Computer Information Systems.
Thomas M. Smagala joined the Company in April, 1989 as Business
Development Manager and was elected to Treasurer of the Company in
July, 1993. Prior thereto, he was an independent consulting
geological engineer.
Paul B. Valenti joined the Company in May 1987 and was elected
Vice President in August 1988. From November 1983 to May 1987, he
served as the Metallurgy Manager for Silver King Mines.
BENEFICIAL OWNERS OF SECURITIES
The following table summarizes certain information as of October
25, 1996 with respect to the ownership by each director, by all
executive officers and directors as a group, and by each other
person known by the Company to be the beneficial owner of more than
5% of the Common Stock:
Number of Percent of
Name of Shares Class
Beneficial Beneficially
Owner Owned
Prior to After Offering
Offering
Donald P. 25,000(1) * *
Bellum
George J. Allen 37,000(2) * *
Phillips S. 4,846,000(4)(7) 29.0% 22.8%
Baker
James P. Geyer 4,841,000(5)(7) 29.8 22.8
Terry P. 38,000(2) * *
McNulty
Werner G. 4,856,000(6)(7) 32.0 22.9
Nennecker
Gregory Pusey 302,274(4) 1.8 1.4
Robert Scullion 26,750(3) * *
All directors
and executive 5,703,457(7)(8) 34.5 26.5
officers as a
group
Pegasus Gold 4,826,000 29.8 22.8
Inc.
601 West First
Avenue
Suite 1500
Spokane, WA
99204
North Pacific 1,540,663 9.5 7.3
Mining
Corporation
2525 C Street
Anchorage,
Alaska 99503
* Represents less than 1% of the Common Stock outstanding.
(1) Includes 25,000 shares underlying currently exercisable options
granted pursuant to the Company's Non-Discretionary Stock Option
Plan or Non-Employee Directors. Does not include options to
purchase 150,000 shares of Common Stock granted to Mr. Bellum in
1996, which are not currently exercisable.
(2) Includes 25,000 shares underlying currently exercisable options
granted pursuant to the Company's Non-Discretionary Stock Option
Plan For Non-Employee Directors.
(3) Includes 26,750 shares underlying currently exercisable options
granted pursuant to the Company's Non-Discretionary Stock Option
Plan for Non-Employee Directors.
(4) Includes 21,000 shares underlying currently exercisable options
granted pursuant to the Company's Non-Discretionary Stock Option
Plan For Non-Employee Directors.
(5) Includes 5,000 shares underlying currently exercisable options
granted pursuant to the Company's Non-Discretionary Stock Option
Plan for Non-Employee Directors.
(6) Includes 30,000 shares underlying currently exercisable options
granted pursuant to the Company's Non-Discretionary Stock Option
Plan for Non-Employee Directors.
(7) Messrs. Nennecker, Baker, and Geyer are officers and Mr.
Nennecker is a director of Pegasus. As such, they can be
considered to be beneficial owners of the 4,826,000 shares held
of record by Pegasus. Accordingly, the figures opposite their
names reflect the 4,826,000 shares owned by Pegasus.
(8) Includes currently exercisable options to purchase 347,750
shares.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital consists of 45,000,000 shares
of Common Stock and 20,000,000 shares of preferred stock, $.001 par
value (the "Preferred Stock"). As of the date of this Prospectus,
there were 16,184,182 shares of Common Stock outstanding.
Dividends may be declared and paid from the Common Stock out of
legally available surplus. Such dividends may be paid in cash,
property or shares of Common Stock. The Board of Directors of the
Company may set aside reserves out of funds available for dividends
for any purpose the Board of Directors of the Company determines in
the Company's best interest. At present, the Company is restricted
pursuant to loan covenants in the payment of dividends. The Company
has no present plans to pay dividends in the foreseeable future.
Each Share of Common Stock is entitled to share equally in
dividends from sources legally available therefore when, as, and if
declared by the Board of Directors of the Company and, upon
liquidation or dissolution of the Company, whether voluntary or
involuntary, to share equally in the assets of the Company available
for distribution to the holders of the Common Stock. Each holder of
Common Stock is entitled to one vote per share for all purposes.
The holders of Common Stock have no preemptive rights and there is
no cumulative voting, redemption right or right of conversion with
respect to the Common Stock.
No shares of Preferred Stock have been issued. However, the
Board of Directors of the Company has the right to fix the rights,
privileges and preferences, including preference upon liquidation,
of any class of Preferred Stock to be issued in the future out of
authorized but unissued shares of Preferred Stock. The Board of
Directors of the Company has the right to fix the rights, privileges
and preferences, including preference upon liquidation, of any class
of Preferred Stock to be issued in the future out of authorized but
unissued shares of Preferred Stock. The Board of Directors of the
Company may issue these shares after adopting and filing a
certificate of designations with the Secretary of State of the State
of Delaware.
Certain Potential Anti-Takeover Effects.
The Company currently has certain provisions in its Certificate
of Incorporation and Bylaws which may be viewed as having "anti-
takeover" affects. These provisions may make it more difficult and
time-consuming to change majority control of the Company and of the
Board of Directors of the Company and could reduce the vulnerability
of the Company to an unsolicited offer to "take over" the Company.
These measures could have an adverse impact on the market value of
the Common Stock. Stockholders of the Company do not have
cumulative voting rights in the election of directors. The Company
currently has authorized but unissued shares of both Common Stock
and Preferred Stock that could be issued in such a way as to have
anti-takeover effects. The Board of Directors of the Company could
create an issue of shares of Preferred Stock with such voting or
conversion rights which would make divestment of the Company more
difficult or costly.
In addition, the Certificate of Incorporation and/or Bylaws may
be deemed to have anti-takeover effects in that they provide for:
(i) the Board of Directors to be divided into three classes of
directors, each with a term of three years, (ii) 66 2/3% shareholder
vote to remove directors other than for cause, and (iii) a 66 2/3%
stockholder vote to amend certain provisions of the Certificate of
Incorporation and Bylaws.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement dated , 1996 (the "Underwriting Agreement") among
the Company, and Newcrest Capital Corp. as the Representative of the
Underwriters named below(collectively, the "U.S.
Underwriters"), and Newcrest Capital Inc. (collectively, the
"Canadian Underwriters"), as underwriters (collectively, the
"Underwriters"), the Company has agreed to sell and the Underwriters
have, subject to the conditions specified therein, agreed to
purchase from the Company the number of shares of Common Stock set
forth in the table below. The obligation of each Underwriter to
purchase the shares of Common Stock set forth against its name in
the table is joint with the obligation of its affiliate set forth in
the table.
Number
U.S. Underwriters of Shares
Newcrest Capital Corp....................
Cadandian Underwriters
Newcrest Captial Inc.....................
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that
they may be terminated upon the occurrence of certain stated events.
The Underwriters are, however, obligated to take up and pay for all
of the shares of Common Stock offered hereby if any are purchased
under the Underwriting Agreement.
Under the Underwriting Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Common Stock will not offer to
sell or sell such shares in Canada or to persons who are Canadian
persons, and the Canadian Underwriters and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell such
shares in the United States or to persons who are U.S. persons. The
foregoing limitations do not apply to stabilization transactions or
to transaction between the U.S. Underwriters and the Canadian
Underwriters. Subject to applicable law, the Underwriters may offer
the Common Stock outside Canada and the United States.
With respect to the offering in the United States, the U.S.
Underwriters propose to offer the Common Stock directly to the
public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such public offering price
less concession not to exceed $ per share. Such dealers
may reallow a concession not to exceed US $0. per share to other
dealers. After the public offering, the public offering price and
concessions and reallowances to dealers may be changed by the
Underwriters.
The Company has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 750,000 additional shares of Common
Stock at the initial price to public less the underwriting discount.
The Underwriters may exercise such option solely to cover over-
allotments, if any, on the sale of the Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters and their
directors, officers, employees and agents against certain
liabilities, including civil liabilities under the Canadian
provincial securities legislation or the Securities Act of 1933
(United States), as amended, or will contribute to payments the
Underwriters may be required to make in respect thereof.
The Company has agreed with the Underwriters that it will not,
for the period ending 180 days after the date of this Prospectus
issue or sell any shares of Common Stock or any right to acquire
shares of Common Stock, without the prior consent of Newcrest
Capital Inc., except that the Company may grant options to purchase
shares of Common stock pursuant to the Company's stock option plans
and may issue shares of Common Stock pursuant to the exercise of
options granted under the Company's stock option plans.
In accordance with the policy statements of certain Canadian
securities regulators, the Underwriters may not, throughout the
period of distribution, bid for or purchase shares of Common Stock
except in circumstances specifically permitted by such policy
statements. The Underwriters may only avail themselves of such
exceptions on the condition that the bid or purchase not be engaged
in for the purpose of creating actual or apparent active trading in,
or raising the price of, the shares of Common Stock. These
exceptions include a bid or purchase permitted under the by-laws and
rules of the Toronto Stock Exchange relating to market stabilization
and passive market-making activities. Subject to the forgoing, in
connection with this offering, the Underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of
the Common Stock at levels other than those which might otherwise
prevail to the open market. Such transactions, if commenced, may be
discontinued at any time.
In connection with this offering, the Underwriters may engage in
passive market making transactions in the Common Stock on Nasdaq
immediately prior to the commencement of sales in this offering, in
accordance with Rule 10b-6A under the Securities Exchange Act of
1934, as amended. Passive market making consists of displaying bids
on Nasdaq limited to the bid prices of independent market makers and
purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified
prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The legality of the Common Stock being offered hereby is being
passed upon for the Company by Bearman Talesnick & Clowdus
Professional Corporation. Attorneys employed by Bearman Talesnick &
Clowdus Professional Corporation beneficially own approximately
27,000 shares of Common Stock.
EXPERTS
The consolidated financial statements of USMX, INC. and
subsidiaries as of December 31, 1995 and 1994, and for each of the
years in the three-year period ended December 31, 1995, have been
included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1993, consolidated financial statements refers to a
change in the method in accounting for taxes.
The Company's Illinois Creek Project reserves have been reviewed
by Roscoe Postle Associates Inc. and information regarding their
Report has been included herein and in the Registration Statement
in reliance upon their Report and upon the authority of such firm
as experts in mining, geology and reserves determination.
