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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number 0-14329
CANYON RESOURCES CORPORATION
(a Delaware corporation)
84-0800747
(I.R.S. Employer Identification No.)
14142 Denver West Parkway, Suite 250, Golden, Colorado 80401
Registrant's telephone number: (303) 278-8464
Securities registered on The American Stock Exchange
pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
and Warrants to Purchase Common Stock
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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 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. [X]
The aggregate market value of the 35,135,031 shares of the registrant's voting
stock held by non-affiliates on March 10, 1997, was approximately $118,580,730.
At March 10, 1997, there were 37,538,138 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K is incorporated herein by
reference to the registrant's definitive Proxy Statement relating to its 1997
Annual Meeting of Stockholders which will be filed with the Commission within
120 days after the end of the registrant's fiscal year.
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CANYON RESOURCES CORPORATION
FORM 10-K
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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ITEM
NUMBER PAGE
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PART I
1. Business 1
2. Properties 8
3. Legal Proceedings 25
4. Submission of Matters to a Vote of Security Holders 26
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 27
6. Selected Financial Data 28
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 29
8. Financial Statements 36
9. Disagreements on Accounting and Financial Disclosure 59
PART III
10. Directors and Executive Officers of the Registrant 60
11. Executive Compensation 60
12. Security Ownership of Certain Beneficial Owners and Management 60
13. Certain Relationships and Related Transactions 60
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 61
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PART I
ITEM 1. BUSINESS
GENERAL
Canyon Resources Corporation, a Delaware corporation (the Company or
Canyon), is a Colorado-based company which was organized in 1979 to explore,
acquire, develop, and mine precious metal and other mineral properties. The
Company or Canyon is used herein to refer to all of the wholly owned and
majority-owned subsidiaries of Canyon Resources Corporation. Since 1986 the
Company has been a reporting company. Its securities were traded on NASDAQ
until August 16, 1996. On August 19, 1996, the Company listed its shares for
trading on The American Stock Exchange.
The Company is involved in all phases of the mining business from
early stage exploration, exploration drilling, development drilling,
feasibility studies and permitting, through construction, operation and final
closure of mining projects.
Canyon has gold and industrial mineral production operations in the
western United States, and conducts exploration activities in the search for
additional valuable mineral properties in the western United States and in a
number of areas throughout Latin America and Africa. The Company's exploration
and development efforts emphasize precious metals (gold and silver) and
industrial minerals.
Once acquired, mineral properties are evaluated by means of geologic
mapping, rock sampling, and geochemical analyses. Properties having favorable
geologic conditions and anomalous geochemical results usually warrant further
exploration by the Company. In almost all cases, exploration or development
drilling is required to further test the mineral potential of a property.
Properties which have a demonstrated inventory of mineralized rock of
a potentially economic nature are further evaluated by conducting various
studies including calculation of tonnage and grade, metallurgical testing,
development of a mine plan, environmental baseline studies and economic
feasibility studies. If economics of a project are favorable, a plan of
operations is developed and submitted to the required governmental agencies for
review. Depending on the magnitude of the proposed project and its expected
environmental impact, a vigorous environmental review may be required prior to
issuance of permits for the construction of a mining operation.
The Company conducts a portion of its mineral exploration and
development through joint ventures with other companies. The Company has also
independently financed the acquisition of mineral properties and conducted
exploration and drilling programs and implemented mine development and
production from mineral properties in the western United States and exploration
programs in Latin America and Africa. (See "Item 2 - Properties.")
The Company is continually evaluating its properties and other
properties which are available for acquisition, and will acquire, joint
venture, market to other companies, or abandon properties in the ordinary
course of business subsequent to the date hereof.
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OPERATIONS
During 1996, the Company depleted all economic gold and silver from
its Kendall Mine near Lewistown, Montana, as the mine went into reclamation.
The last new ore at Kendall had been placed on a leach pad in January, 1995.
Residual leaching and final rinsing of spent ore in the heaps resulted in the
production of 3,607 ounces of gold and 1,762 ounces of silver during 1996.
Extensive reclamation activities, such as recontouring the waste-rock piles and
covering them with topsoil and revegetating abandoned areas, occurred at
Kendall during 1996. As of January 1, 1997, no further recoverable gold
remained in the two leach pads. (See "Item 2 - Properties - Production
Properties - Kendall Mine.")
In 1996, the Company, through its wholly owned subsidiary, CR Minerals
Corporation, expanded its industrial minerals activities with the acquisition
of a pumice and volcanic glass processing facility in Santa Fe, New Mexico.
Ore is purchased from two separate mining companies and processed into various
products for use in numerous applications. CR Minerals also markets
diatomaceous earth, or diatomite, which is an industrial mineral that has a
wide variety of uses. Mining and processing of the diatomite occur in western
Nevada and marketing of the products is carried out in the Unites States and
internationally. (See "Item 2 - Properties - Production Properties - Fernley
Operation and Santa Fe Operation.")
During 1996, approximately 74% of the Company's revenue was derived
from its industrial minerals activities. In 1997, as production commences from
the Briggs Mine, it is anticipated that approximately 80% of revenues will be
derived from precious metals and approximately 20% from industrial minerals.
In subsequent years, it is anticipated that the Briggs Mine will also dominate
production revenues until the McDonald project or other projects are placed
into production.
FINANCING
On March 26, 1996, the Company completed a private placement in the
amount of $12.1 million ($11.2 million net of expenses). The offering was
completed at a price of $3.00 per unit which included one share of common stock
(4,034,333 total shares) and one-half warrant (2,017,167 total warrants). Each
whole warrant entitles the holder to purchase one share of common stock at an
exercise price equal to $3.75 per share. The warrants expire on March 25,
1999. A warrant to purchase 300,000 shares of common stock was issued to the
Company's underwriter and financial advisor in connection with the private
placement at the same terms and conditions. The Company filed a Registration
Statement under the Securities and Exchange Act of 1933 in respect of the
common shares, the warrants, and the common shares underlying the warrants
which was declared effective on May 14, 1996.
During 1996, warrants to purchase common stock from previous
financings were exercised at prices ranging from $2.875 per share to $3.50 per
share, resulting in proceeds to the Company of $3.0 million.
On December 6, 1995, CR Briggs Corporation, a wholly owned subsidiary
of the Company, obtained a mine financing for development of the Briggs Mine in
Southern California. The financing was completed by Banque Paribas, Bayerische
Vereinsbank AG, and NM Rothschild & Sons Limited and consists of a $34 million
credit facility. This facility is composed of 3 tranches: Tranche A is a $25
million gold loan, Tranche B is a $5 million cash loan, and Tranche C is a $4
million cost-overrun facility. Subject to certain conditions, the Company has
the right to convert loans of one type into loans of another type. Tranche A
portion of the facility consisted of borrowing 64,425 ounces of gold and
immediately selling those ounces at the then (December 21, 1995) current market
price of $388.05 per ounce to raise $25 million. Varying interest rate periods
can be selected at a rate of 2 1/8% plus the gold lease rate which floats with
the market. During 1996, the Company's effective interest rate on Tranche A
was 4.10%. Tranche B portion of the facility consists of a cash loan which is
in the amount of $5 million. Interest periods also vary at a rate of 4 1/8%
plus LIBOR.
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During 1996, the Company's effective interest rate on Tranche B was 9.92%. As
a result of higher than anticipated construction and working capital needs, the
Company contributed approximately $2.1 million toward the Mine's development in
1996 and expects to fully draw Tranche C in 1997, principally to fund a first
phase expansion of the leach pad. The interest rate for Tranche C will be
calculated in the same manner as that of Tranche B. The loan facility is
scheduled to be paid back over a six-year period from start of gold production.
The gold loan agreement contains, among other things, the following provisions:
1. Canyon Resources Corporation guarantees the gold loan
obligations of CR Briggs Corporation.
2. The loan facility is collateralized by a first mortgage lien
on the property, non-leased assets of CR Briggs Corporation
and a pledge of Canyon's stock in CR Briggs.
3. Mandatory prepayments of principal in reverse order of
maturity, are required out of 30% of excess cash flow, as
defined in the loan agreement.
4. Within 3 years of project completion, an additional 70,000
recoverable ounces of gold processable at the Briggs Mine
processing facility must be identified, or 100% of excess cash
flow will then be used to prepay principal.
5. Canyon Resources was required to deposit $2 million in an
escrow account which was subsequently used during the Mine's
development in 1996 to fund project cost overruns.
6. A condition of the loan agreement required that certain gold
hedging be undertaken to assure that a portion of the future
gold production costs are covered by such hedging. At
December 31, 1996, approximately 36% of the Briggs Mine
production from current reserves was hedged through forward
contracts totalling 185,100 ounces at prices ranging from $398
to $424 per ounce and put options totalling 19,500 ounces at a
price of $380 per ounce.
7. The loan agreement places limitations on additional
indebtedness during the term of the loan.
8. The Company is required to maintain a debt service reserve
account which is equal to 3 months of debt service requirement
funded out of project cash flow.
In addition to the gold loan facility described above, the Company
leased approximately $8.5 million of mining and electrical generation equipment
for the Briggs Mine from Caterpillar Financial Services. The equipment leases
generally have a 5-year term.
On June 2, 1993, the Company sold $22.0 million ($20.5 million after
expenses) of 6% Subordinated Convertible Notes (Notes) which were due June 1,
1998. The Notes were convertible at the option of the holder any time into
common shares at the rate of $3.45 per share. On or after June 1, 1996, the
Company could redeem the Notes by issuing common stock at a rate equal to 94%
of the then trading common stock price at the time of redemption, or by payment
in cash at par. On June 14, 1996, the Company gave notice to all holders of
record that Notes in the then aggregate principal amount of $21,075,000 would
be redeemed on July 12, 1996, by the issuance of common stock at a price equal
to $3.31 per share. The Company subsequently issued 6,346,100 shares in July,
1996, in connection with the call for redemption. Prior to the call for
redemption, $100,000 of principal was converted into 29,000 shares of common
stock in 1996, $725,000 of principal was converted into 210,1000 shares of
common stock in 1994. Interest payments in 1996, 1995, and 1994 totaled
$764,600, $1,289,300, and $1,317,100, respectively.
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On May 26, 1993, the Company obtained a $4.0 million gold loan and
$1.9 million Letter of Credit (Credit Facility) with N M Rothschild
(Rothschild). The Company eliminated the Letter of Credit over the term of the
Credit Facility by depositing equivalent cash with a financial institution.
The gold loan portion was monetized at $374.50 per ounce (10,681 ounces) and
was repaid by December 31, 1994, from gold production at the Kendall Mine in
varying quarterly installments beginning in the third quarter 1993.
Additionally, as part of the agreement, the Company issued to Rothschild a
warrant to purchase 200,000 shares of common stock at a price of $2.875 per
share. One-half of the warrant was exercised in 1993, and a replacement
warrant was issued for the remaining 100,000 shares which was subsequently
exercised in 1996.
As part of equity financings in 1990 and 1992, the Company issued
warrants to purchase 3,943,632 shares of common stock, exercisable at $3.50 per
share until December 31, 1994. The Company extended the expiration date of
these warrants to April 12, 1996. During 1996, 714,167 warrants were exercised
and 3,229,465 warrants expired unexercised.
AVAILABILITY OF MINERAL DEPOSITS; COMPETITION AND MARKETS
The Company continually explores for and obtains additional mineral
properties in order to secure gold deposits for future development. Gold
mineralization is found in many countries and in many different geologic
environments, and in most cases is accompanied by the presence of silver
mineralization. Country politics and tax structure are important criteria, as
well as the geologic favorability, in the decision to invest in exploration in
a country. Since many companies are engaged in the exploration and development
of gold properties and often have substantially greater technical and financial
resources than the Company, the Company may be at a disadvantage with respect
to some of its competitors in the acquisition and development of suitable
mining prospects. Mineral properties in an early stage of exploration, or not
currently being explored, are often relatively inexpensive to acquire;
therefore, the Company believes that the expertise of its staff and its ability
to rapidly evaluate and respond to opportunities allow it to compete
effectively with many companies having far greater financial resources. In
recent years the political environments in many countries of the world have
become favorable to investment in the mining industry. The Company believes
that, in particular, many of such countries in Latin America and Africa host
favorable geologic conditions for the occurrence of sizeable gold deposits.
For these reasons, the Company has expanded its exploration for gold, silver
and other precious metals from the Western United States to several countries
in Latin America and Africa.
In general, larger and higher grade gold deposits can be produced at a
lower cost per ounce than smaller and lower grade deposits. Also deposits that
can be mined by open pit methods usually can be exploited more economically
than those which must be mined by underground methods. The Company believes
that the Briggs gold deposit and the McDonald gold deposit will have production
costs close to or below the world-wide average for gold mines. There are
numerous large gold mining operations throughout the world owned by other
companies that are able to produce gold for a lower cost than the Company.
Demand for gold and other factors in the financial marketplace have more of an
impact on the gold price than does the production of larger, lower cost
producers. Therefore, the principal competitive factor for the Company is
acquiring suitable mining prospects rather than marketing gold.
CR Minerals, the Company's industrial minerals subsidiary, sells
various product types of diatomite, pumice and volcanic glass. Diatomite is a
naturally occurring amorphous silica composed of the skeletal remains of single
cell aquatic plants. The Company's diatomite deposits are located near
Fernley, Nevada. Since these deposits are of such a high quality and are of a
sufficient quantity to supply enough material to meet production and sales
forecasts for several decades, the Company does not actively explore for
additional diatomite deposits at the present time. The Company's diatomite
deposits have a high natural brightness which
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makes them suitable in many filler applications without calcination. Although
there are many diatomite deposits throughout the world, few of these have the
natural brightness to allow them to compete with the Company's products without
calcination. In addition to being an added expense, calcination of diatomite
greatly increases the crystalline silica content, which can create health
problems. (See "Item 2 - Properties - Production Properties - Fernley
Operation.")
Pumice is a type of volcanic rock characterized by a cellular
structure with a relatively low density. Ore is purchased from two separate
sources for processing at the plant in Santa Fe, New Mexico. The Company has a
supply agreement extending through 1998 with one of the suppliers, and
purchases ore on a spot basis from the second supplier. Ore from either of
these suppliers is an adequate feed for the various pumice and volcanic glass
products produced at the plant and as such the Company is not solely tied to
one supplier. (See "Item 2 - Properties - Production Properties - Santa Fe
Operation.")
The marketing of all minerals is affected by numerous factors, many of
which are beyond the control of the Company. Such factors include the price of
the mineral in the marketplace, imports of minerals from other nations, demand
for minerals, the availability of adequate refining and milling facilities, and
the market price of competitive minerals used in the same industrial
applications. The market price of minerals is extremely volatile and beyond
the control of the Company. Gold prices are generally influenced by basic
supply/demand fundamentals. The market dynamics of supply/demand can be
heavily influenced by economic policy, i.e., central banks sales/purchases,
political unrest, conflicts between nations, and general perceptions about
inflation. Fluctuating metal prices may have a significant impact on the
Company's results of operations and operating cash flow. Furthermore, if the
price of a mineral should drop dramatically, the value of the Company's
properties which are being explored or developed for that mineral could also
drop dramatically and the Company might not be able to recover its investment
in those properties. The decision to put a mine into production, and the
commitment of the funds necessary for that purpose, must be made long before
the first revenues from production will be received. During the last five
years, the average annual market price of gold has fluctuated between $344 and
$388 per ounce. Price fluctuations between the time that such a decision is
made and the commencement of production can change completely the economics of
the mine. Although it is possible to protect against price fluctuations by
hedging in certain circumstances, the volatility of mineral prices represents a
substantial risk in the mining industry generally which no amount of planning
or technical expertise can eliminate. The Company's practice has generally
been to sell its minerals at spot prices, unless price hedging was required in
connection with securing loan facilities. In connection with the Company
obtaining a loan facility for its Briggs Mine in 1995, a portion of the Mine's
production was hedged to ensure adequate cash flow for repayment of the
obligation. At December 31, 1996, approximately 36% of the Briggs Mine
production from current reserves was hedged through forward contracts totaling
185,100 ounces at prices ranging from $398 to $424 per ounce and put option
totaling 19,500 ounces at a price of $380 per ounce.
CUSTOMERS
During 1996, the Company sold its gold and silver production primarily
to one precious metal buyer. Given the nature of the commodities being sold
and because many other potential purchasers of gold and silver exist, it is not
believed that the loss of such buyer would adversely affect the Company. The
Company's industrial mineral products are sold to numerous customers and in
several markets, and the loss of any one customer would not materially affect
the Company's operations.
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ENVIRONMENTAL MATTERS
The exploration, development, and production programs conducted by the
Company in the United States are subject to local, state, and federal
regulations regarding environmental protection. Many of the Company's mining
and exploration activities are conducted on public lands. The U.S.D.A. Forest
Service extensively regulates mining operations conducted in National Forests.
Department of Interior regulations cover mining operations carried out on most
other public lands. All operations by the Company involving the exploration
for or the production of minerals are subject to existing laws and regulations
relating to exploration procedures, safety precautions, employee health and
safety, air quality standards, pollution of water sources, waste materials,
odor, noise, dust and other environmental protection requirements adopted by
federal, state, and local governmental authorities. The Company may be
required to prepare and present to such authorities data pertaining to the
effect or impact that any proposed exploration for or production of minerals
may have upon the environment. The requirements imposed by any such
authorities may be costly, time consuming, and may delay operations. Future
legislation and regulations designed to protect the environment, as well as
future interpretations of existing laws and regulations, may require
substantial increases in equipment and operating costs to the Company and
delays, interruptions, or a termination of operations. The Company cannot
accurately predict or estimate the impact of any such future laws or
regulations, or future interpretations of existing laws and regulations, on its
operations.
The United States has an extensive framework of environmental
legislation that undergoes constant revision. The Company participates in the
legislative process through independent contact with legislators and through
trade organizations to assist legislative bodies in making informed decisions.
Historic mining activities have occurred on certain properties held by
the Company. In the event that such historic activities have resulted in
releases or threatened releases of regulated substances to the environment,
potential for liability may exist under federal or state remediation statutes.
The Company is not aware of any pending claims under these statutes at this
time, and cannot predict whether any such claims will be asserted in the
future.
The Company has spent approximately $2.6 million on reclamation at the
Kendall Mine through December 31, 1996, and expects to spend approximately $1.4
million during 1997 and a further $1.6 million beyond 1997 through mine
closure. At December 31, 1996, the Company has fully accrued for its remaining
anticipated reclamation expenditures. The Company currently maintains a $1.9
million bond with the Montana Department of Environmental Quality to ensure
appropriate reclamation.
The Briggs Mine operates under a number of permits issued by state,
local and federal agencies. Moreover, the Company was required to post a
$3,030,000 reclamation bond to ensure appropriate reclamation and a $1,010,000
bond to ensure adequate funds to mitigate any "foreseeable release" of
pollutants to state waters. Certain of these permits are the subject of
ongoing litigation described in detail under "Item 3 - Legal Proceedings."
The cost of acquiring permits for the McDonald project could exceed
$12.0 million ($3.3 million to the Company). The Blackfoot River, which flows
within a mile of the McDonald project, has received extensive publicity in the
environmental press. Compliance with existing federal and state laws will
insure that the McDonald project will not cause undue harm to the river. The
Company cannot accurately predict or estimate the level of publicity or
environmental activism that could arise around the project, nor can it predict
what effect, if any, such publicity or activism will have on the ability to
bring this project into operation.
Environmental regulations add to the cost and time needed to bring new
mines into production and add to operating and closure costs for mines already
in operation. As the Company places more mines into
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production, the costs associated with regulatory compliance can be expected to
increase. Such costs are a normal cost of doing business in the mining
industry, and may require significant capital expenditures in the future.
Additional information and the potential effects of environmental regulation on
specific Company properties are described in "Item 2-Properties."
To date, the Company has done only minor work on its Latin American
and African properties which involved surface disturbance. A limited amount of
hand trenching has been conducted and reclaimed on one Brazilian property.
Hand dug and mechanical trenching has been conducted on one property in
Ethiopia. Although some of the countries in which the Company works have not
as yet developed environmental laws and regulations, it is the Company's policy
to adhere to North American standards in our foreign operations. The Company
cannot accurately predict or estimate the impact of any future laws or
regulations developed in foreign countries on our operations.
EMPLOYEES
As of March 1, 1997, the Company and its wholly-owned subsidiaries
employed 176 persons, which number may adjust seasonally. None of the
Company's employees are covered by collective bargaining agreements.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS & GOVERNMENT
CONTRACTS
Other than (i) interests in mining properties granted by governmental
authorities and private landowners; and (ii) the use of the trade name "DiaFil"
for the marketing of its diatomaceous earth products, and "SafSil" for
marketing its fine-grained volcanic ash products and "Navajo Brand" for
marketing its coarse-grained pumice products, the Company does not own any
material patents, trademarks, licenses, franchises or concessions.
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ITEM 2. PROPERTIES
PRODUCTION PROPERTIES
BRIGGS PROJECT
General
The Briggs project, located on the west side of the Panamint Range
near Death Valley, California, was acquired by the Company in 1990. It is 16
miles northeast of Trona and 35 miles northeast of Ridgecrest in Inyo County,
California. Access from Trona is by 33 miles of paved and graded gravel roads.
The Company owns or controls, through leasehold interests, 100% of the Briggs
Mine, subject to a 2% net smelter return royalty.
Briggs' holdings include 784 unpatented mining claims, 70 mill site
claims, 1 tunnel site claim, 53 unpatented placer mining claims, 1 patented
millsite claim, and 2 patented mining claims that comprise an area of
approximately 17,176 acres. The passage of the California Desert Protection
Act in 1994 removed all of the Company's holdings from Wilderness Study Areas.
Canyon's mining claims are now located on land prescribed for limited use
management by the U.S. Bureau of Land Management. Patent applications were
filed for certain claims on the Briggs deposit during 1993; however, no
assurances can be made that these patents applications will be issued.
Exploration and Development
At the turn of the century, numerous small gold mines and prospects
were active along the western slope of the Panamint Range, but all activity
stopped by World War II. Since the resurgence of gold exploration in the
western United States during the last 20 years, gold production in the Panamint
Range resumed intermittently on a small scale from two high-grade deposits.
