FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998.
Commission file number 0-12132
SILVERADO GOLD MINES LTD.
(Exact name of registrant as specified in its charter)
British Columbia, Canada
(State or other jurisdiction of incorporation or organization)
98-0045034
(IRS Employer ID No.)
Suite 505, 1111 West Georgia Street
Vancouver, British Columbia, Canada V6E 4M3
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(Address of Principal Executive Offices)
(604) 689-1535
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(Registrant's telephone number)
Securities registered pursuant to section 12(b) of the Act :
None
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Securities registered pursuant to section 12(g) of the Act:
Common Shares, no par value
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(Title of Class)
The Company's Common Stock trades on the OTC
Bulletin Board under the trading symbol GOLDF.OB
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(Name of each exchange on which registered)
Indicate by check mark 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of voting stock held by non-affiliates on March 18,
1999 was $2,016,975.
The number of shares outstanding on March 18, 1999 was 11,864,557
Total number of pages, including cover page:31.
<PAGE>
PART I
ITEM 1 BUSINESS
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FORWARD-LOOKING STATEMENTS
Certain statements contained herein are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
are intended to be covered by the safe harbors created thereby. Such
forward-looking statements involve risks and uncertainties regarding the market
price of gold, availablity of funds, government regulations, common share
prices, operating costs, capital costs, outcomes of ore reserve development and
other factors.
These risks and uncertainties may cause actual outcomes to materially differ
from those forecasted or suggested. Where the Company makes statements of
expectation or belief as to future outcomes, such expectation or belief is
expressed in good faith and believed to have a reasonable basis. Forward-looking
statements are made, without limitation, in relation to operating plans,
property exploration and development, availablity of funds, environmental
reclamation, operating costs and permit acquisition.
Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements.
(a) GENERAL DEVELOPMENT OF BUSINESS
Silverado Gold Mines Ltd. ("Silverado" or "the Company"), is engaged in the
acquisition, exploration and development of mineral properties. Silverado was
incorporated under the laws of British Columbia, Canada, in June, 1963, and
operates in the United States through a wholly-owned subsidiary, Silverado Gold
Mines Inc., incorporated in the State of Alaska in 1981.
Silverado's exploration and development activities are managed and conducted by
an affiliated company, Tri-Con Mining Ltd. ("Tri-Con") pursuant to a written
operating agreement. Tri-Con is a privately owned corporation controlled by
Garry L. Anselmo, who is Chairman and a director of Silverado.
The Company holds interests in six groups of mineral properties in Alaska and
one in British Columbia, Canada. Silverado's main projects are exploration and
development of the Ester Dome Gold Project, located 10 miles northwest of
Fairbanks, Alaska, and of the Nolan Gold Project, located 175 miles north of
Fairbanks, Alaska.
The Ester Dome Project comprises a contiguous group of 1 Federal claim, 1
patented mining claim and 472 State claims totaling 24 square miles, including
the Grant Mine, Range Minerals, May / Barelka (St. Paul) and Dobb's Properties,
all located within the Fairbanks Mining District in Alaska.
On December 19, 1997, the Company entered into an Option Agreement with LaTeko
Resources Ltd. ("LaTeko") granting Silverado the exclusive right and option to
acquire 100% of the Ryan Lode property, a property situated next to the
Company's Ester Dome properties near Fairbanks, Alaska, for a total purchase
price of $12,000,000. The Company issued 1,000,000 of its common shares
(pre-share consolidation) to LaTeko as consideration for granting the right and
option to acquire the mineral property. In March of 1998, the Company terminated
its option to purchase the property. Costs of $227,449 incurred during the year
relating to the Ryan Lode property and all previous deferred costs were written
off during the year.
The Company completed an option agreement with Placer Dome U.S. Inc. ("PDUS") on
February 6, 1998 for that company to continue exploration of 20.5 square miles
of Silverado's Ester Dome property. The agreement excludes the St. Paul, Grant
Mine and Mill, and Ryan Lode areas which Silverado retained and intends to
develop, subject to the availability of financing. Under the agreement, PDUS was
to earn a 51.5% interest by performing a minimum of $10,000,000 of work on the
property and purchasing 5,450,000 common shares of the Company over a period of
five years. During 1998, the Company received $400,000 in cash and PDUS
performed $1,000,000 of work on the property. On November 9, 1998, PDUS
exercised its option to terminate the agreement with the Company.
The Nolan Gold Project consists of 216 Federal placer claims and 239 Federal
lode claims located eight miles west of Wiseman, Alaska. Included in the Project
are the Nolan Placer, Nolan Lode, Thompson's Pup, Dionne and Smith Creek
properties. During 1998 the Company concentrated its activities on Archibald
Creek, which is located within Nolan Placer. Limited mining of the Swede
Channel, located within Dionne, was also undertaken during 1998. The Company's
share of total gold recovered from the Nolan Gold Project in 1998 amounted to
144 ounces.
The Hammond Property, immediately north of the Nolan Gold Project and consisting
of 28 Federal placer and 36 Federal lode claims, was acquired by the Company in
December 1994 to increase potential for reserve development in conjunction with
the Company's operations at Nolan.
The Marshall Dome Property consists of 38 State claims. Thirty-five of the 38
claims were acquired by the Company in 1995 due to its proximity and similar
geological setting to Newmont Mining Company's "True North" gold property,
immediately to the southwest. The remaining three adjacent claims were located
and acquired by the Company prior to 1995. The Marshall Dome Property covers an
area of two and one-half square miles, and is located eighteen miles northeast
of Fairbanks.
The Whiskey Gulch Property, consisting of four claims adjoining Newmont's "True
North" property, and was acquired by the Company in 1996 to further enhance its
Marshall Dome Property by virtue of its proximity to those claims.
The Chatanika Property consists of 752 mining claims and 16 prospecting sites
covering 52 square miles which were located by the Company in 1996. This
property is approximately 20 miles northwest of Fairbanks. On November 30, 1998,
the Company chose to relinquish its interest in this property.
The French Peak Property consists of four mineral claims totaling approximately
one square mile, and is located 40 miles northwest of Smithers, British
Columbia.
(b) FINANCIAL INFORMATION RE: INDUSTRY SEGMENTS
The Company operates in one industry segment, being the mining industry.
(c) PLAN OF OPERATION
The Company's plan of operation is to continue to develop and mine its Nolan
properties specifically the Swede Channel, Archibald Creek and Smith Creek
areas. In this area the Company has recovered almost 14,000 ounces of gold since
1994. The Company is currently stock piling ore through the winter months. When
the snow melts in May-June the ore will be processed and the recovered gold will
be marketed. The Company is also planning to mine this summer with con-current
processing and gold recovery from summer operations on Archibald and Smith Creek
areas.
During 1998 the Company successfully negotiated an option agreement with Placer
Dome U.S. Inc. to conduct exploration and development on 20.5 square miles of
the Company's Ester Dome properties. Under the agreement, PDUS was to earn a
51.5% interest by performing a minimum of $10,000,000 of work on the property
and purchasing 5,450,000 common shares of the Company over a period of five
years. During 1998, the Company received $400,000 in cash and PDUS performed
$1,000,000 of work on the property. On November 9, 1998, PDUS exercised its
option to terminate the agreement with the Company. The Company, subsequently,
has entered in negotiations with several other companies to possibly joint
venture or vend the property.
For the period between December 1997 and March 1998 the Company completed
environmental impact studies, both independent and internal, on the Ryan Lode
property. The results of which determined the potential environmental liability
of the property to be excessive. The Company terminated its option with LaTeko.
Since then the Company has re-focussed its efforts in the Nolan area. The
Company also plans to continue exploration of its Hammond, St.Paul, Grant, and
O'Dea properties. The extent of activity will be dependent on funding results.
In addition to production results, the Company plans to raise capital through
private placements and warrant issues.
On August 4, 1989, Silverado assigned its Eagle Creek Property to Can-Ex
Resources (U.S.), Inc. ("Can-Ex") for a 15% net profits interest to a maximum of
$5,000,000. On February 19, 1997, Can-Ex was dissolved and the Eagle Creek
property became the property of its parent corporation, Kintana Resources Ltd.,
a company controlled by Garry Anselmo who is president and a director of
Silverado. The Company's royalty interest in the property remains unaffected by
this event. There has been no development activity on the property during the
year.
In Canada, the Company intends to keep its French Peak Property in good
standing, though no development work is scheduled there at this time.
From time to time as conditions or funds warrant, the Company may re-evaluate
its development programs in response to changing economic or environmental
conditions. Such re-evaluation may result in the Company either changing its
development priorities or allowing certain properties or portions thereof to
lapse.
(d) MINING AND ENVIRONMENTAL REGULATION
Mining activities in the U.S. are subject to regulation and inspection by the
Mining Safety and Health Administration of the United States Department of
Labor. In addition, the Company's activities are regulated by a variety of
Federal, state, provincial and local laws and regulations relating to protection
of the environment and other matters. Many agencies have the authority to
require the Company to cease or curtail operations due to noncompliance with
laws administered by those agencies. The operation of mining properties also
requires a variety of permits from government agencies.
Management believes that it has in place or will be able to obtain as necessary
all of the required permits for the Company's planned operations. Management
knows of no areas of noncompliance with laws or regulations which could close or
curtail operations.
The Company has accrued a total of $196,000 for further reclamation on the Nolan
Gold Project and Grant Mine site on Ester Dome. Additional remediation work
takes place during the normal course of mining.
In the event of closure or abandonment of its facilities, the Company estimates
that any additional reclamation costs, net of recovery, would be immaterial.