<TABLE>
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
(Amounts in thousands US dollars)
<CAPTION>
August 31, December 31,
------------------ --------------------
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,795 $ 6,727 $ 5,226 $12,014
Restricted cash 4,500 - - -
Deferred mining and processing costs - 2,722 - 2,344
Consumable inventories - 19 - 34
Federal income taxes receivable 497 647 381 274
Other 641 193 227 257
------ ------ ------ ------
Total current assets 8,433 10,308 5,834 14,923
Property, plant and equipment, at cost:
Undeveloped mineral properties 2,897 3,818 2,913 4,660
Mineral properties under development 11,359 4,642 6,344 2,521
Developed mineral properties 921 921 921 921
Construction in progress 16,460 - - -
Mine buildings and equipment 3,039 2,432 2,451 2,417
Vehicles, furniture and equipment 740 680 662 691
------ ------ ------ ------
35,416 12,493 13,291 11,210
Less accumulated depreciation,
depletion and amortization (3,540) (3,439) (3,475) (3,418)
------ ------ ------ ------
Net property, plant and equipment 31,876 9,054 9,816 7,792
------ ------ ------ ------
Restricted cash 4,380 - - -
Other assets 2,942 1,792 1,819 1,475
------ ------ ------ ------
Total assets $47,631 $21,154 $17,469 $24,190
======= ======= ======= =======
<FN>
The accompanying notes are a part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
(Concluded)
(Amounts in thousands US dollars)
<CAPTION>
August 31, December 31,
------------------ --------------------
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,919 $ 324 $ 312 $ 197
Accrued salaries 50 73 73 32
Accrued reclamation 464 352 304 493
Note payable 5,220 - - -
Other accrued liabilities 25 115 51 96
------ ------- -------- -------
Total current liabilities 7,678 864 740 818
Long term liabilities:
Estimated reclamation liability 535 361 885 361
Notes payable 21,233 - - -
------ ------- -------- -------
Total long term liabilities 21,768 361 885 361
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.001 par value,
20,000,000 shares authorized, none issued - - - -
Common stock, $.001 par value, 45,000,000
shares authorized, 14,644,000 shares
issued and outstanding as of December 31, 1995,
14,786,000 shares issued and outstanding
as of December 31, 1994, 16,184,000
shares issued and outstanding as of August 31,
1996, 14,644,000 shares issued and outstanding
as of August 31, 1995 16 15 15 15
Additional paid-in capital 19,581 15,810 15,583 15,860
Treasury stock, at cost - (227) - (16)
Retained earnings (deficit) (1,412) 4,331 246 7,152
------ ------- -------- -------
Total stockholders' equity 18,185 19,929 15,844 23,011
------ ------- -------- -------
Total liabilities and stockholders'equity $47,631 $21,154 $17,469 $24,190
======= ======= ======== =======
<FN>
The accompanying notes are a part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USMX, INC. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands US dollars , except per share data)
<CAPTION>
Eight Months Ended
August 31, Year Ended December 31,
------------------ -------------------------------
1996 1995 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
Sales of gold $ - $ 778 $ 2,678 $13,615 $18,137
Costs applicable to sales:
Cost of gold sold - 649 2,890 11,203 16,226
Mining taxes - 6 14 106 149
Production royalties - 342 379 665 882
-------- ------- ------- ------ ------
- 997 3,283 11,974 17,257
-------- ------- ------- ------ ------
Gross profit (loss) - (219) (605) 1,641 880
General and administrative expenses 2,152 1,639 2,548 2,185 2,048
Prospecting costs 484 579 684 739 667
Asset abandonments, write downs and impairments 242 1,529 4,431 261 938
-------- ------- ------- ------- ------
Income (loss) from operations (2,878) (3,966) (8,268) (1,544) (2,773)
Other income (expense):
Royalty income (received from related party) 360 480 720 720 720
Interest income 135 417 525 518 321
Other, net 598 (2) (1) 13 5,074
-------- ------- ------- ------- ------
1,093 895 1,244 1,251 6,115
Income (loss) before income taxes and cumulative
effect of change in accounting principle (1,785) (3,071) (7,024) (293) 3,342
Income tax expense (benefit) (127) (250) (118) (497) 1,472
-------- ------- ------- ------- ------
Income (loss) before cumulative effect of change in
accounting principle (1,658) (2,821) (6,906) 204 1,870
Cumulative effect on prior years of change in
method of accounting for income taxes - - - - 732
-------- ------- ------- ------- ------
Net income (loss) $(1,658) $(2,821) $(6,906) $ 204 $ 2,602
========= ======== ======== ======= =======
Net income (loss) per common share:
Net income (loss) before cumulative effect of
change in accounting principle and extraordinaryitem $ (0.11) $ (0.19) $ (0.47) $ 0.01 $ 0.12
Cumulative effect of change in accounting
principle - - - - 0.05
-------- ------- ------- ------- ------
Net income (loss) per common share $(0.11) $ (0.19) $ (0.47) $ 0.01 $ 0.17
========= ======== ======== ======= =======
Weighted average common and common equivalent
shares outstanding 14,920 14,776 14,755 14,860 15,714
========= ======== ======== ======= =======
<FN>
The accompanying notes are a part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands US dollars)
<CAPTION>
Eight Months
Ended
August 31, Years Ended December 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash from sales of precious metals $ - $ 778 $ 2,678 $13,615 $18,137
Cash paid to suppliers and employees (2,657) (3,237) (4,831) (12,279) (19,156)
Mining taxes paid (3) (6) (14) (106) (149)
Royalties paid in cash (5) (342) (379) (665) (923)
Royalties received 360 480 720 720 720
Interest paid - - - - -
Interest received 135 417 525 518 321
Other income, net 598 (4) (1) 13 76
Income taxes paid, net of refunds received 11 (122) 11 1,311 (2,352)
------- ------- -------- ------- -------
Net cash provided by (used in) operating activities (1,561) (2,036) (1,291) 3,127 (3,326)
Cash flows from investing activities:
Additions to property, plant and equipment (18,391) (3,393) (5,674) (4,221) (4,311)
Proceeds from sales of property and equipment - 415 449 380 20,111
Investment in restricted cash accounts (8,880) - - - -
Investment in surety certificates of deposit (1,380) - - (171) (1,362)
Acquisition of Goldstrike property - - - - (708)
Proceeds from sale of stock held for investment 1,281 - - - -
Other, net - (279) - 80 -
-------- ------- ------- ------- -------
Net cash provided by (used in) investing activities (27,370) (3,257) (5,225) (3,932) 13,730
Cash flows from financing activities:
Proceeds from issuance of common stock - 6 6 314 944
Repurchase of common stock - - (278) (3,215) -
Proceeds of notes payable 26,500 - - - -
-------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 26,500 6 (272) (2,901) 944
Net increase (decrease) in cash and cash equivalents (2,431) (5,287) (6,788) (3,706) 11,348
Cash and cash equivalents at beginning of year. 5,226 12,014 12,014 15,720 4,372
-------- -------- -------- -------- -------
Cash and cash equivalents at end of period $ 2,795 $ 6,727 $ 5,226 $12,014 $15,720
Supplemental Disclosure of Noncash
Investing and Financing Activities
Effective July 11, 1996, the Company issued
1,540,663 shares of the Company's
common stock to North Pacific Mining
Corporation ("NPMC") to acquire
leasehold and other property interests in the
Illinois Creek Project in Alaska.
The shares had an average market value of $4
million as provided in the agreement.
Assets acquired $ 4,000
Market value of common stock issued 4,000
-------
Cash paid $ -
The Company received $400,000 and $380,000 cash, plus 184,438 and
168,273
shares of Alta Gold Co. common stock, in 1995 and 1994 respectivly,
as payment
for purchase of the Company's interest in the Kinsley Mountain
Property.
Payment received $ 560 $ 540
Discounted market value of common stock received 160 160
-------- --------
Cash received (included in proceeds from sale of property and
equipment above) $ 400 $ 380
<FN>
The accompanying notes are a part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Concluded)
(Amounts in thousands US dollars)
<CAPTION>
Eight Months
Ended
August 31, Years Ended December 31,
------------------- -----------------------------------
1996 1995 1995 1994 1993
(unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income (loss) $(1,658) $(2,821) $(6,906) $ 204 $ 2,602
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization charged to costs
and expenses 65 90 134 1,484 1,684
Cost of mineral properties abandoned 264 1,476 2,928 261 541
Gain on property disposals - (4) - - (4,998)
Other, net - - (15) 14 50
Changes in operating assets and liabilities:
(Increase) decrease in deferred mining and processing costs - (450) 2,344 1,647 (2,356)
Decrease (increase) in consumable inventories - 15 34 27 (30)
Depreciation, depletion and amortization
included in ending inventories - 71 - 619 750
(Increase) decrease in federal income taxes receivable (116) (373) (107) 744 (1,018)
Increase (decrease) in accounts payable 1,608 128 116 (1,044) 221
Increase (decrease) in accrued salaries (23) 41 41 (153) (33)
Decrease in federal income taxes payable - - - - (615)
Increase (decrease) in other accrued liabilities (73) 20 (45) (35) 32
Decrease in royalties payable - - - - (41)
Increase (decrease) in accrued and estimated reclamation (190) (141) 335 (874) (326)
Decrease in deferred income taxes - - - - (92)
Other changes in assets and liabilities, net (1,438) (88) (150) 233 303
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities $(1,561) $(2,036) $(1,291) $ 3,127 $(3,326)
======== ======== ======== ======== ========
<FN>
The accompanying notes are a part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USMX, INC. and Subsidiaries
Consolidated Statements of
Stockholders' Equity
(Amounts in thousands US dollars except shares)
<CAPTION>
Common Stock
--------------------------
Number of Additional Treasury Earnings
Shares Amount Paid-in Capital Stock (Deficit)
----------- ---------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 14,962,000 15 17,566 0 4,346
Shares issued as compensation 28,000 - 50 - -
Exercise of stock options 638,000 1 1,156 - -
Previously issued shares submitted in - - - (213) -
partial payment for options exercised
Treasury stock retired (39,000) - (213) 213 -
Net income - - - - 2,602
---------- ---------- --------------- ---------- -----------
Balance at December 31, 1993 15,589,000 16 18,559 - 6,948
Shares issued as compensation 2,000 - 7 - -
Exercise of stock options 198,000 - 314 - -
Previously issued shares submitted in - - 14 (14) -
partial payment for options exercised
Repurchase of common stock - - - (3,215) -
Treasury stock retired (1,003,000) (1) (3,213) 3,213 -
Income tax benefit arising from the - - 179 - -
disqualifying disposition of
incentive stock options
Net income - - - - 204
---------- ---------- --------------- ---------- -----------
Balance at December 31, 1994 14,786,000 15 15,860 (16) 7,152
Shares issued as compensation 3,000 - 11 - -
Exercise of stock options 3,000 - 6 - -
Repurchase of common stock - - - (278) -
Treasury stock retired (148,000) - (294) 294 -
Net loss - - - - (6,906)
---------- ---------- --------------- ---------- -----------
Balance at December 31, 1995 14,644,000 $ 15 $ 15,583 $ - $ 246
(unaudited)
Shares issued for acquisition of
assets 1,540,000 - 3,998 - -
Net loss - - - - (1,658)
---------- ---------- --------------- ---------- -----------
Balance at August 31, 1996 16,184,000 $ 15 $ 19,581 $ - $ (1,412)
========== ========== =============== =========== =============
<FN>
The accompanying notes are a part ofthese consolidated financial statements.
</TABLE>
<PAGE>
USMX, INC. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. - The Company
USMX, INC. (the "Company") is a Delaware corporation
which engages in the exploration for, and development and
operation of precious metal properties. The Company also
evaluates base metal and non-metallic situations. The
Company conducts its operations directly and through various
operating subsidiaries. All references herein to the
Company include all subsidiaries of USMX, INC.
Note 2. - Summary of Significant Accounting Policies
Consolidation and basis of presentation
The consolidated financial statements include the
accounts of the Company and its wholly-owned and majority
owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in
consolidation. Management makes various estimates and
assumptions in determining the reported amounts of assets,
liabilities revenues and expenses, and in the disclosure of
commitments and contingencies. These estimates and
assumptions will change with the passage of time and the
occurrence of future events, and actual results may differ
from the estimates.
The accompanying interim consolidated financial
statements for the eight months ended August 31, 1996 and
1995, are unaudited, but in the opinion of management, all
adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of the results for
the interim periods presented have been included. Operating
results for the eight month periods ended August 31, 1996
and 1995, are not necessarily indicative of the results
which may be expected for the year ending December 31, 1996.
Cash and Cash Equivalents
The Company considers cash in banks and all highly
liquid investments, purchased with a maturity of three
months or less, to be cash equivalents.
Production Costs
Production costs incurred are charged to Deferred
mining and processing costs as incurred. Cost of gold sold
is based on the currently estimated life of mine average
cost. The amount carried in the Company's balance sheet for
Deferred mining and processing costs is the lower of the
difference between production costs incurred to date and the
amount charged to Cost of gold sold to date or net
realizable value.
Mineral Properties
The Company's policy is to charge to operations, costs
associated with identifying prospective mineral properties
and to capitalize the costs of acquiring, exploring and
developing unproven mineral properties. For properties
subsequently placed into production, the applicable
capitalized costs are amortized using the units-of-
production method, based on the ratio of tons of ore mined
or processed during the year to the estimated total proven
and probable ore reserves of the project.