Moreover, in the past several years, other companies have conducted exploration
and drilling programs on mining claims either within the perimeter of the
Briggs claim block or on its periphery.
Significant gold mineralization occurs within the Briggs claim block
along a six-mile long trend that includes the Briggs, Cecil R, Jackson, and
Gold Tooth prospects. In 1991, considerable drilling and exploration was
conducted in each of these areas. During 1996, exploration activities were
limited to the area encompassed by the Briggs ore body and were essentially
complete in October, 1996.
Through the end of 1996, a total of 178,000 feet of drilling in 525
holes had been completed at Briggs Mine area for exploration, condemnation,
metallurgical, and environmental purposes. The development drilling, on
approximately 100 foot centers, had defined 805,000 ounces of gold, contained
within 32.2 million tons of mineralized rock with an average grade of 0.025
ounce of gold per ton, using a cutoff grade of 0.01 ounce of gold per ton.
The Company completed a definitive Feasibility Study in February,
1994. Roberts & Schaefer Company of Salt Lake City, Utah, was retained to
conduct a "Fatal Flaw Review" of all aspects of the Feasibility Study with the
exception of ore reserves, mine plan, mining capital and operating costs, land
status, permitting, and environmental issues. Roberts & Schaefer Company also
prepared the Executive Summary for the Feasibility Study. Mine Reserves
Associates, Inc. of Wheat Ridge, Colorado, was retained to conduct the "Fatal
Flaw Review" of the ore reserves, mine plan, and mining capital and operating
costs. Remy and Thomas, Attorneys at Law, of Sacramento, California, reviewed
the environmental and permitting aspects of
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the Feasibility Study. Chamberlin & Associates of Littleton, Colorado, provided
an additional opinion on the gold recovery. The "Fatal Flaw Reviews" concluded
that the Briggs Gold Project is technically and economically feasible.
The Feasibility Study, augmented by the Company's economic update in
August of 1995, indicates that approximately 21.9 million tons of the Briggs
deposit can be mined economically at a $375 gold price. The 21.9 million tons
of mineable ore have an average grade of 0.030 ounce gold per ton, and contain
653,000 ounces of gold with a strip ratio of 1.7:1 (waste tons to ore tons).
The Briggs Mine is an open-pit, heap-leach operation, which is
designed to produce an average of 75,000 ounces of gold over an initial
seven-year mine life. The ore is crushed in three stages to a minus 1/4 inch
size and is conveyor stacked on the leach pad. The Feasibility Study
anticipates a 78% recovery of the gold contained in the ore upon heap leaching.
The gold is recovered from leach solutions in a carbon adsorption plant and
refined in gold-silver dore bars on site.
With the completion of permitting and financing, construction of mine
facilities began on December 16, 1995. The facilities include a 12,000 ton per
day crushing plant, leach pad, process ponds, recovery plant, office and lab
buildings, and a truck shop. Crushing of ore commenced on July 29, 1996, and
first gold production occurred on October 16, 1996. Limited gold production
occurred through the remainder of 1996, yielding 3,417 ounces of gold. Full
commercial production is expected in the first half of 1997.
Statistical production data for the start up year of 1996, follows:
<TABLE>
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PRODUCTION 1996
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Tons Mined (waste and ore) 5,516,600
Tons Ore Mined 798,300
Gold Grade of Ore (oz/ton) 0.043
Strip Ratio (tons waste/tons ore) 5.9:1
Gold Production (oz) 3,417
Silver Production (oz) 654
Recoverable Gold Inventory (oz) 24,267
</TABLE>
Environmental Regulation
In 1995 the U.S. Bureau of Land Management (BLM) and Inyo County, as
co-lead agencies, completed a joint Environmental Impact
Statement/Environmental Impact Report (EIS/EIR) on the Briggs Project.
Subsequently, those agencies, as well as several other agencies, issued permits
to the Briggs Project. The Briggs Mine operates under the requirements of the
following permits and agencies: 1) Plan of Operations, U.S. Bureau of Land
Management: 2) Mining and Reclamation Plan, Inyo County; 3) Waste Discharge
Requirements, Lahontan Regional Water Quality Control Board; 4) Permits to
Construct and Permits to Operate, Great Basin Unified Air Pollution Control
District; and 5) Section 404 Dredge and Fill Permit, Army Corps of Engineers.
Excepting permits issued by the air quality authority which require certain
actions following project construction, the permits issued to date are adequate
for all mine operations involving currently identified mineable reserves. A
local environmental group, allied with the Timbisha Shoshone Indian Tribe
(collectively Appellants), has initiated various actions in opposition to the
Briggs permits. The Company has prevailed in all actions at the administrative
and trial court level. Appellants have appealed certain trial court rulings.
These actions are more fully described under "Item 3 - Legal Proceedings." At
present these
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<PAGE> 12
legal actions are having no effect on activities at the mine. No assurances
can be given regarding the outcome of these actions or the effects those
outcomes might have on the Company's ability to operate the mine.
The BLM, Inyo County, the California Department of Conservation, and
the Lahontan Regional Water Quality Control Board (Lahontan) have jointly
required the Company to maintain a $3,030,000 reclamation bond to ensure
appropriate reclamation of the Briggs Mine. Additionally, Lahontan requires
that the Company maintain a $1,010,000 bond to ensure adequate funds to
mitigate any "foreseeable release" of pollutants to state waters. These bonds
are subject to annual review and adjustment.
In 1994 the United States Congress passed the California Desert
Protection Act (CDPA), resolving surface management classifications for large
portions of BLM managed lands in the desert areas of California. The passage
of the CDPA released lands around the Briggs Project for multiple use
management, significantly reducing constraints on exploration and mine
operations.
KENDALL MINE
General
The Kendall Mine near Lewistown, Montana, was developed as an
operating open-pit, heap-leach gold mine in September, 1988, under the
management of the Kendall Venture, a joint venture between the Company and
Addwest Gold, Inc. (Addwest). On January 26, 1990, the Company acquired all
of the issued and outstanding common stock of Addwest and through its wholly
owned subsidiary, CR Kendall Corporation, became the operator and sole owner of
the operating interest in the Kendall Mine.
Through 1995, the Kendall Mine operation leached gold and silver from
crushed ore on a year-round basis. Mining and crushing of all remaining ore
was completed in January, 1995. Leaching of the remaining gold in the heap
leach pads continued through 1996. All economic gold has now been recovered,
and leaching is being done to reduce reagent and solution levels, as part of
the reclamation process.
Operations
The Kendall Mining District is located approximately 20 miles north of
Lewistown, Montana, and is accessible by paved U.S. highway and graded dirt
roads. The property rights controlled by the Company include (i) approximately
253.61 acres in patented claims and fee land; (ii) mining leases on
approximately 1,932 acres in 71 patented mining claims and fee land. The
recovery facilities include a 1.6 million ton heap leach pad and a 9 million
ton heap leach pad of crushed ore which are still undergoing leaching, process
ponds for retention of barren and pregnant solutions, a 1,000 gpm carbon
adsorption plant, a complete assay laboratory, and facilities for production of
gold-silver dore bars.
Mining operations were terminated in January, 1995, with the
exhaustion of the known orebodies. The Kendall Mine produced 3,607 ounces of
gold and 1,762 ounces of silver during 1996. As of January 1, 1997, no
economically recoverable gold remained in the two leach pads.
The two heaps on leach pads are being rinsed by circulating water
through them to eliminate residual cyanide. Once the cyanide is reduced to
applicable standards, the process plant will be converted to a water treatment
plant and will be used to remove other chemicals from the process water prior
to discharge. Once the process water is removed from the system, the heaps
will be recontoured, covered with an engineered cap, and revegetated. The
Company is currently evaluating water treatment technologies and intends to
convert the process plant to a water treatment plant in 1997.
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Statistical production and financial data of the Kendall Mine for the
period from 1992 through 1996 are shown on the following table.
KENDALL MINE OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
PRODUCTION
<S> <C> <C> <C> <C> <C>
Tons Mined (waste and ore)(000) - 45 7,570 6,183 7,117
Tons Ore Mined (000) - 21 1,588 1,737 1,546
Gold Grade of Ore (oz/ton) - 0.079 0.044 0.049 0.059
Actual Strip Ratio (tons waste/tons ore) - 1.1:1 3.8:1 2.6:1 3.6:1
Gold Production (oz) 3,607 16,624 48,391 54,203 59,857
Silver Production (oz) 1,762 7,429 22,503 29,218 18,229
Recoverable Gold Inventory (oz) - 7,000 20,608 13,344 14,420
(unleached gold in heap and ore stockpile)
FINANCIAL (NET TO CANYON)
Ounces of Gold Sold1 3,269 16,386 45,877 51,113 56,665
Average Gold Price Realized ($/oz) 392 386 374 353 376
Revenue From Mine Operations ($000) 1,282 6,331 17,154 18,027 21,288
Operating Cost/Ore Ton Mined ($)(2) - (3) - (3) 6.87 6.55 7.67
Operating Cost/Gold Ounce Sold ($)(2) - (5) 362 238 223 209
Operating Earnings ($000) - (5) 391(4) 6,240 6,650 9,432
Capital Expenditures ($000) - 168 477 1,115 1,551
</TABLE>
(1) Gold production net to Canyon after payment in kind of 5% royalty.
(2) Includes royalty, severance taxes, overhead, and reclamation reserve.
(3) Not meaningful, as active mining of new ore ceased in January, 1995.
(4) Prior to provision for final site restoration of $1.1 million.
(5) Not meaningful due to low production levels.
Environmental Regulation & Reclamation
The Kendall Mine operates under permits issued by the Montana Department
of Environmental Quality (DEQ) and other regulatory agencies. A life of mine
permit was granted by these agencies on November 1, 1989. In 1996 the Company
completed a land exchange with the U.S. Bureau of Land Management (BLM), in
which, the Company received about 150 acres of BLM land within the Kendall Mine
permit area in return for about 120 acres outside the permit area. The BLM no
longer holds regulatory authority over the Kendall Mine. The Company is
negotiating details of final mine closure with the DEQ. DEQ has approved the
portions of the closure plan related to recontouring, revegetation, and
drainage. Discussions of water treatment and disposal and heap closure methods
continue.
In early 1996, the Company installed a system to capture and collect
drainage from certain mine facilities. The DEQ, the Environmental Protection
Agency, and the Company have inspected the system subsequent to its initial
installation and have agreed on system improvements which have been completed.
The Company will maintain, monitor, and, if necessary, improve the system until
the DEQ determines that the system is no longer needed.
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<PAGE> 14
The Kendall Mine uses internal and external technical experts to monitor
and insure environmental compliance. The Company believes the operation is
currently in material compliance with all environmental and safety regulations.
The Montana Department of Environmental Quality requires that the Company
maintain a $1,869,000 reclamation bond to ensure appropriate reclamation of the
Kendall Mine. Reclamation has been ongoing throughout the life of the
operation. Disturbed areas are contoured and topsoil is replaced and reseeded
as soon as possible. During 1996, approximately 61 disturbed acres were
reclaimed, an additional 2 acres were recontoured and prepared for reclamation,
and no additional acres were disturbed. The Company's reclamation expenditures
in 1996 were approximately $1.1 million, primarily related to recontouring
waste dumps, topsoil placement, revegetation, and improved drainage and
sediment controls.
Final reclamation will require disposal of process water, recontouring of
spent ore heaps, roads and other areas and redistribution of topsoil and
reseeding of some disturbed areas. Bond release on the property will only take
place once the regulatory agencies have given final approval to all closure
measures and are satisfied that the mine has met all reclamation requirements.
There is no assurance of agency satisfaction with mine closure.
FERNLEY OPERATION
The industrial mineral activities of the Company are conducted through
its wholly owned subsidiary, CR Minerals Corporation. The Company produces and
markets diatomite under the trade name of DiaFil and sells the product both by
a distributor network as well as directly to customers. Diatomite or
diatomaceous earth consists of siliceous skeletal remains of single cell
aquatic plants. The unique properties of diatomite allow it to be used in a
wide variety of applications. The main characteristics of diatomite that are
important to its use in industrial products are unique structure, large surface
area, high absorption of liquids, mild abrasive qualities, low bulk density,
low thermal conductivity, chemical inertness, high silica content, and low
impurities. Diatomite is used to manufacture a broad variety of industrial
materials, such as paints, plastics, asphalt coatings, insecticides,
fertilizers, and polishes. In addition, the Company has undertaken research as
to the uses of diatomite in poultry and livestock feed. The Company has
developed a wide range of diatomite products. These products are
differentiated based on particle size distribution, which yields different
physical properties.
CR Minerals has established a distributor network in the United
States, Canada, and throughout the world for assisting in the marketing of its
diatomite. These distributors sell into the nonagricultural markets - paint,
plastics, asphalt coatings, and other filler applications. Currently CR
Minerals sells directly to agricultural users and wholesalers. CR Minerals
maintains its administrative offices in Golden, Colorado. Sales orders are
placed at this office and transferred to the Fernley production site in Nevada
after scheduling the shipping date. Accounting, inventory control,
transportation, and billing are handled in Golden.
CR Minerals conducts mining and hauling with its own equipment and
staff. The diatomaceous earth ore is mined from an open-pit and hauled by
truck approximately 15 miles to the diatomite plant in Fernley, Nevada.
Initially the diatomite is crushed to aggregate size, and then simultaneously
milled and dried in a high volume stream of hot air. The dried diatomite is
collected in cyclones for subsequent size classification by mechanical means or
air classification. The coarser and denser accessory minerals are removed, and
the diatomite particles can then be segregated by size fraction. Generally,
the finer the size fraction, the higher the value. The processing facility has
a capacity of 40,000 tons per year of processed diatomite and can load finished
product in bulk rail cars, bulk bags, or standard 50 and 55 pound bags which
can be shipped by rail, truck, and as ocean cargo. The processing facility has
been in operation since the 1950's. Since acquisition
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<PAGE> 15
in 1987, the Company has made capital improvements including additional air
classification equipment, storage bins, bulk bag loading facilities, new
laboratory and warehouse facilities. Ample diatomite reserves exist for over
25 years' production at near capacity rates.
The plant produces a natural diatomite product that is composed mainly
of noncrystalline silica. DiaFil products typically contain less than 1%
crystalline silica. Competitive calcined diatomite products contain up to 65%
crystalline silica. Long-term exposure to crystalline silica is believed to
cause pneumoconiosis or fibrotic lung disease. Recent work by the
International Agency for Research on Cancer (IARC) of the World Health
Organization has highlighted the link between cancer and crystalline silica.
The Company believes that the low amount of crystalline silica in its DiaFil
products is aiding in its marketing activities.
The Company's diatomite operations are subject to local, state and
federal laws and regulations. These laws and regulations primarily apply to
air quality and plant emissions resulting from mining, crushing, drying, size
classification, and packaging operations. Pursuant to recently enacted Nevada
statutes, the Company has submitted mining reclamation plans for three
diatomite deposits. The Company currently mines diatomite from one of these
deposits and a prior operator mined from the other two deposits. All of the
deposits have been mined by previous operators under regulatory policies much
different than those in existence today. The Company anticipates, but cannot
guarantee, that the permits will be issued with full acknowledgement of the
pre-law disturbance. Regulatory agencies have not issued mining permits for
any of the three deposits, but have required the Company to post a reclamation
assurance of $24,785 in connection with one of the applications. The Company
anticipates that reclamation assurances will be required for the other
applications at some time, possibly an additional $60,000.
Mining is currently being conducted on private land owned by the
Company. Patent applications were filed in 1993 for claims that contain
additional diatomite deposits. Patents have not yet been issued. The land on
which the processing facility is located is leased from the Southern Pacific
Railroad, but the facilities are owned by the Company. This lease expires in
September 2007 and requires monthly payments of $1,080.
SANTA FE OPERATION
In mid 1996, CR Minerals Corporation acquired a pumice and volcanic
glass processing plant from American Pumice Company. This production facility
is located in Santa Fe, New Mexico. Ore is purchased from two separate sources
and hauled by truck to the plant site where it is stockpiled for processing.
The ore is dried, milled and classified into various products by size fraction.
Finished product can be shipped from the plant by bulk rail cars, bulk bags or
50 pound bags. The plant is currently being upgraded with the addition of a
new drying system, a new primary grinding system, new air classification system
as well as other new equipment to enhance productivity and ensure quality
control.
Pumice is formed when gases are released from molten rock to generate
a froth that cools and solidifies as rock. Rapid cooling forms a rock that is
non-crystalline in nature (volcanic glass) and frequently contains bubbles or
vesicles which range in size from a few thousandth of a millimeter to over a
centimeter. Pumice is dominantly non-crystalline silica with a low density
that has numerous industrial applications.
The Company produces two main product lines at the Santa Fe
facilities. Coarser-grained pumice products are sold into the abrasives and
filler markets. Pumice sold in these markets is marketed under the trade name
of Navajo Brand. Finer-grained volcanic glass products are sold under the
trade name of SafSil. Because of the very low crystalline silica content of
the SafSil products, the Company anticipates a marketing advantage for its
products as a substitute for ground crystalline silica. The health hazards of
crystalline silica
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<PAGE> 16
are well established and as discussed above in the section on the Fernley
Operation, its link with cancer is a major health concern for long term
exposure.
Both Navajo Brand and SafSil are marketed through a distributor
network as well as directly to customers. Sales of the products are both
domestic and foreign with the administrative offices located in Golden,
Colorado. The company's processing facility is subject to local, state, and
federal laws and regulations. These laws and regulations primarily apply to
air quality, plant emissions and zoning restrictions. The Santa Fe plant has
been in operation since the early 1950's.
DEVELOPMENT PROPERTIES
SEVEN-UP PETE JOINT VENTURE
General
Through its wholly owned subsidiary, CR Montana Corporation, the
Company owns a 27.75% interest in the Seven-Up Pete Venture (SPV) which
includes the Seven-Up Pete gold deposit, the McDonald gold deposit, and the
Keep Cool exploration property. Phelps Dodge Mining Company is the operator of
the SPV.
The Seven-Up Pete and McDonald properties are located six to eight
miles east of Lincoln and 45 miles northwest of Helena, in Lewis and Clark
County, Montana. Access to the properties is by dirt roads from a paved
highway that crosses the property. The SPV consists of approximately 35 square
miles of patented and unpatented mining claims and mineral leases of fee and
state land, in general subject to a 5% net smelter returns royalty. During
1994, the state lease upon which substantially all of the currently identified
McDonald orebody is located was amended. The amendment extended the primary
term for a period of 16 months beyond the time required for review and approval
of permit applications for development of the property, including the time
required to resolve any appeals of permit approvals. In addition, the lease
may also be held thereafter by the production of minerals in paying quantities
or the payment of a delay rental of $150,000 per month. The amendment also,
along with similar amendments to five other adjacent state leases, provides for
cross-mining on all six leases and the consolidation of the six leases under a
single agreement.
The Company, during 1996, funded its 27.75% share ($1.6 million) of
the operating budget of the SPV. The Company will need to continue to
contribute 27.75% of funds required for venture expenditures onward in order to
maintain its current ownership interest in the venture.
Geology and Exploration
McDonald Property
During 1989 and 1990, exploration conducted on the McDonald property
included geophysical and geochemical surveys, preliminary metallurgical
testing, and drilling of 76 holes for a total of 41,331 feet. This early
exploration drilling discovered a sizeable gold deposit. Drilling on the
McDonald property, through the end of 1996, now totals 389,389 feet in 598
holes. Analysis of the drill data through the end of 1993 indicates that the
McDonald deposit contains 8.2 million ounces of gold within 414.4 million tons
of mineralized rock with an average grade of 0.020 ounce of gold per ton, using
a cutoff grade of 0.008 ounce of gold per ton.
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<PAGE> 17
The McDonald property is partially covered by a siliceous sinter
deposited by an ancient hot spring system. The sinter overlies shallow dipping
volcanic units which have been strongly fractured and mineralized. The gold
mineralization occurs primarily in a favorable rhyolitic volcanic unit.
In 1993 Davy International completed a Feasibility Study that
indicates that 205.1 million tons of the McDonald deposit, with an average
grade of 0.025 ounce of gold per ton and containing 5.2 million ounces of gold,
can be mined economically in an open-pit, heap-leaching operation. The study
indicates that mining and crushing of 121 million tons of ore above a 0.016
ounce of gold per ton cutoff grade (with an average grade of 0.034 ounce of
gold per ton) and mining and direct loading onto the leach pad of an additional
84 million tons of lower grade ore (averaging 0.012 ounce of gold per ton)
could, with an expected 72% recovery of the contained gold, produce
approximately 300,000 ounces of gold per year over a 12-year mine life. The
expected waste-to-ore ratio would be 2.1:1. Initial capital costs for the
project, including pre-production stripping, are expected to be approximately
$188 million. Operating costs, including royalty, severance and property
taxes, and reclamation reserve, are expected to be approximately $231 per ounce
of gold produced.
Since the Feasibility Study was completed, additional drilling,
engineering, and metallurgical work have been conducted which provide a basis
for in-progress modifications of the feasibility analysis. The additional data
indicates the potential for mining and economic recovery of more gold from the
McDonald deposit than indicated in the earlier Feasibility Study.
Environmental baseline studies have been conducted since 1989,
providing the necessary information to design and site facilities for the
proposed McDonald gold mine. Baseline studies include air quality,
meteorology, surface water, groundwater, wildlife, fisheries, aquatics,
vegetation, soils, recreation, transportation, visual resources, wetlands,
cultural resources, and socioeconomics.
In 1994 the SPV completed environmental baseline and engineering
studies that demonstrate that the proposed McDonald gold mine can be operated
in an environmentally sound manner. This information was used to prepare and
file an application for Plan of Operations with the Montana Department of
Environmental Quality (DEQ) in November, 1994. The DEQ declared the
application complete in 1996 and is preparing an Environmental Impact Statement
(EIS) with the Montana Department of Natural Resources and Conservation (DNRC)
and the US Army Corps of Engineers (COE) as co-lead agencies.
The agencies hired experienced consulting firms to prepare the EIS.
The consultants will complete the EIS under supervision of the lead agencies
with the SPV bearing all costs through an arrangement with the lead agencies.
The lead agencies have completed "scoping" and are actively preparing the EIS.
The SPV expects that permits for the project could be issued as early as the
third quarter of 1998.
