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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
-------------------- ----------------------
Commission File Number: 0-13374
WHARF RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
CANADA 81-0348170
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
SUITE 2700, 145 KING STREET WEST
TORONTO, ONTARIO, CANADA M5H 1J8
(Address of principal executive offices)
(416) 865-0326
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 19,229,504 Common Shares outstanding at October 25, 1996.
1
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WHARF RESOURCES LTD.
FORM 10-Q SEPTEMBER 30, 1996
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
- September 30, 1996 and December 31, 1995 3
Consolidated Statements of Earnings (Unaudited)
- Three and nine months ended September 30, 1996
and 1995 4
Consolidated Statements of Cash Flows (Unaudited)
- Three and nine months ended September 30, 1996
and 1995 5
Notes to Consolidated Financial Statements
(Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Takeover Bid 8
Financial Results 8
Liquidity and Capital Resources 9
Operations 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WHARF RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS OF UNITED STATES DOLLARS)
As at As at
September 30, December 31,
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 27,636 $ 22,988
Gold bullion inventory 716 604
Inventories 4,184 8,541
Prepaid expenses and other 1,747 1,400
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34,283 33,533
DEPOSITS FOR RECLAMATION COSTS 3,369 2,412
MINING INTERESTS, NET 31,270 33,914
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$ 68,922 $ 69,859
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------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 6,291 $ 5,551
Current portion of long-term debt 3,574 3,568
Exchangeable preferred shares 115 115
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9,980 9,234
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LONG-TERM DEBT 151 2,080
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PROVISION FOR RECLAMATION COSTS
AND OTHER LIABILITIES 4,084 1,769
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EXCHANGEABLE PREFERRED SHARES 2,406 2,509
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SHAREHOLDERS' EQUITY
Capital stock 37,302 37,302
Retained earnings 14,999 16,965
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52,301 54,267
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$ 68,922 $ 69,859
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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WHARF RESOURCES LTD.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Bullion revenue $ 12,171 $ 14,030 $ 34,821 $ 36,427
--------- --------- --------- ---------
Expenses
Operating
Production costs 7,535 8,264 24,318 22,877
Severance taxes 635 468 1,260 942
Royalties 412 409 1,049 1,003
Corporate administration 423 336 1,202 1,049
Depreciation and depletion 1,221 2,162 5,149 5,670
Exploration 49 90 142 277
Writedown of Golden Reward Mine 3,226
--------- --------- --------- ---------
10,275 11,729 36,346 31,818
--------- --------- --------- ---------
Earnings (loss) from operations 1,896 2,301 (1,525) 4,609
--------- --------- --------- ---------
Other income (expense)
Interest and other income, net 398 322 1,174 1,043
Interest expense
Long-term debt (74) (162) (311) (557)
Dividends on and discount on redemption
of exchangeable preferred shares (26) (44) (92) (122)
Other (3) (3) (10) (10)
--------- --------- --------- ---------
295 113 761 354
--------- --------- --------- ---------
Earnings (loss) before income taxes 2,191 2,414 (764) 4,963
Income taxes 280 565 240 1,194
--------- --------- --------- ---------
Earnings (loss) for the period $ 1,911 $ 1,849 $ (1,004) $ 3,769
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings (loss) per common share $ 0.10 $ 0.09 $ (0.05) $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average number of
common shares outstanding (000's) 19,230 19,230 19,230 19,229
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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WHARF RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash provided by (used in)
Operating activities
Earnings (loss) for the period $ 1,911 $ 1,849 $ (1,004) $ 3,769
Items not affecting cash
Depreciation and depletion 1,221 2,162 5,149 5,670
Writedown of Golden Reward Mine 3,226
Other (133) 948 298 1,643
--------- --------- --------- ---------
2,999 4,959 7,669 11,082
Change in non-cash operating
working capital 3,728 (303) 3,860 (960)
--------- --------- --------- ---------
Net cash provided by operating activities 6,727 4,656 11,529 10,122
--------- --------- --------- ---------
Investing activities
Mining interests (1,262) (1,117) (2,952) (5,435)
Notes receivable (19) 667
Increase in deposits for reclamation costs (321) (957) (128)
--------- --------- --------- ---------
Net cash used in investing activities (1,583) (1,136) (3,909) (4,896)
--------- --------- --------- ---------
Financing activities
Repayment of long-term debt (156) (163) (1,923) (1,916)
Redemption of exchangeable
preferred shares (31) (12) (87) (63)
Dividends paid to common shareholders (962) (961)
--------- --------- --------- ---------
Net cash used in financing activities (187) (175) (2,972) (2,940)
--------- --------- --------- ---------
Increase in cash and short-term investments 4,957 3,345 4,648 2,286
Cash and short-term investments
at beginning of period 22,679 18,772 22,988 19,831
--------- --------- --------- ---------
Cash and short-term investments
at end of period $ 27,636 $ 22,117 $ 27,636 $ 22,117
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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WHARF RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS OF UNITED STATES DOLLARS)
1. GENERAL
The accompanying unaudited consolidated financial statements should be read
in conjunction with the notes to the Company's audited consolidated
financial statements for the year ended December 31, 1995. The unaudited
consolidated financial statements include the financial statements of the
Company and its subsidiaries. The Company accounts for its 60% undivided
interest in the Golden Reward Mining Company Limited Partnership using the
proportionate consolidation method of accounting.