(e) NATURE OF CLAIMS UNDER FEDERAL AND STATE LAW
The Company's properties consist of unpatented Federal mining claims and State
mining claims. Titles to unpatented claims are subject to inherent
uncertainties, such as whether there has been a discovery of valuable minerals
on each claim and whether proper locating and filing prerequisites have been
met. Title can only be maintained by the performance of adequate annual
assessment work and / or the payment of prescribed rental fees. While the
Company believes that all claims which it holds were properly located under
applicable law, no assurances can be given in that regard. To date, the Company
believes that it has conducted and recorded all annual assessment work necessary
to maintain the claims in good standing. Changes to U.S. mining laws currently
under consideration would, if enacted, substantially affect all holders of
unpatented Federal mining claims by imposing royalty fees on removal of minerals
and fundamentally changing the rights and status of unpatented claim holders.
Although management believes that the imposition of royalty fees as described
above, at a minimal level, would not have a material adverse effect on the
Company, it is impossible to predict the extent to which mining or environmental
legislation may be enacted or amended nor the effect that such legislation could
have on the Company.
(f) INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The following table sets forth selected financial data for each of Silverado's
fiscal years ended November 30, 1998, 1997 and 1996, by country of origin for
information purposes only.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997 1996
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<S> <C> <C> <C>
REVENUE (UNITED STATES) $ 149,960 $ 168,924 $ 298,124
============= ============ ============
Income (loss) for the year
Canada $ (1,457,351) $(3,594,229) $(3,461,717)
United States (14,794,136) (820,543) (868,543)
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$(16,251,487) $(4,414,772) $(4,330,260)
============= ============ ============
END OF PERIOD
Identifiable assets
Canada $ 385,567 $ 576,513 $ 1,318,233
United States 3,778,521 17,654,718 17,143,111
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$ 4,164,088 $18,231,231 $18,461,344
============= ============ ============
</TABLE>
For each of the three years ended November 30, 1998, 1997 and 1996, there have
been no transfers between geographic segments, nor have there been export sales.
Revenue for each of the three years is from sales of gold inventory derived from
the Nolan Gold Project.
ITEM 2 PROPERTIES
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(a) REGISTRANT'S INTEREST
Silverado holds interests in mineral properties in the State of Alaska and the
Province of British Columbia. The Company has not conducted sufficient
exploration and development work to delineate material proven or probable ore
reserves.
(b) GENERAL CHARACTER AND TECHNICAL DESCRIPTION OF EACH PROPERTY
(1) Ester Dome Gold Project
The Ester Dome Project encompasses all of Silverado's optioned properties on
Ester Dome, which is accessible by road 10 miles northwest of Fairbanks, Alaska.
The specific properties at this site are as follows:
(a) Grant Mine:
This property consists of 19 state mineral claims subject to payments of
15% of net profits until $2,000,000 has been paid and 3% of net profits
thereafter In December of 1997, for the purpose of facilitating an
agreement with Placer Dome U.S. Inc. and in consideration of a payment by
the Company of $20,000, the conditional purchase and sale agreement was
amended to reduce the royalty payments to 3% of net profits as defined in
the agreement.
(b) Range Minerals #1:
This property consists of 6 State mineral claims subject to payments of 15%
of net profits until $1,500,000 has been paid and 2% of net profits
thereafter.
(c) Range Minerals #2:
This property consists of 419 State mineral claims and one Federal claims
subject to annual payments of $50,000, 2% of net smelter returns until
$20,000,000 has been paid, and 5% of net profits thereafter. In December of
1997, for the purpose of facilitating an agreement with Placer Dome U.S.
Inc., and in consideration of a payment by the Company of $60,000, this
option agreement was amended to extend the term of the agreement for an
additional period of ten years and to modify the royalty provisions to 5%
of net profits as defined in the agreement during the first five years that
profits are first generated from operations, and the greater of 5% of net
profits or 3% of net smelter returns as defined in the agreement until such
time as the option price of the property has been paid in full.
(d) May (St. Paul) / Barelka:
This gold property consists of 22 State mineral claims subject to payments
of 15% of net profits until $2,000,000 (inflation indexed from 1979) has
been paid and 3% of net profits thereafter.
(e) Dobb's:
This property consists of one unpatented Federal mineral claims and four
State mineral claimes subject to payments of 15% of net profits until
$1,500,000 has been paid and 3% of the net profits thereafter.
The above properties, totaling 24 square miles in area, cover most of Ester
Dome. The stream drainages from Ester Dome have yielded approximately 3,000,000
ounces of gold, 95% of which was placer gold. This was produced mostly from
operations conducted by Alaska Gold Company prior to 1965. The Company's claims
were located to acquire lode sources from which this placer gold was derived.
Lode gold has been discovered in veins, shears, and disseminated into the
country rock at a number of locations on the Company's properties.
The main thrust of Silverado's exploration and development work on Ester Dome
from 1978 to 1989 was on the Grant Mine area, including a Joint Venture (Grant
Mine Project) initiated in April 1984 between Silverado and Aurex, Inc., a
subsidiary of Marubeni America Corporation, and a period of production by
Silverado from 1987 to 1989. The Joint Venture, with Tri-Con Mining Inc. as
operator, explored and developed the O'Dea vein and constructed a gravity /
carbon-in-pulp mill. From 1978 to 1989, a total of 111,852 tons of ore were
processed, yielding 11,215 ounces of gold and 8,231 ounces of silver.
From June, 1990 to November, 1993 ACNC conducted exploration programs as
operator of the Ester Dome Joint Venture, including 45,162 feet of drilling. On
the O'Dea Shear, results from drilling by ACNC and prior results of Silverado's
work were sufficient for ACNC to define a gold ore resource.
During 1996 and 1997 the Company continued definition of the St. Paul ore zone
by completing over 10,000 feet of trenching and ninety-one drill holes totaling
over 19,200 feet. Further, the Company conducted a drilling program consisting
of 38 holes totaling approximately 9,000 feet as part of its due-diligence
investigation of the Ryan Lode property.
(2) Marshall Dome Property
The Marshall Dome Gold Project, consists of 38 State claims,35 of which were
acquired by the Company in 1995 due to its proximity and similar geological
setting to Newmont Mining Company's "True North" gold property, immediately to
the southwest. The remaining three adjacent claims were located and acquired by
the Company prior to 1995. The project covers an area of two and one-half square
miles, and is located eighteen miles northeast of Fairbanks and is on the same
geological trend as the "True North" gold deposit one mile to the southwest,
which is being developed by Newmont Exploration Limited.
(3) Whiskey Gulch Property
This property, acquired by the Company in 1996, is one-half mile southwest of
the Marshall Dome Property and adjoins the "True North" property.
(4) Chatanika Property
This property was newly staked by the Company in 1996 in response to aerial
observations and preliminary geochemical sampling. The property is located
approximately 20 miles northwest of Fairbanks, and presently consists of 752
mining claims and 16 prospecting sites, with a total area of 52 square miles. On
November 30, 1998, the Company chose to defer its interest in this property.
(5) Nolan Gold Project
The Nolan Project consists of five contiguous properties covering approximately
6 square miles, 8 miles west of Wiseman, and 175 miles north of Fairbanks,
Alaska. These properties are as follows:
(a) Nolan Placer:
This property consists of 160 unpatented Federal placer claims 100 percent
owned by Silverado.
(b) Thompson's Pup:
This property consists of 6 unpatented Federal placer claims, and is
subject to a royalty of 3 percent of net profits on 80% of production.
(c) Dionne (Mary's Bench):
This property, consisting of 15 unpatented Federal placer claims and
miscellaneous mining equipment, was purchased in 1993 for $1,000,000
payable over five years. Payments were completed in 1997.
(d) Smith Creek:
This property, consisting of 35 unpatented Federal placer claims and
miscellaneous mining equipment, was purchased in 1993 for $200,000 payable
over five years with payments scheduled to be completed in 1999.
(e) Nolan Lode:
This property consists of 239 unpatented Federal lode claims 100 percent
owned by Silverado. The lode claims overlie much of the placer properties
and extend beyond them.
Production of placer gold from Nolan Creek and its tributaries originally
commenced in 1903. Silverado began acquiring claims in the area and developing
the placer gold deposits in 1979. Through 1988, Silverado and a lessee produced
2,400 ounces of gold nuggets. Due to the angular nature and attachment to quartz
of much of the placer gold recovered, Silverado believes the lode source should
be nearby and has staked lode claims to cover the potential source areas. These
claims are in an active exploration stage, and quartz veins containing gold have
been discovered in place.
From 1990 to 1993, Silverado conducted reclamation, exploration and development
in preparation for commencement of production. Initially, production was carried
out on the Thompson's Pup property. Then, in November 1993, the Company
commenced production on the Dionne (Mary's Bench) Property. Gold bearing gravels
were mined by underground methods from a frozen bench deposit. Since the Winter
of 1994/95 almost 14,000 ounces of gold have been recovered by Silverado from
these sites, primarily in the form of high-quality nuggets which sell at premium
prices. From 1995 to 1997, the Company restricted its activities at Nolan as it
refocused its resources on its Ester Dome properties. During the time, the
Company substantially reclaimed its previous disturbances. During 1998, the
Company re-commenced mining operations. The Company concentrated its activities
on the Archibald Creek area, located within Nolan Placer. Limited mining on the
Sweede Channel located within Dionne was also undertaken. The Company's share of
total gold recovered from the Nolan Gold Project in 1998 amounted to 144 ounces.
(6) Hammond Property
The Hammond Property, consisting of 28 Federal placer claims and 36 Federal lode
claims covering one and one-half square miles, was acquired by the Company in
December 1994. The Company completed a drilling program in 1995 which identified
placer gold deposits similar to those on the adjoining Nolan Gold Project. The
lode claims also extended the area of interest for exploration for the lode
sources of the placer gold.