Capitalized costs related to sold or abandoned
properties are charged against operations at the time the
property is sold or abandoned. Proceeds from rentals and
option fees relating to undeveloped mineral properties in
which the Company has an economic interest are credited
against capitalized property costs and no gain is recognized
until all costs have been fully recovered.
<PAGE>
Note 2. - Summary of Significant Accounting Policies
(continued)
The Company periodically reviews the carrying value of
its properties by comparing the net book value of each
property to the estimated undiscounted future cash flow from
the property. If the net book value exceeds the
undiscounted future cash flow, an impairment is recorded.
Changes in estimates and assumptions that underly
management's estimate of future cash flow from the Company's
mineral properties can materially impact future carrying
values and operating results.
Depreciation and Amortization
Mine buildings and equipment are depreciated using the
units-of-production method based on the ratio of tons of ore
mined or ounces of gold produced during the period to the
estimated total proven and probable reserves of the related
property. Vehicles, furniture and office equipment are
depreciated using the straight-line and the declining
balance methods over estimated useful lives of two to five
years. The cost of normal repairs and maintenance is
charged to operations as incurred. Significant expenditures
which increase the life of an asset are capitalized and
depreciated over the estimated remaining useful life of the
asset. Upon retirement or disposition of property and
equipment, related gains or losses are recorded in
operations.
Reclamation Costs
The Company records a liability for the estimated cost
to reclaim mined land by recording charges to production
costs for each ton of ore mined. The amount charged is
based on management's estimate of reclamation costs to be
incurred. The estimate is based on the work which is to be
performed as set forth in the reclamation plan approved by
the agencies responsible for granting the related mining
permits. The accrued reclamation liability is reduced as
reclamation expenditures are made. Certain reclamation work
is performed concurrently with mining. However, the
majority of reclamation expenditures is made after mining
operations cease.
Revenue Recognition and Hedging Transactions
The Company recognizes revenue as precious metals are
sold. In order to protect against the impact of falling
gold prices, the Company enters into hedging transactions,
the goal of which is to provide a minimum price for future
production, and allow the Company to take advantage of short
term increases in the gold price. Hedging transactions
include spot deferred and forward sales contracts and option
contracts. Contracted prices on spot deferred and forward
sales and options are recognized in gold sales as production
is delivered to meet the commitment.
Income Taxes
Prior to January 1, 1993, deferred income taxes were
provided for timing differences arising from recording
revenue and expenses in different periods for federal income
tax and financial reporting purposes using the deferral
method. Effective January 1, 1993, the Company adopted
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes,
("SFAS 109"). Under the asset and liability method of SFAS
109, deferred income taxes are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes
the enactment date.
By-product Revenues
Revenues from sales of by-products (principally silver)
are treated as a reduction of the cost of sales.
<PAGE>
Note 2. - Summary of Significant Accounting Policies
(concluded)
Net Income (loss) per Common Share
Net income (loss) per common share is based on the
weighted average number of shares of common stock and common
stock equivalents outstanding during the year, unless they
are anti-dilutive.
Reclassifications
Certain amounts in the accompanying consolidated
financial statements for the years ended December 31, 1995,
1994, and 1993, and the eight months ended August 31,
1995 have been reclassified to conform to the
classifications used at August 31, 1996.
Concentrations of Credit Risk
Future profitability is dependent upon completion of
construction of the Illinois Creek Mine within the period
and cost currently forecast and the Company's ability to
produce gold from the Illinois Creek Mine in quantities and
at costs consistent with those projected by the Company.
Future profitability is also dependent on the Company's
ability to locate, acquire, finance, construct and operate
additional mines at a cost that is less than the prevailing
price of the commodity being mined, of which there can be no
assurance.
Note 3. - Deferred mining and processing costs
Deferred mining and processing costs in the
accompanying consolidated statements of financial position
represent mining, crushing, pad loading and processing costs
associated with ounces of gold in various stages of
production as follows:
<TABLE>
<CAPTION>
Inventoried Ounces of Gold at
---------------------------------------
August 31, December 31,
1996 1995 1995 1994
------ ------- ------- -------
<S> <C> <C> <C> <C>
Gold bullion and dore - 6,000 - 1,200
Gold in process - 900 - 9,100
Gold in crusher
stockpile - - - -
------- ------- ---- -------
Total estimated ounces
in process - 6,900 - 10,300
======= ======= ====== =======
</TABLE>
During 1995 the Company recorded an impairment related
to Deferred mining and processing costs of $1,620,000 (see
Note 7.)
<PAGE>
Note 4. - Undeveloped Mineral Properties
The Company views exploration as an important means of
growth, and it typically actively explores several projects
annually. Deferred exploration costs at December 31, 1995
and 1994, and August 31, 1996 and 1995 associated with
undeveloped mineral properties in various countries were as
follows:
<TABLE>
<CAPTION>
Deferred Exploration Costs in Undeveloped Mineral
Properties
---------------------------------------------------------
August 31, December 31,
--------------------------- --------------------------
1996 1995 1995 1994
----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
United States $ 538,000 $ 886,000 $ 584 $2,000,000
Mexico 2,032,000 2,932,000 2,081,000 2,660,000
Chile 41,000 - 18,000 -
Ecuador 286,000 - 230,000 -
----------- ----------- ---------- ----------
Total $ 2,897,000 $ 3,818,000 $ 2,913,000 $4,660,000
=========== =========== =========== ==========
</TABLE>
Note 5. - Mineral Properties Under Development
At December 31, 1995 and 1994, and August 31, 1996 and
1995 the Company had two mineral properties in various
stages of feasibility and development as follows:
<TABLE>
<CAPTION>
Mineral Properties Under Development
August 31, December 31,
--------------------------- ---------------------------
1996 1995 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Illinois Creek,
Alaska $ 8,360,000 $ 2,720,000 $ 4,037,000 $ 955,000
Thunder
Mountain, Idaho 2,999,000 1,922,000 2,307,000 1,566,000
----------- ------------ ----------- -----------
Total $11,359,000 $ 4,642,000 $ 6,344,000 $ 2,521,000
=========== ============ =========== ===========
</TABLE>
Illinois Creek, Alaska
The Illinois Creek Project is a moderate grade, near
surface gold-silver deposit. It consists of two State of
Alaska Mining Leases, covering 62,480 acres. The project is
located in the western interior of Alaska approximately 57
miles southwest of Galena and 320 miles northwest of
Anchorage. The exploration and feasibility phases were
completed in 1995. Site development and construction
commenced in May 1996, with anticipated completion scheduled
for late October 1996.
Pursuant to an agreement (the "Agreement") with North
Pacific Mining Corporation ("NPMC"), the owner of the
underlying leases, the Company made initial payments to NPMC
of $100,000 in 1994 to evaluate the Illinois Creek property.
The Company was required to make an additional payment to
NPMC of $4 million in cash or common stock of the Company in
exchange for title to the underlying leases. The Company
chose to make the payment in stock and effective July 11,
1996, 1,540,663 shares of the Company's common stock were
issued to NPMC. The number of shares of common stock issued
to NPMC was based on a 30-day average of the price of the
Company's stock on The Nasdaq Stock Market equal to $4
million. As a result of this transaction, NPMC owns
approximately 9.5% of the Company's issued and outstanding
common stock. In addition to these payments, NPMC will
receive a 5% net returns royalty.
<PAGE>
Note 5. - Mineral Properties Under Development (Continued)
Also, if the Company delineates the existence of
additional ore reserves on the lease known as the Illinois
Creek Upland Mining Lease, which increases the total proven
ore reserves to at least one million ounces of equivalent
gold ore reserves beyond the mineralization stated in the
Company's February 1996 feasibility report, then NPMC will
have the right to elect to participate in subsequent mining
operations with respect to those additional reserves for a
25% working interest by reimbursing the Company 120% of
NPMC's 25% share of exploration, development and capital
costs incurred by the Company subsequent to February 1996
which are directly related to the delineation and/or
production of the additional reserves.
Pursuant to the Agreement, the Company has until
December 16, 1997, to achieve Commercial Production (as
defined) from the property. This period may be extended at
the option of the Company for two additional one year
periods upon payment by the Company of substantial advance
royalties for each one year extension. The Agreement
terminates on December 16, 1999, if the Company has not
achieved Commercial Production from the property by that
date.
Thunder Mountain, Idaho
The Company proposes to conduct gold and silver mining
activities at the Dewey Mine in the Thunder Mountain Mining
District in eastern Valley County, Idaho, approximately 100
miles northeast of Boise, Idaho. The proposed Dewey mining
operations are part of the Thunder Mountain Project and
consist of the development of a gold and silver ore deposit
located on patented mining claims administered by the Idaho
Department of Lands.
Effective July 9, 1993, the Company entered into an
Exploration and Option to Purchase Agreement ("Agreement")
with Dewey Mining Company, Thunder Mountain Gold, Inc. and
two individuals (the foregoing companies and individuals
described below collectively as "Owners"). The Owners
control approximately 5,500 acres in the Thunder Mountain
Mining District consisting of both patented and unpatented
mining claims. Pursuant to the terms of the Agreement, the
Company was granted the sole and exclusive right to explore
for and develop minerals on the property in exchange for
advance royalty payments totaling $100,000. In addition,
the Company committed to spend, and did spend, a minimum of
$500,000 evaluating the property prior to April 1, 1995.
The Agreement requires that, before the Company can put
the property into commercial production, it must prepare and
deliver to the Owners a feasibility study regarding the
project. In 1995 and 1996, the Company extended the term of
the agreement through April 30, 1997, by making additional
advance royalty payments in the aggregate amount of
$350,000. The Agreement further provides the Company with
the option for a final extension until April 30, 1998, in
exchange for an additional advance royalty payment of
$250,000. The advance royalty payments made may be recovered
by the Company for seven years after payment should the
Owners elect to receive royalties under options (a) or (c)
below. The Agreement terminates if the Company fails to
deliver a feasibility study to the Owners by the end of the
last year's extension under the Agreement or if the Company
exercises its right to terminate the Agreement at any time.
Within 90 days after the Company provides the Owners
with a feasibility study, the Owners may elect to (a)
participate in subsequent efforts to the extent of a 30%
working interest, plus receive a 1.5% royalty, or (b)
receive a 30% net profits interest, or (c) receive a 5% net
returns royalty from production. If the Owners elect to
receive a 5% net returns royalty, the Company will be
obligated to make advance royalty payments of: (I) $200,000
within thirty days after commencement of Commercial
Production (as defined in the Agreement), and $250,000 each
year thereafter. If the Owners fail to notify the Company
of their election prior to the end of the 90 day election
period they will be deemed to have made an election to
receive a 5% net returns royalty.
<PAGE>
Note 5. - Mineral Properties Under Development (Concluded)
The Agreement provides that, once the Owners have made
their election, the Company shall have one year within which
to achieve Commercial Production. If the Company fails to
achieve Commercial Production within one year, the Company
must either re-convey the property to the Owners or extend
by one year the time period within which Commercial
Production must commence by paying an advance royalty of
$200,000 to the Owners. If Commercial Production has not
begun by the end of the extension period, the Company may
obtain one final extension of one year within which to
achieve Commercial Production by paying the Owners an
additional advance royalty of $250,000.
In addition to the advance royalty payments and the
work commitments outlined above, the Company is obligated to
pay all fees necessary to maintain the unpatented mining
claims through August 31 of the calendar year in which the
extension year expires.