Seven-Up Pete Property
Between 1989 and 1993, exploration, bulk sampling, development
studies, metallurgical testing, and environmental baseline studies were
conducted on the Seven-Up Pete property. By 1993, the total drilling on the
property was 378 holes for 159,410 feet of drilling. A draft preliminary
Feasibility Study was completed in early January, 1993, updating an earlier
September, 1991 study.
The January, 1993 Preliminary Feasibility Study for the Seven-Up Pete
property considered the development of the Seven-Up Pete deposit as a satellite
to the McDonald deposit. In this study, a revised estimate of the Seven-Up
Pete deposit was calculated as a mineable reserve of 10.3 million tons at an
average grade of 0.058 ounce of gold per ton. The SPV has determined that no
additional work on the Seven-Up Pete property should be carried out at present
and efforts should concentrate on the McDonald property.
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<PAGE> 18
The Seven-Up Pete property is covered by middle Tertiary andesitic
volcanic rocks. The most important controls on mineralization at Seven-Up Pete
are north to northwest-trending faults that have localized
quartz-pyrite-precious metal mineralization. The structures generally dip to
the west and can be up to 150 feet wide. Gold and silver occur in high grade
quartz veins that are localized near the margins of the shear zone, as well as
in lower grade shattered zones between the high grade veins. Gold
mineralization occurs as free gold as well as submicroscopic particles
associated with pyrite.
Environmental Regulation
The McDonald deposit occurs on private and state lands. There are no
federal lands involved in the Plan of Operations for the McDonald project. The
Seven-Up Pete deposit occurs on patented mining claims within a U.S. National
Forest. As with all mining projects, careful environmental study and
permitting will be required before a mine can be developed on either property.
There are no assurances that all needed permits will be issued nor that, in the
event they are issued, such issuance will be timely, nor that conditions
contained in permits issued by the agencies will not be so onerous as to
preclude construction and operation of the project.
Mining activity in the United States is subject to the granting of
numerous permits under applicable Federal and State statutes, including, but
not limited to, the National Environmental Policy Act, the Clean Water Act, the
Clean Air Act, and the Montana Environmental Policy Act. It is not legal to
engage in mining activity without securing the permits required by these and
other statutes. Initiation of gold production at the McDonald project will
thus require the granting of numerous permits, some of which are discretionary.
Major permits include the Operating Permit from the Montana Department
of Environmental Quality (DEQ), the Operating Plan from the Montana Department
of Natural Resources and Conservation (DNRC), the Air Quality Permit (DEQ), the
Montana Pollutant Discharge Elimination System Permit (DEQ), a Non-Degradation
Authorization (DEQ), a Stormwater Discharge Permit (DEQ), a Water Rights Permit
(DNRC), a Section 404 Dredge and Fill Permit from the U.S. Army Corps of
Engineers (COE), and a Fiscal Impact Plan which must be approved by the Montana
Hard Rock Impact Board and numerous local government units.
An Environmental Impact Statement (EIS) is currently being prepared by
three co-lead agencies, DEQ, DNRC, and COE. This EIS will be used to support
all of the major permit decisions. Agency decisions on the permits could be
forthcoming by the third quarter of 1998. No assurance can be given that such
permits will be issued, or if issued, in what time frame such issuance would
occur. In the 1996 elections, the Montana voters rejected an anti-mining
initiative, thus removing a potential obstacle to development of the McDonald
project.
PRINCIPAL EXPLORATION PROPERTIES
The status of exploration activities on the Company's major
exploration properties is described below. The properties described are
believed to be the most significant of the Company's current inventory.
However, that inventory is constantly changing and it is to be expected that
some of the properties discussed will eventually be joint-ventured, marketed or
abandoned, and that other properties owned or acquired by the Company will
become the object of more intensive exploration activities.
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<PAGE> 19
BRIGGS/PANAMINT PROPERTIES
Significant gold mineralization occurs within the Briggs claim block
which extends for 12 miles along the western flank of the Panamint Mountain
Range. Areas identified within this block (from south to north) with indicated
potential to host gold mineralization include Gold Tooth, Briggs, North Briggs,
Jackson, Cecil R, Pleasant Canyon, and Jackpot. In 1991 considerable drilling
was conducted on the Gold Tooth, Jackson and Cecil R areas. Access to many
parts of the claim block for drilling was severely hampered by the presence of
Wilderness Study Areas. In 1994 the WSA designation was removed from the
entire claim block.
Through 1996, exploration activity included drilling 103 reverse
circulation holes in the Gold Tooth and North Briggs areas, immediately to the
south and north of the Briggs ore body. The drilling resulted in partial
delineation of mineralized rock containing 240,000 ounces of gold, with an
average grade of 0.049 ounce of gold per ton, including, at Gold Tooth, a
mineable reserve of 2.25 million tons with an average grade of 0.038 ounce of
gold per ton, containing 84,600 ounces of gold. In late January, 1997,
additional road building and drilling commenced to further explore and extend
the mineralization at Gold Tooth and North Briggs. As of March 17, 1997, a
total of 63 additional holes had been completed on the Gold Tooth area and 22
additional holes completed in the North Briggs area. Analysis of the drill
samples is currently in progress.
During 1996, detailed geologic mapping and geochemical sampling was
conducted in the northern portion of the claim block in the Pleasant Canyon and
Jackpot areas. Several areas have been identified as drill targets, and a
reconnaissance drilling program has begun on three targets, as well as the
Jackpot and Cecil R areas. Previous drilling at Cecil R had partially defined
2.2 million tons of mineralized rock containing 84,000 ounces of gold with an
average grade of 0.038 ounce of gold per ton.
During 1996, an aerial geophysical survey (magnetics and resistivity)
was conducted across the entire claim block. Final interpreted results of this
program were received in January, 1997, and are currently being reviewed to aid
ongoing exploration.
MOUNTAIN VIEW PROPERTY
The Mountain View project is located in the Deep Hole Mining District,
approximately 15 miles northwest of Gerlach, in northwestern Nevada. In mid
1992, the Company entered into a joint venture with Independence Mining Company
and also acquired additional claims in the area consolidating a major land
position. The Company conducted an integrated exploration program, including
geological, geochemical, geophysical, and drilling programs to evaluate the
gold potential near the old Mountain View Mine and elsewhere across the
property block. This program resulted in the discovery of a significant new
gold mineralization zone on the south end of the property in late 1992.
During 1993 and 1994, the Company continued the exploration program on
the property, including drilling more than 75,000 feet in 117 reverse
circulation and combined reverse circulation/core drill holes. Of the total
drilling, 60,375 feet in 87 holes were concentrated in the discovery area on
the south end of the property. The discovery area drilling has resulted in the
identification and partial delineation of a deposit which contains an estimated
19.6 million tons of mineralized rock with an average grade of 0.027 ounce of
gold per ton. The mineralized rock occurs beneath 100 to 600 feet of pediment
gravel on the west side of the Granite Mountains range front fault.
At the beginning of 1994, the Company owned a 60% interest and
Independence Mining Company (IMC) owned a 40% interest in the Mountain View
Joint Venture. The Company obtained and subsequently exercised an option to
purchase IMC's remaining interest in the joint venture in exchange for 61,539
shares
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of common stock of the Company, thereby owning 100% interest in the Mountain
View project, effective January, 1995.
In July, 1995, the Company entered into an exploration agreement with
Homestake Mining Company (HMC). HMC could earn a 51% interest in the Mountain
View property by expenditures of $4 million prior to December 31, 1999, and
completion of a feasibility study. An additional 9% interest could be acquired
by HMC by funding all development costs through to production.
During 1995, HMC expended $738,412 on the property, primarily in the
drilling of 22 reverse circulation and 4 core holes. Additional work consisted
of geological mapping, sampling, petrography, age dating and geophysics. HMC's
work confirmed the high-grade zone of the gold deposit previously discovered by
Canyon and located several other gold-mineralized areas on the property. HMC
also staked 130 new lode mining claims during 1995. Including the new claims,
the Mountain View property consists of approximately 8,600 acres of mineral
rights in leased and located unpatented lode claims, placer mining claims and
440 acres of leased fee land. The leased properties have minor advance royalty
payments and a maximum of 4% net smelter return royalty.
During 1996, HMC expended $555,000 on the Mountain View project. Work
consisted of mapping, rock sampling, geophysical surveys, trenching and
drilling. A total of 43 holes and 26,545 feet of reverse circulation drilling
was completed in various new target areas in the central and western portions
of the property. No new gold mineralized zones were encountered by 1996
drilling and HMC terminated the exploration agreement in November, 1996. The
Company has been actively seeking a new joint-venture partner to continue
exploration of the Mountain View project.
MONTANA PROPERTIES
The Company owns approximately 900,000 acres of fee simple and fee
mineral rights in western Montana. The fee mineral rights underlie surface
rights owned by other parties. In March, 1995, the Company entered into an
Exploration Agreement with Option to Acquire Title Agreement with BHP Minerals
International Exploration Inc. (BHP) to explore the Company's 900,000 acre
holding in western Montana. The Agreement allows BHP the option to acquire an
undivided 50% ownership in the property as to gold and an undivided 51%
ownership for all other minerals (except industrial minerals) by expending at
least $2.5 million on the property over a six-year period and making payments
of $25,000 per year to the Company. BHP also has the option to acquire an
additional 1% ownership in gold properties by paying one million dollars to the
Company.
During 1995, BHP Minerals expended $200,870 on surface exploration and
drilling on the Company's property. Eight drill holes totalling 2,960 feet
were drilled on one prospect in the Garnet Range, generally with negative
results. A large (1,200 square mile) stream sediment sampling program
identified over 20 potential base and/or precious metal targets.
During 1996, BHP expended $415,470 on exploration of the property,
focusing primarily on regional reconnaissance. Three precious metals project
areas were identified in the central portion of the property and are scheduled
for detailed evaluation during 1997. Twenty unpatented lode mining claims were
staked by BHP and were added to the exploration agreement. As a follow-up
evaluation to base and precious metals target areas generated in 1995,
extensive stream sediment sampling and reconnaissance was conducted in the
northwest portion of the property. No specific project areas have been
identified to date. However, surface work will continue in 1997. During 1996,
one 1500 foot exploration drill hole was completed on a stratabound
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<PAGE> 21
copper-silver occurrence. Results were discouraging and the target has been
abandoned. BHP Minerals has a minimum expenditure requirement of $400,000 on
the property for 1997.
In October, 1995, the Company entered into a Mining Venture Agreement
with Kennecott Exploration Company (Kennecott) to explore approximately 2,100
acres in the Lincoln Valley, adjacent to the Seven-Up Pete Joint Venture.
Kennecott had the option to earn a 51% interest in and to the Company's
holdings by expending $2,000,000 over 5 years.
During 1995 and 1996, Kennecott expended $162,000 by conducting
geologic mapping, rock and soil geochemical sampling and geophysical surveys on
the Lincoln Valley properties. Several structural zones were identified along
portions of which anomalous gold and indicator minerals were identified. Due
to a major reorganization of its U.S. exploration efforts, Kennecott
discontinued exploration of the property and terminated the agreement in
August, 1996.
The Company may seek a new joint-venture partner to continue
exploration of the Lincoln Valley project.
LATIN AMERICAN EXPLORATION
GENERAL
In 1996 the Company concentrated its exploration activities in Brazil,
Argentina, and Panama.
ARGENTINA
The Company decided in 1995 that other areas in Latin America and
Africa offered better potential to quickly find and develop gold resources than
Argentina. The Company decided to market its Argentine properties to other
mining companies in joint ventures or options. CRIC closed its Argentina
office in October, 1995, and has maintained Argentinean activities through the
use of consultants since that time.
In February, 1996, CR International Corporation (CRIC), a wholly owned
subsidiary of the Company, entered into an exploration agreement with Phelps
Dodge Exploration de Argentina, S.A. (PDA), a wholly owned subsidiary of Phelps
Dodge Corporation, on five CRIC properties in Chubut and Santa Cruz Provinces.
By funding $3.9 million in exploration expenditures over a six-year period, PDA
could earn a 50% interest in the properties.
In April, 1996, PDA terminated their interest in the four CRIC
properties in Santa Cruz Province but continued to explore on the 724 square
kilometer Arroyo Cascada property in Chubut Province. PDA conducted soil
geochemical sampling, geologic mapping, induced polarization geophysical
surveying and drilled five holes totalling 1024 meters at Arroyo Cascada during
1996. In 1996 PDA expended $383,638 on the Arroyo Cascada property. In
February, 1997, PDA notified CRIC that it was terminating the exploration
agreement. The Company is currently evaluating the PDA results at Arroyo
Cascada to decide on future plans for the property. The Arroyo Cascada
property contains strongly anomalous gold values in rocks, soils, and
stream-sediments within an altered volcanic pile, suggestive of a buried
porphyry system with potential for both gold and copper.
The Santa Cruz properties contain gold-bearing quartz veins and
stockworks in volcanic rocks, similar to the nearby multimillion ounce Cerro
Vanguardia gold deposit. The Company is actively seeking a joint venture
partner to fund exploration on the Santa Cruz properties.
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<PAGE> 22
BRAZIL
During 1996, the Company's eight mineral concessions (alvaras) were
granted, comprising approximately 60,000 hectares in the Rio Maria area of Para
State in Brazil. The Company's wholly owned Brazilian subsidiary, Canyon
Mineraceo do Brasil Ltda., had acquired the rights to these properties from a
Brazilian gold mining company, Mineraceo Vale das Andorinhas Ltda., in 1995.
Under the terms of the acquisition, the Company is obligated to make annual
payments which escalate to a maximum of $25,000 per alvara and to pay a royalty
of 4.25% gross production, from which will be deducted State taxes and certain
other payments which may become due. Gold has been produced by informal miners
from alluvial and bedrock gold deposits within and adjacent to the Company's
properties. The geology of the Company's properties comprises a folded and
sheared greenstone volcano-sedimentary sequence, defining a geologic setting
similar to that of some multi-million ounce gold deposits in the region.
Work on this project during 1996 was aimed at follow-up of
reconnaissance gold stream sediment anomalies identified during the 1995 field
season. The 1996 program of detailed stream sediment sampling and grid
geologic mapping and soil sampling defined five target areas comprising
favorable geology and geochemical anomalies in rock and/or soil. Each target
area measures several kilometers in strike length by one-half to more than one
kilometer in width. A preliminary trenching program was initiated at the end
of the field season to test the soil gold anomalies. The Company expended
$1,241,840 on the Rio Maria project in 1996. Work during 1997 is planned to
consist of additional trenching and infill sampling of anomalies with the
expectation of defining specific drill targets by mid-year. An airborne
geophysical program is also planned. The Company is actively seeking a
joint-venture partner to fund continuing work at Rio Maria.
DOMINICAN REPUBLIC
Effective April 13, 1995, an Option Agreement was signed with Eldorado
Corporation Ltd. (Eldorado) giving Eldorado the right to purchase all the
issued and outstanding shares of Minera Hispaniola, S.A. (MH). The Option
Agreement requires Eldorado to: (i) pay $50,000 upon signing; (ii) $3.0
million work commitment over three years; (iii) pay $500,000 to exercise the
option within 3 years; (iv) pay $500,000 upon commencement of commercial
production; and (v) pay various net smelter return royalty on production. MH
is a company incorporated in the Dominican Republic and owned 40% by Canyon
Resources Corporation and 60% by Battle Mountain (Dominican Republic) Inc. By
a Consent Agreement dated June 8, 1995, Eldorado assigned all of its right,
title and interest in the Option Agreement to Energold Mining Ltd. (Energold).
Energold has, since acquiring the Option Agreement, been conducting
exploration activities on several of the MH exploration concessions and on
other areas in the Dominican Republic. Energold completed three core holes on
the El Higo Exploration Concession in 1995 and, through January 1996, had
completed five additional core drill holes on the adjacent Los Pedregones
Concession. Drilling was halted at El Higo in September, 1995 due to
environmental concerns expressed to the government Forestry Service by outside
parties opposed to the project. Energold, at the request of the government,
has conducted an environmental baseline assessment of the exploration work,
which indicates that the environment will not be endangered by the work
program.
In the fall of 1996, permission to continue drilling at El Higo was
granted and the program recommenced. Thirty-three diamond drill holes of a
planned 50 hole program were completed by the end of 1996.
In October, 1996, Energold entered into a farm-out agreement with
Impact Minerals Inc. whereby Impact can earn a 60% interest in the Majagual
Concession by delivering 100,000 treasury shares to Energold
20
<PAGE> 23
and spending C$1,250,000 on the property over a 4 year period. The agreement
protects the interest of MH and will revert to MH should Energold fail to
perform under the Option Agreement.
PANAMA
The Company's wholly owned subsidiary Canyon de Panama, S.A. was
formally granted the 10,594 hectare San Pedrito Concession in August, 1995.
The concession is located in central Panama about 150 kilometers west of Panama
City. The San Pedrito property covers most of the area between the Santa Rosa
open-pit, heap-leach gold mine (over one million ounces of gold) and a smaller
underground mine at Remance. Geologic mapping and geochemical sampling by the
Company on the property have identified gold-bearing alteration zones in
andesitic volcanic rocks. The geologic environment is similar to that at Santa
Rosa.
Work during 1996 consisted of detailed geologic mapping and
geochemical sampling over a several square kilometer anomaly defined during the
1995 program. This additional work has defined a coherent gold in soil and
rock anomaly associated with a hydrothermally altered zone.
Work planned for 1997 in the area of anomalous gold will be trenching
followed by drilling. The Company is actively seeking a joint-venture partner
to continue the work at San Pedrito.
AFRICA EXPLORATION
GENERAL
In February, 1994, the Company entered into an agreement with Africa
Mineral Resource Specialists Inc. (AMRS), a Colorado corporation, whereby the
Company would finance the exploration and acquisition of precious metal
properties in Africa and the AMRS staff would conduct certain
exploration/acquisition activities under the direction of the Company. To
conduct the business activities in Africa, a subsidiary company, Canyon
Resources Africa Ltd. (CRAL) was formed - of which the Company owns 90% and
AMRS owns 10%.
CRAL is concentrating exploration efforts in Ethiopia and Tanzania,
while also evaluating property specific opportunities elsewhere in Africa.
CRAL has acquired one property each in Zimbabwe and Burkina Faso.
ETHIOPIA
On September 6, 1995, CRAL and the Ministry of Mines signed a
three-year Exploration License, renewable for two additional one-year terms on
the 60 square kilometer Megado-Serdo area. The Megado Serdo Exploration
License requires that CRAL spend at least $500,000 and complete an approved
work program during the first year. The second year expenditure requirement on
an approved work program is $750,000.
The Megado-Serdo area is within a greenstone belt of metamorphic rocks
of Proterozoic age. The property is located 10-15 kilometers southwest of the
large Lega Dembi gold mine owned and operated by the Ethiopian Government
Mining Corporation. Government workers have conducted considerable exploration
work and have identified several areas of gold mineralization associated with
quartz veins within favorable schist horizons on the Megado-Serdo property and
have conducted trenching and limited drilling. Most of the streams draining
the Megado-Serdo area have had considerable placer mining activity. CRAL
commenced
21
<PAGE> 24
a detailed review and compilation of prior government work at Megado Serdo in
September, 1995, and conducted preliminary site studies in December, 1995.
Field work at Megado-Serdo during 1996 included building of access
road, line cutting, geochemical soil grid sampling of the entire license,
geological mapping and trenching. By year-end, 3,678 soil samples and 1,429
trench samples had been collected. In-fill sampling in gold anomalous areas
also commenced. In February, 1997, an induced polarization geophysical program
commenced on three strong geochemical trends. Diamond core drilling also
commenced in February, 1997, on a planned 10 hole, 2000 meter initial program.
First license year expenditures exceeded the $500,000 minimum requirement.
In August 1994, CRAL also applied for an Exploration License on the
108 square kilometer Meleka-Abeba area located about 50 kilometers north of the
Lega Dembi mine in the northern end of the Adola Gold Belt. Stream sediment
geochemistry conducted by the government has identified numerous concentrations
of anomalous gold which have not been followed-up to date. Some artisanal
placer mining has recently been conducted within the application area. On
March 26, 1996, the Meleka-Abeba Exploration License was issued. Terms of the
license require the expenditure of at least $250,000 and completion of an
approved work program during the first year.
Field work at Meleka-Abeba has included building of access roads, line
cutting, rock, soil, and stream sediment geochemical sampling, and geologic
mapping. The stream sediment sampling has greatly expanded the area of
anomalous gold in streams identified earlier by government workers. CRAL
anticipates that expenditure at Meleka-Abeba will exceed the $250,000 minimum
prior to the March 26,1 997 end of the first year. A commitment has been made
to continue into the second year of exploration which requires $400,000
expenditure minimum and completion of an approved work program.
CRAL has also applied for an Exploration License on the 1,700 square
kilometer Adi Dairo-Adi Hageray area located in Tigray Province of northern
Ethiopia just south of the border with Eritrea. The region is underlain by
Proterozoic greenstone rocks and has had recent artisanal mining of both placer
and lode gold occurrences. At the end of 1996, the Ministry of Mines of
Ethiopia indicated that they do not plan to issue CRAL an Exploration License
on Adi Dairo - Adi Hageray.
On February 6, 1996, CRAL entered into a joint venture agreement with
JCI Limited (JCI), a large South African mining company, to finance gold
exploration on CRAL's Exploration Licenses and license applications in
Ethiopia. By funding $4.5 million in exploration expenditures on three
licenses, JCI would earn a 51% joint venture interest. If, as indicated in the
paragraph above, the Ministry of Mines rejects CRAL's Adi Dairo - Adi Hageray
license application, the JCI earn-in requirement will be reduced to $3.0
million on two exploration licenses.
CRAL will be the manager of the joint venture through the exploration
financing and JCI earn-in of its 51% interest. Thereafter, JCI will be the
joint venture manager. JCI has the optional right to increase its ownership to
65% of any particular license by financing the lesser of an additional $4.5
million of expenditures or a bankable feasibility study on that license.
The joint venture agreement with JCI also contemplates ongoing
reconnaissance exploration activity by CRAL, throughout Ethiopia. CRAL can
bring exploration ideas to JCI, and if accepted, JCI will fund all cost of such
programs though issuance of a mineral license to earn a 51% joint venture
interest in the project. Two such programs are currently active.