These unaudited interim consolidated financial statements reflect all
normal and recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the respective interim periods
presented.
2. CHANGE IN ACCOUNTING POLICY
Effective January 1, 1996, the Company adopted the new provisions of CICA
Handbook section 3860, "Financial instruments - disclosure and
presentation". The provisions have been applied retroactively and prior
periods have been restated to reflect this change. Accordingly, any
dividends on, and discount on redemption of, the exchangeable preferred
shares, previously recorded as a charge to retained earnings, have been
recorded in earnings. The adoption of the new provisions has no impact on
retained earnings but reduced earnings for the nine months ended September
30, 1995 by $122,000 (as restated).
The new provisions of the section require disclosure regarding the fair
value of financial instruments. At September 30, 1996, the exchangeable
preferred shares have a fair value, based on quoted market prices, of
$1,925,000, compared to a carrying value of $2,521,000. The carrying
amounts of all other financial instruments approximate fair values.
6
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3. ACCOUNTING PRINCIPLES
The Company follows Canadian accounting principles which are different in
some respects from those applicable in the United States and from practices
prescribed by the United States Securities and Exchange Commission. These
differences have no material effect on the unaudited consolidated financial
statements for the nine months ended September 30, 1996 and 1995, except
for the effect on reported earnings (loss) resulting from the adoption of
the new Canadian accounting principles for financial instruments (see note
2). Accordingly, under United States accounting principles, earnings
(loss), and earnings (loss) per common share would be as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings (loss) $ 1,937 $ 1,893 $ (912) $ 3,891
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per
common share $ 0.10 $ 0.09 $ (0.05) $ 0.19
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
7
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
TAKEOVER BID
On October 16, 1996, Goldcorp Inc. announced that it proposes to make a takeover
bid for all the outstanding common shares of Wharf that it does not already own.
Goldcorp currently owns approximately 50.3% of the outstanding common shares of
Wharf. Under the proposed terms of the takeover bid holders of Wharf common
shares will be entitled to receive, at the option of such holders, either $9.00
cash or 0.72 of a Goldcorp Class A Subordinate Voting Share for each Wharf
common share. The Board of Directors of Wharf received the proposal and has
formed a Special Committee to consider the proposal. Wharf also announced that,
in the event the conditions to be contained in the Goldcorp takeover bid are
satisfied, the outstanding exchangeable preferred shares of Wharf will be
redeemed at a price of C$25.25 per share.
FINANCIAL RESULTS
Wharf recorded earnings for the third quarter of 1996 of $1.9 million, or 10
cents per share, on revenues of $12.2 million. For the same period last year,
Wharf recorded earnings of $1.8 million, or nine cents per share, on revenues of
$14 million.
For the nine months ended September 30, 1996, Wharf recorded a loss of $1
million, or five cents per share, on revenues of $34.8 million. For the same
period last year, Wharf recorded earnings of $3.8 million, or 19 cents per
share, on revenues of $36.4 million.