(7) Eagle Creek Royalty Interest
The Eagle Creek Property consists of 77 State mineral claims with a total area
of 4.8 square miles, located 11 miles north of Fairbanks, Alaska. The property
was formerly a producer of antimony and is situated in a 20 mile long belt of
lode and placer gold deposits. It is currently being explored as a gold
prospect.
Silverado acquired the property in 1976. From 1984 to 1988 Silverado explored
several geochemical / geophysical targets and discovered gold bearing veins and
disseminated gold mineralization of economic interest.
The property was assigned to Can-Ex Resources (U.S.), Inc. on August 4, 1989 for
a retained 15 percent net profits interest from production to a maximum of
$5,000,000. On February 19, 1997, Can-Ex Resources (U.S.) Inc. was dissolved,
and the Eagle Creek property, became the property of its parent corporation,
Kintana Resources Ltd, a company controlled by Garry Anselmo, who is the
President and director of Silverado. The Company's interest in the property
remains unaffected by this event.
(8) French Peak Property
The French Peak property consists of four mineral claims totaling approximately
one square mile, located 40 miles northwest of Smithers, British Columbia.
The known mineralization consists of silver, gold, copper, lead and zinc in a
number of vein and bedded deposits. From one of these veins, a test shipment of
52.4 tons of hand-sorted ore was sent to a smelter and averaged 204 oz. silver
per ton.
Silverado acquired the property in 1976 and has conducted surface exploration,
including diamond drilling, to expand the known extent of the mineralization.
Several geochemical / geophysical targets remain to be tested. The property is
in an advanced exploration stage.
(c) GLOSSARY OF TECHNICAL TERMS
Anomaly.
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A concentration of an element or a physical feature which may indicate
the presence of a mineral deposit.
Development.
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The process following exploration, whereby a mineral deposit is
further evaluated and prepared for production. This generally involves
significant drilling and may include underground work.
Drilling.
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The process of boring a hole in the rock to obtain a sample for
determination of metal content. "Diamond Drilling" involves the use of a hollow
bit with diamonds on the cutting surface to recover a cylindrical core of rock.
"Reverse Circulation Drilling" involves chips of rock being forced back through
the center of the drill pipe using air or water.
Exploration.
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The process of using prospecting, geological mapping, geochemical
and geophysical surveys, drilling, sampling and other means to detect and
perform initial evaluations of mineral deposits.
Federal Lode Claims, Federal Placer Claims.
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Mineral claims up to 20 acres, located on federal land under the U.S. Mining Law
of 1872. See below for definitions of "Lode" and "Placer".
Geochemical Survey.
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Sample of soil, rock, silt, water or vegetation analyzed to detect the presence
of valuable metals or other metals which may accompany them. E.g., Arsenic may
indicate the presence of gold.
Geophysical Survey
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Electrical, magnetic and other means used to detect features which may be
associated with mineral deposits.
Gold Deposit.
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A concentration of gold in rock sufficient to be of economic interest.
Gravity / Carbon-in-Pulp Mill.
- ---------------------------------
A gold processing plant wherein gold ore is finely ground and the coarse gold
particles are removed by mechanical means with the balance dissolved by weak
cyanide solution. The dissolved gold is absorbed onto carbon then recovered by
electrowinning.
Lode.
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Mineral in place in the host rock, as in "lode gold".
Lode Source.
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The lode mineral deposit from which placer minerals have been derived by
erosion.
Mineral Claims.
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General term used to describe the manner of land acquisition under which the
right to explore, develop and extract metals is established.
Placer.
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Mineral which has been separated from its host rock by natural processes and is
often reconcentrated in streams as "placer deposits" or "placer gold".
Prospecting Sites.
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Areas up to 160 acres on Alaska State lands where the exclusive right to explore
for minerals is granted for one year, extendible for additional years.
Reserve.
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A body of ore sufficiently sampled to establish continuity, and determined by
feasibility analysis to be economically and legally mineable.
Resource.
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A body of ore sufficiently sampled to establish continuity, but not constrained
by a mining plan or feasibility analysis.
State Claims.
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Mineral claims up to 40 acres, located on State of Alaska lands.
ITEM 3 LEGAL PROCEEDINGS
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On March 14, 1997, the Company filed a Quiet Title Action in the Alaska Superior
Court, Fourth Judicial District, in order to assure its clear title to the
Marshall Dome property. On June 18, 1997, the vendors of the property filed a
counterclaim opposing the Company's action. In the course of their opposition,
the vendors demanded that the Company encumber the property with a lien or other
equitable relief in their favor for the remaining purchase price of the
property, and stated a claim for alleged damages. Silverado believed the
complaint was without merit, and moved for Summary Judgment on the basis that it
has exclusive possessory rights to the property as evidenced by the purchase
documents executed by the vendors. During 1998, the case was tried in the Alaska
Superior Court. The court found in favour of Silverado and denied the vendors
any monetary compensation, other than $18,400 attorneys fees.
Other litigation: A former employee of the Tri-Con Group has initiated a claim
against that company for wrongful dismissal/breach of contract in the amount of
$150,000. The Company has been named as a co-defendant in the suit. No provision
for this litigation has been made in these financial statements and the amount
of the loss, if any, for this lawsuit, would be accounted for prospectively.
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- ----------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5 MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------------
MATTERS
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(a) MARKET INFORMATION
Silverado's common stock trades on the OTC bullentin board under the symbol
"GOLDF.OB" The following table indicates the high and low bid prices of the
common shares during the periods indicated:
QUARTER ENDED HIGH BID LOW BID
Feb 28, 1997 7/16 11/32
May 31, 1997 1/2 5/16
Aug 31, 1997 11/32 5/16
Nov 30, 1997 7/16 9/32
Feb 28, 1998 11/32 3/16
May 31, 1998 15/16 1/16
Aug 31, 1998 1-1/32 7/32
Nov 30, 1998 11/32 5/32
On May 25, 1998, the Company consolidated its shares on a 1 for 10 basis which
gave rise to the variation in the stock price during May. The foregoing prices
represent inter-dealer quotations without retail markups, markdowns, or
commissions and do not necessarily represent actual transactions.
(b) HOLDERS OF COMMON SHARES
As at February 28, 1999 there were 3,659 registered holders of Silverado's
common shares, approximately 91% of whom were located in the United States.
(c) DIVIDENDS AND INTEREST
Silverado Gold Mines Ltd. has not declared dividends on its common stock in the
two most recent fiscal years.
Silverado is restricted in its ability to pay dividends by limitations under
British Columbia law relating to the sufficiency of profits from which dividends
may be paid. In addition, Silverado's Articles (the equivalent of the Bylaws of
a United States corporation) provide that no dividend shall be paid otherwise
than out of funds or assets properly available for the payment of dividends and
declaration by the directors as to the amount of such funds or assets available
for dividends shall be conclusive.
The Canadian Income Tax Act (the "Tax Act") provides in subsection 212(2) that
dividends and other distributions deemed to be dividends paid or deemed to be
paid by a Canadian resident company to a non-resident person shall be subject to
a non-resident withholding tax of 25 percent on the gross amount of the
dividend. Subject to certain exceptions, paragraph 212(1)(b) of the Tax Act
similarly imposes a 25 percent withholding tax on the gross amount of interest
paid by a Canadian resident to a non-resident person.
Subsection 115 (1) and Subsection 2 (3) of the Tax Act provide that a
non-resident person is subject to tax at the rates generally applicable to
persons resident in Canada on any "Taxable capital gain" arising on the
disposition of shares of a corporation that is listed on a prescribed stock
exchange (which includes OTC bullentin board) if:
(i) such non-resident, together with persons with whom he does not deal at
arm's length, has held 25% or more of the outstanding shares of any class
of stock of the corporation at any time during the five years preceding
such disposition; or
(ii) the shares disposed of were used by such non-resident in carrying on a
business in Canada.
A taxable capital gain is presently equal to three quarters of a capital gain.
Provisions in the Tax Act relating to dividend and interest payments by Canadian
residents to persons resident in the United States are subject to the 1980
Canada - United States Income Tax Convention (the "1980 Convention"). Article X
of the 1980 Convention provides that the rate of non resident withholding tax on
dividends shall not exceed 5 percent of the gross amount of the dividends where
the non-resident person who is the beneficial owner of the shares is a
corporation which owns at least 10 percent of the voting stock of the
corporation paying the dividend. In other cases, the rate of non-resident
withholding tax shall not exceed 15 percent.
Article XI of the 1980 Convention provides that the rate of non-resident
withholding tax on interest shall not generally exceed 10 percent of the gross
amount of the interest.
The reduced rates of non-resident withholding relating to dividends and interest
provided by the 1980 Convention do not apply if the recipient carries on
business or provides independent personal services through a permanent
establishment situated in Canada, and the shareholding or debt claim is
effectively connected with that permanent establishment. In that case, the
dividends and interest as the case may be, are subject to tax at the rates
generally applicable to persons resident in Canada.
Article XIII of the 1980 Convention provides that gains realized by a United
States resident on the sale of shares such as those of Silverado may be taxed in
both Canada and the United States. However, taxes paid in Canada by a United
States resident would, subject to certain limitations, be eligible for foreign
tax credit treatment in the United States, thereby minimizing the element of
double taxation.
Except as described above, there are no government laws, decrees, regulations or
treaties that materially restrict the export or import of capital, including
foreign exchange controls, or which impose taxes, including withholding
provisions, to which United States shareholders are subject.
ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth selected financial data for each of Silverado's
fiscal years ended November 30, 1998, 1997, 1996 , 1995 and 1994.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
000's except per share amounts
<S> <C> <C> <C> <C> <C>
Revenues $ 150 $ 169 $ 298 $ 3,053 $ 1,516
Net Earnings (Loss) for
the Year $(16,251) $(4,415) $(4,330) $(4,095) $(3,120)
Earnings (Loss) Per
Share (1) $ (1.82) $ (0.66) $ (0.88) $ (1.10) $ (0.90)
END OF PERIOD
Assets $ 4,164 $18,231 $18,461 $15,140 $16,496
Gold Inventory (3) $ 23 $ 49 $ 213 $ 389 $ 2,028
Long term Obligations $ -- $ 2,010 $ 2,092 $ 2,395 $ 2,543
</TABLE>
(1) In 1998 the Company consolidated its share capital on a 1 for 10 basis. The
affect of the share consolidation has been applied retroactive to all figures
presented.
(2) Loss per share for 1998 was $0.24 before write down of deferred exploration
expenditure of $14,140,305.
(3) Gold inventory is valued at the lower of weighted average cost or net
realizable value.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
LIQUIDITY AND CAPITAL RESOURCES
The table below sets forth Silverado's working capital and liquidity at the
dates indicated:
<TABLE>
<CAPTION>
NOVEMBER 30,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash $ -- $ 20,914 $ 1,925,469
Other current assets 390,875 423,475 704,228
------------ ------------ ------------
390,875 444,389 2,629,697
------------ ------------ ------------
Bank indebtedness (4,396) -- --
Accounts payable and accrued liabilities (904,568) (597,478) (252,923)
Mineral claims payable (342,000) -- (179,000)
Loans payable secured by gold inventory -- -- (66,511)
Current portion of capital lease obligation -- (81,749) (64,939)
Convertible debenture, current portion (2,000,000) -- --
(3,250,964) (679,227) (563,373)
------------ ------------ ------------
Working capital (deficiency) $(2,860,089) $ (234,838) $ 2,066,324
============ ============ ============
</TABLE>
During 1998 the Company continued to receive funds through private placements
and the exercise of options, and applied those funds to exploration and
development expenses its Nolan properties. The Company also received funding of
$718,977 through the sale of excess equipment. Placer Dome contributed $400,000
as part of the option agreement entered into during the year. On November 9,
1998, PDUS exercised its option to terminate the agreement with the Company. The
increase in the Company's working from $234,838 to $2,860,089 reflects the
excess of those various expenditures over the funds received during 1998 and the
maturity of the $2,000,000 convertible debenture in July 1999. The Company's
short term liabilities consist primarily of trade payables, accrued interest and
reclamation expenses.
During the year the Company received a total cash inflow of $1,857,737 primarily
from shares issued for cash, the sale of fixed assets for cash, the sale of gold
and the receipt of cash from Placer Dome under the now canceled option
agreement. From these funds, the Company applied $1,172,889 to exploration and
development expenditures, and $107,200 to mineral claims and options on its
mineral properties; $588,284 on the Nolan Gold Project, $337,373 on the Ester
Dome Project, $227,449 on the Ryan Lode Gold Project, and $126,983 was applied
to its other properties.
Ester Dome Gold Project
-----------------------
During 1998, the Company limited its activities on this property as efforts
were concentrated on the Ryan Lode Gold Project in the early part of the
year and the Nolan Gold Project in the latter part of the year.
However, Placer Dome U.S. Inc.(PDUS) was actively involved on this
property. Under the agreement, PDUS was to earn a 51.5% interest by
performing a minimum of $10,000,000 of work on the property and purchasing
$5,450,000 common shares of the Company over a period of five years. During
1998, the Company received $400,000 in cash and PDUS performed $1,000,000
of work on the property. The work consisted of integrated surface and
drilling programs employing mechanized soil sampling and trenching, as well
as both reverse circulation and core drilling. Active field exploration
took place continuously from March through October. Placer Dome U.S. Inc.
succeeded in indentifying four prospects containing greater than
0.03gm/tonne over significant trench and drill thickness: the Silver Dollar
and Ready Bullion on the south side of Ester Dome and Rhyolite and McQueen
on the north side of Ester Dome. Placer Dome U.S. Inc. also generated one
new prospect on the Irad claim. Activities included 1,385 soil samples
taken, 12 trenches totalling 975 feet, 10 reverse circulation holes
measuring 2,600 feet and 21 core drilling holes measuring 9,780 feet.
On November 9, 1998, PDUS exercised its option to terminate the agreement
with the Company.
Ryan Lode Gold Project
----------------------
In July, 1997, the Company began an environmental, technical, and legal due
diligence investigation of the Ryan Lode property preparatory to acquiring
an option on the property from La Teko Resources Ltd. La Teko had reported
a significant mineable reserve based on a bulk tonnage / heap leach mining
concept, at an average grade of 0.056 ounces of gold per ton of ore. The
Company completed 38 drill holes totaling 8,855 feet to confirm the
continuity of gold mineralization above 0.10 ounces per ton to support the
concept of a smaller tonnage, higher grade operation using Silverado's
existing Grant Mill facilities. The Company considered the drilling
successful and, entered into an Option to Purchase Agreement with La Teko
for the Ryan Lode property.
In March of 1998 the Company complete the environmental studies and
determined the potential environmental liabiltiy to be excessive therefore
the Company optioned to terminate the agreement.
Nolan Gold Project
------------------
In November, 1993, the Company commenced production of placer gold from
frozen bench deposits on the Mary's Bench portion of the Dionne Property.
Since then, almost 14,000 ounces of gold have been recovered. The Company
continued a limited production program in 1996 then suspended production
altogether in 1997 as it focused its efforts entirely on the expansion,
exploration, and development of its Fairbanks properties in response to
increased competitive activity in that area. It did, however, conduct
reclamation activities on the site.
During 1998, limited mining of the Sweede Channel, located within Dionne,
was also under taken. The Company's share of total gold recovered from the
Nolan Gold Project in 1998 amounted to 144 ounces. Continued development
and mining is being done through the winter months in this area and after
the thaw in May-June processing will begin. Two other areas, Archibald
Creek and Smith Creek will be summer mined and processed this year. The
extent of activities will be dependent on continually funding.
Other Properties
----------------
On November 30,1998, the Company relinquished its interest in the Chatanika
Property. The Company maintained all of its other properties in good
standing.
During 1999, the Company has property commitments totaling $633,500 which must
be paid in order to keep its various properties in good standing. This amount is
made up of mineral property lease payments, various regulatory charges and fees,
and property work requirements. The Company also has interest commitments of
$160,000 on a $2,000,000 convertible debenture. The debenture matures and is due
and payable in July 1999.
Management expects that it will be able to raise additional capital for its
activities on its properties through either equity or debt financing, or
additional joint-ventures, though there is no commitment by any party to provide
such financing at this time, nor assurance that such capital will be available
or that an additional joint-venture can be negotiated on terms favorable to the
Company. In the event that sufficient funds do not become available to carry out
its planned operations, the Company may elect to reprioritize its operations and
sell or abandon certain properties as necessary to meet its cash requirements.
OPERATING RESULTS
The Company continued to engage in only limited gold sales in 1998, reflecting
its own reduced inventory, the limited production activities, and the lower
prices for gold. The Company expects to maintain only minimal inventory until it
resumes production from its Nolan properties.
Operating costs in 1998 were higher than last year. Included in operating costs
for the year are mining and processing costs, reclamation costs and amortization
of mineral property and development costs.
As with most companies involved in the mining industry, the price of the
Company's product (mainly gold) can have a significant impact upon the Company.
The price of gold has maintained a range of $285 to $295 per ounce, down from
the 1996 level of $400 per ounce.
Mining activities in the United States are subject to regulation and inspection
by the Mining, Safety and Health Administration of the United States Department
of Labor. In addition, Silverado's activities are regulated by a variety of
Federal, state, provincial and local laws and regulations relating to protection
of the environment. The operation of mining properties also requires a variety
of permits from governmental agencies. While there can be no assurance that in
the future environmental concerns will not lead to restrictions upon Silverado's
operations at one or more properties, Silverado believes it has either obtained
all permits necessary for planned operations in 1999, or that any other permits
necessary can be obtained without undue restriction
Other Expenses
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Other Expenses $ 1,832,853 $4,205,381 $4,077,978
Write down of mineral properties 14,140,305 -- --
----------- ---------- ----------
$15,973,158 $4,205,381 $4,077,978
=========== ========== ==========
</TABLE>
During 1998, the Company wrote off $13,805,342 of deferred exploration and
development expenditures and $334,963 of claims and options. From 1999 onwards,
the Company will expense exploration and development costs as incurred. As a
result of limited other expenses for the year decreased similarly.
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------
The consolidated financial statements listed below were prepared on the basis of
accounting principles generally accepted in the United States and are expressed
in U.S. dollars. These principles conform, in all material respects, with those
generally accepted in Canada.
PAGE
Auditors' Report F-1
- -------------------------------------------------------------------------------
Comments by Auditors for U.S. Readers on Canada
- U.S. Reporting Conflict F-1
- --------------------------------------------------------------------------------
Consolidated Balance Sheets, November 30, 1998 and 1997 F-2
- --------------------------------------------------------------------------------
Consolidated Statements of Operations and Accumulated Deficit,
Years Ended November 30, 1998, 1997, and 1996 F-3
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows,
Years Ended November 30, 1998, 1997 and 1996 F-4
- --------------------------------------------------------------------------------
Consolidated Statements of Changes in Share Capital and Capital Surplus F-5
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements F-6 to F-14
- --------------------------------------------------------------------------------
No schedules are presented either because the required information is disclosed
elsewhere in the financial statements, or the schedules are not applicable.