In October, 1996, an application was submitted by the CRAL-JCI joint
venture for a Mineral Prospecting License in the Tendaho Graben area covering
1100 square kilometers. A Mineral Prospecting
22
<PAGE> 25
License is valid for one year after which period, portions of the area may be
converted to Exploration Licenses. The joint venture has committed to spend a
minimum of $50,000 during the one year period. CRAL anticipates that the
Tendaho Graben Prospecting License will be issued by the Ministry of Mines
during the second quarter of 1997. Once the license is issued, CRAL will be
required to fund 49% of the costs.
During 1996, CRAL and JCI expended $1,073,950 on the various Ethiopian
licenses and exploration activities.
ZIMBABWE
In September, 1995, CRAL was granted Exclusive Prospecting Order (EPO)
#1005 covering an area of approximately 234 square kilometers to the east of
the town of Chegutu in north-central Zimbabwe. There has been recorded gold
production of more than 200,000 ounces from numerous small mines and prospects
within the EPO. In addition, there has been considerable unrecorded production
by artisanal miners and ancient mining by indigenous peoples. Numerous small
parcels within the EPO are held by others which represent earlier filed claims,
mainly in the areas of past production.
The regional geology consists of low grade metamorphic mafic volcanic
rocks (greenstone) of Archean age which are intercalated with felsic volcanics
and banded iron formations. These rocks are cut by somewhat younger Archean
granites. Most of the prior gold production has been derived from either
granite or greenstone hosts adjacent to or on the granite-greenstone contact.
Mineralization is often related to major shear zones, parallel to, and within
the greenstone belt.
CRAL has completed a review of the known information on geology, land
ownership, past production and claimholders of record. In 1996 CRAL conducted
orientation geochemical studies within the EPO as well as geological and
geochemical evaluation of several of the inholding claims through option
agreements with the owners. In February, 1997, CRAL, signed a Heads of
Agreement with Cambrian Resources, N.L. (Cambrian), an Australian mining
company. Under the terms of the agreement Cambrian can earn a 40% interest in
the property by spending $240,000 on exploration over the next seven months.
Cambrian can increase their ownership to 55% by spending an additional $240,000
by December 30, 1999.
TITLE TO PROPERTY
U.S. MINERAL PROPERTIES
The Company's U.S. mineral properties consist of fee mineral rights,
leases covering state and private lands, leases of unpatented mining claims,
and unpatented mining claims located or otherwise acquired by the Company.
Many of the Company's mining properties which are in the United States are
unpatented mining claims to which the Company has only possessory title.
Because title to unpatented mining claims is subject to inherent uncertainties,
it is difficult to determine conclusively ownership of such claims. Since a
substantial portion of all mineral exploration, development and mining in the
United States now occurs on unpatented mining claims, this uncertainty is
inherent in the mining industry. In addition, in order to retain title to an
unpatented mining claim, a claim holder must have met annual assessment work
requirements ($100 per claim) through September 1, 1992, and must have complied
with stringent state and federal regulations pertaining to the filing of
assessment work affidavits. Moreover, after September 1, 1992, the right to
locate or maintain a claim generally is conditional upon payment to the United
States of a rental fee of $100 per claim per year for each assessment year
instead of performing assessment work. State law may, in some instances, still
require performance of assessment work.
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<PAGE> 26
The present status of the Company's unpatented mining claims located
on public lands of the U.S. allows the claimant the exclusive right to mine and
remove valuable minerals, such as precious and base metals and industrial
minerals, found therein, and also to use the surface of the land solely for
purposes related to mining and processing the mineral-bearing ores. However,
legal ownership of the land remains with the U.S. The Company remains at risk
that the claims may be forfeited either to the U.S. or to rival private
claimants due to failure to comply with statutory requirements as to location
and maintenance of the claims.
Because the Company believes that it has established the existence of
valuable mineral deposits in certain of its properties, and has maintained and
improved the claims in the manner required by law, it has sought to enhance its
rights in those properties by seeking issuance of mineral patents. In July of
1992, the Company caused four applications for mineral patent for the 20 lode
mining claims comprising the then-known ore reserves at the Briggs property to
be filed with the Bureau of Land Management (BLM). However, due to
administrative backlogs in the California State Office of the BLM, processing
of those applications has not proceeded. On December 30, 1993, the Company
caused five applications for mineral patent for the 15 placer mining claims
which encompass known ore reserves on public lands for the diatomite operations
conducted by the Company's subsidiary, CR Minerals, to be filed with the Nevada
State Office of the BLM. Those applications have been processed to the point
where the purchase price for the claims has been accepted.
On October 1, 1994, while the above patent applications were pending,
Congress imposed a moratorium on accepting and processing mineral patent
applications within the Department of the Interior. Under the terms of the
continuing statutory moratorium (as interpreted by the Secretary of the
Interior), and solely as a result of the actions or inactions of the respective
state offices prior to the time the moratorium became effective, the Secretary
considers the California applications not to be exempt from the moratorium, and
therefore will not allow them to be processed while the moratorium remains in
effect, but the Nevada applications are considered exempt and should be
adjudicated. The Company instituted litigation in the U.S. District Court for
the District of Nevada to attempt to force the Secretary to construe all of the
applications as exempt from the moratorium and to diligently process all of
them, either by granting patents or by contesting the claims. However, the
Court has declined to compel the Secretary to expedite processing of the
applications. The Court's decision does not determine the validity of the
claims, nor does it directly affect the Company's basic ability to conduct
mining operations on the claims. The Company has no reason to believe that
grounds exist for denial of any of the patents when and if they are ultimately
adjudicated. However, there can be no assurance that such patents will be
granted.
For the last several Congressional sessions, bills have been
repeatedly introduced in the U.S. Congress which would supplant or alter the
provisions of the Mining Law of 1872. As of March 10, 1997, no such bills have
passed. If enacted, such legislation could substantially increase the cost of
holding unpatented mining claims and could impair the ability of companies to
develop mineral resources on unpatented mining claims. Under the terms of
certain proposed legislation, the ability of companies to obtain a patent on
unpatented mining claims would be nullified or substantially impaired.
Moreover, certain forms of such proposed legislation contain provisions for the
payment of royalties to the federal government in respect of production from
unpatented mining claims, which could adversely affect the potential for
development of such claims and the economics of operating existing mines on
federal unpatented mining claims. The Company's financial performance could
therefore be affected adversely by passage of such legislation. It is
impossible to predict at this point what any legislated royalties might be, but
a potential three percent gross royalty (for example), assuming a gold price of
$400 per ounce, would have a $12 per ounce impact on the Company's costs of
production from unpatented mining claims.
The Company supports reasonable, rational changes to the Mining Law of
1872 and is currently active in industry efforts to work with Congress to
achieve responsible changes to mining law. Although the exact nature or timing
of any mining law changes cannot be predicted, enactment of any federal mining
law changes
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<PAGE> 27
would not affect the Company's Kendall, McDonald, or Seven-Up Pete projects, or
the CR Minerals diatomite property currently being mined, because these
projects are not on federal lands. Other portions of CR Minerals diatomite
project, the Briggs project, the Mountain View project, and certain other
exploration properties, however, do occur on federal mining claims and could be
materially affected by such legislation.
FOREIGN MINERAL PROPERTIES
In the countries outside the United States where the Company is
operating, the rights to minerals are vested with the government. Mineral
rights are granted by the government through concessions, licenses or leases.
Often, the earliest stage work is conducted under Reconnaissance or Prospecting
Permits which have a duration of one to two years and cover large areas.
Exploration Licenses or Concessions often will involve a considerably smaller
area and will have a duration of one to three years, often with the right to
extend for one or two additional years with a reduction of the size of the area
with each renewal. Exploration Licenses usually contain the right to convert
to a Mining License or Concession provided the Licensee adheres to the terms of
the Exploration License and has defined an economic mineral deposit. Mining
Licenses are generally for a term of 10 to 20 years or longer or for the
economic life of the deposit. Usually the Licensee must considerably reduce
the size of the area held when converting from an Exploration License to a
Mining License.
Mineral Licenses generally have a land rental charge which varies from
a few cents to several dollars per hectare per year and increases from
Prospecting to Exploration to Mining Licenses. Some countries have no royalty
provisions on production from Mining Licenses, whereas others will charge
royalties varying from 1-5% of the value of the minerals produced. Several
countries require a free carried interest in a mining operation at levels of
10-20% equity participation, although most countries in which the Company is
working do not. A number of countries charge a tax of 10-20% on dividends
which are remitted outside the country. Income tax rates vary from 30-40% in
the countries in which the Company is working. In several countries the sole
benefit, outside of land rental, that the country derives from Mining Licenses
is through collection of income tax.
LEASED PROPERTY
The Company leases approximately 7,100 square feet of office space at
14142 Denver West Parkway, Golden, Colorado 80401, under a lease which expires
March 31, 1998. Rent is presently $8,358 per month. The Company maintains
storage and/or facilities in Golden, Colorado; Reno and Gerlach, Nevada; and
Ridgecrest, California, on a month-to-month basis. CR Minerals maintains
storage facilities in several states and leases land for its processing
facilities in Fernley, Nevada, for $1,080 per month under a lease which expires
September, 2007.
ITEM 3. LEGAL PROCEEDINGS
CR BRIGGS MINE PERMITS
The Bureau of Land Management (BLM) approved the Briggs Mine Plan of
Operations on July 10, 1995. An appellant group including the Timbisha
Shoshone Indian Tribe and Desert Citizens Against Pollution (collectively
Appellants), alleging that the BLM made technical errors in the environmental
review and public disclosure of the project, filed the following appeals
regarding that decision: (1) a request to the Interior Board of Land Appeals
(IBLA) for a temporary stay of the BLM decision, (2) a request that the
Secretary of the Interior take jurisdiction over the matter and (3) a request
for a permanent stay of the BLM decision. These
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<PAGE> 28
appeals have been decided in favor of the BLM and the Company as follows: (1)
the IBLA issued a temporary stay on August 29, 1995, and subsequently removed
that stay on October 23, 1995, (2) on March 13, 1996, the Office of the
Solicitor of the Interior on behalf of the Secretary issued a decision refusing
to take jurisdiction over the appeal, and (3) on June 18, 1996, the IBLA
dismissed the appeal in a decision affirming that the BLM acted properly in
issuing the mine permits.
The Lahontan Regional Water Quality Control Board (Lahontan) in
California issued a Waste Discharge Order to the Company for the Briggs Mine on
July 14, 1995. On October 2, 1995, the Appellants petitioned the California
State Water Resources Control Board requesting technical changes in the Waste
Discharge Order and also requesting an increase in the financial assurance. On
April 8, 1996, the State Water Resources Control Board staff, finding in favor
of Lahontan (and the Company), dismissed the petition.
On August 30, 1995, the Inyo County Board of Supervisors rejected
Appellants' appeal of the July 12, 1995, approval of the Briggs Project by the
Inyo County Planning Commission and unanimously approved the Mine Reclamation
Plan for the Briggs Mine. The Appellants, alleging that Inyo County made
technical errors in the environmental review and public disclosure of the
project, filed the following appeals in California Superior Court: (1) a
petition for a temporary restraining order, (2) a petition for preliminary
injunction, and (3) a petition for Writ of Mandate. These petitions have been
resolved in favor of the County and the Company as follows: (1) on January 17,
1996, the Court denied the petition for temporary restraining order, (2) on
February 16, 1996, the Court denied the petition for preliminary injunction,
and (3) on August 20, 1996, the Court denied the petition for Writ of Mandate.
Appellants have appealed the Superior Court ruling to the California Court of
Appeals. The Company enjoys good cooperation from the County in our vigorous
defense against the various appeals. The Company believes that the remaining
appeals will be resolved favorably.
On December 23, 1996, Appellants filed another administrative appeal
challenging the approval of a Plan of Operations for exploration within the
Briggs claim block. That appeal is currently pending.
On December 4, 1996, the Inyo County Planning Commission approved the
Mine Reclamation Plan for the exploration within the Briggs claim block.
Appellants appealed that decision to the Inyo County Board of Supervisors. On
January 28, 1997, the Inyo County Board of Supervisors rejected Appellants'
appeal and approved the Mine Reclamation Plan for the exploration within the
Briggs claim block. On February 13, 1997, Appellants filed a petition for Writ
of Mandate and complaint for injunctive relief in Inyo County Superior Court.
On February 19, 1997, the Superior Court denied Appellants' request for a
temporary restraining order. On April 17, 1997, the Superior Court will hear
Appellants' motion for a preliminary injunction. The Company believes the
motion for preliminary injunction will be denied and the petition for Writ of
Mandate will be resolved favorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were brought to a vote of security holders in the last
quarter of 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The American Stock Exchange
(AMEX) under the symbol CAU. Canyon's common stock was first included on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
on February 9, 1986, following the completion of the Company's initial public
offering and on the NASDAQ National Market on May 15, 1990. Canyon
subsequently moved to AMEX on August 19, 1996. The following table reflects
the high and low bid prices for the company's common stock and warrants (which
traded on the NASDAQ National Market until expiration on April 12, 1996).
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
------------ --------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1996
Fourth Quarter $3.13 $2.31 - -
Third Quarter $3.00 $2.38 - -
Second Quarter $3.88 $2.69 $0.13 $0.03
First Quarter $3.63 $2.38 $0.50 $0.02
1995
Fourth Quarter $2.56 $1.81 $0.25 $0.09
Third Quarter $2.75 $2.13 $0.28 $0.13
Second Quarter $2.44 $1.88 $0.38 $0.13
First Quarter $2.13 $1.50 $0.31 $0.16
</TABLE>
On March 10, 1997, the high and low prices for the Company's common
stock were $3.38 and $3.19, respectively. These prices do not include retail
markups, markdowns, or commissions and do not necessarily represent actual
transactions. Price quotations were provided by NASDAQ through August 16,
1996. From August 19, AMEX provided quotes.
As of March 10, 1997, there were approximately 1,363 holders of record
of the Company's common stock. The number of shareholders of the Company who
beneficially own shares in nominee or "street" name or through similar
arrangements is estimated by the Company to be approximately 3,000. As of
March 10, 1997, there were 17 holders of record of registered, non-trading
warrants to purchase common stock.
As of March 10, 1997, there were outstanding; a) 37,538,138 shares of
common stock; b) 2,317,167 warrants to purchase common stock; c) 2,190,000
employee and non-qualified stock options to purchase common stock.
For the foreseeable future, it is anticipated that the Company will
use any earnings to finance its growth and that dividends will not be paid to
shareholders. Further, pursuant to an agreement executed by the Company in
favor of its wholly owned subsidiary, CR Briggs Corporation, in connection with
a loan for the Briggs Mine, the Company has agreed to maintain certain levels
of working capital, tangible net worth, and leverage ratios which could
restrict the payment of dividends where such payment would result in a failure
27
<PAGE> 30
to maintain such levels. Similarly, CR Briggs Corporation is prohibited from
repaying the Company for advances or from paying dividends to the Company from
the Briggs Mine cash flow unless certain conditions relating to the financial
performance of the Briggs Mine are met.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected information regarding the
Company's financial condition and results of operations over the past five
years.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED
BALANCE SHEETS
Working Capital $ 6,460,600 $26,323,200 $14,953,000 $19,301,600 $ 1,846,700
Current Assets 12,286,500 28,922,700 18,318,100 24,264,500 6,615,800
Total Assets 84,384,300 72,424,200 52,187,600 53,235,700 29,143,500
Current Liabilities 5,825,900 2,599,500 3,365,100 4,962,900 4,769,100
Long-term Obligations 30,117,800 49,754,200 23,468,900 22,846,300 2,550,400
Total Liabilities 35,943,700 52,353,700 26,834,000 27,809,200 7,319,500
Common Stockholders' Equity 48,440,600 20,070,500 25,353,600 25,426,500 21,824,000
SUMMARY OF CONSOLIDATED
STATEMENTS OF OPERATIONS
Sales $ 4,857,000 $9,006,600 $19,580,200 $19,879,600 $22,506,400
Income (Loss) Before
Extraordinary Items (7,114,900)(1) (6,143,200) (337,700) 920,700 (14,277,000)(2)
Net Income (Loss) (7,114,900) (6,143,200) (337,700) 920,700 (14,277,000)
Income (Loss) Per Share
Before Extraordinary Items (0.21) (0.24) (0.01) 0.04 (0.61)
Net Income (Loss) Per Share (0.21) (0.24) (0.01) 0.04 (0.61)
</TABLE>
(1) Includes asset writedowns of $2,267,300 for certain exploration
properties.
(2) Includes asset writedowns of $14,075,400 for 1) Kendall Mine -
$8,000,000; 2) Exploration Properties - $4,042,100; 3) Non-Compete
Agreement - $2,033,300.
28
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The matters discussed in this report on Form 10-K, when not historical
matters, are forward-looking statements that involve a number of risks and
uncertainties that could cause actual results to differ materially from
projected results. Such factors include, among others, the speculative nature
of mineral exploration, commodity prices, production and reserve estimates,
environmental and government regulations, availability of financing, force
majeure events, and other risk factors as described from time to time in the
Company's filings with the Securities and Exchange Commission. Many of these
factors are beyond the Company's ability to control or predict. The Company
disclaims any intent or obligation to update its forward-looking statements,
whether as a result of receiving new information, the occurrence of future
events, or otherwise.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
The Company recorded a net loss of $7.1 million, or $0.21 per share,
on revenues of $4.9 million in 1996, compared to a net loss of $6.1 million, or
$0.24 per share, on revenues of $9.0 million in 1995. The 1996 results were
principally impacted by lower gold production and the writedown of certain
exploration properties.
Gold production from residual leaching and final rinsing of spent ore
in the heaps at the Kendall Mine in 1996 totaled 3,607 ounces, as the Kendall
Mine went into reclamation. Gold production of 3,417 ounces and the
corresponding proceeds during the 1996 commissioning phase of the Briggs Mine
were credited against the mine's capitalized development costs. For the
current year, the Company sold 3,269 ounces of gold and 2,308 ounces of silver
at an average realized price of $392 per equivalent gold ounce. Comparable
amounts in 1995 were 16,386 ounces of gold and 8,694 ounces of silver at an
average price of $386 per equivalent gold ounce. The New York Commodity
Exchange (COMEX) gold prices averaged $388 per ounce in 1996 and $385 per ounce
in 1995. In 1996 revenue from the sales of industrial minerals products
increased 34% and per ton prices increased 4% from the prior year.
Cost of sales was $4.4 million in 1996 as compared to $7.4 million in
1995, reflecting lower production levels at the Kendall Mine. Cost of sales
includes all direct and indirect costs of mining, crushing, processing, and
overhead expenses of the Company's production operations, including normal
provisions for site restoration costs accrued on a units-of-production basis.
During 1996, the Company recorded an additional charge of $1.4 million based on
a fourth quarter update to the anticipated scope of work relating to water
quality compliance and long term monitoring requirements.
Depreciation, depletion, and amortization was lower during 1996 as the
Company, during the prior year, reduced its carrying value to zero at the
Kendall mine concurrently with adoption of Statement of Financial Accounting
Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. As a consequence of
applying the provisions of SFAS 121, the Company recorded a fourth quarter 1995
impairment of $296,000.
29
<PAGE> 32
Exploration costs expensed in 1996 were $0.3 million as compared to
$1.0 million in 1995 as the Company shifted its exploration efforts to specific
properties rather than general reconnaissance work. In addition, the prior
year includes costs associated with closing the Company's Mendoza, Argentina,
office.
Abandonments in the ordinary course of business were $0.2 million in
1996 as compared to $0.3 million in 1995. The Company wrote down its carrying
value for certain exploration properties by $2.3 million based upon a fourth
quarter analysis of available drilling results and other work performed by
joint venture partners and itself. There was no comparable charge for the
prior year.
Interest income was higher in 1996 due to higher cash balances.
Interest expense was lower in 1996, as the Company redeemed for common stock
its 6% Convertible Subordinated Notes in July, 1996.
There was no current or deferred provision for income taxes during
1996 or 1995. Additionally, although the Company maintains significant net
deferred tax assets, principally in the form of operating loss carry-forwards,
the Company has not recorded a deferred tax credit in either 1996 or 1995 due
to an assessment of the "more likely than not" realization criteria required by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
In October, 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting For Stock-Based Compensation. SFAS 123 defines a "fair value" based
method of accounting for employee options or similar equity instrument. SFAS
123 encourages, but does not require the method of accounting prescribed by the
Statement, and does allow for an entity to continue to measure compensation
cost as prescribed by APB Opinion No. 25 (APB 25), Accounting for Stock Issued
to Employees. Entities electing to remain with APB 25 must make proforma
disclosures of net income and earnings per share as if the fair value based
method had been applied, effective for fiscal years beginning after December
15, 1995. The Company has elected to continue to measure compensation cost
under APB 25, and has made the proforma disclosure requirements of SFAS 123.
Inflation did not have a material impact on operations in 1996 or
1995. Management of the Company does not anticipate that inflation will have a
significant impact on continuing operations.
1995 COMPARED TO 1994
The Company recorded a net loss of $6.1 million, or $0.24 per share,
on revenues of $9.0 million in 1995, compared to a net loss of $0.3 million, or
$0.01 per share, on revenues of $19.6 million in 1994. The 1995 results were
principally impacted by lower gold production, a provision for final site
restoration costs, and the writedown of remaining carrying values at the
Kendall Mine.
Active mining of new ore at Kendall ceased in January, 1995, with
production of 16,624 ounces realized from continued leaching of all previously
mined ore. As a result, substantially lower revenues of $9.0 million were
realized during 1995, a 54% decrease from the $19.6 million in revenues during
1994. The Company sold 16,386 ounces of gold and 8,694 ounces of silver in
1995 at an average realized price of $386 per equivalent gold ounce.
Comparable amounts in 1994 were 45,877 ounces of gold and 21,126 ounces of
silver at an average price of $374 per equivalent gold ounce. The New York
Commodity Exchange (COMEX) gold prices averaged $385 per ounce in 1995 and $384
per ounce in 1994. All ounces sold in 1995 were at spot prices, in contrast to
sales in 1994 which included 18,300 ounces settled with spot deferred contracts
averaging $351 per ounce and 6,393 ounces delivered against a gold loan
monetized at $374.50 per ounce. As a result of the hedging program and gold
deliveries in 1994, the Company recognized lower revenues of $755,900 relative
to spot prices in effect on the settlement dates.