Note 6. - Developed Mineral Properties
The Company's investment in developed mining properties
at December 31, 1995 and 1994, and August 31, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
Developed Mineral Properties
August 31, December 31,
---------------------------- ----------------------
1996 1995 1995 1994
----------- ------------ --------- --------
<S> <C> <C> <C> <C>
Goldstrike Mine $ 365,000 $ 365,000 $ 365,000 $365,000
Montana Tunnels 556,000 556,000 556,000 556,000
----------- ------------ --------- --------
Total $ 921,000 $ 921,000 $ 921,000 $921,000
=========== ============ ======== ========
</TABLE>
Goldstrike Mine
Effective November 1, 1992, the Company acquired from
Tenneco Corporation (Tenneco), the stock of Tenneco Minerals
Company-Utah (TMC-Utah), owner and operator of the
Goldstrike Mine located approximately 35 miles northwest of
St. George, Utah. Soon after the acquisition, the name of
this wholly owned subsidiary was changed to USMX of Utah,
Inc. Gold production from the Goldstrike Mine since
November 1, 1992, has been 77,182 ounces, including 6,266
ounces of gold produced in 1995.
Mining operations at the Goldstrike Mine were completed
in October 1994. Leaching was completed in December 1995.
All disturbed areas at the Goldstrike Mine were reclaimed
during 1995 except for the heaps and the plant site.
Reclamation of one of the two heaps was begun near the end
of 1995. Rinsing of the second heap commenced in January
1996 and is expected to continue into 1997. Once rinsing of
the second heap is complete, the heap will be re-contoured,
covered with topsoil and seeded with various native plant
species. In addition, the process plant will be dismantled
and the plant site reclaimed.
<PAGE>
Note 6. - Developed Mineral Properties (Concluded)
Montana Tunnels
The Company owns a net profits interest in this
property and, accordingly, the carrying value has been
classified as a producing mineral property in the Company's
consolidated statements of financial position (see Note
13.). In June 1996, the Company and Pegasus Gold Inc.
("Pegasus") agreed to the sale of the Company's interest in
the Montana Tunnels property to Pegasus for $4,500,000. The
proceeds of the sale are included in notes payable in the
accompanying Consolidated Statements of Financial Position,
pending definitive documentation and approval of the
Company's stockholders (see Note 8.).
Note 7. - Asset abandonments, write downs and impairments
Goldstrike Mine
Gold production at the Company's Goldstrike Mine in
Utah declined sharply in August and September, 1995. This
decline in gold recovery triggered a reevaluation of the
estimated remaining recoverable gold ounces in the heaps.
It was determined that it was no longer economically
feasible to add cyanide to the system and the rinsing of the
heaps commenced in October 1995. As a result, the carrying
value of Deferred mining and processing costs was reduced to
the fair market value of the remaining gold bullion and dore
at the refinery and the Company recorded an impairment loss
of $1,620,000.
Cala Abajo
In October 1992, the government of Puerto Rico granted
an Exclusive Exploration Permit covering the Cala Abajo
copper-gold deposit to the Company's majority owned
subsidiary, Southern Gold Resources (USA), Inc. (Southern
Gold). In June 1995, the Commonwealth of Puerto Rico adopted
legislation which amended the island's mining law to
prohibit future mining of metallic deposits by open pit
methods. Although the Company is considering various
strategies and responses, the effect of the mining law, as
currently amended, is to render the Company's plan for
development of the Cala Abajo deposit uneconomic. As a
result, the Company reduced the carrying value of the
property to zero and recorded an impairment loss of
$1,039,000 during 1995.
Amargosa
During 1995 the Company wrote down the carrying value
of the Amargosa property by $1,000,000 to $315,000.
Although the property remains geologically promising, to
date, no significant economic mineralization has been
encountered. The Company anticipates further exploration of
the Amargosa property, possibly in joint venture with
another mining company.
Note 8. - Long Term Debt
<TABLE>
<CAPTION>
Long Term Debt
August 31, December 31,
------------------------ -------------------
1996 1995 1995 1994
------------ -------- -------- -------
<S> <C> <C> <C> <C>
Note payable
affiliate $4,500,000 $ - $ - $ -
Less:
current portion (720,000)
Payment (47,000)
Financing facility 22,000,000
Less:
current portion (4,500,000) - - -
------------- -------- --------- -------
Total long term debt $21,233,000 $ - $ - $ -
============ ======== ========= =======
</TABLE>
<PAGE>
Note 8. - Long Term Debt (Continued)
Note Payable Affiliate
During the second quarter of 1996 the Company arranged
for a $4.5 million, 8.75% fixed rate loan from Pegasus,
which owns approximately 29.8% of the Company's common
stock. The loan is repayable over a 50 month period
beginning June 1, 1996. The loan is collateralized by the
Company's royalty interest in Montana Tunnels. In lieu of
loan payments by the Company, Pegasus will retain the
$60,000 per month Montana Tunnels royalty payments that it
would otherwise make to the Company.
During the second quarter of 1996 the Company also
agreed with Pegasus to sell its net profits royalty interest
in the Montana Tunnels Mine to Pegasus for $4,500,000.
Pegasus is the owner and operator of the Montana Tunnels
Mine. The net profits royalty interest entitles the Company
to the greater of a 5% net profits royalty interest or
minimum advance royalties of $60,000 per month until certain
construction, land acquisition, associated financing and
other costs have been recovered by Pegasus ("Payback"), and
a 50% net profits royalty interest thereafter. Based on
information provided by Pegasus, the Company estimates that,
as of December 31, 1995, the remaining recoverable costs to
attain Payback were approximately $26,539,000. It is unclear
whether Payback will ever be achieved. Payback is dependent
upon several factors, including future metal prices,
production rates, and the life of the Montana Tunnels Mine.
Based on Pegasus' published reserves, the expected mine life
is in the range of 3 to 4 years. Since inception of the
contract, the Company has only received the monthly minimum
advance royalties.
Loan proceeds received by the Company from Pegasus will
be credited against the sales price at closing and the loan
will be extinguished. Closing of the transaction is subject
to completion of definitive documentation and approval of
the Company's stockholders. Because use of working capital
will not be required to extinguish this loan, the long-term
portion of the loan has not been classified as a current
liability in the accompanying condensed consolidated
statements of financial position as of August 31, 1996.
Financing Facility
On July 11, 1996 the Company closed a $22 million
financing facility with N M Rothschild & Sons Limited
("Rothschild"). The facility comprises a $19.5 million
project loan and a $2.5 million convertible loan. Proceeds
of the facility will be used to partially fund the
development of the Company's Illinois Creek Mine in Alaska.
Total capital costs of the Illinois Creek Project are
estimated to be $36.9 million. At August 31, 1996, the
Company has drawn down the full $22.0 million facility.
The $19.5 million project loan will bear interest,
payable quarterly, at 2.25% above the LIBOR until certain
tests related to project operations have been completed to
the satisfaction of the lender and 1.875% thereafter for the
remainder of the approximate four-year term of the loan.
Principal payments will be made in 7 amortized installments
on September 30 and December 31 of each year, commencing
September 30, 1997. The Company will be a guarantor of the
$19.5 million loan (which will remain secured by the
Illinois Creek Project assets) until it has been
demonstrated that the Illinois Creek Project is operating in
a manner satisfactory to Rothschild and that no defaults are
outstanding. There can be no assurance when, or if, this
will occur, and the Company could have a substantial debt
burden without other resources to make repayment. In
addition, the Company will be a continuing guarantor of the
covenant to comply with environmental laws.
<PAGE>
Note 8. - Long Term Debt (Concluded)
The $2.5 million convertible loan will bear interest at
2% above LIBOR and will be payable no less frequently than
semi-annually. The note may be converted into Common Stock
at the conversion price of $3.40 per share at the option of
the lender at any time during the approximate four-year term
of the note. The Company may also require conversion if the
note is not in default and the daily closing price of the
Common Stock exceeds $4.75 for 30 consecutive trading days.
A total of 735,294 shares of Common Stock (subject to
adjustment for certain events) will be reserved for issuance
by the Company upon conversion of the $2.5 million loan.
The convertible loan is due September 30, 2000.
The loan agreements include several financial and other
covenants, including the maintenance of certain operating
and financial ratios, limitations on or prohibitions of
dividends, indebtedness, liens, investments, mergers,
changes in capital structure and certain other items (see
Note 17.). Such restrictions could affect the Company's
operations and future plans.
Revolving Credit Facility
In order to provide a source of short-term financing,
the Company entered into a revolving credit agreement
("Agreement") with The Colorado National Bank of Denver
("Bank") effective as of June 24, 1992. Under the terms of
the Agreement, the Company may borrow up to $3 million at
the Bank's prime rate plus three quarters of a percent.
At December 31, 1995, 1994 and 1993, respectivly,
$1,051,000, $1,251,000 and $1,251,000 of this facility was
being used to secure letters of credit provided by the
Company as reclamation surety in connection with the
Goldstrike Mine in Washington County, Utah. The balance of
the facility was unused. The Agreement was terminated June
17, 1996.
Note 9. - Sales of Property and Equipment
Kinsley Mountain
In April 1994, the Company sold its interest in the
Kinsley Mountain Project in Elko County Nevada to Alta Gold
Co. ("Alta"). In April 1995, the Company received a final
cash payment of $400,000 and Alta restricted common stock
with a market value of $200,000 based on the average closing
price of the stock over the 30 trading days prior to
issuance. The payment was in addition to cash of $400,000
and Alta restricted common stock with a market value of
$200,000 previously received. The cash proceeds and
discounted value of the stock received were recorded as a
reduction to the carrying value of the property on the
Company's books. During 1995, the carrying value of the
property was reduced to zero and a $1,000 loss was recorded.
During 1996 all of the Alta common stock was sold for a
total of $1,281,000 and a gain of $961,000 was recorded.
The gain is included in other net income in the accompanying
consolidated statements of operations.
Alligator Ridge
In 1993, the Company sold all of its unpatented mining
claims, mill sites, fee lands, mineral leases, easements and
other interests in real property owned by it in the area
known as Alligator Ridge in White Pine County, Nevada, along
with all related equipment, machinery, goods, supplies and
other personal property used by the Company. The assets
were sold to the same buyer in two separate transactions for
a total of $20 million in cash plus assumption by the buyer
of all obligations and liabilities associated with or
arising out of the operation of the assets, including all
reclamation liabilities. The accompanying consolidated
statements of operations include the results of operations
of the assets sold through August 27, 1993, the date of
closing, and a gain from this sales of approximately $5.0
which is included in other net income.
<PAGE>
Note 10. - Stock Options
The Company has two stock option plans, the ("1987
Plan") and the Non-discretionary Plan for Non-Employee
Directors ("Directors' Plan"), which cover a total of
1,700,000 shares of common stock available for grant to
employees and directors of the Company.
Under the 1987 Plan, the Company may grant incentive
stock options as well as non-incentive stock options.
Incentive stock options granted under the 1987 Plan are
exercisable at prices equal to the market value of the
common stock at the date of grant. The option prices of non-
incentive stock options granted under the 1987 Plan may be
less than the market value of the common shares as of the
grant date. Options expire at such time as the Option
Committee of the Board of Directors determines, but no later
than ten years from the grant date.
The Directors Plan was established in 1992 to afford
non-employee directors an opportunity for investment in the
Company and the incentive advantages inherent in stock
ownership of the Company. Options granted under the
Directors' Plan are exercisable at prices equal to the
market value of the common stock at the date of grant and
are exercisable in full on the date of grant.
Shares acquired pursuant to the Directors' Plan may not
be sold, transferred or otherwise disposed of for a period
of at least six months following the date of grant. Under
the terms of the Directors' Plan, the directors who elected
to participate were each issued options to purchase 10,000
shares of the Company's common stock upon adoption of the
plan. Thereafter, each non-employee director who elects to
participate is automatically granted an option to purchase
10,000 shares of the Company's common stock upon joining the
Board. In addition, on October 1 of each year each
participant is automatically granted an option to purchase
an additional 5,000 shares. Options granted under the
Directors' Plan expire ten years from the date of grant
except that an option will expire, if not exercised, ninety
days after the optionee ceases to be a director of the
Company.
