UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-6202-2
Nord Resources Corporation
(Exact name of registrant as specified in its charter)
Delaware 85-0212139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Third St., NW, Suite 1750, Albuquerque, NM 87102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (505) 766-9955
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 twelve 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
Common shares outstanding as of August 16, 1999: 23,505,488
<PAGE>
NORD RESOURCES CORPORATION
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Financial Statements:
Balance Sheets - June 30, 1999 and
December 31, 1998 (Unaudited) 3
Statements of Operations - Three months ended
June 30, 1999 and 1998 (Unaudited) 4
Statements of Operations - Six months ended
June 30, 1999 and 1998 (Unaudited) 5
Statements of Cash Flows - Six Months ended
June 30, 1999 and 1998 (Unaudited) 6
Notes to Condensed Financial Statements (Unaudited) 7-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-12
PART II. OTHER INFORMATION:
ITEM 1-5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
<TABLE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)
ASSETS
<CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,800 $ 6,136
Accounts receivable - Nord Pacific Limited ("NPL") 199 443
Other accounts receivable 15 29
Copper Inventory 63 --
Prepaid expenses 76 73
--------- ---------
TOTAL CURRENT ASSETS 4,153 6,681
INVESTMENT IN AND ADVANCES TO SIERRA RUTILE LIMITED AND ITS
SUBSIDIARIES AND AFFILIATES ("SRL") (notes 2, 3 and 4)
-- --
INVESTMENT IN NPL 5,368 5,733
PROPERTY, PLANT AND EQUIPMENT, net 2,792 247
OTHER ASSETS 5,795 5,730
--------- ---------
$ 18,108 $ 18,391
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 86 $ 471
Accrued expenses 62 104
Current maturities of long-term debt 500 --
--------- ---------
TOTAL CURRENT LIABILITIES 648 575
LONG-TERM DEBT 1,050 --
RETIREMENT BENEFITS 7,706 7,657
STOCKHOLDERS' EQUITY:
Common stock 235 219
Additional paid-in capital 82,223 81,539
Accumulated deficit (72,869) (70,714)
Accumulated other comprehensive loss (885) (885)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 8,704 10,159
--------- ---------
$ 18,108 $ 18,391
========== =========
See notes to condensed financial statements
3
</TABLE>
<PAGE>
<TABLE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
Three Months Ended
June 30,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES AND
LOSS FROM OPERATIONS $ (553) $ (701)
OTHER INCOME (EXPENSE):
Interest and other income 85 150
Interest expense -- (22)
Losses relating to investment in SRL -- (855)
Equity in loss of NPL (209) (362)
--------- ---------
TOTAL OTHER INCOME EXPENSE (124) (1,089)
--------- ---------
NET LOSS $ (677) $(1,790)
========= =========
BASIC LOSS PER SHARE $ (0.03) $ (0.08)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 22,292 21,905
========= =========
See notes to condensed financial statements
4
</TABLE>
<PAGE>
<TABLE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES AND
LOSS FROM OPERATIONS $ (1,459) $ (1,537)
OTHER INCOME (EXPENSE):
Interest and other income 192 414
Interest expense -- (53)
Losses relating to investment in SRL (523) (2,705)
Equity in loss of NPL (365) (555)
---------- ----------
TOTAL OTHER EXPENSE (696) (2,899)
---------- ----------
NET LOSS $ (2,155) $ (4,436)
========== ==========
LOSS PER SHARE $ (0.10) $ (0.20)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 22,100 21,905
========== ==========
See notes to condensed financial statements
5
</TABLE>
<PAGE>
<TABLE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<CAPTION>
Six Months Ended
June 30,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,155) $ (4,436)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Equity in loss of NPL 365 555
Provision for retirement benefits, net of payments 49 (935)
Depreciation and amortization 22 15
Stock compensation -- 8
Forgiveness of loans due from officers -- 100
Reduction in accounts receivable for insurance claim -- 14,205
Changes in non-cash working capital (235) (417)
---------- ----------
Net cash provided (used in) by operating activities (1,954) 9,095
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in other assets (65) 119
Reduction in obligation under guarantee of loans
payable by SRL -- (8,015)
Purchases of property and equipment (317) (60)
---------- ----------
Net cash used in investing activities (382) (7,956)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash -- (5,547)