30
<PAGE> 33
Cost of sales was $7.4 million in 1995 as compared to $12.3 million in
1994. Cost of sales per ounce at Kendall in 1995 increased to $362 as compared
to $238 in 1994 due to the lower production levels associated with cessation of
mining of new ore. Included in cost of sales for 1995 and 1994 are all direct
and indirect costs of mining, crushing, processing and overhead expenses of the
Company's production operations, including normal provisions for reclamation of
$0.8 million for each year. In addition, the Company recorded a fourth quarter
1995 charge for estimated site restoration at Kendall of $1.1 million as a
consequence of reviewing and updating its anticipated scope of work to achieve
mine closure.
Depreciation, depletion, and amortization was lower during 1995 due
principally to lower ounces sold from the Kendall Mine. Effective October 1,
1995, the Company adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. SFAS 121 requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. Concurrent with adoption,
the Company determined that its carrying value for property and equipment at
the Kendall Mine was not recoverable, due principally to the maturing life of
the mine (remaining economic life of one year) and the level of site
restoration costs anticipated during the next two to three years to achieve
mine closure. As estimated cash outflows exceeded estimated cash inflows, the
Company reduced the carrying value to zero and recorded a fourth quarter 1995
impairment of $296,000.
Selling, general and administrative expenses were $3.4 million in 1995
as compared to $3.0 million in 1994. The increase was due primarily to
increased corporate activity for business development and to increased
diatomite sales and corresponding support levels.
Exploration costs expensed, almost entirely foreign related, decreased
by $0.2 million to $1.0 million in 1995. During 1995, the Company closed its
Mendoza, Argentina, office and focused principally on opportunities in Brazil
and Africa.
Abandonments of $0.3 million in 1995 were in the ordinary course of
business, and related principally to properties in Latin America.
Interest income was marginally lower in 1995, as higher yields
partially offset the effects of lower cash balances. Interest expense was
lower in 1995 as a gold loan was not outstanding for the full year. In
addition, interest expense associated with the Company's Convertible
Subordinate Notes declined due to voluntary conversions of $725,000 principal
during the year.
There was no current or deferred provision for income taxes during
1995 or 1994. Additionally, although the Company maintains significant net
deferred tax assets, principally in the form of operating loss carry-forwards,
the Company did not record a deferred tax credit in either 1995 or 1994 due to
an assessment of the "more likely than not" realization criteria required by
SFAS 109.
Inflation did not have a material impact on operations in 1995 or
1994. Management of the Company does not anticipate that inflation will have a
significant impact on continuing operations.
LIQUIDITY & CAPITAL RESOURCES
SUMMARY:
The Company's cash and cash equivalents increased $2.3 million during
1996 to $4.2 million at year end. The increase was a result of cash outflows
from operations of $8.1 million, $33.4 million of cash used
31
<PAGE> 34
in investing activities, and $43.8 million of cash provided by financing
activities. The Company's restricted cash declined by $25.2 million during
1996 and was used for construction and development of the Briggs Mine.
OPERATING ACTIVITIES:
Operations used $8.1 million of cash in 1996 as compared to using $2.4
million in 1995 and providing $2.4 million in 1994. The decreasing trend is
principally a result of declining production and sales of gold from the Kendall
Mine and, for the current year, additionally impacted by working capital
requirements at the Briggs Mine. At December 31, 1996, there were
approximately 24,965 recoverable ounces in-process at the Briggs Mine at a cost
of $3.4 million.
INVESTING ACTIVITIES:
Capital expenditures in 1996 totaled $33.5 million. Major components
included $27.4 million for construction and development of the Briggs Mine
(financed by drawings under a loan facility); $1.8 million for the acquisition
of a pumice processing facility and subsequent capital improvements; $1.6
million for the Company's share of costs on the McDonald Project, principally
relating to permitting; $1.5 million on foreign exploration properties; $0.5
million at the Company's diatomite operations, with the remaining amount spent
on miscellaneous projects.
Capital expenditures in 1995 totaled $8.1 million. Major components
included $5.5 million at Briggs, of which $1.6 million were financed by
drawings under a loan facility; approximately $1.2 million for the Company's
share of costs on the McDonald project, relating principally to permitting;
$0.3 million at the company's diatomite operations; $0.8 million on foreign
exploration properties, with the remaining amount spent on miscellaneous
projects.
Capital expenditures in 1994 totaled $6.8 million. Major components
included $3.4 million at the Briggs property, principally related to
environmental, metallurgical and engineering work; $1.0 million for the
Company's share of costs on the McDonald project which principally related to
engineering and environmental analyses to support the Plan of Operations and
commencement of the permitting process; $0.5 million at the Kendall Mine,
principally to construct a carbon adsorption plant to process lower grade
solutions expected with the cessation of new ore mining; $0.3 million at the
Company's diatomite operations; with the remaining amount associated with
miscellaneous exploration projects and corporate activities.
FINANCING ACTIVITIES:
On December 6, 1995, the Company's wholly owned subsidiary, CR Briggs
Corporation, obtained a $34.0 million loan facility to finance the capital
requirements of mine construction and working capital for its Briggs Mine in
California. Costs of approximately $1.3 million incurred in connection with
obtaining the facility were also financed. The Company is guaranteeing the
loan obligations of CR Briggs Corporation, and the loan facility is
collateralized by a first mortgage lien on the property, non-leased assets of
CR Briggs Corporation, and a pledge of the Company's stock in CR Briggs
Corporation. The facility was provided by a syndication of three banks; Banque
Paribas, Bayerische Vereinsbank AG, and NM Rothschild & Sons Ltd. and includes
three tranches; a $25 million gold loan; a $5 million cash loan; and a $4
million cost overrun facility. Subject to certain conditions, the Company has
the right to convert loans of one type into loans of another type. On December
27, 1995, drawing commenced on the facility and $25.0 million principal in the
form of a gold loan (monetized at $388.05 per ounce, or 64,425 ounces) and $1.0
million principal as a dollar loan were drawn. During 1996, an additional $4.0
million principal as dollar loans were drawn. Additionally, as a result of
higher than anticipated construction costs and working capital needs, the
Company contributed
32
<PAGE> 35
$2.1 million toward the Mine's development in 1996, and expects to utilize the
$4.0 million cost overrun facility during the fist half of 1997 to complete a
first phase expansion of the heap leach pad. Average interest rates on the
drawing for 1996 were: i) 4.10% on the $25.0 million gold loan and ii) 9.92 %
on the $5.0 million cash loans. During 1995, weighted average interest rates
on the gold loan and dollar loan were 5.32% and 9.87%, respectively. During
1996, interest payments of $1,387,500 were made utilizing proceeds from the
drawings. Varying interest rate periods can be selected under terms of the
facility. Repayment terms require quarterly installments over six years,
commencing in 1997, which include scheduled principal reductions and a varying
cash sweep amount equal to 30% of free cash flow (as defined) after primary
debt service. Within three years of project completion (approximately 4 months
beyond construction completion and start-up) an additional 70,000 ounces of
recoverable reserves must be identified or 100% of excess cash flow after
scheduled repayments will be applied as additional prepayments against the loan
amounts. During 1996, the Company increased its recoverable reserves by
approximately 67,000 ounces. As a condition of the loan, a portion of the
Briggs Mine's future production was hedged to ensure adequate cash flow for
repayment of the obligation. At December 31, 1996, approximately 36% of the
Briggs Mine production from current reserves was hedged through forward
contracts totalling 185,100 ounces at prices ranging from $398 to $424 per
ounce and put options totalling 19,500 ounces at a price of $380 per ounce.
On March 26, 1996, the Company completed a private placement in the
amount of $12.1 million ($11.2 million net of expenses). The offering was
completed at a price of $3.00 per unit which included one share of common stock
(4,034,300 total shares) and one-half warrant (2,017,200 total warrants). Each
whole warrant entitles the holder to purchase one share of common stock at an
exercise price equal to $3.75 per share. The warrants expire on March 25,
1999. The Company filed a Registration Statement under the Securities and
Exchange Act of 1933 in respect of the common shares, the warrants, and the
common shares underlying the warrants which was declared effective by the
Securities and Exchange Commission on May 14, 1996.
During the second quarter of 1996, the Company received proceeds of
$3.0 million in connection with the exercise of various warrants to purchase
common stock. The Company issued 878,100 shares of common stock as a result of
the warrant exercises.
On June 14, 1996, the Company gave notice to all holders of record
that its 6% Convertible Subordinated Notes in the then aggregate principal
amount of $21.1 million would be redeemed on July 12, 1996, by the issuance of
common stock, at a price equal to $3.31 per share. The Company subsequently
issued 6,346,100 shares in July, 1996, in connection with the call for
redemption.
In December, 1996, $0.5 million previously held as collateral for a
bank Letter of Credit in connection with a first year work commitment was
returned to the Company. During 1996, the Company's joint venture partner
posted a replacement financial assurance of the obligation allowing the
existing Letter of Credit to be cancelled.
In connection with the issue of certain surety bonds in 1995 for the
performance of reclamation obligations at the Kendall and Briggs mines, a bank
Letter of Credit was provided in favor of the Surety as partial collateral for
such obligations. The Letter of Credit was renewed in 1996 and is currently
scheduled to expire no earlier than December 31, 1997. At the bank's option,
the Letter of Credit may be renewed for successive one-year periods. The
Company has fully collateralized the Letter of Credit by depositing cash in the
amount of $1,953,000 with the bank. This amount is included as restricted cash
on the Company's balance sheet at December 31, 1996. Of the amount on deposit,
$84,000 was funded in 1995 and $1,869,000 was funded in prior years in
connection with a separate collateralized Letter of Credit only for the Kendall
Mine.
33
<PAGE> 36
During 1994, the Company fully repaid a previous gold loan by
delivering 6,393 ounces (monetized at $374.50 per ounce) to the lender.
Because the gold price at the repayment dates was higher than the original
monetized price, the Company recognized lower revenues and cash flow of
$103,000 than it would have received if all gold were sold at spot market
prices.
In August 1994, the Company exercised purchase options on its leased
mining equipment at the Kendall Mine for $0.9 million and financed the purchase
price over a three-year-period. Most of the equipment was transferred to the
Briggs Mine in late 1995, some equipment was disposed of during 1995, and some
equipment will remain at Kendall during final reclamation activity.
At December 31, 1996, the Company's debt consisted of the following:
1) $30.0 million Briggs loan, and 2) $0.2 million on a mining equipment loan.
OUTLOOK:
Operations
The Briggs Mine is expected to reach commercial production levels
during the first quarter of 1997. Gold production of approximately 73,000
ounces is expected for 1997 at cash production costs of approximately $265 per
ounce. A first phase leach pad expansion program of approximately $2.8 million
is planned in the first half of 1997 and will be financed from drawings under
the final $4.0 million tranche of the Briggs loan facility.
The Company expects approximately 20% of its revenues in 1997 will be
generated from sales of industrial minerals. Capital spending of $1.6 million
is also anticipated for improvements to the New Mexico processing plant
acquired in 1996 and to ongoing expenditures at the Nevada plant site.
The Company expects to spend approximately $1.4 million on reclamation
at Kendall during 1997, and a further $1.6 million beyond 1997 through mine
closure. The Company has accrued the expected reclamation costs at December
31, 1996, based upon its current estimate.
During 1997, the Company expects to contribute approximately $1.9
million to fund its share of expenditures for the McDonald Project, principally
relating to ongoing permitting and support activities. The Company also plans
a drilling program within its claim block in the Panamint Range near the Briggs
Mine in 1997 at a cost of $1.5 million. Other exploration expenditures in 1997
from internal funds will be minimal as the Company will be seeking joint
venture partner funding for its international properties.
Gold Prices and Hedging
The Company's revenues, earnings and cash flow are strongly influenced
by world gold prices, which fluctuate widely and over which the Company has no
control. The Company's strategy is to provide an acceptable floor price for a
portion of its production in order to meet minimum coverage ratios as required
by loan facilities while providing participation in potentially higher prices.
Production not subject to loan covenants has historically been sold at spot
prices. The Company's hedging program at Briggs consists of forwards and put
options with approximately 36% of reserves hedged at an average price of $404
ounce. The Company has the opportunity to deliver all of its 1997 production
at a hedged price of $401 per ounce. The risks of hedging include opportunity
risk by limiting unilateral participation in upward prices; production risk
associated with delivering physical ounces against a forward commitment; and
credit risk associated with counterparties to the hedged transaction. The
Company believes its production risk is minimal, and furthermore has the
flexibility to selectively extend maturity dates, thereby postponing delivery
against forward
34
<PAGE> 37
commitments. With regard to credit risk, the Company uses only creditworthy
counterparties and does not anticipate non-performance by such counterparties.
Environmental Regulation
In 1995 the Montana State Legislature passed legislation which
streamlined the permitting process of new industrial projects by reorganizing
the several state agencies that had jurisdiction over environmental permitting
into one central agency, the new Department of Environmental Quality (DEQ).
This agency will be responsible for acting on an application for a Hard Rock
Mining Operating Permit in connection with a Plan of Operations filed by the
Seven-Up Pete Joint Venture for the McDonald gold project. This permit, as
well as several other local, state and federal permits, including a joint state
and federal Environmental Impact Statement (EIS), will be required before
permits can be issued. There are no assurances that all permits will be issued
nor that, in the event they are issued, such issuances will be timely, nor that
conditions contained in the permits will not be so onerous as to preclude
construction and operation of the project.
The Kendall Mine operates under permits granted by the DEQ. The DEQ
requires the Company to maintain a $1,869,000 Reclamation Bond to ensure
appropriate reclamation. Although the DEQ has approved the Company's plans
with respect to soils and revegetation and drainage and sediment control, a
water quality and long term monitoring plan has not been submitted for review.
The outcome of the DEQ's review of such plan, which is expected to be submitted
in 1997, may impact the Company's estimate of costs remaining to achieve mine
closure.
The U.S. Bureau of Land Management (BLM), Inyo County, the California
Department of Conservation, and the Lahontan Regional Water Quality Control
Board (Lahontan) have jointly required the Company to post a reclamation bond
in the amount of $3,030,000 to ensure appropriate reclamation of the Briggs
Mine. Additionally, the Company was required by Lahontan to post a $1,010,000
bond to ensure adequate funds to mitigate any "foreseeable release" of
pollutants to state waters. Both bonds are subject to annual review and
adjustment.
Based upon current knowledge, the Company believes that it is in
material compliance with all applicable environmental laws and regulations as
currently promulgated. However, the exact nature of environmental control
problems, if any, which the Company may encounter in the future cannot be
predicted, primarily because of the increasing number, complexity and changing
character of environmental requirements that may be enacted or of the standards
being promulgated by federal and state authorities.
Federal Legislation
In 1994 the United States Congress passed the California Desert
Protection Act (CDPA), resolving surface management classifications for large
portions of BLM managed lands in the desert areas of California. The passing
of the CDPA released lands around the Briggs Mine for multiple use management,
significantly reducing constraints on exploration and mine operations.
Legislation has been introduced in prior sessions of the United States
Congress to modify the requirements applicable to mining claims on federal
lands under the Mining Law of 1872. To date, no such legislation has been
enacted. The timing and exact nature of any mining law changes cannot
presently be predicted, however, the Company will continue its active role in
industry efforts to work with Congress to achieve responsible changes to mining
law. The Company is also continuing its present efforts to patent the Briggs
and diatomite claims into private ownership in accordance with the provisions
of currently applicable law.
35
<PAGE> 38
Legal Actions
Certain actions are pending with respect to permits issued for the
Briggs Mine in California. In 1995 a local environmental group and the
Timbisha Shoshone Tribe 1) appealed the Bureau of Land Management's decision to
approve the Final Environmental Impact Statement and Plan of Operations, and 2)
petitioned the Superior Court of Inyo County alleging violations of the
California Environmental Quality Act and the Surface Mining and Reclamation
Act. Both actions were subsequently dismissed by the relevant administrative
and judicial bodies. The same group has appealed the Superior Court's decision
which is now pending before the Fourth District Court of Appeal. The Company
has vigorously defended its position in each of the proceedings and believes
that all claims are without merit; however, there are no assurances regarding
the outcome of these actions or the effects those outcomes might have on the
Company's ability to operate the mine.
Certain actions are also pending with respect to permits issued in
1996 for exploration within the Briggs claim block. The same group has 1)
appealed the Bureau of Land Management's approval of a Plan of Operations for
exploration, and 2) filed a petition for Writ of Mandate and complaint for
injunctive relief in Inyo County Superior Court. The Company believes the
administrative appeal, petition for Writ of Mandate, and motion for preliminary
injunction will be resolved favorably.
Dividends
For the foreseeable future, it is anticipated that the Company will
use any earnings to finance its growth and that dividends will not be paid to
shareholders. Further, pursuant to an agreement executed by the Company in
favor of its wholly owned subsidiary, CR Briggs Corporation, in connection with
a loan for the Briggs Mine, the Company has agreed to maintain certain levels
of working capital, tangible net worth, and leverage ratios which could
restrict the payment of dividends where such payment would result in a failure
to maintain such levels. Similarly, CR Briggs Corporation is prohibited from
repaying the Company for advances or from paying dividends to the Company from
the Briggs Mine cash flow unless certain conditions relating to the financial
performance of the Briggs Mine are met.
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . 37
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Operations . . . . . . . . . . . . . . 39
Consolidated Statement of Changes in Stockholders' Equity . . . . 40
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 41
Notes to Consolidated Financial Statements . . . . . . . . . . . 43-58
</TABLE>
36
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
of Canyon Resources Corporation:
We have audited the consolidated financial statements of Canyon
Resources Corporation and Subsidiaries listed in Item 14(a) of this Form 10-K.
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. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Canyon Resources Corporation and Subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, the
Company changed its method of accounting for impairment of long-lived assets as
required by Statement of Financial Accounting Standards No. 121, in 1995.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
February 28, 1997, except for Note 17 as to which the date is March 24, 1997
37
<PAGE> 40
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,181,100 $ 1,893,800
Restricted cash 2,557,500 25,212,600
Accounts receivable 574,300 586,300
Inventories 4,382,400 664,200
Prepaid and other assets 591,200 565,800
------------ ------------
Total current assets 12,286,500 28,922,700
------------ ------------
Property and equipment, at cost
Mining claims and leases 17,561,600 34,321,800
Producing properties 53,875,000 2,869,100
Other 898,200 2,692,600
------------ ------------
72,334,800 39,883,500
Accumulated depreciation and depletion (1,995,200) (1,359,100)
------------ ------------
Net property and equipment 70,339,600 38,524,400
------------ ------------
Other assets 1,758,200 4,977,100
------------ ------------
Total Assets $ 84,384,300 $ 72,424,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,616,400 $ 806,900
Notes payable - current 2,071,800 216,600
Accrued taxes, other than payroll and income 104,300 413,200
Accrued reclamation costs 1,421,000 686,000
Other accrued liabilities 612,400 476,800
------------ ------------
Total current liabilities 5,825,900 2,599,500
Notes payable - long term 28,125,000 47,371,800
Accrued reclamation costs 1,584,000 2,026,000
Other noncurrent liabilities 408,800 356,400
------------ ------------
Total Liabilities 35,943,700 52,353,700
------------ ------------
Commitments and contingencies (Notes 10 and 11)
Common stock ($.01 par value) 100,000,000 shares authorized; issued and out-
standing: 37,503,600 at December 31, 1996 and 25,793,300 at December 31, 1995 375,000 257,900
Capital in excess of par value 81,440,400 46,072,500
Deficit (33,374,800) (26,259,900)
------------ ------------
Total Stockholders' Equity 48,440,600 20,070,500
------------ ------------
Total Liabilities and Stockholders' Equity $ 84,384,300 $ 72,424,200
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
38
<PAGE> 41
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Sales $ 4,857,000 $ 9,006,600 $ 19,580,200
------------ ------------ ------------
EXPENSES
Cost of sales 4,356,900 7,393,600 12,307,300
Depreciation, depletion, and amortization 262,300 723,100 2,118,000
Selling, general and administrative 3,425,800 3,377,600 3,020,600
Exploration costs 307,800 991,700 1,158,400
Abandonments and impairments of mineral properties 2,425,800 302,300 101,400
Provision for site restoration 1,398,800 1,087,300 --
Impairment of producing assets -- 296,000 --
------------ ------------ ------------
12,177,400 14,171,600 18,705,700
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 1,095,500 570,000 652,200
Interest expense (846,200) (1,679,300) (1,861,000)
Other (43,800) 131,100 (3,400)
------------ ------------ ------------
205,500 (978,200) (1,212,200)
------------ ------------ ------------
Loss before income tax expense (7,114,900) (6,143,200) (337,700)
Provision for (benefit of) income taxes -- -- --
------------ ------------ ------------
Net loss ($ 7,114,900) ($ 6,143,200) ($ 337,700)
============ ============ ============
Net loss per share ($ 0.21) ($ 0.24) ($ 0.01)
============ ============ ============
Weighted average shares outstanding 33,275,500 25,696,800 25,470,400
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
39
<PAGE> 42
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Capital Retained
Common Stock in excess Earnings
Shares Amount of par value (Deficit)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1993 25,318,100 $ 253,200 $ 44,952,300 ($19,779,000)
------------ ------------ ------------ ------------
Exercise of stock options 150,000 1,500 163,300 --
Conversion of debenture 29,000 300 99,700
Net (loss) -- -- -- (337,700)
------------ ------------ ------------ ------------
Balances, December 31, 1994 25,497,100 255,000 45,215,300 (20,116,700)
Issuance of stock 61,600 600 99,400
Exercise of stock options 24,400 200 34,900 --
Conversion of debentures 210,200 2,100 722,900 --
Net (loss) -- -- -- (6,143,200)
------------ ------------ ------------ ------------
Balances, December 31, 1995 25,793,300 257,900 46,072,500 (26,259,900)
------------ ------------ ------------ ------------
Issuance of stock and warrants 5,062,400 50,600 14,535,200
Exercise of stock options 272,900 2,700 319,700 --
Conversion of debentures 525,200 5,300 1,806,700 --
Redemption of debentures 5,849,800 58,500 18,706,300 --
Net (loss) -- -- -- (7,114,900)
------------ ------------ ------------ ------------
Balances, December 31, 1996 37,503,600 $ 375,000 $ 81,440,400 ($33,374,800)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
40
<PAGE> 43
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 7,114,900) ($ 6,143,200) ($ 337,700)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion, and amortization 262,300 723,100 2,118,000
Amortization of financing costs 154,500 326,900 411,800
Abandonments and impairments of mineral properties 2,425,800 302,300 101,400
Provision for site restoration 1,398,800 1,087,300 --
Impairment of producing assets -- 296,000 --
Loss (gain) on disposal of equipment 4,000 (161,000) (10,500)
Other 23,300 81,300 27,300
Changes in assets and liabilities,
Decrease (increase) in receivables 91,100 (70,100) (120,800)
Decrease (increase) in inventories (3,620,600) 1,766,200 (781,400)
Decrease (increase) in prepaid and other assets 18,900 (97,000) 264,300
Increase (decrease) in accounts payable and accrued liabilities (1,150,100) (1,691,800) 575,100
Increase (decrease) in other liabilities (613,600) 1,223,900 154,100
------------ ------------ ------------
Total adjustments (1,005,600) 3,787,100 2,739,300
------------ ------------ ------------
Net cash provided by (used in) operating activities (8,120,500) (2,356,100) 2,401,600
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (33,458,400) (8,080,800) (6,810,500)
Proceeds on asset dispositions 45,300 430,800 200,000
Other 24,400 20,000 (72,500)
------------ ------------ ------------
Net cash used in investing activities (33,388,700) (7,630,000) (6,683,000)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of stock 14,505,100 35,100 174,200
Debenture conversion cost -- (43,500) (9,500)
Payments on debt (216,600) (386,400) (2,447,100)
Payments on capital lease obligations (63,900) (35,000) (35,700)
Proceeds from gold loan and restricted cash, net 27,259,500 2,740,400 --
Payments for debt issuance costs (187,700) (1,126,500) --
Receipts from (payments to) escrow account 2,000,100 (2,000,300) --
Receipts from (payments to) collateralize letters of credit 500,000 (584,000) (286,800)
------------ ------------ ------------
Net cash provided by (used in) financing activities 43,796,500 (1,400,200) (2,604,900)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,287,300 (11,386,300) (6,886,300)
Cash and cash equivalents, beginning of year 1,893,800 13,280,100 20,166,400
------------ ------------ ------------
Cash and cash equivalents, end of year $ 4,181,100 $ 1,893,800 $ 13,280,100
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
41
<PAGE> 44
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental disclosures of cash flow information:
1. The Company paid $2,247,200, $1,369,100, and $1,453,500 of interest during
1996, 1995, and 1994, respectively. Of the total payments, capitalized
interest during 1996, 1995, and 1994 was $1,449,600, $13,100, and $2,600,
respectively.