<PAGE>
Note 10. - Stock Options (Concluded)
Changes in stock options for the years ended December
31, 1993, 1994 and 1995, are as follows:
<TABLE>
<CAPTION>
Option Price Per
Shares Share
----------- ----------------
<S> <C> <C>
Outstanding at December 31,1992 1,073,200 $1.13-4.75
Exercised (630,150) 1.44-4.75
Granted 314,500 3.06-5.50
---------- ----------------
Outstanding at December 31,1993 757,550 $1.13-5.50
Exercised (198,300) 1.13-3.06
Expired or canceled (39,000) 3.06-5.50
Granted 275,000 2.69-4.13
---------- ----------------
Outstanding at December 31,1994 795,250 $1.16-5.50
Exercised (3,000) 2.06
Expired or canceled (791,750) (1) 1.16-5.50
Granted 1,137,250 (1) 1.16-5.50
---------- ----------------
Outstanding at December 31, 1995 1,137,750 (2) $1.16-5.50
<FN>
(1) During 1995, option terms to acquire 724,750
shares were extended to ten years from the
original date of grant. For accounting purposes
the extension was treated as the cancellation of
the existing options and the granting of new
options.
(2) Of the options outstanding at December 31, 1995,
options to acquire 826,250 shares were exercisable on that
date at an average option price of $2.90 per share. The
remaining options are exercisable on various dates between
March 1996 and October 1998.
</FN>
</TABLE>
Changes in stock options for the eight month periods
ended August 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
Option Price Per
Shares Share
----------- ----------------
<S> <C> <C>
Outstanding at December 31,1994 795,250 $1.16-5.50
Exercised (3,000) 2.06
Expired or canceled (791,750) 1.16-5.50
Granted 1,087,250 1.16-5.50
----------- ----------------
Outstanding at August 31, 1995 1,087,750 $1.16-5.50
----------- ----------------
Outstanding at December 31,1995 1,137,750 $1.16-5.50
Granted 781,000 $2.50-2.94
----------- ----------------
Outstanding at August 31, 1996 1,918,750 $1.16-5.50
----------- ----------------
</TABLE>
<PAGE>
Note 11. - Employees' Benefit Plans and Incentive Bonus
Arrangements
Effective July 1, 1987, the Company adopted an Employee
Savings and Investment Plan under section 401(k) of the
Internal Revenue Code, which covers all full-time employees.
The plan is a defined contribution plan and allows employee
contributions of up to ten percent of pre-tax compensation,
limited to the maximum deferral allowed by the Internal
Revenue Service.
The Company may contribute at least ten percent and not
more than one hundred percent of the amount contributed by
the employees, up to a maximum of six percent of pre-tax
compensation. For 1995, 1994 and 1993, the Board of
Directors has set the Company's contribution at fifty
percent of the first six percent of employee contributions.
For the years ended December 31, 1995, 1994 and 1993, the
Company's contributions were approximately $57,000, $59,000,
and $111,000, respectively. For the periods ended August
31, 1996 and 1995, the Company's contributions were
approximately $38,000 and $34,000, respectively.
Participants vest in the Company's contributions based upon
years of service, and are fully vested after four years of
service.
Effective January 1, 1992, the Company adopted an
incentive stock bonus plan for substantially all employees
involved in its Nevada operations. Under the terms of the
plan, a stock bonus was payable on the earlier of December
31, 1994, or the last day of the calendar quarter in which a
covered employee's employment with the Company was
terminated. For each calendar quarter worked by a covered
employee, the employee accrued a bonus of the number of
shares of the Company's stock determined by dividing five
percent of the employees' gross base salary for the quarter
by the average closing price per share for the last ten
trading days of the quarter. The cost associated with each
quarterly-determined bonus was treated as a non-cash cost of
production. For the years ended December 31, 1994 and 1993,
approximately $11,000 and $61,000, respectively, was accrued
under the plan. As a result of the sale of the Company's
Alligator Ridge area assets in August 1993, all but three of
the covered employees were terminated. The Company issued a
total of 27,810 shares of its common stock to the terminated
employees and 5,434 shares of its common stock to the three
remaining employees as final payments due under the
incentive stock bonus plan.
The Company has an Exploration Discovery Bonus Plan
under which bonuses are paid in cash or in shares of the
Company's stock to certain employees for discoveries of ore
deposits that the Company's Board of Directors determines
can be operated at a profit. The bonus is based on the net
present value of the deposit and is calculated using a
sliding scale ranging from 2% for deposits with a net
present value of up to $10 million, to 0.85% of the first
$100 million of net present value plus 0.25% of that portion
of the net present value of the deposit that exceeds $100
million. Under the terms of the plan, 70% of each discovery
bonus is divided equally among the Company's explorationists
and the remainder is to be shared among those individuals
designated by the Company's President as playing an
especially important role in the discovery. No bonuses were
paid in 1996, 1995 or 1994 under the plan. The Company paid
Exploration Discovery Bonuses totaling approximately $71,000
in 1993.
Note 12. - Commitments and Contingencies
Reclamation Surety
Pursuant to the mining reclamation and bonding
regulations of the State of Utah, Department of Natural
Resources and the Bureau of Land Management, in 1993 the
Company provided reclamation surety for the Goldstrike Mine
in the amount of $2,251,000. In October 1995, the Company
was advised that, as a result of the reclamation work
accomplished by the Company at the Goldstrike Mine, the
required surety had been reduced by approximately $514,000
to $1,737,000. The required surety is in the form of a
certificate of deposit in the amount of $800,000 and letters
of credit in the amount of $937,000. The certificate of
deposit is reflected in Other assets in the accompanying
Consolidated Statements of Financial Position.
<PAGE>
Note 12. - Commitments and Contingencies (Continued)
Pursuant to the mining reclamation and bonding
regulations of the State of Alaska, Department of Natural
Resources, the Company provided reclamation surety for the
Illinois Creek Mine in the amount of $1,575,000 in 1996.
The required surety is in the form of certificates of
deposit totaling $1,575,000 and is reflected in Other assets
in the accompanying Consolidated Statements of Financial
Position.
Hedging
As part of its gold hedging program the Company has
entered into agreements with a major financial institution
to deliver gold and silver. Realization under these
agreements is dependent upon the ability of the
counterparties to perform in accordance with the terms of
the agreement. As of August 31, 1996, the Company had
entered into forward sales contracts for 140,900 ounces of
gold for delivery at various dates through December 31, 1999
at an average selling price of $409 per ounce. Delivery
under these spot deferred contracts can be deferred at the
Company's option up to forty months depending on the
individual contract.
Further, the Company had written silver call options
expiring at various dates over the next forty months, which
if exercised, would become spot deferred contracts with
delivery deferred as previously described. At August 31,
1996 the Company had sold 900,100 ounces of silver call
option contracts all at a strike price of $5.50 per ounce
expiring on dates ranging from September 26, 1996 through
December 29, 1999. The aggregate unrealized excess of the
net market value of the Company's forward sales contracts
over the spot gold price of $386 per ounce as of August 31,
1996, is approximately $3,232,000.
Operating Leases
The Company leases office space, office equipment and
vehicles under operating leases which expire through 2001.
Effective as of June 15, 1992, the Company entered into
a new lease for its corporate offices in Lakewood, Colorado.
The lease was amended effective June 1, 1996, to provide for
additional office space and to extend the initial term of
the lease to May 31, 2001. The lease contains an option to
renew for an additional five year period at the market rate
in effect at the time of renewal. The lease provides for
base rent of $12,917 per month with annual increases each
year beginning June 14, 1997. In addition, the Company is
obligated to reimburse the landlord for the Company's
proportionate share of increases in real estate taxes and
operating expenses.
Effective as of July 1, 1996, the Company entered into
a new lease for its Alaska district offices in Anchorage,
Alaska. The term of the lease is three years, commencing
July 1, 1996, and ending June 30, 1999. The lease provides
for rent of $121,284 payable in equal monthly installments
of $3,369.
The following table sets forth the future minimum lease
payment obligations as of August 31, 1996:
Minimum
Lease
Year Payments
---- --------
1996 $100,000
1997 $298,000
1998 $249,000
1999 $191,000
2000 $173,000
2001 $76,000
<PAGE>
Note 12. - Commitments and Contingencies (Concluded)
Rent expense was $113,000, $139,000, and $303,000
for the years ended December 31, 1995, 1994, and 1993,
respectively. Rent expense was $101,000 and
$79,000 for the eight month periods ended August 31, 1996
and 1995, respectively.
Note 13. - Transactions With Affiliates
As of August 31, 1996, Pegasus owned 4,826,000 shares
(29.8%) of the Company's outstanding common stock. In
January 1986, the Company entered into a revised agreement
with Centennial Minerals Ltd., a subsidiary of Pegasus for
the development of the Montana Tunnels property. Pursuant
to the agreement, Pegasus developed the property, acquired a
100 percent working interest in the project, and commenced
mine and mill operations in March 1987. The operations at
Montana Tunnels achieved defined operating status on October
1, 1987. Under the agreement, the Company will receive the
greater of a minimum advance royalty of $60,000 per month or
a five percent net profits interest until Pegasus recovers
payout of capital and other defined costs (estimated by the
Company, based on information provided by Pegasus, to
approximate $26.5 million as of December 31, 1995).
During the second quarter of 1996 the Company agreed
with Pegasus to sell its net profits royalty interest in the
Montana Tunnels Mine to Pegasus for $4,500,000. Closing of
the transaction is subject to completion of definitive
documentation and approval of the Company's stockholders.
Loan proceeds in the amount of $4,500,000 previously
received by the Company from Pegasus will be credited
against the sales price at closing and the loan will be
extinguished (see Note 8.).
For each of the years ended December 31, 1995, 1994,
and 1993, the Company received $720,000 in royalty
income from the Montana Tunnels property. For the eight
month periods ending August 31, 1996 and 1995 the Company
received $360,000 and $480,000 respectively, in royalty
income from the Montana Tunnels property.
In March 1995, the Company acquired all of the
outstanding capital stock of Mega Minerals S.A., an
Ecuadorian company. The Company assumed obligations of
approximately $120,000, and agreed to pay the seller a 10%
net proceeds royalty on any production from the concessions
after recovery of all capital expenditures. A director and
principal shareholder of the seller is also a director of
the Company. The assets of Mega Minerals S.A. consist of
eight exploration concessions and the rights to acquire four
additional exploration concessions, all located in the
Nambija-Zamora gold belt of southern Ecuador.
<PAGE>
Note 14. - Income Taxes
Total income tax expense (benefit) for the years ended
December 31, 1995, 1994, and 1993, was $(118,000),
$(497,000), and $1,472,000 respectively. The
entire income tax benefit of $118,000 for the year ended
December 31, 1995, is the result of an adjustment to federal
income taxes receivable related to 1993 net operating losses
carried back to prior years. Income tax expense (benefit)
consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
---------- ---------- ----------
<S> <C> <C> <C>
Federal tax provision $(118,000) $- $(118,000)
State tax provision - - -
---------- ---------- ----------
Year ended December 31,1995 $(118,000) $- $(118,000)
========== ========== ==========
Federal tax provision $(416,000) $- $(416,000)
State tax provision (81,000) - (81,000)
---------- ---------- ----------
Year ended December 31, 1994 $(497,000) $- $(497,000)
========== ========== ==========
Federal tax provision $715,000 $640,000 $1,355,000
State tax provision 117,000 - 117,000
---------- ---------- ----------
Year ended December 31,1993 $832,000 $640,000 $1,472,000
========== ========== ==========
</TABLE>
For the year ended December 31, 1993, deferred income
tax expense of $640,000 results from the utilization of net
operating loss carryforwards previously recorded as a
deferred tax asset.