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Silverado Gold Mines Ltd. as
at November 30, 1998 and 1997 and the consolidated statements of operations and
accumulated deficit, changes in share capital, capital surplus, unamortized
stock compensation expense and advances to related parties, and cash flows for
each of the years ended November 30, 1998, 1997, and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at November 30, 1998
and 1997 and the results of its operations and the changes in its cash flow for
the years ended November 30, 1998, 1997 and 1996 in accordance with generally
accepted accounting principles in the United States. As required by the Company
Act (British Columbia) we report, that in our opinion, these principles have
been applied on a consistent basis.
/s/ KPMG
- --------
KPMG
Chartered Accountants
Vancouver, Canada
March 16, 1999
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1(a) to the financial statements. Our report to the shareholders dated
March 16, 1999 , is expressed in accordance with the Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
/s/ KPMG
- --------
KPMG
Chartered Accountants
Vancouver, Canada
March 16, 1999
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD. F-2
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN U.S. DOLLARS
<CAPTION>
November 30, November 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Assets
Current Assets
Cash .................................................................. $ -- $ 20,914
Gold inventory ........................................................ 23,448 48,875
Accounts receivable ................................................... 3,760 8,297
Prepaid expenses paid to related parties (Note 7) ..................... 363,667 366,303
--------------- ---------------
390,875 444,389
Mineral Properties and Development (Note 2)
Claims and options .................................................... 2,667,335 2,436,972
Deferred exploration and development expenditures ..................... -- 13,576,470
--------------- ---------------
2,667,335 16,013,442
Less accumulated amortization ......................................... (743,586) (1,384,338)
--------------- ---------------
1,923,749 14,629,104
Buildings, Plant and Equipment (Note 3) .................................. 3,114,785 4,481,399
Less accumulated depreciation ......................................... (1,289,883) (1,385,423)
--------------- ---------------
1,824,902 3,095,976
Deferred Financing Fees
(net of accumulated amortization of $161,438: 1997-$124,238) .......... 24,562 61,762
--------------- ---------------
$ 4,164,088 $ 18,231,231
=============== ===============
Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness ..................................................... $ 4,396 $ --
Accounts payable and accrued liabilities (Note 4) ..................... 904,568 597,478
Mineral claims payable (Note 2(a)) .................................... 342,000 --
Capital lease obligations (Note 9(b)) ................................. -- 81,749
Convertible debenture (Note 5) ........................................ 2,000,000 --
--------------- ---------------
3,250,964 679,227
Long Term Liabilities
Capital lease obligations (Note 9(b)) ................................. -- 9,741
Convertible debenture (Note 5) ........................................ -- 2,000,000
--------------- ---------------
-- 2,009,741
Shareholders' Equity
Common Shares (Note 6)
Authorized: 100,000,000 (1997-100,000,000) common shares
Issued and outstanding:November 30, 1998 - 10,997,890 common shares ... 44,074,920 43,084,420
November 30, 1997 - 8,001,222 common shares
Unamortized stock compensation expense ................................ -- (151,612)
Advances to related parties secured by common shares in the company ... -- (480,236)
Accumulated Deficit ................................................... (43,161,796) (26,910,309)
--------------- ---------------
913,124 15,542,263
--------------- ---------------
$ 4,164,088 $ 18,231,231
=============== ===============
Continuing operations (Note 1(a))
Subsequent events (Notes 10)
Commitments and contingencies (Notes 2 and 9)
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
EXPRESSED IN U.S. DOLLARS
<CAPTION>
Year ended Year ended Year ended
November 30, November 30, November 30,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue from gold sales .................................................. $ 149,960 $ 168,924 $ 298,124
Operating costs
Mining and processing costs ........................................... 324,450 164,835 394,909
Amortization of mineral properties and development .................... 43,264 -- 123,504
Reclamation expense (Note 9(d)) ....................................... 60,575 213,480 31,993
--------------- --------------- ---------------
428,289 378,315 550,406
--------------- --------------- ---------------
Loss from Operations ..................................................... (278,329) (209,391) (252,282)
Other Expenses
Accounting and audit .................................................. 69,054 93,450 69,331
Amortization of deferred financing fees ............................... 37,200 37,200 37,200
Consulting expense .................................................... 185,813 78,945 --
Corporate capital taxes ............................................... -- 21,934 (5,967)
Depreciation .......................................................... 378,471 475,175 447,222
Employment contract expense ........................................... 22,049 1,099,340 1,910,060
Financing activities .................................................. -- 100,847 35,159
General exploration and development ................................... -- 75,566 13,980
Interest on long term liabilities...................................... 161,381 160,000 160,000
Legal ................................................................. 145,102 206,740 35,733
Loss on disposal of buildings, plant and equipment .................... 178,916 1,557 --
Loss (gain) on foreign exchange ....................................... (28,467) 55,335 (5,298)
Management salaries ................................................... -- 65,744 263,000
Management services from related party (Note 7) ....................... 321,513 992,646 323,108
Office expenses ....................................................... 174,910 239,518 262,333
Other interest and bank charges (net) ................................. 29,228 7,356 4,908
Printing and publicity ................................................ 38,712 293,095 371,281
Reporting and investor relations ...................................... 55,279 52,576 26,833
Transfer agent fees and mailing expenses .............................. 63,692 148,357 129,095
Write down of deferred mineral properties and development ............. 14,140,305 -- --
--------------- --------------- ---------------
15,973,158 4,205,381 4,077,978
Loss for the year ........................................................ (16,251,487) (4,414,772) (4,330,260)
Accumulated deficit at beginning of the year ............................. (26,910,309) (22,495,537) (18,165,277)
--------------- --------------- ---------------
Accumulated deficit at end of the year ................................... $ (43,161,796) $ (26,910,309) $ (22,495,537)
=============== =============== ===============
Loss per share(Note 1(g)) ................................................ $ (1.82) $ (0.66) $ (0.88)
=============== =============== ===============
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD. F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN U.S. DOLLARS
<CAPTION>
Year ended Year ended Year ended
November 30, November 30, November 30,
1998 1997 1996
-------------- ------------- -------------
CASH PROVIDED BY (USED FOR):
<S> <C> <C> <C>
Operations:
Loss for the year ..................................................... $ (16,251,487) $ (4,414,772) $ (4,330,260)
Items not involving cash:
Writedown of deferred mineral properties and development ........... 14,140,305 -- --
Employment contract expense ........................................ 22,049 1,099,340 1,910,060
Consulting services expense ........................................ 167,063 78,945 --
Depreciation ....................................................... 378,471 475,175 475,882
Amortization of deferred financing fees ............................ 37,200 37,200 37,200
Loss on disposal of buildings, plant and equipment ................. 178,916 1,557 --
Amortization of mineral properties and development ................. 43,264 -- 123,504
Changes in non-cash operating working capital:
Decrease (increase) in accounts receivable ......................... 4,537 2,968 (10,255)
Decrease in gold inventory ......................................... 25,427 164,129 176,115
Decrease in prepaid expenses paid to related parties ............... 2,636 113,656 --
Increase (decrease) in mineral claim payable ....................... 342,000 (179,000) (351,000)
Increase (decrease) in accounts payable and accrued liabilities .... 382,090 344,555 (274,429)
-------------- ------------- -------------
(527,529) (2,276,247) (2,243,183)
Financing:
Shares issued for cash ............................................. 588,800 3,453,229 7,610,000
Decrease (increase) in secured advances to related parties ......... 480,236 (480,236) (1,299,893)
Decrease in loans payable secured by gold inventory ................ -- (66,511) (110,057)
Decrease in capital lease obligation ............................... (91,490) (65,663) (240,619)
-------------- ------------- -------------
977,546 2,840,819 5,959,431
Investments:
Mineral claims and options expenditures, net of recoveries ......... (276,127) (109,947) (571,214)
Deferred exploration and development expenditures, net of recoveries (912,888) (2,289,654) (1,202,700)
Proceeds from sale of equipment .................................... 718,977 -- --
Purchases of equipment ............................................. (5,289) (69,526) (172,714)
-------------- ------------- -------------
(475,327) (2,469,127) (1,946,628)
Increase (decrease) in cash ........................................... (25,310) (1,904,555) 1,769,620
Cash at beginning of the year ......................................... 20,914 1,925,469 155,849
-------------- ------------- -------------
Cash (bank indebtedness)at end of the year ............................ $ (4,396) $ 20,914 $ 1,925,469
============== ============= =============
Supplemental cash flow information not reflected in the statement
of cash flows
Interest paid ...................................................... $ 80,000 $ 181,436 $ 242,562
============== ============= =============
Issue of shares for purchase of mineral property ................... $ 289,200 $ -- $ --
============== ============= =============
Issue of shares for consulting services in lieu of payment of cash . $ 75,000 $ -- $ --
============== ============= =============
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SILVERADO GOLD MINES LTD. F-5
CONSOLIDATED STATEMENTS OF CHANGES IN SHARE CAPITAL,
CAPITAL SURPLUS,UNAMORTIZED STOCK COMPENSATION EXPENSE AND ADVANCES TO RELATED PARTIES
EXPRESSED IN U.S. DOLLARS
<CAPTION>
Years ended November 30, 1998, 1997, and 1996 Unamortized Advances to Related
Stock Parties secured by
Number of Share Capital Compensation Common Shares
shares Capital Surplus Expense in the Company
<S> <C> <C> <C> <C> <C>
Balance as at November 30, 1995 .......................... 37,431,493 $28,775,211 $ 46,352 $ -- $ --
------------ ----------- --------- ------------ -------------------
Year ended November 30, 1996
Shares issued:
On exercise of contract employee share options ......... 18,050,000 7,180,000
Private placements for cash ............................ 925,000 430,000
Capital surplus reallocated ............................ 46,352 (46,352)
Fair value of share options granted to contract employees 2,219,731
------------ ----------- --------- ------------ -------------------
18,975,000 9,876,083 (46,352)
------------ ----------- --------- ------------ -------------------
Balance as at November 30, 1996 .......................... 56,406,493 38,651,294 -- -- --
------------ ----------- --------- ------------ -------------------
Year ended November 30, 1997
Shares issued:
Share split ............................................ 4,934,725 --
On exercise of contract employee share options ......... 3,390,000 487,500
On exercise of warrants ................................ 600,000 102,000
Private placements for cash ............................ 14,181,000 2,863,229
Private placement for consulting services .............. 500,000
For cash ............................................ 500
For consulting services ............................. 169,500
Fair value of share options granted to contract employees 771,389
Fair value of share options granted to consultants...... 39,008
Stock compensation cost ................................ (151,612)
Amortization of stock compensation
Advances to related party .............................. (480,236)
23,605,725 4,433,126
------------ ----------- --------- ------------ -------------------
Balance as at November 30, 1997 .......................... 80,012,218 43,084,420 -- (151,612) (480,236)
------------ ----------- --------- ------------ -------------------
Year ended November 30, 1998
Share consolidation (72,010,996)
Shares issued:
On exercise of warrants for cash ....................... 255,000 216,200
Private placements for cash ............................ 2,446,668 372,600
Private placement for consulting services .............. 125,000 112,500
Fair value of shares issued for mineral property ....... 170,000 289,200
Amortization of stock compensation ..................... 151,612
Cash received on sale of common shares by related party. 225,448
Reclassified to prepaid expense as unsecured prepaid
expenses paid to related parties ....................... 254,788
------------ ----------- --------- ------------ -------------------
(69,014,328) 990,500 151,612 480,236
------------ ----------- --------- ------------ -------------------
Balance as at November 30, 1998 .......................... 10,997,890 $44,074,920 $ -- $ -- $ --
============ =========== ========= ============ ===================
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
SILVERADO GOLD MINES LTD. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements for the years ended November 30,
1998, 1997, and 1996 are prepared in conformity with accounting principles
generally accepted in the United States.