2. The Company paid no income taxes during 1996, 1995, and 1994.
Supplemental schedule of noncash investing and financing activities:
1. Capital lease obligations of $379,000, $48,600, and $55,600 were incurred
for equipment in 1996, 1995, and 1994, respectively.
2. Debentures in the principal amount of $1,812,000 were converted to
525,200 shares of common stock and $19,363,000 of principal was redeemed
by the Company into 5,849,800 shares of common stock during 1996. During
1995, $725,000 of principal was converted to 210,100 shares of common
stock. During 1994, $100,000 in principal was converted to 29,000 shares
of common stock.
3. The Company issued 150,000 shares of common stock which was valued at
$403,100 in exchange for a royalty interest during 1996. During 1995, the
Company issued 61,500 shares of common stock which was valued at $100,000
in exchange for a joint venture interest.
4. During 1995, the Company transferred title to previously financed
equipment back to the creditor for consideration equal to the unpaid
balance of $56,500.
5. The Company financed $899,900 of equipment purchases during 1994.
6. Certain stock options were exercised and paid for by tendering shares
otherwise issuable in lieu of cash payment. Fair market value of the
shares tendered was $101,200, $9,500, and $254,600 during 1996, 1995, and
1994, respectively.
The accompanying notes are an integral part of these
consolidated financial statements.
42
<PAGE> 45
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Canyon Resources Corporation (the Company) is a United States based
corporation involved in all phases of the mining business from exploration,
permitting, developing, operating and final closure of mining projects. The
Company has gold and industrial mineral production operations in the western
United States and conducts exploration activities in search of additional
mineral properties (emphasizing precious metals and industrial minerals) in the
western United States and throughout Latin America and Africa. The principal
market for the Company's precious metals products are European-based bullion
trading concerns. The Company's industrial minerals products (diatomite and
pumice) are differentiated based on particle size distribution and sold through
a distributor network in the United States, Canada and internationally to the
paint, plastics, asphalt coatings, and filler markets. Direct sales of
diatomite are also made to agricultural markets as an insecticide.
2. 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. Actual results could differ from those estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION: The consolidated financial statements of the Company include
the accounts of Canyon and its wholly owned subsidiaries: CR Kendall
Corporation; CR Minerals Corporation; CR Briggs Corporation; CR Montana
Corporation; CR International Corporation; Canyon Resources (Chile) S.A.;
Canyon de Panama, S.A.; CR Brazil Corporation; and its 90% owned subsidiaries:
Canyon Resources Venezuela, C.A.; Canyon Resources Africa Ltd.; and Canyon
Resources Tanzania Limited. The Company applies equity accounting principles
for its 40% ownership in Minera Hispaniola, S.A., a foreign corporation, and
proportionately consolidates its interests in undivided interest joint
ventures. All intercompany balances and transactions have been eliminated.
Certain prior period items have been reclassified in the consolidated financial
statements to conform with the current year presentation.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include amounts which
are readily convertible into cash and which are not subject to significant risk
from changes in interest rates. The Company maintained at December 31, 1996 and
1995, a significant portion of its cash in two financial institutions.
RESTRICTED CASH: Cash held as collateral for letters of credit is
classified based on the expected expiration of such facilities. Cash held in
trust and restricted to specific uses is classified based on the expected
timing of such disbursements. See Note 7.
INVENTORIES: Processed ores and metal-in-process are stated at the lower of
average cost or market. Materials and supplies are stated at cost.
43
<PAGE> 46
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
DEFERRED MINING COSTS: The Company, in order to more closely match expenses
and revenues, capitalizes costs of overburden removal that are in excess of the
estimated average pit strip ratio over the pit life. When the actual strip
ratio becomes less than the estimated average pit strip ratio, these costs are
expensed.
MINING CLAIMS AND LEASES: The Company's policy is to expense exploration
costs incurred prior to identification of specific land areas of interest and
to defer all costs directly associated with acquisition, exploration and
development of specific properties until the land area of interest to which
they relate is put into operation, sold or abandoned. Gains or losses
resulting from the sale or abandonment of mining properties are included in
operations. Proceeds from sales of properties and earn-in arrangements in
which the Company has retained an economic interest are credited against
property costs and no gain is recognized until all costs have been fully
recovered.
The Company regularly evaluates its exploration properties with respect to the
potential for economic mineralization and will joint venture, market to other
companies, and abandon properties in the ordinary course of business.
Costs associated with producing properties are charged to operations using the
units-of-production method based on estimated recoverable reserves.
PROPERTY AND EQUIPMENT: Gold production facilities and equipment are stated
at cost and are depleted over the estimated proven and probable recoverable
reserves of the related property. Industrial minerals production facilities
and equipment are stated at cost and are depreciated using the straight-line
method over estimated useful lives of three to forty years. Vehicles and
office equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three to five years.
Maintenance and repairs are charged to expense as incurred. Gains or losses on
dispositions are included in operations.
The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS
121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of in 1995. SFAS 121 requires that an impairment loss be
recognized when the estimated future cash flows (undiscounted and without
interest) expected to result from the use of an asset are less than the
carrying amount of the asset. Measurement of an impairment loss is based on
fair value of the asset if the asset is expected to be held and used, which
would be computed using discounted cash flows.
SITE RESTORATION: Costs are estimated based primarily upon environmental
and regulatory requirements and are accrued and charged to expense over the
expected economic life of the operation using the units of production method
based upon proven and probable recoverable reserves. The accrual for site
restoration is classified based on the timing of expected expenditures.
GOLD HEDGING: Gains or losses related to changes in values of hedging
instruments are included in revenues when the related inventories are sold.
The resulting cash flow is included in net cash provided by operating
activities on the statements of cash flows.
GOLD LOANS: Gold loans are monetized at the original proceeds amount and
are recognized into revenue at the time of physical delivery of the metal. At
any time that it is not probable that the timing and amount of
44
<PAGE> 47
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
production will be sufficient to repay the gold loan, or the cost of the
production exceeds the market price of the gold, the gold loan is recorded at
the higher of the original proceeds or the market value.
DEFERRED FINANCING COSTS: Costs incurred to obtain debt financing are
capitalized and amortized over the life of the debt facilities using the
effective interest method.
INTEREST CAPITALIZATION: Interest costs are capitalized as part of the
historical cost of facilities and equipment, if material. Interest is not
capitalized on properties in the exploration stage until a decision is made to
develop the property and construct facilities, and all necessary permits and
financing (if necessary) are in place.
EARNINGS PER SHARE: Earnings per share are based on the weighted average
number of common shares outstanding during 1996, 1995, and 1994. Common share
equivalents were not included in 1996, 1995 and 1994 because their effect would
be antidilutive.
4. INVENTORIES:
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Gold-in-process (a) $ 3,451,400 $ 389,200
Industrial Minerals -
in process (a) 394,900 120,000
Materials and supplies 536,100 155,000
----------- ---------
$ 4,382,400 $ 664,200
=========== =========
</TABLE>
(a) Includes all direct and indirect costs of mining,
crushing, processing and mine site overhead expenses.
5. INCOME TAXES:
The Company computes deferred income taxes under the asset and
liability method prescribed by Statement of Financial Accounting Standards No.
109. This method recognizes the tax consequences of temporary differences
between the financial statement amounts and the tax bases of certain assets and
liabilities by applying statutory rates in effect when the temporary
differences are expected to reverse. The Company also has significant deferred
tax assets in the form of operating loss carry forwards, however, its ability
to generate future taxable income to realize the benefit of these assets will
depend primarily on bringing new mines into production. As the market,
capital, and environmental uncertainties associated with that growth
requirement are considerable, the Company applies a full valuation allowance to
its deferred tax assets, except to the extent that the benefit of operating
loss carry forwards can be used to offset future reversals of existing deferred
tax liabilities. During 1996, 1995, and 1994, the change in the valuation
allowance was $3,263,100, $2,190,200, and $1,474,300, respectively, and was due
primarily to increased operating loss carryforwards and changes in temporary
differences.
45
<PAGE> 48
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. INCOME TAXES, CONTINUED:
Deferred tax assets and liabilities were comprised of the following at
December 31, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
DEFERRED TAX ASSETS
Reserve for mine reclamation $ 1,232,000 $ 1,084,800
Inventories 93,400 759,500
Net Operating Loss Carryforwards 18,061,600 14,580,800
Other 281,200 333,600
------------ ------------
Total Gross Deferred Tax Assets 19,668,200 16,758,700
Valuation Allowance (15,823,700) (12,560,600)
------------ ------------
Net Deferred Tax Assets $ 3,844,500 $ 4,198,100
------------ ------------
DEFERRED TAX LIABILITIES
Net PP&E (writedowns, depreciation/depletion and
exploration/development expenditures) $ (3,844,500) $ (4,198,100)
------------ ------------
NET DEFERRED INCOME TAX ASSET (LIABILITY) $ -- $ --
============ ============
</TABLE>
There was no current or deferred provision for income taxes for the
years ended December 31, 1996, 1995, 1994. The current provision for income
taxes differs from the amounts computed by applying the U.S. federal statutory
rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Tax at Statutory Rate of 34% $ (2,419,100) $ (2,063,200) $ (114,800)
Net Operating Loss (With) Without Tax Benefit 2,419,100 2,063,200 114,800
Alternative Minimum Tax -- -- --
------------ ------------ -----------
$ -- $ -- $ --
============ ============ ============
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards
for regular tax purposes of approximately $46,471,800 and approximately
$29,423,100 of net loss carryforwards available for the alternative minimum
tax. The net loss carryforwards will expire from 1999 through 2010.
As a result of a merger in 1987, net operating loss carryforwards at
the merger date were limited by Section 382 of the Internal Revenue Tax Code to
approximately $112,800 annually. Of the total net loss carryforwards available
at December 31, 1996, $1,138,800 remains subject to Section 382 limitations.
46
<PAGE> 49
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. NOTES PAYABLE:
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Briggs Loan (a) $ 30,000,000 $ 26,000,000
6% Debentures (b) -- 21,175,000
Caterpillar Finance Note (c) 196,800 413,400
------------ ------------
30,196,800 47,588,400
Current portion 2,071,800 216,600
------------ ------------
Notes Payable - Long Term $ 28,125,000 $ 47,371,800
============ ============
</TABLE>
(a) On December 6, 1995, the Company's wholly owned subsidiary, CR Briggs
Corporation, obtained a $34.0 million loan facility to finance the capital
requirements of mine construction and working capital for its Briggs Mine in
California. The Company is guaranteeing the loan obligations of CR Briggs
Corporation, and the loan facility is collateralized by a first mortgage lien
on the property, non-leased assets of CR Briggs Corporation, and a pledge of
the Company's stock in CR Briggs Corporation. The facility was provided by a
syndication of three banks, and includes three tranches; a $25 million gold
loan; a $5 million cash loan; and a $4 million cost overrun facility. Subject
to certain conditions, the Company has the right to convert loans of one type
into loans of another type. On December 27, 1995, drawing commenced on the
facility and $25.0 million principal in the form of a gold loan (monetized at
$388.05 per ounce, or 64,425 ounces) and $1.0 million principal as a dollar
loan were drawn. During 1996, an additional $4.0 million principal was drawn
on the facility. Average interest rates on the drawings for 1996 were: i) 4.10%
on the $25.0 million gold loan and ii) 9.92% on the $5.0 million cash loans.
During 1995, weighted average interest rates on the gold loan and dollar loan
were 5.32% and 9.87%, respectively. During 1996, interest payments of
$1,387,500 were made utilizing proceeds from the drawings. Varying interest
rate periods can be selected under the terms of the facility. Repayment terms
require quarterly installments over six years, commencing in 1997 which include
scheduled principal reductions and a varying cash sweep amount equal to 30% of
free cash flow (as defined) after primary debt service. After funding certain
reserve accounts (as defined), if necessary, remaining cash flow is available
to the Company, subject to further restrictive conditions. These restrictions
include assertions of no potential or actual defaults at the time of transfer
and to the frequency of such transfers. Within three years of project
completion (as defined) an additional 70,000 ounces of recoverable reserves
must be identified or 100% of excess cash flow after scheduled repayments will
be applied as additional prepayments against the loan amounts. During 1996,
the Company increased its recoverable reserves by approximately 67,000 ounces.
As a condition of the loan, a portion of the Briggs Mine's future production
was hedged to ensure adequate cash flow for repayment of the obligation. At
December 31, 1996, approximately 36% of the Briggs Mine production from current
reserves was hedged through forward contracts totalling 185,100 ounces at
prices ranging from $398 to $424 per ounce and put options totalling 19,500
ounces at a price of $380 per ounce. Upon the occurrence and during a default
(as defined) the lenders may, by notice to CR Briggs Corporation, terminate the
commitment and declare all amounts immediately due and payable. The Company
(through project completion) and CR Briggs Corporation are also subject to
cross-default provisions without the giving of notice in respect of other
indebtedness and agreements which would cause such indebtedness to become due
prior to its maturity.
47
<PAGE> 50
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. NOTES PAYABLE, CONTINUED:
(b) On June 2, 1993, the Company sold $22.0 million of 6% Subordinated
Convertible Notes (Notes) which were due June 1, 1998. The Notes were
convertible at the option of the holder any time into common shares at the rate
of $3.45 per share. On or after June 1, 1996, the Company could redeem the
Notes by issuing common stock at a rate equal to 94% of the then trading common
stock price at the time of redemption, or by payment in cash at par. On June
14, 1996, the Company gave notice to all holders of record that Notes in the
then aggregate principal amount of $21,075,000 would be redeemed on July 12,
1996, by the issuance of common stock at a price equal to $3.31 per share. The
Company subsequently issued 6,346,100 shares in July, 1996, in connection with
the call for redemption. Prior to the call for redemption, $100,000 of
principal was converted into 29,000 shares of common stock in 1996, $725,000 of
principal was converted into 210,100 shares of common stock in 1995, and
$100,000 of principal was converted into 29,000 shares of common stock in
1994. Interest payments in 1996, 1995, and 1994 totalled $764,600, $1,289,300,
and $1,317,100, respectively.
(c) In August, 1994, the Company exercised purchase options on its leased
mining equipment at the Kendall Mine for $899,900. Caterpillar Financial
Services subsequently agreed to finance the purchase price over a three year
period at a fixed interest rate of 9.5%. During 1996, the Company paid $30,000
of interest and reduced the principal balance by $216,600. During 1995, the
Company paid $59,700 of interest and reduced the principal balance by $442,900,
including a prepayment of $210,500 related to equipment which was sold because
it was no longer needed. During 1994, the Company paid $14,100 of interest and
reduced the principal balance by $57,600 in connection with the financing
terms.
Maturities of notes payable are as follows for the next five years:
<TABLE>
<S> <C>
1997 $ 2,071,800
1998 3,250,000
1999 4,000,000
2000 2,250,000
2001 6,000,000
Thereafter* 12,625,000
------------
Total $ 30,196,800
============
</TABLE>
* Included in the amount is $5,000,000 which will be subject to
varying prepayments equal to 30% of free cash flow from the
Briggs Mine (as defined) after primary debt service.
48
<PAGE> 51
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. RESTRICTED CASH:
Restricted cash consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Collateral for Letter of Credit (a) $ 1,953,000 $ 1,953,000
Collateral for Letter of Credit (b) -- 500,000
Unexpended proceeds from loan drawing (c) 100 23,259,600
Unexpended proceeds from gold sales (d) 604,200 --
Contingency account (e) 200 2,000,300
----------- ------------
$ 2,557,500 27,712,900
1996 1995
---- ---------
Current portion all (a and c) 2,557,500 $ 25,212,600
----------- ------------
Noncurrent portion none (b and e) $ -- $ 2,500,300
=========== ============
</TABLE>
(a) In connection with the issuance of certain bonds in 1995 for the
performance of reclamation obligations at the Kendall and Briggs Mines, a bank
Letter of Credit has been provided in favor of the Surety as partial collateral
for such bond obligations. The Letter of Credit is fully collateralized with
cash. The Letter of Credit will expire no earlier than December 31, 1997. At
the bank's option, the Letter of Credit may be renewed for successive one-year
periods.
(b) In connection with a first year work commitment on an exploration
property in Ethiopia, a bank Letter of Credit was provided in favor of the
Ministry of Mines and Energy, Federal Democratic Republic of Ethiopia. The
Letter of Credit, fully collateralized with cash, was originally scheduled to
expire on January 6, 1997. During 1996, the Company's joint venture partner in
Ethiopia posted a replacement financial assurance of the obligation allowing
the existing Letter of Credit to be cancelled with a return of the collateral
to the Company.
(c) As described in Note 6(a), the loan proceeds were restricted solely
for the development of the Briggs Mine.
(d) The Briggs Mine loan facility requires all proceeds from gold sales to
be held in trust and disbursed from the collected credit balance in certain
orders of priority.
(e) As a condition precedent to securing a loan facility (see Note 6(a)),
the Company transferred $2.0 million to an escrow account to be held in reserve
against construction cost overruns at the Briggs Mine. These funds were
utilized in 1996 due to higher than anticipated construction costs and working
capital needs.
49
<PAGE> 52
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. MINING CLAIMS AND LEASES:
The carrying value of the Company's mining claims and leases consists
of the following components at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
------------ ------------
<S> <C> <C>
Mining Property: (1)
Briggs $ - $ 17,973,200
McDonald 8,828,500 7,216,900
Exploration Properties 8,733,100 9,131,700
------------ ------------
$ 17,561,600 $ 34,321,800
============ ============
</TABLE>
(1) The Briggs Mine was in the commissioning phase as of December 31,
1996. Associated costs of $48,988,700 are included in Producing
Properties on the Company's Balance Sheet as of December 31, 1996.
A feasibility study on the McDonald property indicates sufficient mineable
reserves that, with subsequent development, would allow the Company to
ultimately recover its carrying value at December 31, 1996. The results of
exploration activities on the Company's exploration properties to date have not
resulted in conclusions that the carrying value of these properties will or
will not be recoverable by charges against income from future mining operations
or sale of properties. The Company cannot presently determine the ultimate
realizability of the carrying values of the exploration properties ($8,733,100
and $9,131,700 at December 31, 1996 and 1995, respectively) since the
realization is dependent upon the discovery of reserves in commercial
quantities and the subsequent development or sale of those reserves.
9. ASSET IMPAIRMENT:
In 1996 the Company wrote down its carrying value for certain
exploration properties by $2.3 million based upon a fourth quarter analysis of
available drilling results and other work performed by joint venture partners
and itself.
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS 121
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Concurrent with adoption, the Company determined that its
carrying value for property and equipment at the Kendall Mine was not
recoverable, due principally to the maturing life of the mine (remaining
economic life of one year) and the level of site restoration costs anticipated
during the next several years to achieve mine closure. As estimated cash
outflows exceed estimated cash inflows, the Company reduced the carrying value
to zero, recorded a fourth quarter 1995 impairment of $296,000, and removed
gross property and equipment costs and accumulated depreciation and depletion
amounts from the Balance Sheet of $26,763,900 and $26,467,900, respectively, as
of the adoption date.