<PAGE>
Note 14. - Income Taxes (Continued)
The Company's effective tax rate for the years ended
December 31, 1995, 1994, and 1993, differs from the
federal statutory tax rate for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Provision for
Supreme Court
reversal of the
Hill Case - - 2.9%
Revision of prior
year's estimated tax 1.7% 211.9% 9.0%
Cost of sales for
tax purposes less
than financial
statements (9.0%) (184.5%) 22.8%
Exploration and
development
deducted for tax
purposes not for
financial
statements (40.4%) 77.4% (10.5%)
Royalty payments
deducted for tax
purposes not for
financial
statements - 22.3% -
Mineral property
disposal, tax gain
greater than
financial
statement gain 8.6% (44.4%) -
Statutory depletion
over cost basis - 16.2% (15.4%)
Use of alternative
minimum tax rate (.4%) 29.4% -
State provision and
other 7.2% 7.6% 1.2%
-------- -------- --------
1.7% 169.9% 44.0%
======== ======== ========
</TABLE>
<PAGE>
Note 14. - Income Taxes (Concluded)
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1995, 1994 and 1993
are presented below:
<TABLE>
<CAPTION>
Deferred tax assets: 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Reclamation liabilities,
accrued for financial
reporting purposes $ 439,000 $ 316,000 $ 639,000
Deferred mining and
processing costs, due to
additional costs deferred
for tax purposes. 90,000 197,000 -
Alternative minimum tax
credit carryforwards 157,000 157,000 1,365,000
Net operating loss
carryforwards 3,343,000 1,417,000 392,000
Other 8,000 4,000 4,000
--------- ---------- -----------
Total gross deferred tax
assets 4,037,000 2,091,000 2,391,000
Less valuation allowance (3,612,000) (365,000) (1,455,000)
--------- ---------- -----------
Total deferred tax assets 425,000 1,726,000 936,000
--------- ---------- -----------
Deferred tax liabilities:
Mineral properties,
principally due to the
capitalization of
exploration and
development costs for
financial reporting
purposes. (296,000) (1,635,000) (535,000)
Deferred mining and
processing costs, due to
additional costs deferred
for financial reporting
purposes, primarily
reclamation. - - (343,000)
Plant and equipment,
principally due to
accelerated tax
depreciation of certain
assets. (129,000) (91,000) (58,000)
--------- ----------- -----------
Total gross deferred tax
liabilities (425,000) (1,726,000) (936,000)
Net deferred tax asset --------- ----------- -----------
(liability) $ - $ - $ -
========= =========== ===========
</TABLE>
As of December 31, 1995, the Company has net operating
loss carryforwards for federal income tax purposes of
approximately $9,036,000 which are available to offset
future federal taxable income, if any, through 2010. In
addition, the Company has net operating loss carryforwards
for alternative minimum tax purposes of approximately
$5,081,000 which are available to offset future alternative
minimum taxable income, if any, through 2010.
As of August 31, 1996 and 1995, the income tax benefits
were computed using the expected annual effective income tax
rate. The effective rate varies from the statutory rate
primarily due to differences in tax and book treatment of
statutory depletion on mining properties.
<PAGE>
Note 15. - New Accounting Standards
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was
issued by the Financial Accounting Standards Board in
October 1995. SFAS 123 establishes financial accounting and
reporting standards for non-variable stock-based employee
compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or
services from non-employees. This statement establishes a
fair value based method of accounting for employee stock
options or similar equity instruments, and encourages all
entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it allows an
entity to continue to measure compensation cost for those
plans using the value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). Entities electing
to continue to follow APB 25 must make pro forma disclosures
of net income and earnings per share, as if the fair value
based method of accounting defined by SFAS 123 had been
applied. SFAS 123 is applicable to fiscal years beginning
after December 15, 1995. The Company currently accounts for
its equity instruments using the accounting prescribed by
APB 25. The Company does not currently expect to adopt the
accounting prescribed by SFAS 123; however, the Company will
include the disclosures required by SFAS 123 in future
annual financial statements.
Note 16. - Generally Accepted Accounting Principles in the
United States and Canada
The financial statements have been prepared in
accordance with accounting principles generally accepted in
the United States which differ in certain respects from
those principles that the Company would have followed had
its financial statements been prepared in accordance with
accounting principles generally accepted in Canada.
Differences which materially affect these consolidated
financial statements are:
Tax Considerations
Effective January 1, 1993, the Company adopted the
provisions of Statement of Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109), for its financial
statements presented under U.S. GAAP. The adoption of SFAS
109 changes the Company's method of accounting for income
taxes from the deferred method, as recorded under Canadian
GAAP, to an asset and liability approach. Under the asset
and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributed to
differences between the financial statement carry amounts of
existing assets and liabilities and their respective tax
bases.
Had the Company prepared its financial statements using
the accounting principles generally accepted in Canada there
would have been no differences relating to income taxes for
the years ended December 31, 1995, and 1994 or for the
eight month periods ended August 31, 1996 and 1995. For the
year ended December 31, 1993, the Company recorded total tax
expense of $1,472,000 and a tax benefit of $732,000 which
was reported as the cumulative effect of a change in
accounting principle, for the adoption of SFAS 109. Had the
Company prepared its financial statements using accounting
principles generally accepted in Canada the cumulative
effect of a change in accounting principle would not have
been recorded and tax expense would have been $1,472,000,
net loss, $1,870,000, and earnings per share, $.12.
<PAGE>
Note 16. - Generally Accepted Accounting Principles in the
United States and Canada (Concluded)
Convertible Debt Securities
The Company has recorded the $2,500,000 in convertible
debt due September 2000 using the accounting principles
generally accepted in the United States, whereby all related
amounts are presented as long term debt at August 31, 1996.
Had the Company prepared its financial statements using the
accounting principles generally accepted in Canada, as of
August 31, 1996 the Company would have recorded
approximately $1,127,000 of additional paid in capital
relating to the conversion rights of the Company's
$2,500,000 convertible debt due September 2000, with the
remaining $1,373,000 presented as long term debt.
Cash Flow Presentation
The Company has presented its financial statements
using the accounting principles generally accepted in the
United States, which require that the cash flow statement
exclude all non cash activities. Had the Company presented
its financial statements using accounting principles
generally accepted in Canada, for the eight months ended
August 31, 1996 the Company would have increased additions
to property, plant and equipment by $4,000,000 and proceeds
from the issuance of common stock by $4,000,000, for the
issuance of common stock to NPMC to acquire leasehold and
other property interests in the Illinois Creek Project.
Note 17. - Subsequent Event
Per the terms of the $22.0 million Rothschild
financing facility (see Note 8.), the Company agreed to
deposit $1.5 million in an escrow account by September 30,
1996. The Company was unable to comply with this
requirement and Rothschild agreed to waive this and certain
financial ratio requirements until December 31, 1996,
conditional upon the Company's agreements to, among other
things, (A) file this prospectus with the appropriate
Canadian securities regulatory authorities by November 1,
1996, and complete this offering by December 31, 1996, (B)
adjust the price at which Rothschild may elect to convert
the $2.5 million loan into the Company common shares to the
price at which the shares offered hereby are sold and (C) to
pay Rothschild a fee of US$100,000 which fee is payable upon
the first to occur of (i) a date upon which such payment can
be made without materially reducing the working capital
reasonably required by the Company for continued operations
or (ii) April 15, 1997. (see Note 8.)
<PAGE>
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
USMX, INC.:
We have audited the accompanying consolidated statements of
financial position of USMX, INC. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated 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.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of USMX, INC. and subsidiaries as of
December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes.
KPMG Peat Marwick LLP
Denver, Colorado
March 1, 1996
No person has been ANALYSIS OF FINANCIAL CONDITION
authorized to give any AND RESULTS OF OPERATIONS
information or to make any BUSINESS AND PROPERTIES
representations in connection DESCRIPTION OF CAPITAL STOCK
with this offering other than UNDERWRITING
those contained in this LEGAL MATTERS
Prospectus and, if given or EXPERTS
made, such other information FINANCIAL STATEMENTS F-1
and representations must not be
relied upon as having been
authorized by the Company.
Neither the delivery of this
Prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that there has been
no change in the affairs of the
Company since the date hereof
or that the information
contained herein is correct as
of any time subsequent to its
date. This prospectus does not
constitute an offer to sell or
a solicitation of an offer to
buy any securities other than
the registered securities to
which it relates or a
solicitation of an offer to buy
any securities other than the
registered securities to which
it relates or an offer to any
person in any jurisdiction
where such an offer would be
unlawful. This Prospectus does
not constitute an offer to sell
or a solicitation of an offer
to buy such securities in any
circumstances in which such
offer or solicitation is
unlawful.
TABLE OF CONTENTS
AVAILABLE INFORMATION
INFORMATION INCORPORATED BY REFERENCE
DISCLOSURE REGARDING FORWARD
LOOKING INFORMATION
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
PRICE RANGE OF COMMON STOCK
DIVIDEND POLICY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS AND PROPERTIES
DESCRIPTION OF CAPITAL STOCK
UNDERWRITING
LEGAL MATTERS
EXPERTS
FINANCIAL STATEMENTS
5,000,000 Shares
USMX, INC.
Common Shares
PROSPECTUS
November , 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering described in this Registration
Statement are as follows:
Registration Fee $3,966
Legal Fees and Expenses
Accounting Fees and Expenses 10,000
Transfer Agent Fees 10,000
Blue Sky Fees and Expenses 5,000
Printing and Mailing Expenses 30,000
Engineering Fees and Expenses 30,000
Miscellaneous 10,000
TOTAL $
Item 15. Indemnification of Directors and Officers.
The Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation.
In addition to the general indemnification section, Delaware law
provides further protection for directors under Section 102(b)(7) of the General
Corporation Law of Delaware. This section was enacted in June 1986 and allows a
Delaware corporation to include in its certificate of incorporation a provision
that eliminates and limits certain personal liabilities of a director for
monetary damages for certain breaches of the director's fiduciary duty of care,
provided that any such provision does not (in the words of the statute) do any
of the following:
"eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under section 174 of this
Title [dealing with willful or negligent violation of the
statutory provision concerning dividends and stock purchases
and redemptions], or (iv) for any transaction from which the
director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date
when such provision becomes effective."
It is provided in Article Twelfth of the Registrant's Certificate of
Incorporation that the personal liability of each director of the Registrant be
eliminated and limited to the full extent permitted under Delaware law,
including Section 102(b)(7) of the Delaware General Corporation Law.
With regard to employee benefit plans, the Delaware General
Corporation Law provides that a director's conduct for a purpose he reasonably
believed to be in the interest of the participants and beneficiaries of the Plan
is conduct satisfying the subject indemnity provision. A director's conduct for
a purpose that he did not reasonably believe to be in the interest of the
participants in or beneficiaries of the Plan shall be deemed as not satisfying
the indemnity provision.
The Registrant's Board of Directors is empowered to make other
indemnification as authorized by the Certificate Of Incorporation, Bylaws or
corporate resolution so long as the indemnification is consistent with the
Delaware General Corporation Law. Under Article VI of the Registrant's Bylaws,
the Registrant is required to indemnify its directors to the full extent
permitted by the Delaware General Corporation Law and any other provision of
Delaware law.
Item 16. Exhibits.
1 Form of Underwriting Agreement with Newcrest Capital Corp.
(to be filed by amendment)
4(a) Specimen Common Stock Certificate previously filed as
an exhibit to the Company's Registration Statement on Form S-3
(No. 33-19699) and incorporated herein by this reference.
5 Opinion of Bearman Talesnick & Clowdus Professional
Corporation (to be filed by amendment).
10.1 Agreement, dated January 1, 1986, between the Company
and Centennial Minerals Ltd., previously filed as Exhibit 10.17
to the Company's Report on Form 10-K for the year ended May 31,
1986, is incorporated herein by this reference.
10.2 Amendment of Agreement and Deed dated July 15, 1991, by
and between Montana Tunnels Mining, Inc., USMX, INC, and USMX of
Montana, Inc., previously filed as an exhibit to the Company's
Report on Form 10-K for the year ended December 31, 1991, is
incorporated herein by this reference.