The improvement in the third quarter results is due mainly to improved operating
results from the Wharf Mine. The financial results during the nine months ended
September 30, 1996 reflect the writedown of a further $3.2 million in respect of
the Company's 60% interest in the Golden Reward Mine. Excluding the writedown,
earnings were $2.2 million, or 12 cents per share, for the nine months ended
September 30, 1996.
Cash flow from operations for the third quarter of 1996 was $6.7 million, or 35
cents per share, compared to $4.7 million, or 25 cents per share, a year ago.
For the nine months ended September 30, 1996, cash flow from operations was
$11.5 million, or 60 cents per share, compared to $10.1 million, or 53 cents per
share, a year ago.
The Company's total gold production, during the third quarter of 1996, from its
100%-owned Wharf Mine and its 60% share in the Golden Reward Mine was 37,500
ounces, compared to 35,599 ounces a year ago. For the nine months ended
September 30, 1996, total gold production was 93,523 ounces compared to 91,848
ounces a year ago.
8
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The average cash production cost per ounce of gold sold, during the third
quarter and the nine months ended September 30, 1996, was $228 and $267,
respectively. For the same periods last year, the average cash production cost
per ounce was $206 and $228, respectively. Total average operating cost per
ounce of gold sold, including royalties, severance taxes and non-cash costs,
during the third quarter and the nine months ended September 30, 1996 was $289
and $346, respectively. For the same periods last year, the total average
operating cost per ounce was $310 and $321, respectively. Higher operating
costs at the Golden Reward Mine, as a result of its early shutdown, contributed
to the increase in the cash production cost per ounce for the third quarter of
1996. The grade and tonnage shortages at the Golden Reward Mine, and a poor
recovery of gold from one of the leach pads at the Wharf Mine in the second
quarter, contributed to the increase in the cash production cost per ounce for
the nine months ended September 30, 1996.
Gold sales for the third quarter of 1996 were 35,207 ounces, at an average
realized price of $385 per ounce, compared to 36,343 ounces at $385 per ounce a
year ago. For the nine months ended September 30, 1996, gold sales were 92,570
ounces at an average realized price of $390 per ounce, compared to 94,535 ounces
at $384 per ounce a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments at September 30, 1996 were $27.6 million,
compared to $23 million at December 31, 1995.
Working capital at September 30, 1996 was $24.3 million, the same level as
December 31, 1995. The debt-to-equity ratio, including current portion of
long-term debt was reduced by 20% to 0.12:1, from 0.15:1 at December 31, 1995.
OPERATIONS
WHARF MINE
GOLD PRODUCTION AND COST DATA
Gold production for the third quarter and the nine months ended September 30,
1996 was 35,633 ounces and 80,987 ounces, respectively. For each of the
corresponding periods last year, gold production was 26,549 ounces and 69,999
ounces, respectively. Cash production cost per ounce for the third quarter and
the nine months ended September 30, 1996 was $211 and $245, respectively,
compared to $226 and $237, respectively, a year ago. The total operating cost
per ounce for the third quarter and the nine months ended September 30, 1996 was
$275 and $316, respectively. By comparison, in the same period in 1995, the
total operating cost per ounce was $321 and $320, respectively.
The gold production target for 1996 has been increased to 105,000 ounces, from
94,000 ounces at a cash production cost of $246 per ounce and a total operating
cost of $316 per ounce.
9
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The decrease in the cash production cost during the third quarter was mainly as
a result of higher gold production. The increase in the cash production cost
during the nine months ended September 30, 1996, was mainly due to the 4,400
ounces unanticipated shortfall in gold production in the second quarter,
resulting from the refractory nature of the ore on one of the leach pads.
Production costs for the period include $1.3 million relating to the loss of
those ounces.
OPERATING RESULTS
In the third quarter of 1996, the Wharf Mine recorded an operating profit of
$3.5 million, compared to $1.7 million a year ago. For the nine months ended
September 30, 1996, the Wharf Mine recorded an operating profit of $5.7 million,
which is 32% higher than the $4.3 million recorded a year ago. Operating cash
flow for the third quarter and the nine months ended September 30, 1996 was $4.6
million and $9.3 million, respectively, compared to $3.5 million and $8.8
million, respectively, a year ago.