50
<PAGE> 53
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. LEASE COMMITMENTS:
The Company has entered into various operating leases for office space
and equipment, including a mining fleet at the Briggs Mine, and vehicles used
in its operations. At December 31, 1996, future minimum lease payments
extending beyond one year under noncancellable leases were as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 Thereafter Total
----------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 1,999,700 $1,915,100 $ 1,849,100 $ 1,848,600 $ 181,500 $ 73,400 $ 7,876,400
</TABLE>
The Company has also entered into various mining lease arrangements
for purposes of exploring, and if warranted, developing and producing minerals
from the underlying leasehold interests. The lease arrangements typically
require advance royalty payments during the pre-production phase and a
production royalty upon commencement of production, with previously advanced
payments credited against the production royalties otherwise payable. Advance
royalty commitments will vary each year as the Company adds or deletes
properties. Currently, minimum advance royalty payments total approximately
$143,600 annually.
The Company is also required to pay an annual rental fee to the
federal government for any unpatented mining claims, mill or tunnel site claim
on federally owned lands at the rate of $100 per mining claim. The Company's
present inventory of claims would require approximately $177,300 in annual
rental fees, however, this amount will vary as claims are added or dropped.
The Company has submitted patent applications for its Briggs and diatomite
claims, however, no assurances can be made that patents will be issued. The
Company is also subject to rental fees to various other owners or lessors of
mining claims. Currently, rental payments to these parties total approximately
$157,500 annually.
Lease costs, which excluded costs capitalized during the development
stage of the Briggs Mine, included in cost of goods sold for the years ended
December 31, 1996, 1995 and 1994 were $19,500; $85,600 and $1,013,000,
respectively. Rent expense included in selling, general and administrative
expense of the Company for the years ended December 31, 1996, 1995 and 1994,
was $100,900; $121,200; and $107,900, respectively.
Property and equipment includes equipment with a cost and accumulated
amortization of $548,600 and $124,800, respectively, at December 31, 1996, and
$143,500 and $46,200, respectively, at December 31, 1995, for leases that have
been capitalized. Future minimum lease obligations under capital leases are as
follows:
<TABLE>
<S> <C>
1997 $ 184,500
1998 137,700
1999 168,100
2000 5,600
2001 500
----------
Total 496,400
Less amounts representing interest 72,700
----------
Present value of minimum lease payments 423,700
Less current obligations 142,900
----------
Long-term obligations under capital lease $ 280,800
==========
</TABLE>
51
<PAGE> 54
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. COMMITMENTS AND CONTINGENCIES:
Certain actions are pending with respect to permits issued for the
Briggs Mine in California. In 1995 a local environmental group and the
Timbisha Shoshone Tribe 1) appealed the Bureau of Land Management's decision to
approve the Final Environmental Impact Statement and Plan of Operations, and 2)
petitioned the Superior Court of Inyo County alleging violations of the
California Environmental Quality Act and the Surface Mining and Reclamation
Act. Both actions were subsequently dismissed by the relevant administrative
and judicial bodies. The same group has appealed the Superior Court's decision
which is now pending before the Fourth District Court of Appeal.
Certain actions are also pending with respect to permits issued in
1996 for exploration within the Briggs claim block. The same group has 1)
appealed the Bureau of Land Management's approval of a Plan of Operations for
exploration, and 2) filed a petition for Writ of Mandate and complaint for
injunctive relief in Inyo County Superior Court. The Company believes the
administrative appeal, petition for Writ of Mandate, and motion for preliminary
injunction will be resolved favorably.
Based upon current knowledge, the Company believes that it is in
material compliance with environmental laws and regulations as currently
promulgated. However, the exact nature of environmental control problems, if
any, which the Company may encounter in the future cannot be predicted,
primarily because of the increasing number, complexity and changing character
of environmental requirements that may be enacted or of the standards being
promulgated by federal, state, or foreign authorities.
12. CERTAIN CONCENTRATIONS AND CONCENTRATIONS OF CREDIT RISK:
The Company sold its gold and silver production predominately to one
customer during 1996, 1995, and 1994. Given the nature of the commodities
being sold and because many other potential purchasers of gold and silver
exist, it is not believed that loss of such customer would adversely affect the
Company. Sales of industrial minerals were made to a diverse base of customers
during 1996, 1995, and 1994.
The Company is subject to credit risk in connection with its price
protection arrangements as outlined in Note 6(a) in the event of
non-performance by its counterparties. The Company uses only highly-rated
creditworthy counterparties, however, and does not anticipate non-performance.
The Company is subject to concentrations of credit risk in connection
with maintaining its cash primarily in two financial institutions for the
amounts in excess of levels insured by the Federal Deposit Insurance
Corporation. The Company considers the institutions to be financially strong
and does not consider the underlying risk to be significant. To date, these
concentrations of credit risk have not had a significant effect on the
Company's financial position or results of operations.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company does not acquire, hold or issue financial instruments for
trading purposes. The estimated fair values of the Company's financial
instruments at December 31, 1996, and December 31, 1995, are as follows:
52
<PAGE> 55
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
<TABLE>
<CAPTION>
AT DECEMBER 31 1996 1995
-------------- ---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 4,181,100 $ 4,181,100 $ 1,893,800 $ 1,893,800
Restricted Cash $ 2,557,500 $ 2,557,500 $ 27,712,900 $ 27,712,900
Long-term Investments $ 313,700 $ 413,200 $ 353,700 $ 432,600
Long-term Debt (1) $ 5,196,800 $ 5,196,800 $ 22,588,400 $ 19,200,400
</TABLE>
(1) Long-term debt excludes the carrying and fair value amounts for
the Company's gold loan (see Note 6(a)) because the commodity based
loan does not meet the criteria established for inclusion as a
financial instrument.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
CASH AND CASH EQUIVALENTS: Carrying amounts approximate fair value based on
the short-term maturity of those instruments.
RESTRICTED CASH: Carrying amounts approximate fair value based on the short
term maturity of those instruments.
LONG-TERM INVESTMENTS: Fair value estimate based on expected discounted cash
flows at a discount rate commensurate with the risk and contingent nature of
future payments.
LONG-TERM DEBT: Fair value estimate for convertible debentures at December 31,
1995, based on quoted market prices. Fair value estimate for other long-term
debt based on discounted cash flows using the Company's current rate of
borrowing for a similar liability.
14. STOCK OPTIONS:
The Company adopted an Incentive Stock Option Plan on April 12, 1982,
as amended (the Plan), whereby options to purchase shares of the Company's
common stock may be granted to employees of the Company, including those who
are also directors of the Company, or subsidiary corporations in which the
Company owns greater than a 50% interest. Exercise price for the options is at
least equal to 100% of the market price of the Company's common stock at the
date of grant for employees who own 10% or less of the total voting stock of
the Company; and 110% of the market price of the Company's common stock at the
date of grant for employees who own more than 10% of the Company's voting
stock. Options become exercisable after the second anniversary of the date of
the grant and can expire up to 10 years from the date of the grant.
53
<PAGE> 56
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK OPTIONS, CONTINUED:
Incentive stock option activity during 1996, 1995, and 1994 was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Weighted Weighted Weighted
Amount Average Price Amount Average Price Amount Average Price
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 1,965,500 $ 2.36 1,689,000 $ 2.54 1,455,000 $ 2.69
Granted 348,500 $ 2.57 540,500 $ 2.14 422,000 $ 1.83
Exercised (186,400) $ 1.33 (23,500) $ 1.50 (141,500) $ 1.94
Forfeited (122,600) $ 2.27 (89,000) $ 2.75 (46,500) $ 2.60
Expired - - (151,500) $ 3.50 - -
----------- ----------- ---------
Outstanding,
end of year 2,005,000 $ 2.50 1,965,500 $ 2.36 1,689,000 $ 2.54
=========== =========== ===========
Exercisable,
end of year 1,104,000 $ 2.62 963,500 $ 2.66 774,500 $ 2.37
</TABLE>
A summary of the outstanding incentive stock options as of December
31, 1996, follows:
<TABLE>
<CAPTION>
Range of Amount Weighted Average Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- -------------------------- ----------------
<S> <C> <C> <C>
$ 1.63 - $ 2.87 1,327,500 3.7 years $ 2.08
$ 3.00 - $ 3.69 677,500 3.1 years $ 3.33
</TABLE>
At December 31, 1996, there were 685,486 shares reserved for future
issuance under the Plan.
On March 20, 1989, the Company's Board of Directors approved the
adoption of a Non-Qualified Stock Option Plan (the Non-Qualified Plan). Under
the Non-Qualified Plan, the Board of Directors may award stock options to
consultants, directors and key employees of the Company, and its subsidiaries
and affiliates, who are responsible for the Company's growth and profitability.
The Non-Qualified Plan does not provide criteria for determining the number of
options an individual shall be awarded, or the term of such options, but
confers broad discretion on the Board of Directors to make these decisions.
Total options granted under the Non-Qualified Plan may not have a term longer
than 10 years or an exercise price less than 50 percent of the fair market
value of the Company's common stock at the time the option is granted.
In conjunction with the initial public offering of the Company's
common stock, the Company issued options to purchase 55,000 shares of the
Company's common stock at $2.00 per share to two members of the Company's Board
of Directors. The options were exercised in 1994.
54
<PAGE> 57
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK OPTIONS, CONTINUED:
By vote of the Company's shareholders at the May 17, 1995, Annual
Shareholders Meeting, the Company adopted a motion to award each non-employee
Director options to purchase 10,000 shares of common stock each year during
their tenure on the Board of Directors. Such stock option awards from the
Non-Qualified Plan are made at an exercise price equal to the closing price of
the Company's common stock one day prior to the Annual Shareholders Meeting.
The non-employee Director grants are exercisable at any time between one and
five years from the date of grant.
Non-qualified stock option activity during 1996, 1995, and 1994 was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Weighted Weighted Weighted
Amount Average Price Amount Average Price Amount Average Price
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 335,000 $ 2.21 305,000 $ 2.26 360,000 $ 2.20
Granted 60,000 $ 3.31 60,000 $ 2.06 20,000 $ 2.19
Exercised (120,000) $ 1.41 (5,000) $ 1.88 (75,000) $ 1.93
Forfeitures (15,000) $ 3.69 - - - -
Expirations - - (25,000) $ 2.50 - -
---------- --------- ----------
Outstanding,
end of year 260,000 $ 2.72 335,000 $ 2.21 305,000 $ 2.26
========== ========= ===========
Exercisable,
end of year 200,000 $ 2.54 275,000 $ 2.24 285,000 $ 2.26
</TABLE>
A summary of the outstanding non-qualified stock options as of
December 31, 1996, follows:
<TABLE>
<CAPTION>
Range of Amount Weighted Average Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- -------------------------- ----------------
<S> <C> <C> <C>
$ 2.06 - $ 2.50 140,000 2.0 years $ 2.27
$ 3.19 - $ 3.31 120,000 3.0 years $ 3.25
</TABLE>
At December 31, 1996, there were 228,357 shares reserved for future
issuance under the Non-Qualified Plan.
The Company measures compensation cost as prescribed by APB Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees. No compensation
cost has been recognized in the financial statements as the exercise price of
all option grants is at least equal to 100% of the market price of the
55
<PAGE> 58
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. STOCK OPTIONS, CONTINUED:
Company's common stock at the date of grant. In October, 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting For Stock-Based Compensation,
effective for fiscal years beginning after December 15, 1995. SFAS 123 defines
a "fair value" based method of accounting for employee options or similar
equity instrument. Had compensation cost been determined under the provisions
of SFAS 123, the following pro forma net loss and per share amounts would have
been recorded:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net loss
o As reported $ 7,114,900 $ 6,143,200
o Pro Forma $ 7,401,800 $ 6,226,600
Net loss per share
o As reported $ 0.21 $ 0.24
o Pro Forma $ 0.22 $ 0.24
</TABLE>
The weighted average fair value for options granted in 1996 and 1995
were $1.02 per share and $0.73 per share, respectively. The pro forma amounts
were determined using the Black Scholes model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected volatility 73.7% 73.7%
Expected option term
o Incentive Stock Options 3 years 3 years
o Non-Qualified Stock Options 5 years 5 years
Weighted average risk-free interest rate
o Incentive Stock Options 5.8% 5.7%
o Non-Qualified Stock Options 6.6% 6.3%
Forfeiture rate
o Incentive Stock Options 15% 15%
o Non-Qualified Stock Options - -
</TABLE>
56
<PAGE> 59
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. WARRANTS:
As a result of a private placement in March, 1996, warrants to
purchase 2,017,167 shares of $0.01 par value common stock were sold. For each
share of the Company's common stock purchased, the purchaser received one-half
warrant. Each whole warrant entitles the holder to purchase one share of
common stock at an exercise price equal to $3.75 per share. The warrants
expire on March 25, 1999. A warrant to purchase 300,000 shares of common stock
was issued to the Company's underwriter and financial advisor in connection
with the private placement at the same terms and conditions.
As a result of private placements during January, 1990, and March,
1992, warrants to purchase 3,943,600 shares of $.01 par value common stock were
sold. In the 1990 private placement, for each four shares of the Company's
common stock purchased, the purchaser received one warrant to purchase one
share of the Company's common stock, at an exercise price of $3.50 per share.
In the 1992 private placement, for each two shares of the Company's common
stock purchased, the purchaser received one warrant to purchase one share of
the Company's common stock, at an exercise price of $3.50 per share. All
warrants were initially scheduled to expire on December 31, 1994, however, the
Company extended the expiration date to April 12, 1996. During 1996, warrants
to purchase 714,200 shares of common stock were exercised and 3,229,400
warrants expired unexercised.
A warrant to purchase 200,000 shares of common stock at an exercise
price of $2.875 per share, exercisable until December 31, 1994, was issued in
connection with a gold loan obtained by the Company in May, 1993. One-half of
the warrant was subsequently exercised in October, 1993. A replacement warrant
was issued for the remaining 100,000 shares, the Company extended the scheduled
expiration date to April 12, 1996, and the warrant was exercised prior to
expiration.
16. SITE RESTORATION COSTS:
Reclamation at the Kendall Mine has been ongoing throughout the life
of the operation and costs to date total $2.6 million. During 1996, the
Company recorded an additional charge of $1.4 million based on a fourth quarter
update to the anticipated scope of work relating to water quality compliance
and long term monitoring requirements. The Company's estimate of total costs
to achieve mine closure is $5.6 million.
The Kendall Mine operates under permits granted by the Montana
Department of Environmental Quality (DEQ). The DEQ requires the Company to
maintain a $1,869,000 Reclamation Bond to ensure appropriate reclamation.
Although the DEQ has approved the Company's plans with respect to soils and
revegetation and drainage and sediment control, a water quality and long term
monitoring plan has not been submitted for review. The outcome of the DEQ's
review of such plan, which is expected to be submitted in 1997, may impact the
Company's estimate of costs remaining to achieve mine closure.
The U.S. Bureau of Land Management (BLM), Inyo County, the California
Department of Conservation, and the Lahontan Regional Water Quality Control
Board (Lahontan) have jointly required the Company to post a reclamation bond
in the amount of $3,030,000 to ensure appropriate reclamation of the Briggs
Mine. Additionally, the Company was required by Lahontan to post a $1,010,000
bond to ensure adequate funds to mitigate any "foreseeable release" of
pollutants to state waters. Both bonds are subject to annual review and
adjustment.
57
<PAGE> 60
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. SUBSEQUENT EVENTS:
On March 19, 1997, the Company entered into an agreement to purchase
the Cahuilla gold project, a gold-mineralized exploration property located in
Imperial County, California, from Kennecott Exploration Company (Kennecott).
Subject to certain conditions precedent to final closing of the transaction,
the Company, upon closing (scheduled on or before August 29, 1997), will issue
100,000 shares of its common stock to Kennecott, and another 100,000 shares
within 18 months. In addition, upon mine development, $10 per recoverable
ounce of gold, not to exceed $20 million as determined by a Feasibility Study,
will be payable in common shares of the Company at the then share price.
On March 20, 1997, the Company adopted a Shareholder Rights Plan and
declared a dividend distribution of one right (Right) for each outstanding
share of the Company's common stock to shareholders of record at the close of
business on April 15, 1997. The Rights will become exerciseable only if a
third party, without the Company's prior consent, acquires shares representing
20 percent or more of the Company's common stock (Stock Acquisition Date) or
announces a tender offer which would result in such ownership. Each Right,
initially priced at $15.00, entitles the holder, when exerciseable, to purchase
a number of shares of common stock equal to two times the Right's price divided
by the then market price of the Company's common stock. The price payable, and
the number of common shares issuable upon exercise are subject to adjustment
from time to time in connection with certain events to prevent dilution. Until
a Right is exercised, the holder will have no rights as a shareholder of the
Company, including without limitation, the right to vote or to receive
dividends. The Company may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right (payable in cash, common stock or other consideration)
at any time until ten days following the Stock Acquisition Date. The Rights
will expire at the close of business on March 20, 2007, unless earlier
exercised or redeemed.
58
<PAGE> 61
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in the Company's certified public
accountants during the past two years. There has been no report on Form 8-K
of a disagreement between the Company and its accountants on any matter of
accounting principles or practices or financial statement disclosure.
59
<PAGE> 62
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears in the Company's Proxy
Statement for the 1997 Annual Meeting to be filed within 120 days after the end
of the fiscal year and is incorporated by reference in this Annual Report on
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Company's Proxy
Statement for the 1997 Annual Meeting to be filed within 120 days after the end
of the fiscal year and is incorporated by reference in this Annual Report on
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the Company's Proxy
Statement for the 1997 Annual Meeting to be filed within 120 days after the end
of the fiscal year and is incorporated by reference in this Annual Report on
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the Company's Proxy
Statement for the 1997 Annual Meeting to be filed within 120 days after the end
of the fiscal year and is incorporated by reference in this Annual Report on
Form 10-K.
60
<PAGE> 63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Financial Statements (included in Part II of this Report):
Report of Independent Accountants'
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - Years ended December 31, 1996,
1995, and 1994
Consolidated Statement of Changes in Stockholders' Equity - Years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995, and 1994
Notes to Consolidated Financial Statements
(b) There were no Form 8-K reports filed during the last quarter of the period
by this report.
(c) Exhibits, as required by Item 601 of Regulation S-K, are listed on pages 62
to 65. The exhibit numbers correspond to the numbers assigned in Item 601
of Regulation S-K.
61
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (2)
3.1.1 Articles of Amendment to the Company's Certificate of Amendment as filed with the Delaware Secretary of
State on January 23, 1990 (9)
3.1.2 Executed Certificate of Designations, dated December 26, 1990, as filed with the Delaware Secretary of
State on December 26, 1990 (11)
3.2 Bylaws of the Company, as amended (2)
4.1 Specimen Common Stock Certificate (1)
4.2 Variable Interest, Secured, Resource Convertible Debenture (7)
4.3 Specimen Warrant Certificate (10)
4.4 Warrant Agreement dated January 26, 1990, by and between the Company and American Securities Transfer,
Inc. (9)
4.5 Stock and Warrant Purchase Agreement, dated December 26, 1990, among the Company, Kennecott Exploration
Company, CR Briggs Corporation, CR Kendall Corporation, and CR Montana Corporation (11)
4.6 Executed Common Stock Purchase Warrant, dated December 26, 1990 (11)
4.7 Indenture dated June 2, 1993, between the Company and Bank of America Arizona, Trustee, with respect to
$22,000,000, 6% Convertible Debentures due June 1, 1998 (15)
4.8 Specimen 6% Convertible Subordinated Note (15)
4.9 Specimen Warrant Certificate
4.10 Warrant Agreement dated March 20, 1996, by and between the Company and American Securities Transfer,
Inc.
4.11 Rights Agreement dated March 20, 1997, between Canyon Resources Corporation and American Securities
Transfer & Trust, Inc.
10.1 Canyon-Minex Joint Venture Agreement dated March 1, 1983, as amended, among the Company, Saranac
Minerals, EMK Resources II, Black Hawk Resources Corporation, and Atlantic Associates (3)
10.2 Office Building Lease, dated August 10, 1992, as amended, between Denver West Office Building No. 51
and the Company (14)
10.3 Canyon-Minex Joint Venture and Meridian Minerals Company Agreement dated March 23, 1988 (4)
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.4 Mining Venture Agreement between Recursos Canyon Dominicana, S.A. and Battle Mountain Gold Company
dated June 28, 1988 (5)
10.4.1 Letter Agreement dated February 16, 1992, among the Company, through its subsidiary Recursos Canyon
Dominicana, S.A., and Battle Mountain Gold Company (14)
10.5 Agreement between the Company, Meridian Minerals Company, and the Canyon-Minex Joint Venture dated
December 27, 1988 (6)
10.6 Stock Purchase and Loan Agreement between the Company and VenturesTrident II, L.P., dated January 27,
1989 (7)
10.6.1 Amendment to Stock Purchase and Loan Agreement between the Company and VenturesTrident II, L.P., dated
January 26, 1993 (14)
10.7 Option to Purchase Agreement, dated July 14, 1989, by and between Addwest Gold, Inc. and Western Energy
Company (8)
10.8 Seven-Up Pete Venture Agreement between Addwest Gold, Inc. and Phelps Dodge Mining Company (8)
10.9 Letter Agreement dated July 8, 1989, between Addwest Gold, Inc. and Phelps Dodge Mining Company (8)
10.10 Purchase Agreement by and between the Company and Addington Resources, Inc. dated January 26, 1990 (9)
10.11 Gold Loan Agreement by and between the Company and Bankers Trust Company dated January 26, 1990 (9)
10.12 Net Smelter Return Royalty Deed from Addwest Gold, Inc. to Addington Resources, Inc. dated January 26,
1990 (9)
10.13 Covenant Not to Compete between Addwest Gold, Inc. and Addington Resources, Inc. dated January 26, 1990
(9)
10.14 Master Tax Lease between the Company and Caterpillar Financial Services Corporation dated June 15, 1990
(12)
10.15 Judith Mountains Memorandum of Understanding between the Canyon-Minex II Joint Venture and Cominco
American Resources, Inc. dated August 1, 1990 (12)
10.16 Farm-In Agreement, effective December 1, 1990, among Kennecott Exploration Company, Canyon Resources
Corporation, and CR Briggs Corporation (11)
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.17 Consent, Subordination and Release Agreement, dated December 26, 1990, among Kennecott Exploration
Company, Canyon Resources Corporation, CR Briggs Corporation, CR Kendall Corporation, and CR Montana
Corporation (11)
10.18 Amended and Restated Gold Loan and Letter of Credit Facility Agreement (without exhibits) by and
between the Company and Mase Westpac Limited dated March 23, 1992 (13)
10.19 Amendment No. 1 to Amended and Restated Gold Loan and Letter of Credit Facility Agreement by and
between the Company and Mase Westpac Limited effective December 31, 1992 (14)
10.20 Change of Control Agreements, dated December 6, 1991, between the Company and Richard H. De Voto, Gary
C. Huber and William W. Walker (14)
10.21 Amended and Restated Credit Facility Agreement dated May 26, 1993, among N M Rothschild & Sons Limited,
Canyon Resources Corporation, CR Kendall Corporation, CR Briggs Corporation, CR Montana Corporation,
and CR Minerals Corporation (15)
10.22 Loan Agreement dated December 6, 1995, among CR Briggs Corporation as Borrower and Banque Paribas as
Agent (16)
10.23 Master Tax Lease dated December 27, 1995, between CR Briggs Corporation and Caterpillar Financial
Services Corporation. (16)
11.1* Statement regarding computation of per share earnings
21.1* Subsidiaries of the Registrant
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Kvaerner Metals (formerly Davy International)
23.3* Consent of Roberts and Schaefer Company
23.4* Consent of Mine Reserves Associates, Inc.
