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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, 1997
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
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Common Stock
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 44,238,667 shares of the registrant's voting
stock held by non-affiliates on March 10, 1998, was approximately $41,473,750.
At March 10, 1998, there were 46,107,074 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 1998
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, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
- ------ ----
<S> <C> <C>
PART I
1. Business 1
2. Properties 9
3. Legal Proceedings 30
4. Submission of Matters to a Vote of Security Holders 31
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 32
6. Selected Financial Data 33
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 34
8. Financial Statements 46
9. Disagreements on Accounting and Financial Disclosure 71
PART III
10. Directors and Executive Officers of the Registrant 71
11. Executive Compensation 71
12. Security Ownership of Certain Beneficial Owners and Management 71
13. Certain Relationships and Related Transactions 71
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 72
</TABLE>
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PART I
ITEM 1. BUSINESS
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.
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. (See
organizational chart on next page) 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.
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Canyon Resources Corporation
[ORGANIZATIONAL CHART]
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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.
OPERATIONS
In March, 1997, the Briggs Mine located in southeastern California
achieved commercial production levels. For the full year, 66,769 ounces of
gold and 19,215 ounces of silver were produced. The Briggs Mine experienced
higher costs and lower throughput than expected during the year, principally
relating to unsatisfactory performance of the tertiary stage vertical shaft
impact crushers. These units were replaced with three cone crushers in late
1997 and early 1998 with the objective of significantly increasing tonnage
throughput and lowering costs in 1998 and onward. (See "Item 2 - Properties -
Production Properties - Briggs Mine.")
In 1997, the Company, through its wholly owned subsidiary, CR Minerals
Corporation (CR Minerals), expanded its diatomaceous earth, or diatomite,
production and sales for the ninth consecutive year. Diatomite is an
industrial mineral that has a wide variety of uses. Mining and processing of
diatomite occur in western Nevada and marketing of the products is carried out
in the United States and internationally. During the year, CR Minerals also
outfitted its pumice and volcanic glass processing plant located in Santa Fe,
New Mexico, with new milling and drying equipment which will permit production
of finely grained products that are anticipated to be sold at high unit values
into several industries. In December, 1997, CR Minerals purchased the mine
which supplied the raw ore to the processing facility (See "Item 2 - Properties
- - Production Properties - Fernley Operation and Santa Fe Operation.")
During 1997, the Kendall Mine located near Lewistown, Montana,
continued with closure activities, principally relating to treatment and
disposal of water contained in the process system, and to soil placement and
revegetation of waste-rock dump surfaces.
During 1997 and 1996, all of the Company's revenues were generated by
its production facilities in the United States. Approximately 84% of the
Company's revenue in 1997 was derived from the Briggs Mine and 16% was derived
from its industrial mineral activities. In 1998, the Company anticipates that
approximately 81% of revenues will be derived from precious metals and
approximately 19% from industrial minerals. In subsequent years, it is
anticipated that the Briggs Mine will continue to dominate revenues until the
McDonald Gold Project or other projects are placed into production.
FINANCING
On January 30, 1998, the Company completed an equity financing under a
Shelf Registration which raised $2.5 million ($2.3 million net of expenses)
through the sale of 2,490,000 shares of common stock.
On December 30, 1997, the Company completed an equity financing under
a Shelf Registration which raised $2.5 million ($2.2 million net of expenses)
through the sale of 2,510,000 shares of common stock.
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On June 11, 1997, the Company completed an equity financing under a
Shelf Registration which raised $10.0 million ($9.1 million net of expenses)
through the sale of 3,400,000 shares of common stock. Warrants to purchase
278,182 shares of common stock at a price of $4.05 per share were issued to the
Company's underwriter in connection with the financing. The warrants will
expire on June 5, 2000.
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 714,167 shares of common stock were
exercised at $3.50 per share, resulting in proceeds to the Company of $3.0
million. These warrants were part of equity financings in 1990 and 1992, in
which 3,943,632 total warrants were issued -- 3,229,465 warrants expired
unexercised in 1996.
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 1997, the Company's effective interest rate on Tranche A
was 3.4%. 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. During 1997, the Company's effective interest rate on Tranche B
was 10.1%. 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 fully utilized Tranche C in 1997, principally to
fund a first phase expansion of the leach pad. The effective interest rate for
Tranche C, calculated in the same manner as that of Tranche B, was 10.1% in
1997. The loan facility is scheduled to be paid back over a six-year period
from start of gold production. During 1997, the Company repaid 4,832 ounces of
the Tranche A gold loan ($1,875,000 of monetized value and $300,000 principal
on the Tranche C loan). The gold loan agreement contains, among other things,
the following provisions:
1. Canyon Resources Corporation guarantees the 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.
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4. Within 3 years of project completion, an additional 70,000
recoverable ounces of gold processable at the Briggs Mine
facility must be identified, or 100% of excess cash flow will
then be used to prepay principal. (These reserves were
identified during a 1996 and 1997 drilling program adjacent to
the main reserve area).
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, 1997, approximately 34% of the Briggs Mine
production from current reserves was hedged with the following
instruments:
<TABLE>
<CAPTION>
OUNCES AVERAGE PRICE/OZ.
------ -----------------
<S> <C> <C>
Forward Contracts 127,750 $431
Put Options 11,800 $380
Gold Loan 59,593 $388
-------- ----
199,143 $415
======== ====
</TABLE>
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.