---------- ----------
Net cash provided by (used in) financing activities -- (5,547)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (2,336) (4,408)
CASH AND CASH EQUIVALENTS - beginning of period 6,136 12,581
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 3,800 $ 8,173
=========== ==========
NON-CASH TRANSACTIONS
Issuance of common stock in exchange for property rights $ 700 $ --
=========== ==========
Issuance of long-term debt in exchange for capital assets $ 1,550 $ --
=========== ==========
See notes to condensed financial statements
6
</TABLE>
<PAGE>
NORD RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1. FINANCIAL STATEMENTS
In the opinion of management, these unaudited interim financial
statements reflect all adjustments of a normal and recurring
nature which are necessary to present fairly the financial
position and results of operations for the interim periods
presented. The results shown for the second quarter of 1999 are
not necessarily indicative of the results that may be expected
for the entire year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is
suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1998.
Certain reclassifications have been made in the 1998 financial
statements to conform to the classification used in 1999. These
reclassifications had no effect on results of operations or
shareholders' equity as previously reported.
2. BASIS OF PRESENTATION
The Company owns a 50% interest in Sierra Rutile Holdings
Limited, which through its ownership of Sierra Rutile Limited,
owns a rutile mine in Africa. The Company also owns a 28.5%
interest in Nord Pacific Limited ("NPL"), a publicly traded
mining and exploration company engaged in the production of
copper in Australia and the exploration for gold, copper,
nickel, cobalt and other minerals in Australia, Papua New
Guinea, North America and Mexico. The Company also owns a 100%
interest in Nord Copper Corporation which acquired a copper
mining facility ("Johnson Camp Mine") in Cochise County,
Arizona, from Arimetco, Inc on June 8, 1999.
Investment In and Advances to SRL and its Subsidiaries and
Affiliates
The Company owns a 50% interest in Sierra Rutile Holdings
Limited, which in turn owns 100% of Sierra Rutile Limited and
Sierra Rutile America, and a 50% interest in Sierra Rutile
Services Limited, Titanium Minerals Marketing International and
Titanium Minerals Marketing International, USA (collectively,
"SRL"). Until being forced to suspend operations in January
1995, SRL produced and marketed rutile and ilmenite (titanium
dioxide). These products were sold primarily to the paint
pigment industry in the United States, Europe and the Far East.
Production facilities and raw material supplies for the rutile
operation are located in Sierra Leone, West Africa. As Sierra
Leone is a third-world country, the operations are subject, at
any time, to the potentially volatile effects of political
instability and economic uncertainty often present in such
countries.
In January 1995, rebel forces attacked SRL's mining operation in
Sierra Leone, which had been in operation since 1978. As a
result, SRL was forced to suspend mining operations and
subsequently terminated all nonessential personnel. In April
1996, SRL regained control of the mine site. Maintenance
personnel, protected by a security force, have since resumed
activities at the mine. In May 1997, a military coup ousted the
democratically elected government. Although the democratically
elected government of Sierra Leone was restored to power in
February 1998, rebel activity in the country has continued.
7
<PAGE>
The resumption of operations at the mine is dependent upon a
number of conditions including (1) a sustainable acceptable
political environment in Sierra Leone within which to operate,
(2) adequate levels of security in and around the minesite area,
(3) the successful renegotiation of operating agreements between
SRL and the government of Sierra Leone, (4) the existence of a
suitable marketing environment and (5) the receipt of adequate
financing on acceptable terms to cover the costs of resuming
operations. These costs include repair or replacement of assets,
which have incurred damage and deterioration during the period of
suspension of operations and costs to re-establish and train a
workforce, replenish supplies and restore and recommission the
facilities. SRL is not able to determine when operations will
resume at the mine.