(a) Continuing Operations
During the year ended November 30, 1998, the Company continued to focus its
efforts on the Nolan Properties. It continued its drilling program on the
Ryan Lode project, and funded its exploration activities by generating
$588,800 in capital through private placements and the exercise of options
and warrants; $718,977 from sale of equipment, and a $400,000 option
payment from Placer Dome Inc.
At November 30, 1998, the Company had a working capital deficiency of
$2,860,089 including a $2,000,000 convertible debenture which is due on
July 2, 1999, subject to prior redemption or conversion. The Company did
not make a required interest payment of $80,000 on June 30, 1998 and
subsequent to year end did not make a required interest payment of $80,000
on December 31, 1998 (Note 10(a)). The Company was granted a deferral of
these interest payments based on semi-monthly progress updates until
financing is in place.
These financial statements have been prepared on a going concern basis,
which assumes the realization of assets and liquidation of liabilities in
the normal course of business. The application of the going concern concept
and the recovery of amounts recorded as mineral properties and development
is dependent on the Company's ability to obtain the continued forbearance
of certain creditors, to obtain additional financing to fund its operations
and acquisition, exploration and development activities, the discovery of
economically recoverable ore on its properties, and the attainment of
profitable operations. Current uncertainty with regard to each of these
matters raises substantial doubt about the Company's ability to continue as
a going concern, and the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company plans to continue to raise capital through private placements
and warrant issues. The Company also plans to complete a property option
agreement for the Ester Dome Gold Project and other properties. Production
is set to begin after the winter thaw in May-June and the Company expects
gold sales to supplement financing activities.
(b) Basis of Consolidation
The consolidated financial statements include the accounts of Silverado
Gold Mines Inc., a wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
(c) Gold Inventory
Gold Inventory is valued at the lower of weighted average cost and
estimated net realizable value. At November 30, 1998, 1997 and 1996, gold
inventory is valued at net realizable value. Any write-down of inventory to
net realizable value is included in mining and processing costs.
(d) Mineral Properties and Development
The Company confines its exploration activities to areas from which gold
has previously been produced or to properties which are contiguous to such
areas and have demonstrated mineralization. Accordingly, the Company
capitalizes the costs of acquiring mineral claims and options until such
time as the properties are placed into production or abandoned. At that
time, costs are amortized or written off.
During fiscal 1998, the Company has written off all deferred exploration
and development expenditures for all of its properties. Effective December
1, 1998, exploration and development expenditures will be expensed as
incurred.
Effective December 1, 1996, the Company adopted the Statement of Financial
Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of." On an ongoing basis, the Company
evaluates each property based on exploration results to date, and
considering facts and circumstances such as operating results, cash flows
and material changes in the business climate, determines whether any of the
properties may be impaired. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such
asset is separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying
value exceeds the fair market value of the long-lived asset. Fair market
value is determined primarily using the anticipated cash flows on a
discounted rate commensurate with the risk involved. Losses on long-lived
assets to be disposed of are determined in a similar manner, except that
fair market values are reduced for the cost to dispose. The adoption of
<PAGE> F-7
this accounting standard did not have a material effect on the Company's
consolidated operating results or financial position.
The amounts shown for claims and options for mineral properties which have
not yet commenced commercial production represent costs incurred to date,
net of recoveries from developmental production, and are not intended to
reflect present or future values.
Amortization of claims and options relating to properties in production is
provided during periods of production using the units-of-production method
based on an estimated economic life of the ore reserves.
The Company's accounting policy for reclamation expenses is contained in
note 9(d).
(e) Buildings, Plant and Equipment
Buildings, plant and equipment are stated at cost. Depreciation is provided
on buildings, plant and equipment using the straight-line method based on
estimated lives of 3 to 20 years.
(f) Foreign Currencies
The Company considers its functional currency to be the U.S. dollar for its
U.S. and Canadian operations. Monetary assets and liabilities denominated
in foreign currencies are translated into U.S. funds at the rates of
exchange in effect at the year end. Revenue and expense transactions are
translated at the rate in effect at the time at which the transactions took
place. Foreign exchange gains and losses are included in the determination
of income.
(g) Loss Per Share
Loss per share has been calculated based on the weighted average number of
shares outstanding during the year. During fiscal 1998, the outstanding
share capital of the Company was consolidated on a 1:10 basis. The effect
of the share consolidation was given retroactive recognition in all periods
presented. The weighted average number of shares outstanding, for the
purpose of loss per share calculations, is as follows:
Year to November 30, 1998 8,942,186
Year to November 30, 1997 6,699,956
Year to November 30, 1996 4,912,029
Loss per share does not include the effect of the potential conversions of
options, warrants, and debentures as their effect would be anti-dilutive.
(h) Revenue Recognition
Gold sales are recognized when the title passes to the purchaser.
(i) Accounting for Stock Based Compensation
The Company uses the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB Opinion No. 25") in accounting for its stock based
method, compensation cost is the excess, if any, of the quoted market price
of the stock at grant date over the amount an employee or director must pay
to acquire the stock. The Company's accounting policy for stock based
incentive plans to contract employees and consultants is contained in Notes
6(d).
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant areas requiring the use of
management estimates relate to the amortization and depreciation rates of
mineral properties and development and buildings, plant and equipment,
accrued remediation expense and the recoverability of capital and other
assets. Actual results could differ from those estimates.
(k) Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued liabilities approximate fair
values due to the short-term maturity of these instruments. The carrying
amounts reported in the balance sheet for capital lease obligations and
convertible debenture approximate their fair market value as they bear
interest at rates which approximate market rates.
<PAGE> F-8
2. MINERAL PROPERTIES AND DEVELOPMENT
(a) Mineral Properties
Ester Dome Properties, Fairbanks Mining District, Alaska
---------------------------------------------------------
These properties,which include the Grant Mine (Burggraf), Range Minerals
#1, Range Minerals #2 May/Barelka (St. Paul), and Dobb's properties, make
up a contiguous group of claims covering 24 square miles. The Company's
property holdings in this area were expanded by the acquisition of five
additional claims in October 1997, known as the "Alaska Gold" property. On
February 6, 1998 the Company entered into an agreement with Placer Dome US
Inc. ("PDUS") which provided for PDUS to explore and develop the Company's
May/Barelka and Range Minerals properties on Ester Dome. Under the
agreement, PDUS was to earn a 51.5% interest by performing a minimum of
$10,000,000 of work on the property and purchasing $5,450,000 common shares
of the Company over a period of five years. During fiscal 1998, the Company
received $400,000 in cash and PDUS performed $1,000,000 of work on the
property. On November 9, 1998, PDUS exercised its option to terminate the
agreement with the Company.
Ryan Lode Property, Fairbanks Mining District, Alaska
-----------------------------------------------------
On December 19, 1997, the Company entered into an Option Agreement with
LaTeko Resources Ltd. ("LaTeko") granting Silverado the exclusive right and
option to acquire 100% of the Ryan Lode property, which is situated next to
the Company's Ester Dome properties near Fairbanks, Alaska, for a total
purchase price of $12,000,000. The Company issued 1,000,000 of its common
shares to LaTeko as consideration for granting the right and option to
acquire the mineral property. In March of 1998, the Company terminated its
option to purchase the property. Costs of $227,449 were incurred during the
year on the Ryan Lode property. All previously deferred costs have been
written off during the year.
Marshall Dome Property, Fairbanks Mining District, Alaska
---------------------------------------------------------------
The Company acquired this property in 1995. It covers an area of two and
one-half square miles, and is located eighteen miles northeast of
Fairbanks.
Whiskey Gulch Property, Fairbanks Mining District, Alaska
---------------------------------------------------------------
The Company acquired four claims collectively known as "Whiskey Gulch" in
1996. These claims are located near the Company's Marshall Dome property.
Chatanika Property, Fairbanks Mining District, Alaska
--------------------------------------------------------------
The Company originally staked this property in 1996. It consists of 752
mining claims and 16 prospecting sites covering an area of approximately 52
square miles, located 20 miles northwest of Fairbanks. On November 30,
1998, the Company chose to relinquish its interest in this property. Total
current costs of $124,361 were written off.