23.5* Consent of Remy and Thomas
23.6* Consent of Chamberlin & Associates
27* Financial Data Schedule
</TABLE>
* Filed herewith
64
<PAGE> 67
<TABLE>
<S> <C>
(1) Incorporated by reference from the Company's Registration Statement on Form 8-A as declared effective by the
Securities and Exchange Commission on March 18, 1986.
(2) Exhibits 3.1 and 3.2 are incorporated by reference from Exhibits 3.1 and 3.2, respectively, to the Company's
Registration Statement on Form S-1 (File No. 33-19264) declared effective by the Securities and Exchange
Commission on February 1, 1988.
(3) Exhibit 10.1 is incorporated by reference from Exhibit 10.1 to the Company's Registration Statement on Form S-
18 (File No. 2-99249-D) declared effective by the Securities and Exchange Commission on November 8, 1985.
(4) Exhibit 10.3 is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988.
(5) Exhibit 10.4 is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987.
(6) Exhibit 10.5 is incorporated by reference from the Company's Report on the Form 8-K filed with the Securities
and Exchange Commission on January 4, 1989.
(7) Exhibits 4.2 and 10.6 are incorporated by reference from Exhibits 1 and 2 of the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on January 27, 1989.
(8) Exhibits 10.7, 10.8, and 10.9 are incorporated by reference from Exhibits 10.19, 10.20, and 10.21,
respectively, to the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31,
1989.
(9) Exhibits 3.1.1, 4.4, 10.10, 10.11, 10.12, and 10.13 are incorporated by reference from Exhibits 3.1, 4.1, 2.1,
10.1, 28.1, and 28.2, respectively, to the Company's Report on Form 8-K dated January 26, 1990.
(10) Exhibit 4.3 is incorporated by referenced from Exhibit 4.3 to the Company's Registration Statement on Form S-2,
effective August 13, 1990.
(11) Exhibits 3.1.2, 4.5, 4.7, 10.16 and 10.17 are incorporated by reference from Exhibits 4, 3, 5, 1, and 2,
respectively, of the Company's Report on Form 8-K filed with the Securities and Exchange Commission on December
26, 1990.
(12) Exhibits 4.6, 10.14 and 10.15 are incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990.
(13) Exhibit 10.18 is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
(14) Exhibits 10.2, 10.4.1, 10.6.1, 10.19, and 10.20 are incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(15) Exhibits 4.7, 4.8, and 10.21 are incorporated by reference from Exhibits 4.3, 4.2, and 10.1, respectively, to
the Company's report on Form 8-K dated May 26, 1993.
(16) Exhibits 10.22 and 10.23 are incorporated by reference from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(17) Exhibit 4.11 is incorporated by reference from the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on March 27, 1997.
</TABLE>
65
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
CANYON RESOURCES CORPORATION
Date: March 20, 1997 /s/ Richard H. De Voto
---------------------------------------
Richard H. De Voto
Principal Executive Officer
Date: March 20, 1997 /s/ Gary C. Huber
---------------------------------------
Gary C. Huber
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: March 20, 1997 /s/ Richard H. De Voto
---------------------------------------
Richard H. De Voto, Director
Date: March 20, 1997 /s/ Gary C. Huber
---------------------------------------
Gary C. Huber, Director
Date: March 20, 1997 /s/ William W. Walker
---------------------------------------
William W. Walker, Director
Date: March 20, 1997 /s/ Leland O. Erdahl
---------------------------------------
Leland O. Erdahl, Director
Date: March 20, 1997 /s/ George W. Holbrook, Jr.
---------------------------------------
George W. Holbrook, Jr., Director
Date: March 20, 1997 /s/ Frank M. Monninger
---------------------------------------
Frank M. Monninger, Director
Date: March 20, 1997 /s/ William C. Parks
---------------------------------------
William C. Parks, Director
66
<PAGE> 69
Date: March 20, 1997 /s/ Christopher M.T. Thompson
---------------------------------------
Christopher M.T. Thompson, Director
Date: March 20, 1997 /s/ Robert L. Zerga
---------------------------------------
Robert L. Zerga, Director
67
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (2)
3.1.1 Articles of Amendment to the Company's Certificate of Amendment as filed with the Delaware Secretary of
State on January 23, 1990 (9)
3.1.2 Executed Certificate of Designations, dated December 26, 1990, as filed with the Delaware Secretary of
State on December 26, 1990 (11)
3.2 Bylaws of the Company, as amended (2)
4.1 Specimen Common Stock Certificate (1)
4.2 Variable Interest, Secured, Resource Convertible Debenture (7)
4.3 Specimen Warrant Certificate (10)
4.4 Warrant Agreement dated January 26, 1990, by and between the Company and American Securities Transfer,
Inc. (9)
4.5 Stock and Warrant Purchase Agreement, dated December 26, 1990, among the Company, Kennecott Exploration
Company, CR Briggs Corporation, CR Kendall Corporation, and CR Montana Corporation (11)
4.6 Executed Common Stock Purchase Warrant, dated December 26, 1990 (11)
4.7 Indenture dated June 2, 1993, between the Company and Bank of America Arizona, Trustee, with respect to
$22,000,000, 6% Convertible Debentures due June 1, 1998 (15)
4.8 Specimen 6% Convertible Subordinated Note (15)
4.9 Specimen Warrant Certificate
4.10 Warrant Agreement dated March 20, 1996, by and between the Company and American Securities Transfer,
Inc.
4.11 Rights Agreement dated March 20, 1997, between Canyon Resources Corporation and American Securities
Transfer & Trust, Inc.
10.1 Canyon-Minex Joint Venture Agreement dated March 1, 1983, as amended, among the Company, Saranac
Minerals, EMK Resources II, Black Hawk Resources Corporation, and Atlantic Associates (3)
10.2 Office Building Lease, dated August 10, 1992, as amended, between Denver West Office Building No. 51
and the Company (14)
10.3 Canyon-Minex Joint Venture and Meridian Minerals Company Agreement dated March 23, 1988 (4)
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.4 Mining Venture Agreement between Recursos Canyon Dominicana, S.A. and Battle Mountain Gold Company
dated June 28, 1988 (5)
10.4.1 Letter Agreement dated February 16, 1992, among the Company, through its subsidiary Recursos Canyon
Dominicana, S.A., and Battle Mountain Gold Company (14)
10.5 Agreement between the Company, Meridian Minerals Company, and the Canyon-Minex Joint Venture dated
December 27, 1988 (6)
10.6 Stock Purchase and Loan Agreement between the Company and VenturesTrident II, L.P., dated January 27,
1989 (7)
10.6.1 Amendment to Stock Purchase and Loan Agreement between the Company and VenturesTrident II, L.P., dated
January 26, 1993 (14)
10.7 Option to Purchase Agreement, dated July 14, 1989, by and between Addwest Gold, Inc. and Western Energy
Company (8)
10.8 Seven-Up Pete Venture Agreement between Addwest Gold, Inc. and Phelps Dodge Mining Company (8)
10.9 Letter Agreement dated July 8, 1989, between Addwest Gold, Inc. and Phelps Dodge Mining Company (8)
10.10 Purchase Agreement by and between the Company and Addington Resources, Inc. dated January 26, 1990 (9)
10.11 Gold Loan Agreement by and between the Company and Bankers Trust Company dated January 26, 1990 (9)
10.12 Net Smelter Return Royalty Deed from Addwest Gold, Inc. to Addington Resources, Inc. dated January 26,
1990 (9)
10.13 Covenant Not to Compete between Addwest Gold, Inc. and Addington Resources, Inc. dated January 26, 1990
(9)
10.14 Master Tax Lease between the Company and Caterpillar Financial Services Corporation dated June 15, 1990
(12)
10.15 Judith Mountains Memorandum of Understanding between the Canyon-Minex II Joint Venture and Cominco
American Resources, Inc. dated August 1, 1990 (12)
10.16 Farm-In Agreement, effective December 1, 1990, among Kennecott Exploration Company, Canyon Resources
Corporation, and CR Briggs Corporation (11)
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.17 Consent, Subordination and Release Agreement, dated December 26, 1990, among Kennecott Exploration
Company, Canyon Resources Corporation, CR Briggs Corporation, CR Kendall Corporation, and CR Montana
Corporation (11)
10.18 Amended and Restated Gold Loan and Letter of Credit Facility Agreement (without exhibits) by and
between the Company and Mase Westpac Limited dated March 23, 1992 (13)
10.19 Amendment No. 1 to Amended and Restated Gold Loan and Letter of Credit Facility Agreement by and
between the Company and Mase Westpac Limited effective December 31, 1992 (14)
10.20 Change of Control Agreements, dated December 6, 1991, between the Company and Richard H. De Voto, Gary
C. Huber and William W. Walker (14)
10.21 Amended and Restated Credit Facility Agreement dated May 26, 1993, among N M Rothschild & Sons Limited,
Canyon Resources Corporation, CR Kendall Corporation, CR Briggs Corporation, CR Montana Corporation,
and CR Minerals Corporation (15)
10.22 Loan Agreement dated December 6, 1995, among CR Briggs Corporation as Borrower and Banque Paribas as
Agent (16)
10.23 Master Tax Lease dated December 27, 1995, between CR Briggs Corporation and Caterpillar Financial
Services Corporation. (16)
11.1* Statement regarding computation of per share earnings
21.1* Subsidiaries of the Registrant
23.1* Consent of Coopers & Lybrand L.L.P.
23.2* Consent of Kvaerner Metals (formerly Davy International)
23.3* Consent of Roberts and Schaefer Company
23.4* Consent of Mine Reserves Associates, Inc.
23.5* Consent of Remy and Thomas
23.6* Consent of Chamberlin & Associates
27* Financial Data Schedule
</TABLE>
* Filed herewith
<PAGE> 73
<TABLE>
<S> <C>
(1) Incorporated by reference from the Company's Registration Statement on Form 8-A as declared effective by the
Securities and Exchange Commission on March 18, 1986.
(2) Exhibits 3.1 and 3.2 are incorporated by reference from Exhibits 3.1 and 3.2, respectively, to the Company's
Registration Statement on Form S-1 (File No. 33-19264) declared effective by the Securities and Exchange
Commission on February 1, 1988.
(3) Exhibit 10.1 is incorporated by reference from Exhibit 10.1 to the Company's Registration Statement on Form S-
18 (File No. 2-99249-D) declared effective by the Securities and Exchange Commission on November 8, 1985.
(4) Exhibit 10.3 is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988.
(5) Exhibit 10.4 is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987.
(6) Exhibit 10.5 is incorporated by reference from the Company's Report on the Form 8-K filed with the Securities
and Exchange Commission on January 4, 1989.
(7) Exhibits 4.2 and 10.6 are incorporated by reference from Exhibits 1 and 2 of the Company's Report on Form 8-K
filed with the Securities and Exchange Commission on January 27, 1989.
(8) Exhibits 10.7, 10.8, and 10.9 are incorporated by reference from Exhibits 10.19, 10.20, and 10.21,
respectively, to the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended December 31,
1989.
(9) Exhibits 3.1.1, 4.4, 10.10, 10.11, 10.12, and 10.13 are incorporated by reference from Exhibits 3.1, 4.1, 2.1,
10.1, 28.1, and 28.2, respectively, to the Company's Report on Form 8-K dated January 26, 1990.
(10) Exhibit 4.3 is incorporated by referenced from Exhibit 4.3 to the Company's Registration Statement on Form S-2,
effective August 13, 1990.
(11) Exhibits 3.1.2, 4.5, 4.7, 10.16 and 10.17 are incorporated by reference from Exhibits 4, 3, 5, 1, and 2,
respectively, of the Company's Report on Form 8-K filed with the Securities and Exchange Commission on December
26, 1990.
(12) Exhibits 4.6, 10.14 and 10.15 are incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990.
(13) Exhibit 10.18 is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
(14) Exhibits 10.2, 10.4.1, 10.6.1, 10.19, and 10.20 are incorporated by reference from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(15) Exhibits 4.7, 4.8, and 10.21 are incorporated by reference from Exhibits 4.3, 4.2, and 10.1, respectively, to
the Company's report on Form 8-K dated May 26, 1993.
(16) Exhibits 10.22 and 10.23 are incorporated by reference from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(17) Exhibit 4.11 is incorporated by reference from the Company's Report on Form 8-K filed with the Securities and
Exchange Commission on March 27, 1997.
</TABLE>
<PAGE> 1
EXHIBIT NO. 11.1
CANYON RESOURCES CORPORATION
CALCULATION OF PRIMARY AND FULLY-DILUTED
EARNINGS PER SHARE
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Computation for Statements of Operations
- ----------------------------------------
Adjustment to net loss per statements of operations
to amount used in loss per share computation:
Net loss ($ 7,114,900) ($ 6,143,200) ($ 337,700)
Add-interest on convertible debentures,
net of tax effect (B) (B) (B)
------------ ------------ ------------
Net loss, as adjusted ($ 7,114,900) ($ 6,143,200) ($ 337,700)
============ ============ ============
Adjustment to weighted average shares outstanding
to amount used in loss per
share computation:
Weighted average shares outstanding 33,275,500 25,696,800 25,470,400
Add-shares issuable from assumed exercise of
convertible debentures (B) (B) (B)
Add-shares issuable from assumed exercise
of options and warrants (B) (B) (B)
------------ ------------ ------------
Weighted average shares outstanding, as adjusted 33,275,500 25,696,800 25,470,400
============ ============ ============
Net loss per share ($ 0.21) ($ 0.24) ($ 0.01)
============ ============ ============
</TABLE>
(A) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(B) Effect is antidilutive, so amounts are not included in the earnings
loss per share calculation.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Date of Place of Ownership
Incorporation Incorporation %
------------- ------------- ---------
<S> <C> <C> <C>
Minera Hispaniola, S.A 4-23-87 Dominican Republic 40
CR Minerals Corporation 10-02-87 Colorado, U.S.A. 100
CR Kendall Corporation 3-24-88 Colorado, U.S.A. 100
CR Montana Corporation 4-23-90 Colorado, U.S.A. 100
CR Briggs Corporation 7-25-90 Colorado, U.S.A. 100
CR International Corporation 10-06-93 Colorado, U.S.A. 100
Canyon Resources Africa Ltd. 3-29-94 Colorado, U.S.A. 90
Canyon de Panama, S.A 4-15-94 Panama 100
Canyon Resources Venezuela, C.A 8-19-94 Venezuela 90
Canyon Resources (Chile) S.A 9-06-94 Chile 100
Canyon Resources Tanzania 9-06-94 Tanzania 90
CR Brazil Corporation 6-07-95 Colorado, U.S.A. 100
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Canyon Resources Corporation on Form S-8 (File No. 33-37306); Form S-3 (File
No. 333-175); Form S-3 (File No. 333-11561); and Form S-3 (File No. 333-18449),
of our report dated February 28, 1997, except for Note 17 as to which the date
is March 24, 1997, on our audits of the consolidated financial statements of
Canyon Resources Corporation as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is included in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 27, 1997
<PAGE> 1
EXHIBIT 23.2
Kvaerner Metals
Murray N. Hutchison
Senior Vice President
17 March 1997
Canyon Resources Corporation
14142 Denver West Parkway, Suite 250
Golden, Colorado 80401
Via Fax No. 1-303-279-3772
Gentlemen:
We hereby consent to the incorporation by reference with the Registration
Statements of Canyon Resources Corporation (The Company) on Form S-8 (File No.
33-37306); Form S-3 (File No. 333-175); Form S-3 (File No. 333-11561); and Form
S-3 (File No. 333-18449) of our Mine Plan and Preliminary Feasibility Study
dated September 1993 pertaining to the Company's McDonald Property as referred
to in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
Very truly yours,
/s/ Murray N. Hutchison
- -------------------------
Murray N. Hutchison
MNH:smr
KVAERNER
- --------------------------------------------------------------------------------
Davy Nonferrous Division Tel +1 510 866 1166
2440 Camino Ramon Fax +1 510 866 6520
San Ramon, California
USA
<PAGE> 1
EXHIBIT 23.3
ROBERTS & SCHAEFER
Company
WESTERN OPERATION
5225 WILEY POST WAY, #300
SALT LAKE CITY, UTAH 84116
PHONE (801) 364-0900
FAX (801) 364-0909
March 20, 1997
Canyon Resources Corporation
14142 Denver West Parkway, Suite 250
Golden, CO 80401
Gentlemen:
We hereby consent to the incorporation by reference into the Registration
Statements of Canyon Resources Corporation (The Company) on Form S-8 (File No.
33-37306); Form S-3 (File No. 333-175); Form S-3 (File No. 333-11561); and Form
S-3 (File No. 333-18449), of our reports entitled "Fatal Flaw Review of the
Briggs Gold Project Feasibility Study" and "Briggs Gold Project Feasibility
Study - Volume 1 - Executive Summary" both dated February, 1994, as referred to
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
Very truly yours,
ROBERTS & SCHAEFER COMPANY
/s/ Brian C. Petersen
- -------------------------
Brian C. Petersen
Vice President of Operations
<PAGE> 1
EXHIBIT 23.4
MINE RESERVES ASSOCIATES, INC.
4860 Ward Road, Suite 202
Wheat Ridge, Colorado 80033-2122
Phone: (303) 421-9656 FAX: (303) 421-9470
- --------------------------------------------------------------------------------
March 18, 1997
Canyon Resources Corporation
14142 Denver West Parkway, STE 250
Golden, CO 80401
Gentlemen:
We hereby consent to the incorporation by reference into the Registration
Statements of Canyon Resources Corporation (The Company) on Form S-8 (File No.
33-37306); Form S-3 (File No. 333-175); Form S-3 (File No. 333-11561); and Form
S-3 (File No. 333-18449), of our report dated February 1994, pertaining to Ore
Reserves and Mine Plan Review of the Briggs Gold Project Feasibility Study as
referred to in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
Respectively submitted,
MINE RESERVES ASSOCIATES INC.
/s/ Lawrence E. Allen
- -------------------------
Lawrence E. Allen
Vice President and
Principal Mining Engineer
<PAGE> 1
EXHIBIT 23.5
REMY, THOMAS and MOOSE, LLP
ATTORNEYS AT LAW
MICHAEL H. REMY GEORGANNA E. FOONDOS
TINA A. THOMAS 455 CAPITOL MALL, SUITE 210 LAND USE ANALYST
JAMES G. MOOSE SACRAMENTO, CALIFORNIA 95814 -----------
WHITMAN F. MANLEY ----------- BRIAN J. PLANT
JOHN H. MATTOX OF COUNSEL
COURTNEY A. KAYLOR (916) 443-2745
DANAE J. AITCHISON FAX (916) 443-9017
ANDREA M. KLEIN e-mail: [email protected]
March 19, 1997
BY FACSIMILE AND REGULAR MAIL
Canyon Resources Corporation
14142 Denver West Parkway, Suite 250
Golden, Colorado 80401
Gentlemen:
We hereby consent to the incorporation by reference with the
Registration Statements of Canyon Resources Corporation (the Company) on Form
S-8 (File No. 33-37306); Form S-3 (File No. 333-175); Form S-3 (File no.
333-11561); and Form S-3 (File No. 333-18449), of its letter dated January 31,
1994, pertaining to the discussion of environmental and permitting issues in
the Briggs Gold Project Feasibility Study as referred to in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
Very truly yours,
REMY, THOMAS AND MOOSE, LLP
By: /s/ Tina A. Thomas
-----------------------------------
Tina A. Thomas
Counsel to Canyon Resources
Corporation
<PAGE> 1
EXHIBIT 23.6
Chamberlin & Associates
- --------------------------------------------------------------------------------
7463 W. Otero Place
Littleton, CO 80123
Tele/FAX - 303-979-6753
March 17, 1997
Canyon Resources Corporation
14142 Denver West Parkway, Suite 250
Golden, CO 80401
Gentlemen:
We hereby consent to the incorporation by reference into the Registration
Statements of Canyon Resources Corporation (the "Company") on Form S-8 (File
No. 33-37306); Form S-3 (File No. 333-175); Form S-3 (File No. 333-11561); and
Form S- 3 (File No. 333-18449), of our report dated February 1994, pertaining
to the metallurgy review of the Briggs Gold Project Feasibility Study as
referred to in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
Very truly yours,
CHAMBERLIN & ASSOCIATES
/s/ Paul D. Chamberlin
- -------------------------
Paul D. Chamberlin
Owner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,738,600
<SECURITIES> 0
<RECEIVABLES> 574,300
<ALLOWANCES> 0
<INVENTORY> 4,382,400
<CURRENT-ASSETS> 12,286,500
<PP&E> 72,334,800
<DEPRECIATION> 1,995,200
<TOTAL-ASSETS> 84,384,300
<CURRENT-LIABILITIES> 5,825,900
<BONDS> 28,125,000
0
0
<COMMON> 375,000
<OTHER-SE> 81,440,400
<TOTAL-LIABILITY-AND-EQUITY> 84,384,300
<SALES> 4,857,000
<TOTAL-REVENUES> 4,857,000
<CGS> 4,356,900
<TOTAL-COSTS> 4,356,900
<OTHER-EXPENSES> 4,394,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 846,200
<INCOME-PRETAX> (7,114,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,114,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,114,900)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