10.3 Non-Discretionary Stock Option Plan, previously filed
as an Exhibit to the Company's Report of Form 10-K for the year
ended December 31, 1991, is incorporated herein this reference.
10.4 Asset Purchase Agreement, dated June 11, 1993, between
the Company and Placer Dome U.S. Inc., as amended, previously
filed as an Exhibit to the Company's Report on Form 10-K for the
year ended December 31, 1993, is incorporated herein by this
reference.
10.5 Employment Agreement, dated July 16, 1993, between
the Company and James A. Knox, previously filed as an Exhibit to
the Company's Report on Form 10-K for the year ended december 31,
1993, is incorporated herein by this reference.
10.6 Exploration and Option to Purchase Agreement, dated
effective July 9, 1993, between the Company and Dewey Mining
Company and Thunder Mountain Gold, Inc., Ronald C. Yanke and
Donald J. Nelson, previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December 31, 1994, is
incorporated herein by this reference.
10.7 Purchase and Sale Agreement, dated April 14, 1994,
among the Company, Cominco American Resources Incorporated and
Alta Gold Co., previously filed as an Exhibit to the Company's
Report on Form 10-K for the year ended December 31, 1994, is
incorporated herein by this reference.
10.8 Agreement, dated effective December 16, 1994, between
the Company and North Pacific Mining Corporation, previously
filed as an Exhibit to the Company's Report on Form 10-K for the
year ended December 31, 1994, is incorporated herein by this
reference, and Letter dated February 5, 1996, amending the
Agreement dated effective December 16, 1994, between the Company
and North Pacific Mining Corporation, previously filed as an
Exhibit to the Company's Report on Form 10-K/A for the year ended
December 31, 1995, are incorporated herein by this reference.
10.9 Post-Termination Agreement, dated February 16, 1996,
between the Company and Bull Valley L.L.C., previously filed as
an Exhibit to the Company's Report on Form 10-K for the year
ended December 31, 1995, is incorporated herein by this
reference.
10.10 Exploration Discovery Bonus Plan, dated effective
September 1, 1989, previously filed as an Exhibit to the
Company's Report on Form 10-K for the year ended December 31,
1995, is incorporated herein by this reference.
10.11 Mine Services and Earthworks Contract, dated
January 19, 1996, between the Company and D.H. Blattner & Sons,
Inc., previously filed as an Exhibit to the Company's Report on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by this reference.
10.12 Purchase and Sale Agreement, dated March 20, 1995,
among the Company, Mega Metals, Inc.; Mega Minerals S.A.; Greg
Pusey, John Dreier and Gary McAdam, previously filed as an
Exhibit to the Company's Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by this reference.
10.13 Credit Agreement, dated July 11, 1996, between
USMX of Alaska, Inc. and NM Rothschild & Sons Limited, previously
filed as an Exhibit to the Company's Report on Form 8-K filed on
July 24, 1996 is incorporated herein by this reference.
10.14 Credit Agreement, dated July 11, 1996, between the
Company and NM Rothschild & Sons Limited, previously filed as an
Exhibit to the Company's Report on Form 8-K filed on July 24,
1996 is incorporated herein by this reference.
10.15 Guaranty of the Company to NM Rothschild & Sons
Limited, dated July 11, 1996, previously filed as an Exhibit to
the Company's Report on Form 8-K filed on July 24, 1996 is
incorporated herein by this reference.
10.16 Hedging Agreement between USMX of Alaska, Inc. and
NM Rothschild & Sons Limited, previously filed as an Exhibit to
the Company's Report on Form 8-K filed on July 24, 1996 is
incorporated herein by this reference.
10.17 Registration Rights Agreement, dated July 11,
1996, between the Company and NM Rothschild & Sons Limited,
previously filed as an Exhibit to the Company's Report on Form 8-
K filed on July 24, 1996 is incorporated herein by this
reference.
10.18 Letter Agreement dated October 23, 1996 between
the Company and NM Rothschild & Sons Limited.
10.19 Letter Agreement, dated May 8, 1996, as amended by
letter agreement dated June 20, 1996, between the Company and
Pegasus Gold Corporation.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Roscoe Postle Associates Inc.
23.3 Consent of Bearman Talesnick & Clowdus Professional
Corporation.
24 Power of Attorney.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement;
(iii)to include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any material
change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 and are incorporated by reference to the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising out of the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liability (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(d) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the Registrant certifies
that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-
3 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of
Lakewood, State of Colorado, on October 30, 1996.
USMX, INC.
(Registrant)
Date: October 30, 1996 /s/ Donald P. Bellum
Donald P. Bellum,
President
As filed with the Securities and Exchange Commission on October , 1996
Registration No.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
USMX, INC.
(Exact name of registrant as specified in charter)
Delaware USMX, INC. 84-1076625
(State or other 141 Union Blvd., Suite 100 (I.R.S. Employer
jurisdiction of Lakewood, CO 80228 Identification No.)
incorporation or
organization) (303) 985-4665
(Address of principal
executive offices)
Donald P. Bellum
USMX, INC.
141 Union Blvd., Suite 100
Lakewood, CO 80228
(303) 985-4665
(Name, address, and
telephone
number of agent for
service)
EXHIBITS
INDEX TO EXHIBITS
NUMBER DESCRIPTION
10.18 Letter Agreement,dated October 23, 1996, between the
Company and NM Rothschild & sons Limited
10.19 Letter Agreement, dated May 8, 1996, as amended by Letter
Agreement, dated June 20, 1996, between the Company
and Pegasus Gold Corporation.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Bearman Talesnick & Clowdus Professional
Corporation
23.3 Consent of Roscoe Postle Associates Inc.
24 Power of Attorney
N M Rothschild & Sons Limited
New Court, St. Swithin's Lane, London EC4P 4DU
USMX, INC.
USMX of Alaska, INC.
141 Union Blvd., Suite 100
Lakewood, CO 80228
29th October 1996
Gentlemen,
ILLINOIS CREEK FINANCING
This letter sets forth an agreement among NM Rothschild &
Sons Limited (NMR), USMX, INC. (USMX) and USMX of
Alaska, INC.(USMXAK) concerning the credit facilities
established by NMR for the Illinois Creek Project pursuant
to the following Credit Agreements (together for the Credit
Agreements):
1. The Credit Agreement between NMR as Lender and USMX as
Borrower dated as of July 11, 1996 (the "USMX Credit
Agreement")
2. The Credit Agreement between NMR as Lender and USMXAK
as Borrower dated as of July 11, 1996 (the "USMXAK Credit
Agreement")
1. Defined Terms. Capitalised terms used in this letter
agreement which are not defined herein will have the
meanings given to them in the Credit Agreements.
2. Waiver of Existing Events of Default. An Event of
Default is currently outstanding under the Credit Agreement
and under the Loan Documents associated therewith, in that
USMX has failed to deposit US$1,500,000 in the Proceed
Account contemplated by the USMXAK Credit Agreement. In
addition, as a result of the actions contemplated by
Paragraph 3.b. below, USMX will not be in compliance with
the financial covenants set forth in section 11 of the USMX
Guaranty. Both such Events of Default are referred to
together as the "Existing Events of Default".
NMR hereby agrees to waive the Existing Events of
Default (and only the Existing Events of Default)
until December 31, 1996, and not to take any actions
permitted by the Credit Agreements or other Loan
Documents based on the Existing Events of Default,
subject to the terms and conditions set forth in
this letter agreement.
3. Conditions of Waiver. The foregoing waiver of the
Existing Events of Default is conditioned upon compliance by
USMX and USMXAK, respectively, with each of the following
conditions:
a. Stock Offering, etc. By not later than November 1,
1996 USMX (a) will prepare and file with appropriate
securities authorities in Canada a prospectus for a public
offering in Canada of common stock of USMX with project net
proceeds to USMX of not less than US$9,000,000, and copies
thereof will be provided to NMR; (b) will cause Newcrest
Capital the underwriter, or other underwriter for such
offering, to provide a comfort letter addressed to NMR to
the effect that such underwriter believes that such stock
offering can be completed by December 31, 1996; and (c) by
December 31, 1996, USMX will complete such offering and will
deposit in the Proceeds Account US$1,500,000 in accordance
with the requirements of the Credit Agreements, In addition,
if USMX makes any other disposition of shares of common
stock or other equity interests in USMX, or otherwise
realises any material cash proceeds from sale or other
disposition of assets, or if USMXAK sells any royalty or
other interest in its properties or assets or otherwise
realises any material cash proceeds from sale or other
disposition of assets, fifty (50%) of the first US$1,000,000
of net proceeds therefrom and one hundred (100%) of net
proceeds therefrom in excess of US$1,000,000 will promptly
be deposited in the Proceeds Account until US$1,500,000 has
so been deposited in the Proceeds Account by USMX. USMX,
USMXAK and NMR agree that no sale of a royalty or other
property or revenue interest may be made with respect to the
properties included in the Illinois Creek Project without
the prior consent of NMR, which may be granted or withheld
at NMR's sole discretion.
b. USMXAK Loans Previously Advanced. NMR has previously
Advanced to USMXAK certain funds pursuant to the USMXAK
Credit Agreement. A portion of such Advances in the
approximate amount of US$7,500,000 remains on deposit in the
Proceeds Account. Promptly after execution of this
agreement, (I) NMR permit the distribution of approximately
US$2,400,000 from the Proceeds Account in the form of checks
in amounts and payable to the Persons identified in
Attachment 1 hereto; and (ii) US$4,500,000 of the funds in
the Proceeds Account will be transferred by USMXAK and NMR
from the Proceeds Account to NMR. Except for interest which
has accrued on such US$4,500,000 from the date Advanced by
NMR through the date such funds are transferred to NMR, such
funds will be treated as if they had not previously been
Advanced, and such funds will remain available to be
Advanced to USMXAK under the USMXAK Credit Agreement, in
accordance with all of its terms and conditions. The
remaining credit balance of approximately US$600,000 in the
Proceeds Account and all additional Advances under the
USMXAK Credit Agreement will be available for disbursement
to USMXAK from the Proceeds Account in accordance with the
terms and conditions of the USMXAK Credit Agreement.
c. USMXAK Proceeds Account. USMX and NMR will establish
an additional Proceeds Account for USMX (the "USMX Proceeds
Account"), and USMX will promptly deposit US$925,000 in the
USMX Proceeds Account. Provided no Events of Default (other
than those waived by NMR pursuant hereto) are outstanding
and continuing under the USMX Credit Agreement, credit
balances in the USMX Proceeds Account will be distributed to
USMX in accordance with the budget appended hereto as
Attachment 2 or as otherwise agreed by USMX and NMR.
d. Modification of Stock Conversion Price. USMX and NMR
will modify the USMX Credit Agreement to provide that the
price at which NMR may elect to convert Loans under the USMX
Credit Agreement in to common stock is sold pursuant to the
public offering contemplated in clause a. above, (or at any
other price at which such common stock is sold by USMX in a
private placement acceptable to NMR), or, in the absence
thereof by December 31, 1996, at the average closing market
price of the common stock quoted by NASDAQ for the ten
trading days preceding such date.
e. Arrangements for NMR Monitoring of Illinois Creek
Project Activities. NMR and Rothschild Denver will
establish arrangements for monitoring of completion of the
Illinois Creek Project and the management and payments of
costs and expenses associated therewith. Such arrangements
will involve independent consultants and representatives of
Rothschild Denver, Inc. and NMR working together to develop
and approve a working plan and budget, including a specific
list of vendors, suppliers and other creditors of the
Illinois Creek Project to be paid from the funds available
for borrowing under the USMXAK Credit Agreement. Such
activities will include participation by NMR in the decision
concerning the date at which the Project should be suspended
for the winter season.
f. NMR Compensation. In consideration for the waiver of
the Existing Events of Default and in recognition of the
additional risk being assumed by NMR pursuant hereto, USMX
and USMXAK jointly and severally agree to pay NMR a fee of
US$100,000, which fee will be payable on the firs to occur
of (i) a date upon which such payment can be made without
materially reducing the working capital reasonably required
by USMX and USMXAK for continued operations or (ii) April
15, 1997.
g. Definitive Agreements. NMR, USMX and USMXAK will
execute definitive agreements incorporating the foregoing
terms not later than November 1, 1996 or such later date as
may be approved by NMR in its sole discretion. Any failure
to complete and execute such definitive agreements by such
date will constitute an Event of Default under each of the
Credit Agreements.