Nolan Properties, Wiseman Mining District, Alaska
--------------------------------------------------
These properties, which include the Nolan Placer, Nolan Lode, Thompson's
Pup, Dionne (Mary's Bench), and Smith Creek Properties, make up a
contiguous group of claims, covering approximately four square miles.
Hammond Property, Wiseman Mining District, Alaska
--------------------------------------------------
The Company acquired this two square mile property, adjoining the Nolan
Gold Properties, in 1994.
Eagle Creek Property, Fairbanks Mining District, Alaska
--------------------------------------------------------------
The Company assigned its interest and obligations related to this property
to Can-Ex Resources (U.S.), Inc. ("Can-Ex"), a related party and retained a
15% net profit interest from production to a maximum value of $5,000,000.
Can-Ex was dissolved in 1997 at which time its assets passed to its parent
company Kintana Resources Ltd., a related party (see Note 7), which now has
the obligation for Silverado's net profit interest.
French Peak Property, Omineca Mining District, British Columbia
-------------------------------------------------------------------
Anselmo Holdings, a related company has 10 percent net profits interest in
this property, which consists of four mineral claims covering approximately
one square mile located 40 miles northwest of Smithers, British Columbia.
Property Commitments
--------------------
As at November 30, 1998, minimum aggregate future cash expenditures
required in the next five years to maintain the properties in good standing
are as follows:
<PAGE> F-9
Year Commitment
1999 633,500
2000 110,000
2001 110,000
2002 110,000
2003 110,000
The Company's mineral property commitment for fiscal 1999 include $342,000
relating to the year ended November 30, 1998, that remains unpaid. This has
been recorded as a liability at year end. The Company's failure to make
these payments has not adversely affected its rights over the properties.
(b) Claims and Options and Deferred Explorations and Development Expenditures
Cumulative claims and options and deferred exploration and development
expenditures are as follows:
<TABLE>
<CAPTION>
Net Book Value 1998 1998 Cost 1998 1998 Net book value
Nov. 30, 1997 Expenditures Recoveries Amoritzation Written off Nov. 30, 1998
-------------- ------------ ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative net mineral
claims and option payments $ 1,701,059 $ 705,326 $(139,999) $ (7,673) $ (334,963) $ 1,923,749
Deferred exploration and
development expenditures
Alaska
- ----------------------------
Ester Dome Gold Project 6,414,730 230,173 (260,001) -- (6,384,902) --
Ryan Lode Gold Project 477,858 227,449 -- -- (705,307) --
Marshall Dome 180,894 28,555 -- -- (209,449) --
Nolan Gold Project 4,863,815 588,284 -- (35,591) (5,416,508) --
Hammond Property 312,294 42,598 -- -- (354,892) --
Eagle Creek Royalty Interest 140,351 176 -- -- (140,527) --
Whiskey Gulch 166,469 37,791 -- -- (206,260) --
Chatanika 110,524 13,837 -- -- (124,361) --
General Properties -- 1,001 -- -- (1,001) --
British Columbia
- ----------------------------
French Peak 261,110 1,025 -- -- (262,135) --
-------------- ------------ ---------- ------------ ------------- --------------
12,928,045 1,172,889 (260,001) (35,591) (13,805,342) --
-------------- ------------ ---------- ------------ ------------- --------------
Total mineral properties
and development expenditures $ 14,629,104 $ 1,878,214 $(400,000) $ (43,264) $(14,140,305) $ 1,923,749
============== ============= ========== ============ ============= ==============
</TABLE>
3. BUILDINGS, PLANT AND EQUIPMENT
Buildings, plant and equipment primarily include the mill facility and
equipment of the Ester Dome/Grant Mine Gold Project and mining equipment
and camp facilities at the Nolan Gold Project.
<TABLE>
<CAPTION>
Accumulated 1998 Net 1997 Net
Cost Depreciation Book Value Book Value
<S> <C> <C> <C> <C>
Grant Mine Mill Equipment $ 2,076,780 $ (799,282) $ 1,277,498 $ 1,635,294
Nolan Gold Project Mining Equipment 60,757 (24,579) 36,178 41,204
Mining Equipment 591,651 (277,917) 313,734 1,185,972
Other Equipment, Leasehold Improvements 385,597 (188,105) 197,492 233,506
------------ ------------- ------------ ------------
$ 3,114,785 $ (1,289,883) $ 1,824,902 $ 3,095,976
============ ============= ============ ============
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
1998 1997
-------- --------
Accounts payable $561,902 $334,812
Accrued interest 146,666 66,666
Accrued reclamation expense (Note 9(d)) 196,000 196,000
-------- --------
$904,568 $597,478
======== ========
<PAGE> F-10
5. CONVERTIBLE DEBENTURE
In July 1994, the Company issued a convertible callable debenture with
interest payable at the rate of 8.0% per annum on December 31 and June 30
each year. The debenture is unsecured and is due July 2, 1999, subject to
prior redemption or conversion. The debenture may be converted in whole or
in part by the holder into common shares of the Company at a conversion
price of $18.57 U.S. per share (the "Conversion Price"). In addition,
conversion of the debenture may be called by the company provided that the
average trading price of the Company's common stock has exceeded 125% of
the Conversion Price for the period of twenty consecutive trading days.
Financing fees paid related to the debenture have been deferred and are
being amortized on a straight line basis over the debenture term of 60
months. The Company did not make required payments of $80,000 on June
30,1998 and subsequent to year end on December 31, 1998. The Company was
granted a deferral of these payments based on monthly progress updates
until financing is in place. Total interest payable at November 30, 1998,
amounting to $146,666 has been recorded as a current liability.
6. SHARE CAPITAL
(a) Common Shares
By Special Resolution passed May 25, 1998, the Company consolidated its
85,512,218 common shares without par value into 8,551,222 common shares
without par value, each 10 shares being consolidated into 1 common shares.
By Special Resolution passed May 25, 1998, the Company increased its
authorized capital to 100,000,000 common shares without par value
(1997:10,000,000 common shares).
By special resolution passed on May 21, 1997, the Company subdivided its
75,000,000 common shares without par value into 80,769,230 common shares
without par value, each 13 shares being subdivided into 14 shares.
The effect of the 1:10 consolidation during 1998 and the 14:13 share split
during fiscal 1997 has been retroactively applied to all share capital
balances disclosed in this note.
(b) Director's Options
Directors options for 48,461 common shares originally granted in May of
1992, exercisable at Cdn. $3.44 per share and which were to expire June 1,
1997, were extended during the 1997 fiscal year to June 1, 2002. These
options were outstanding at November 30, 1998, 1997, and 1996.
In addition, the following director and employee options to purchase common
shares were granted in accordance with the provisions of the Company's 1994
Stock Option Plans. These options are exercisable until August 14, 2004 at
the exercise prices stated below, being the market price of the underlying
shares at the date of grant of the options.
Grant Date Granted Exercised Outstanding Price
---------- ------- --------- ----------- ------
December 12, 1994 118,462 118,462 $ 8.17
December 12, 1995 10,769 10,769 $ 4.55
December 12, 1996 10,769 10,769 $ 4.92
September 25, 1997 40,000 40,000 $ 4.00
December 12, 1997 10,000 10,000 $ 2.80
------- ---------- -----------
Totals 190,000 -- 190,000
======= ========== ===========
The Company accounts for stock compensation arising from options to
directors in accordance with APB No. 25. Under both option plans, the
exercise price of the options is equal to the market price of the
underlying shares on the date of grant of the options. Therefore no
compensation cost arises when the options are granted. If, at the time of
any alteration to the terms of an option, the market price of the Company's
shares exceeds the exercise price of the option at that date, then this
excess is credited to share capital and expensed over the term of the
service period.
Had the compensation cost for these directors options been determined based
on fair value at the grant dates, consistent with the requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation", the Company's net loss and loss per share
During fiscal 1998, the Company issued 10,000 options to directors. Each
option is exercisable at $2.80 and entitles the holder to acquire one
common share of the Company.
<PAGE> F-11
(c) Warrants
In conjunction with the private placement of common shares the Company has
issued and has outstanding at November 30, 1998, the following share
purchase warrants. Eash share purchase warrant entitles the holder to
acquire one common share of the Company.
<TABLE>
<CAPTION>
Balance Issued Exercised Canceled Outstanding Exercise Expiry
Nov. 30,1997 in 1998 in 1998 in 1998 Nov. 30,1998 Price Date
- ------------ --------- --------- --------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <S>
215,385 215,385 $3.90 Mar99
38,200 38,200 2.00 Sep99
51,000 51,000 2.00 Sep99
36,000 36,000 3.00 Oct99
100,000 100,000 -- 2.80 Aug99
60,000 5,000 55,000 1.70 Sep99
250,000 250,000 -- 1.00 Mar98
250,000 250,000 2.20 Mar00
250,000 250,000 -- 1.00 Jun98
250,000 250,000 2.20 Mar00
200,000 200,000 0.25 Jun00
140,000 140,000 0.30 Aug00
216,667 216,667 0.18 Sep00
533,334 533,334 0.20 Sep00
800,000 800,000 0.20 Oct00
------- --------- ------- ------- ---------
500,585 2,890,001 255,000 350,000 2,785,586
======= ========= ======= ======= =========
</TABLE>
(d) Contract Employee Options
From time to time, the Company issues options for the purchase of common
shares to selected part time independent contract employees as sole
compensation for contracted services. The options are exercisable either at
the date the options are granted, or in increments over the terms of the
employment contracts.