On June 16, 1999, the Company announced that it had entered into
an agreement to sell its 50% interest in Sierra Rutile Limited to
an affiliate of MIL (INVESTMENTS) S.A.R.L, a shareholder of the
Company. The purchase price is comprised of (a) a cash payment
of $1,250,000, (b) a 5% carried interest in the acquiring entity,
(c) the release of the Company from its current guaranty
obligation of approximately $6,000,000 to a group of development
bank lenders to Sierra Rutile, and (d) the redemption and
cancellation of MIL's 7,004,200 shares of common stock in the
Company, which shares currently represent approximately 29.7% of
the Company's issued and outstanding shares. The transaction is
subject to several conditions, including approval by the other
shareholders of the Company. A Shareholders meeting has been
scheduled for September 8, 1999 to approve the transaction.
Assuming approval by Shareholders and approval of the transaction
by SRL's developmental bank lenders, the closing is scheduled to
occur promptly thereafter.
If the sale is not consummated, when the political environment in
Sierra Leone stabilizes, SRL intends to continue discussions with
its current lenders to determine if funds are available to
refinance SRL's existing loans, to finance the rehabilitation
program at the mine and to finance the completion of an expansion
program. If these lenders do not provide the necessary funds to
SRL to refinance SRL's existing loans and to resume operations,
SRL intends to pursue other sources of financing. There can be
no assurance that SRL will be able to obtain sufficient financing
to refinance its existing loans and to resume operations on
acceptable terms, if at all.
The ability of SRL to continue operating as a going concern until
such financing can be obtained and the mine resumes operations is
dependent on receiving additional advances or contributions from
its shareholders to fund its ongoing operations and obligations
as they come due, or SRL's ability to access other sources of
financing. As described in Note 4, SRL is in default of its loan
agreements. The ability of SRL to continue operating as a going
concern is also dependent on its ability to renegotiate the terms
of or refinance its existing loans.
3. INVESTMENT IN SRL
As a result of the initial rebel attack on SRL's mining
operations in Sierra Leone and the continuing uncertainty
resulting from the ongoing rebel activity in the country,
significant uncertainty exists as to the Company's ability to
recover its investment in SRL. Accordingly, the Company has
recorded a provision for impairment of its entire investment in
SRL, including its estimate of amounts it will be required to
advance to SRL for the repayment of loans payable by SRL, which
it has guaranteed.
8
<PAGE>
During the six months ended June 30, 1999 and 1998, the Company
advanced $523,000 and $2,705,000 respectively, to SRL as its 50%
share of funding for SRL's cash needs, primarily to fund vendor
payments and the ongoing operating cash requirements of SRL.
Amounts advanced to SRL prior to 1998, which were used to reduce
the principal amounts of loans outstanding, were recorded as a
reduction of the obligation under guarantee of loans payable by
SRL. Other amounts were charged to expense as they were advanced
to SRL. Subsequent to 1997, all amounts advanced to SRL are
charged to expense.
4. INDEBTEDNESS
The Company has guaranteed its share of SRL's loans outstanding
amounting to $6,055,000 as of June 30, 1999. One of the
conditions of the loan agreement between SRL and its lending
institutions is that the Company maintain cash, cash equivalents
or marketable securities with a value equal to 150% of its
guaranteed portion of the outstanding loans. At June 30, 1999,
the Company was in violation of this condition. As a result, the
lenders could demand repayment of the loans, although as of
August 13, 1999, they have not done so. Should the lenders demand
repayment of the loans, SRL does not have sufficient funds to
repay the amounts due. Consequently, the Company may be required
to fulfill a portion or all of its obligation under its
guarantee. In that event, it may be required to liquidate
certain of its assets. The consolidated financial statements do
not include any adjustments relating to the value of recorded
asset amounts should the Company be required to liquidate certain
of its assets to fulfill its obligation under the guarantee.