WHARF MINE PRODUCTION STATISTICS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Tons of ore mined (000's) 1,032 1,339 3,058 3,413
Tons of waste removed (000's) 2,057 1,121 5,718 3,388
Ratio of waste to ore 1.99:1 0.84:1 1.87:1 0.99:1
Tons of ore processed (000's) 1,328 1,304 3,390 3,300
Average grade of gold per ton of ore processed 0.029 0.031 0.028 0.029
Ounces of gold produced 35,633 26,549 80,987 69,999
Operating cost per ounce of gold sold
Cash production cost $ 211 $ 226 $ 245 $ 237
Royalties and severance taxes 31 28 27 23
Non-cash costs 33 67 44 60
-------- -------- -------- --------
Total operating cost $ 275 $ 321 $ 316 $ 320
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
GOLDEN REWARD MINE
(WHARF'S 60% PROPORTIONATE SHARE)
GOLD PRODUCTION AND COST DATA
The Golden Reward Mine has been out of active production for all of the third
quarter of this year, except for the ongoing leaching of ore from the pads.
Wharf's share of gold production from the Golden Reward Mine, for the third
quarter and the nine months ended September 30, 1996, was 1,867 ounces and
12,536 ounces, respectively. For the same periods last year, Wharf's share
of gold production was
10
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9,050 ounces and 21,849 ounces, respectively. Cash production cost per ounce
for the third quarter and the nine months ended September 30, 1996 was $485 and
$399, respectively, compared to $149 and $198, respectively, a year ago. The
total operating cost per ounce for the third quarter and the nine months ended
September 30, 1996 was $493 and $522, respectively, compared to $279 and $322,
respectively, a year ago.
The increase in the cash production cost for the nine months ended September 30,
1996 was mainly as a result of a lower grade of ore processed due to the grade
and tonnage shortages encountered at both the Hannibal and West Liberty pits,
that, in conjunction with potential safety concerns, ultimately lead to the
early closure of the mine. Leaching of remaining ounces on the pads will
continue until mid-November.
OPERATING RESULTS
For the third quarter of 1996, the Golden Reward Mine recorded an operating
loss, of which Wharf's proportionate share was $1.2 million, compared to an
operating profit, of which Wharf's proportionate share was $1 million, a year
ago. As a result of the increase in production costs and the writedown of
the remaining assets of the mine in June 1996, in the amount of $3.2 million,
the Golden Reward Mine recorded an operating loss for the nine months ended
September 30, 1996, of which Wharf's proprtionate share was $6 million,
compared to an operating profit a year ago, of which Wharf's proportionate
share was $1.3 million.
The mine generated a negative operating cash flow for the third quarter of 1996
of $1.2 million, compared to a positive operating cash flow of $2.2 million a
year ago. For the nine months ended September 30, 1996, Golden Reward recorded
a negative operating cash flow of $1 million, compared to a positive operating
cash flow of $4.1 million a year ago.
GOLDEN REWARD MINE PRODUCTION STATISTICS (100%)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Tons of ore mined (000's) 16 492 665 1,314
Tons of waste removed (000's) 236 2,703 1,192
Ratio of waste to ore 0.48:1 4.06:1 0.91:1
Tons of ore processed (000's) 43 507 745 1,347
Average grade of gold per ton of ore processed 0.073 0.049 0.037 0.041
Ounces of gold produced
- 100% 3,112 15,083 20,894 36,415
- Wharf's 60% share 1,867 9,050 12,536 21,849
Wharf's proportionate operating cost
per ounce of gold sold
Cash production cost $ 485 $ 149 $ 399 $ 198
Royalties and severance taxes 8 15 12 12
Non-cash costs 115 111 112
-------- -------- -------- --------
Total operating cost $ 493 $ 279 $ 522 $ 322
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
11
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(i) Reports on Form 8-K
There were no reports on Form 8-K filed during the period.
12
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHARF RESOURCES LTD.
BY /s/ Dalen B. Fairbairn
--------------------------------------
Dalen B. Fairbairn
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
October 31, 1996
13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHARF RESOURCES LTD.
BY
--------------------------------------
Dalen B. Fairbairn
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
October 31, 1996