The Company accounts for stock compensation arising from these options in
accordance with Statement of Financial Standards No. 123, "Accounting for
Stock Based Compensation". Under this statement, stock compensation cost to
contract employees is measured at the grant date of the stock option based
on the value of the award and is recognized over the service period.
The following contract employee stock options were granted, exercised,
canceled and expired during the years ended November 30, 1996, 1997, and
1998 and were outstanding at these dates:
Weighted Average
Number of shares Exercise Price
---------------- ----------------
Outstanding at November 30, 1995 140,512 $ 4.55
Granted 2,136,615 $ 3.90
Exercised (1,943,846) $ 3.71
Expired or canceled (23,073) $ 7.15
Outstanding at November 30, 1996 310,208 $ 5.20
Granted 397,385 $ 1.67
Exercised (365,077) $ 1.30
Expired or canceled (279,623) $ 5.29
Outstanding at November 30, 1997 62,892 $ 4.83
Granted 50,000 $ 2.80
Exercised -- $ --
Expired or canceled (43,400) $ 4.55
Outstanding at November 30, 1998 66,154 $ 3.48
The estimated weighted average fair value of options granted during the
year was prepared assuming a risk-free rate of 6% (1997: 6%), an expected
volatility of 57% (1997: 57%), an expected dividend yield of 0% (1997: 0%)
and a weighted average life of 3 months (1997: 3 months). The estimate was
made using the Black-Scholes Pricing Model. The weighted average remaining
contractual life of the options outstanding at November 30, 1998 was 2
months (1997: 1 months).
<PAGE> F-12
(e) Other Share Transactions
The Company issued the following common shares for cash by way of private
placements during the year ended November 30, 1998.
Issued Issue Gross Less: Fees or Net Cash
in 1998 Price Proceeds Commission received on Issue
--------- ----- -------- ---------- -----------------
400,000 0.20 $ 80,000 $ $ 80,000
280,000 0.25 70,000 70,000
433,334 0.15 65,000 65,000
533,334 0.15 80,000 16,000 64,000
800,000 0.15 120,000 26,000 94,000
--------- -------- ---------- -----------------
2,446,668 $415,000 $ 42,000 $ 373,000
========= ======== ========== =================
The Company has reserved 107,692 shares for issuance upon the potential
conversion of a convertible debenture.
7. RELATED PARTY TRANSACTIONS
The Company has had related party transactions with Tri-Con Mining Ltd.,
Tri-Con Mining Inc., Tri-Con Mining Alaska Inc. collectively the "Tri-Con
Mining Group"; and Anselmo Holdings Ltd., all of which are controlled by a
director of the Company, and Kintana Resources Ltd., a company related by
virtue of common directors.
The Tri-Con Group are operations, exploration and development contractors,
and have been employed by the Company under contract since 1972 to carry
out all its field work and to provide administrative and management
services. Under the current contact of January, 1997, work is charged at
cost plus 15% for operations and cost plus 25 percent for exploration and
development. Cost includes a 15 percent charge for office overhead.
Services of the directors of the Tri-Con Group are charged at a rate of
Cdn. $75 per hour. Services of the directors of the Tri-Con Group who are
also Directors of the Company are not charged. At November 30, 1998, the
Company had paid $363,667 (1997:$366,303) to the Tri-Con Group for
exploration, development and administration services to be performed during
fiscal 1999 on behalf of the Company.
The aggregate amounts paid to the Tri-Con Group each year by category,
including amounts relating to the Grant Mine Project and Nolan properties,
for disbursements and for services rendered by the Tri-Con Group personnel
working on the Company's projects, and including interest charged on
outstanding balance at the Tri-Con Group's borrowing costs are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operations and Field Services $ 192,706 $ 277,479 $ 715,558
Exploration and Development Services 1,160,169 2,190,240 596,561
Administrative and Management Services 321,513 992,646 323,108
---------- ---------- ----------
$1,674,388 $3,460,365 $1,635,227
---------- ---------- ----------
Amount of total charges in excess
of Tri-Con costs incurred $ 248,858 $ 395,240 $ 163,493
Excess amount charged as a
percentage of actual costs incurred 17.5% 12.8% 11.1%
</TABLE>
During fiscal 1997, the Company advanced $480,236 to the Tri-Con Group
secured by that portion of the 2,119,834 common shares of the Company owned
by Tri-Con which is sufficient to fully amortize the advance given the
trading price of the stock.
During fiscal 1998, the Tri-Con Group sold all of the 2,119,934 common
shares held in the Company for net proceeds of $225,448. The Company
received $225,448 from the Tri-Con Group as part payment of the $480,236
advance receivable at November 30, 1997. The remaining unpaid amount was
reclassified during the year to prepaid expenses.
In 1989, the Company assigned its interest in and obligations related to
the Eagle Creek property to Can-Ex Resources (U.S.), Inc., a subsidiary of
Kintana Resources Ltd., for a net profit interest from production of 15% to
a maximum of $5,000,000 U.S. In 1997, Can-Ex was dissolved, and at that
time the net-profits obligation was assumed by its parent, Kintana
Resources Ltd.
Anselmo Holdings Ltd. has a right to 10 percent of net profits derived from
the French Peak Property.
<PAGE> F-13
8. INCOME TAXES
Tax effects of temporary differences that give rise to deferred tax assets
at November 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net operating loss carry forward $ 5,602,000 $ 7,219,900
Valuation allowance (4,980,000) (2,040,000)
------------ -------------
Net deferred tax assets 622,000 5,179,900
Deferred tax liability
Temporary differences arising from mineral (622,000) (5,179,900)
properties and building, plant and equipment ------------ -------------
Net deferred tax asset $ -- $ --
============ =============
</TABLE>
At November 30, 1998, the Company has the following losses carried forward
available to reduce future years' income for U.S. income tax purposes. The
tax effect of these losses has not been recorded in the accounts.
Available Losses Carried
Until Forward
--------- --------------
1999 $ 667,000
2000 1,235,000
2001 2,749,000
2002 1,178,000
2003 1,504,000
2004 1,161,000
2005 742,000
2006 431,000
2007 747,000
2008 2,101,000
2009 2,011,000
2010 2,786,000
2011 1,781,000
2012 1,596,000
2013 1,050,000
--------------
$ 21,739,000
==============
Income tax expense attributable to net losses for the year ended November
30, 1998 was nil(1997:nil). The differences between the total income tax
benefit from operations and the income tax from operations and the income
tax expense (benefit) computed using the Federal income tax rate of 34%
(1997:34%) were as follows:
1998 1997
------------ -----------
Computed "expected" tax benefit $ (357,000) $ (542,600)
Tax loss expired during the year 1,974,900 335,600
Change in valuation allowance 2,940,000 (434,600)
Change in temporary difference during year (4,557,900) 641,600
------------ -----------
Effective tax rate $ 0% $ 0%
9. COMMITMENTS AND CONTINGENCIES
(a) Office Lease
On January 20, 1994, the Company entered into a lease agreement for office
premises for a term of 10 years commencing April 1, 1994, with an
approximate annual rental of $120,000 (Cdn) including operating costs.
(b) Equipment Leases
During 1994 and 1995 the Company entered into capital leases for mining
equipment with the following future minimum lease payments:
1998 1997
------------ -----------
Total minimum lease payments $ -- $ 98,212
Less: interest payable -- (6,722)
------------ -----------
-- 91,490
Less: current portion -- (81,749)
------------ -----------
$ -- $ 9,741
============ ===========
During the year the Company sold the mining equipment and repaid the lease
payments due.
<PAGE> F-14
(c) Severance Agreements with Directors
The Company has entered into compensation agreements with the three
directors of the Company. The agreements provide for severance arrangements
where a change of control of the Company occurs, as defined, and the
directors are terminated. The compensation payable to the directors
aggregates $4,200,000 (1997: $4,200,000) plus the amount of annual bonuses
and other benefits that they would have received in the eighteen months
following termination.
(d) Reclamation
The Company's operations are affected by Federal, state, provincial and
local laws and regulations regarding environmental protection. The Company
estimates the cost of reclamation based primarily upon environmental and
regulatory requirements. These costs are accrued annually and the accrued
liability is reduced as reclamation expenditures are made. Details of the
Company's accrued liability at November 30, 1998 and 1997 are as follows:
1998 1997
---------- ----------
Balance, beginning of year $ 196,000 $ 70,000
Cost incurred in year (60,575) (87,480)
Amount expensed in year 60,575 213,480
---------- ----------
Balance, end of year $ 196,000 $ 196,000
========== ==========
(e) Litigation
A former employee of the Tri-Con Group has initiated a claim against that
company for wrongful dismissal/breach of contract in the amount of
$150,000. The Company has been named as a co-defendant in the suit. No
provision for this litigation has been made in these financial statements
and the amount of the loss, if any, for this lawsuit, would be accounted
for prospectively.
(f) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using the year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effect of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
10. SUBSEQUENT EVENTS
(a) On December 23, 1998, the Company issued 866,667 units at $0.15 per
unit by way of a non-brokered placement for gross proceeds of $130,000.
Each unit consists of one common share and one share purchase warrant. Each
share purchase warrant entitles the holder to acquire an additional common
share at an exercise price of $0.20 for a two year period.
(b) On December 31, 1998, the Company did not make a required interest
payment of $80,000 on the Convertible Debenture issued in July 1994 (Note
9(5)). The Company was granted a deferral of this repayment, and the
$80,000 unpaid interest that was due on June 30,1998 (Note 5) based on
monthly progress updates until financing is in place.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SILVERADO GOLD MINES LTD.
Date: April 27, 1999 By: /s/ G.L. Anselmo
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G.L. Anselmo, President, CEO, and CFO
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<NAME> Silverado Gold Mines Ltd.
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