5. EQUITY IN NET LOSS OF NPL
The Company had a 28.5% interest in NPL at June 30, 1999 and
1998. Summary financial data for the operations of NPL is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1999 1998 1999 1998
-------- -------- --------- ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Sales $ 2,704 $ 3,392 $ 5,623 $ 6,644
Cost and expenses (3,878) (3,426) (7,301) (6,638)
Interest and other income 22 53 51 135
Interest and debt issuance costs (58) (59) (125) (120)
Foreign currency forward exchange
Contract gains (losses) 746 (985) 1,168 (830)
Foreign currency transaction losses (88) 70 (282) (259)
-------- -------- --------- ---------
Net Loss $ (552) $ (955) $ (866) $ (1,068)
======== ======== ========= =========
</TABLE>
9
<PAGE>
6. INVESTMENT IN NORD COPPER CORPORATION
In June 1999, Nord Copper Corporation acquired a copper mining
facility ("Johnson Camp Mine") in Cochise County, Arizona, from
Arimetco, Inc. At the time of the acquisition, Summo USA
Corporation had a purchase agreement to acquire the Johnson Camp
Mine and related assets from Arimetco. The total consideration
paid by Nord Resources Corporation and Nord Copper Corporation
included (a) $310,000 in cash, (b) the issuance to Summo of
1,600,000 unregistered shares of Nord Resources Corporation's
common stock $0.01par value and (c) a promissory note
("Promissory Note") from Nord Copper Corporation in the amount of
$1,550,000, payable in three principal payments of $500,000,
$500,000 and $550,000, due on June 8, 2000, June 8, 2001 and June
8, 2002, respectively, together with interest at the rate of 8%
per annum payable quarterly. In addition to the purchase price,
Nord Copper Corporation assumed the obligation to pay up to
$1,000,000 to Arimetco out of revenues from the Johnson Camp
Mine, at a rate of $0.02 per pound of copper sold, except that no
payment is due where the price is less than $1.00 per pound. All
monies used for the cash portion of the purchase price were from
Nord Resources Corporation's own funds. The payment of the
Promissory Note is guaranteed by Nord Resources Corporation and
is secured by a lien on the Johnson Camp Mine until the
Promissory Note is paid in full.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Act of
1995. The statements contained in this report which are not
historical fact are "forward looking statements" that involve various
important risks, uncertainties and other factors which could cause the
Company's actual results for 1999 and beyond to differ materially from
those expressed in such forward looking statements. These factors
include, without limitation, the risks and factors set forth below as
well as other risks previously disclosed in the Company's annual
report on Form 10-K.
Liquidity and Capital Resources
Cash and cash equivalents decreased $2,336,000 for the six months
ended June 30, 1999 compared to a decrease of 4,408,000 for the same
period in 1998. Cash used by operations was $1,954,000 for the six
months ended June 30, 1999 compared to $ 9,095,000 of cash provided by
operations for the same period in 1998 primarily due to the receipt on
May 15, 1998 of the $14,205,000 balance of the proceeds from the civil
strife insurance policy owned by the Company. Cash totaling $382,000
was used primarily for the purchase of the Johnson Camp Mine during
the six months ended June 30, 1999 compared to $7,956,000 used
primarily for SRL debt repayment for the same period in 1998. There
were no financing activities for the six months ended June 30, 1999
compared to cash used by financing activities of $5,547,000 in the
same period in 1998 related to cash deposited into a collateral
account as security for the Company's share of SRL's next scheduled
debt payment.