4. General. This letter agreement is binding on and
enforceable against NMR, USMX and USMXAK, and their
respective permitted successors and assigns. This Agreement
constitutes an amendment and revision of the Loan Documents
in accordance with the foregoing terms.
5. Conditions. This letter agreement will be effective
only upon satisfaction of each of the following conditions
by USMX and USMXAK by not later than Tuesday, October 29,
1996.
a. execution hereof by USMX and USMXAK and return of a
copy hereof as so executed to Rothschild Denver Inc;
d. delivery of a certificate of an officer of USMX and
USMXAK, in form reasonably acceptable to Rothschild Denver
Inc., confirming the approval of this letter agreement by
the respective board of directors of USMX and USMXAK, which
approval may be effected by action of the respective
executive committees are so authorised to act, and appemding
copies of the resolutions adopted by such boards of
directors (or such executive committees, as applicable)
providing such approval;
c. delivery if an opinion of counsel of USMX and USMXAK,
in form reasonably acceptable to Rothschild Denver Inc.,
confirming the due authorisation, execution and delivery of
this letter agreement by USMX and USMXAK, and confirming
that this letter agreement is binding on and enforceable
against USMX and USMXAK in accordance with its terms
Yours Sincerely
Michael A. Price William Lamarque
Director Director
Agreement confirmed this day of October,
1996.
USMX, INC.
By:
Donald P. Bellum
President
Agreement confirmed this day of October,
1996.
USMX of ALASKA, INC.
By:
Donald P. Bellum
President
May 8, 1996
Don Nilson
USMX, INC.
141 Union Blvd., Suite 100
Lakewood, CO 80228
Dear Don:
Pursuant to our conversation and negotiations, please find
attached the terms and conditions for the proposed loan from
Pegasus Gold Corporation, a US Company, to USMX, INC. and
all its subsidiaries with an interest in Montana Tunnels. I
have made all material changes suggested by your last fax.
In addition, since this document will memorialize the terms
of and conditions to the loan and will not be subject to
further documentation, changes have been made from the
previous draft pursuant to recommendations of counsel.
Since it is my understanding that the first lien security
interest cannot be provided to Pegasus until certain
financing arrangements are released, an additional event of
default has been added requiring the lien be perfected by
June 15, 1996. I have also changed the closing date to
Friday, May 10, 1996. Schedule 1 will be updated and faxed
to you Thursday.
If the attached document reflects your understanding of the
agreement between Pegasus Gold Corporation and USMX, INC.,
and all its subsidiaries with an interest in Montana
Tunnels, the please sign below on behalf of those companies
and attach appropriate resolutions authorizing this
transaction.
Sincerely,
The undersigned agrees to be bound by the Terms and
Conditions attached hereto and incorporated herein by
reference
USMX, INC. and relevant subsidiary companies as borrower
By:
Title
Terms and Conditions
Lender: Pegasus Gold Corporation ("Pegasus")
Borrower: USMX, INC. and all its subsidiaries and
affiliates with an interest in that
certain property, commonly known as
"Montana Tunnels"
Amount (consideration): U.S. $2.5 million
Security: Perfection of a 1st lien security
interest on any and all interest of
Borrower(s) in Montana Tunnels,
including interest evidenced by an
agreement dated January 1, 1986, between
U.S. Minerals Exploration Company and
Centennial Minerals Inc. ("Agreement")
Maturity: July 1, 2000
Pricing: 8.75% fixed rate payable monthly in
arrears computed on the basis of twelve
30-day months in a 360 day year
Closing and
Takedown of Funds: May 10, 1996
Use of Proceeds: For working capital requirements prior
to raising or generating new capital
Payment Terms: Amortizing loan by payments of $60,000
per month pursuant to the attached
Schedule 1. In lieu of payments,
Pegasus will retain the $60,000 royalty
payments, which it would otherwise make
under the Agreement. Should royalty
payments under the Agreement no longer
be due from Pegasus, the $60,000 per
month payments under this loan shall
remain payable by USMX until the loan is
repaid in full
Mandatory Repayment Principal and accrued interest will be
of Principal & Interest: repaid upon the earlier of:
USMX receipt of and to the extent
(up to the amount outstanding) that
gross proceeds from any financing
(except the Rothschild financing for the
Illinois Creek project) exceed $7.5
million
sale by USMX of any interest in
Montana Tunnels
Optional Prepayment: Prepayable at any time at par plus
accrued interest with no prepayment
penalty
Events of Default: Events of Default, any of which will
cause automatic acceleration of maturity,
including the following:
(a) non-payment of principal and
interest when due;
(b) cross default for non-payment of
other obligations for money borrowed
(other than Subordinated Debt) beyond any
applicable grace period, or any covenant
default with respect to such an
obligation which could cause or permit
acceleration, if the aggregate amount of
such obligations exceeds $2 million;
(c) assignments for the benefit of
creditors, appointment of trustee,
receiver, custodian or similar official,
and voluntary or involuntary bankruptcy
where certain orders, judgments or
decrees remain in effect and unstayed for
more than 60 days;
(d) a final judgment in excess of $2
million is not discharged or stayed
within 60 days;
(e) an order, judgment or decree
decreeing the dissolution of the Company,
which remains unstayed and in effect for
more than 60 days; and
(f) The failure to perfect a 1st lien
security interest as provided above
("Security") by June 15, 1996.
(Via Facsimile)
June 20, 1996
Mr. Donald P. Bellum
141 Union Blvd., Suite 100
Lakewood, CO 80228
Dear Mr. Bellum:
Reference is hereby made to the letter agreement, dated May
8, 1996, as amended (the "Loan Agreement"), between Pegasus
Gold Corporation ("Pegasus") and USMX, INC. ("USMX")
pursuant to which Pegasus loaned $2,500,000 (the "Loan") to
USMX and certain of its subsidiaries and affiliates on the
terms and conditions set forth therein.
Pegasus hereby agrees to increase the principal amount of
the Loan to $4,500,000. Pegasus will provide USMX within
twenty-four hours of receipt of the countersigned copy of
this letter. On the date that Pegasus provides such amount
to USMX, the Loan Agreement shall be deemed to be amended
such that the principal amount of the Loan shall be
$4,500,000. A revised Schedule 1 to the Loan Agreement
setting forth the amortization payments with respect to the
Loan will be forwarded shortly. All of the other terms and
conditions contained in the Loan Agreement shall continue in
full force and effect and shall apply to the increased Loan.
Pegasus hereby further agrees to purchase from USMX and USMX
of Montana, Inc. ("USMX/Montana", and together with USMX
being referred to as "Sellers"), and, subject to approval by
USMX shareholders, the Sellers hereby agree to sell and
assign to Pegasus all of the Sellers' rights, title and
interest in and to the Agreement, dated as of January 1,
1986, by and between USMX and Montana Tunnels Mining, Inc.
(formerly known as Centennial Minerals Inc.), a Nevada
corporation ("MTMI"), and the Special Warranty Deed and
Assignment with Reserved Royalties, dated June 6, 1987, by
USMX/Montana to MTMI, on the following terms and conditions:
1. Such purchase shall be consummated, pursuant to
documentation in form, scope and substance satisfactory to
Pegasus and USMX, within five (5) days of USMX shareholder
approval. The failure of such purchase to be consummated on
or before such date shall constitute an Event of Default
under the Loan Agreement.
2. As the sole consideration for such purchase, Pegasus
will forgive (effective as of the dare such purchase in
consummated) USMX's obligation to repay the loan.
3. Sellers agree to use their best efforts to put this
proposal before the USMX shareholders and obtain shareholder
approval.
Please evidence your agreement to the foregoing by signing
this letter on behalf of USMX and USMX/Montana and returning
such signed letter to my attention, along with appropriate
resolutions of the Board of Directors of USMX and
USMX/Montana authorizing the transactions contemplated
hereby.
Sincerely,
Robert A. Lonergan
AGREED AND ACCEPTED;
USMX, INC.
By
Title
USMX OF MONTANA, INC.
By
Title
cc: W.G. Nennecker
P.S. Baker
J.P. Geyer
Robert Bearman (via facsimile)
Steve Green (via facsimile)
Consent of Independent Auditors
The Board of Directors
USMX, Inc.:
We consent to the use of our report included herein and to
the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
October 28, 1996
CONSENT OF COUNSEL
The undersigned does hereby consent to the use of its
name wherever appearing in the Registration Statement and
related Prospectus, including "Legal Matters.'
However, the undersigned disclaims any responsibility
as an expert as regards this Registration Statement except
insofar as the Registration Statement may relate to any
written legal opinion from the undersigned.
BEARMAN TALESNICK & CLOWDUS
Professional Corporation
Denver, Colorado
October 31, 1996
CONSENT OF ROSCOE POSTLE ASSOCIATES INC.
We hereby consent to the references to Roscoe Postle
Associates Inc. as experts in mining, geology and reserves
determination in the Registration Statement (Form S-2) and
related Prospectus of USMX, Inc. for the registration of its
common stock and to all references to our Firm included in
this Registration Statement.
Very truly yours,
ROSCOE POSTLE ASSOCIATES INC.
Toronto, Ontario
October 31, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the
undersigned officers and directors of the
Registrant, by virtue of their signatures to this
Registration Statement appearing below, hereby
constitute and appoint James A. Knox and Donald P.
Bellum, and each of them, with the full power of
substitution, as attorney-in-fact, in their names,
place and stead, to execute any and all amendments
to this Registration Statement in the capacity set
forth opposite their names and hereby ratify all
that said attorneys-in-fact may do by virtue
hereof.
Pursuant to the requirements of the
Securities Act of 1933, as amended, this
Registration Statement has been signed below by
the following persons in the capacities indicated
on the date set forth opposite their respective
signatures.
Date: October 30, 1996 /s/ Donald P. Bellum
Donald P. Bellum, Chief Executive Officer,
Chairman of the Board of Directors and
Director
Date: October 30, 1996 /s/ John R. Haigh
John R. Haigh, Vice President-Intrernational
Investor Relations and Public Affairs
Date: Octocer 30, 1996 /s/ Paul L. Blair
Paul L. Blair, Vice President - Operations
for Latin America
Date: October 30, 1996 /s/ Dennis L. Lance
Dennis L. Lance, Vice President -
Exploration
Date:
Donald E. Nilson, Vice President - Finance,
Secretary, Chief Financial Officer
Date:
Paul B. Valenti, Vice President - Operations
Date: October 30, 1996 /s/ Thomas M. Smagala
Thomas M. Smagala, Treasurer
Date: October 30, 1996 /s/ Daniel J. Stewart
Daniel J. Stewart, Controller
Date:
George J. Allen, Director
Date: October 31, 1996 /s/ Philip S. Baker
Phillips S. Baker, Director
Date: October 31, 1996 /s/ James P. Geyer
James P. Geyer, Director
Date: October 31, 1996 /s/ Terry P. McNulty
Terry P. McNulty, Director
Date: October 31, 1996 /s/ Werner G. Nennecker
Werner G. Nennecker, Director
Date: October 30, 1996 /s/ Gregory Pusey
Gregory Pusey, Director
Date: October 30, 1996 /s/ Robert Scullion
Robert Scullion, Director