Due to the suspension of its operations, SRL has relied on and will
continue to rely on funds from the Company and its other 50% owner to
sustain its operations. Funds are expected to continue to be required
by SRL for debt service, maintenance of a limited workforce, payments
to vendors and costs of security at the mine. It is SRL's intention
to continue with plans for resumption of SRL's operations. Among other
key factors in that process is the availability of adequate levels of
funding. SRL's preliminary projections indicate that it may require
approximately $112,000,000 for asset rehabilitation, completion of a
new powerhouse and dredge, mine development and working capital. SRL
has held discussions with its current lenders and other lending
sources to determine if funds would be available from these sources to
fund the above requirements. The Company cannot determine if
additional funding will be available at terms that will be acceptable
to SRL and the Company. To the extent funds are not available from
these or other sources and the Company has not completed a sale of its
interest in SRL, the Company would be required to contribute its 50%
share of SRL's cash requirements. The Company will not be able to
fund a significant portion of these requirements without obtaining
capital from other sources.
The Company has entered into an agreement to sell its 50% interest in
Sierra Rutile Limited to an affiliate of MIL (INVESTMENTS) S.A.R.L.
The transaction is subject to several conditions, including approval
by the other shareholders of the Company.. A Shareholders meeting has
been scheduled for September 8, 1999 to approve the transaction.
Assuming approval by Shareholders and approval of the transaction by
SRL's developmental bank lenders, the closing is scheduled to occur
promptly thereafter.
Results of Operations
The Company incurred net losses of $677,000 and $1,790,000 for the
three months ended June 30, 1999 and 1998, respectively. The company
incurred similar net losses of $2,155,000 and $4,436,000 for the six
months ended June 30, 1999 and 1998, respectively. General and
administrative expenses for the three and six months ended June 30,
1999, decreased compared to the same period in 1998 due to cost
cutting measures by the Company's management.
11
<PAGE>
Interest income decreased for both the three and six months ended
June 30, 1999 compared to the same periods in 1998 due primarily to
decreased funds available for investment in 1999. The Company's
recorded no losses relating to its investment in SRL for the three
months ended June 30, 1999 compared to losses related to its
investment in SRL of $855,000 for the same period in 1998. For the
six months ended June 30, 1999, the Company recorded $523,000 of
losses related to its investment in SRL compared to $2,705,000 of
losses in its investment in SRL for the same period in 1998. A
significantly reduced level of activity during the six months ended
June 30, 1999 compared to 1998 contributed to the reduction in losses
related to the Company's investment in SRL. The company recorded
equity losses of $209,000 and $365,000 in NPL for three and six months
ended June 30, 1999 respectively compared to $362,000 and $555,000 for
the same periods in 1998 due primarily to the lower copper prices and
higher operating costs at the Girilambone Mine.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1-5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description
27 Financial Data Schedule
(b) The Company filed a report on Form 8-K on June 8, 1999,
reporting the acquisition of a copper mining facility ("Johnson
Camp Mine") in Cochise County, Arizona, from Arimetco, Inc by
its wholly owned subsidiary Nord Copper Corporation.
13
<PAGE>
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.
NORD RESOURCES CORPORATION
(Registrant)
By: /s/Ray W. Jenner
Ray W. Jenner
Vice President - Finance
(Principal Financial Officer
and Authorized Officer)
DATE: August 16, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Nord Resources Corporation Form 10-Q for the six months ended June 30,
1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,800
<SECURITIES> 0
<RECEIVABLES> 214
<ALLOWANCES> 0
<INVENTORY> 63
<CURRENT-ASSETS> 4,153
<PP&E> 3,327
<DEPRECIATION> 535
<TOTAL-ASSETS> 18,108
<CURRENT-LIABILITIES> 648
<BONDS> 0
0
0
<COMMON> 235
<OTHER-SE> 8,469
<TOTAL-LIABILITY-AND-EQUITY> 18,108
<SALES> 0
<TOTAL-REVENUES> 192
<CGS> 0
<TOTAL-COSTS> 2,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,155)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