The Company was not in compliance with certain conditions of the loan
agreement as of December 31, 1997. See Note 8(a) to Consolidated Financial
Statements.
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.
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
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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 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. In December, 1997, the Company
purchased the mine which supplied the raw ore to the Santa Fe, New Mexico,
processing facility. Located approximately 50 miles north of Santa Fe, near
the town of Espanola, the deposit is of sufficient quantity and quality to
supply ore to meet production and sales forecasts for a decade. The Company
has also outfitted its processing facility with new milling and drying
equipment which will permit production of finely grained products that are
anticipated to be sold at high unit values into several industries. (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
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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 $331 and $388 per ounce. Price fluctuations between the
time that such a decision is made and the commencement of production can
completely change 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, 1997,
approximately 34% of the Briggs Mine production from current reserves was
hedged through a gold loan, forward contracts, and put options at an average
price of $415 per ounce.
CUSTOMERS
During 1997, the Company sold its gold and silver production primarily
to two precious metal buyers, NM Rothschild & Sons Limited and Bayerische
Vereinsbank AG. During 1996, the Company sold its gold and silver production to
NM Rothschild & Sons Limited. 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 buyers 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.
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.
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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 $4.3 million on reclamation and
closure activities at the Kendall Mine through December 31, 1997, and expects
to spend approximately $1.4 million during 1998 and a further $2.5 million
beyond 1998 through mine closure. At December 31, 1997, the Company has fully
accrued for its remaining anticipated 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. 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 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 and operating 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 and limited drilling has been conducted on
two properties 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 its foreign
operations. The Company cannot accurately predict or estimate the impact of
any future laws or regulations developed in foreign countries on our
operations.
The Company believes that it is currently in compliance with all
applicable environmental regulations.
EMPLOYEES
As of March 1, 1998, the Company and its wholly-owned subsidiaries
employed 203 persons, which number may adjust seasonally. None of the
Company's employees are covered by collective bargaining agreements.
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SEASONALITY
Seasonality does not have a material impact on the Company's
operations.
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 names
"DiaFil" for the marketing of its diatomaceous earth products, "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.
ITEM 2. PROPERTIES
The table on the following page provides a summary of the most
significant properties in which the Company has an interest. More detailed
information regarding each of these properties is provided in the text that
follows.
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CANYON RESOURCES CORPORATION'S PROPERTIES
<TABLE>
<CAPTION>
Development Anticipated
Date Acquisition Capital to make Time of
Interest Cost of Property Commencement of
Property Interest Nature of Interest Acquired Interest1 Operational Operations
-------- -------- ------------------ ------------ --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
PRODUCTION PROPERTIES
Briggs Mine 100% Unpatented Mining Claims 1990 $7.7 million $42.2 million In production
Kendall Mine 100% Mineral Lease 1987, 1990 $15.2 million $1.6 million In reclamation
Diatomite 100% Unpatented Mining Claims 1987 $1.2 million None3 In production
and fee land, lease of
Mine/Plant plant site
Pumice Plant 100% Fee ownership 1996 $1.5 million None3 In production
Pumice Mine 100% Fee ownership 1997 $0.95 million None3
DEVELOPMENT PROPERTIES
Seven-Up Pete 100% Mineral Leases 1990, 1997 $10.2 million4 $230 million 2001
Venture (estimated)
EXPLORATION PROPERTIES
Panamint 100% Unpatented Mining Claims 1990 $0.3 million Unknown Unknown
Range
Mountain View (100%)2 Unpatented Mining Claims 1992, 1995 $0.6 million Unknown Unknown
Montana (100%)2 Mainly fee mineral 1990 $2.1 million Unknown Unknown
900,000 acres rights
Arroya (100%)2 Mineral License 1994 Nil Unknown Unknown
Cascada
(Argentina)
Other (100%)2 Mineral Claims (Cateos) 1994 Nil Unknown Unknown
Argentine
properties
Rio Maria 100% Mineral Concessions 1996 Nil Unknown Unknown
(Brazil) (Alvaras)
Dominican (40%)2 Mineral Concessions 1987-1988 Nil Unknown Unknown
Republic
properties
San Pedrito (100%) Mineral Concession 1995 Nil Unknown Unknown
(Panama)
Ethiopian 100%2 Exploration Licenses 1995-1996 Nil Unknown Unknown
Properties
Chegutu (100%)2 Exploration License 1995 Nil Unknown Unknown
(Zimbabwe)
</TABLE>
1 Net to Canyon's interest in the property.
2 Subject to joint-venture earn-in or purchase provisions.
3 Property acquired while in production.
4 To date - an additional amount of not less than $95 million nor more
than $145 million will be paid to Phelps Dodge when all permits have
been achieved or construction commences.
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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 multiple 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.
Operations
The Briggs Mine is an open-pit, heap leach operation, initially
designed to produce an average of 75,000 ounces of gold per year over a
seven-year life. The ore is crushed in three stages to a minus 1/4 inch size
and is conveyor stacked on the leach pad. Gold is recovered from leach
solutions in a carbon adsorption plant and refined into dore bars on site. The
Company expects to increase the initial design production rate to 90,000 ounces
per year in 1998 and onward.
Mine development and construction of facilities began on December 16,
1995. Facilities include a 12,000 ton per day crushing plant, leach pad,
process ponds, recovery plant, office and lab buildings, and a maintenance
shop. Crushing of ore commenced on July 29, 1996, and first gold production
occurred on October 16, 1996. Limited production was realized through the
remainder of 1996, yielding 3,417 ounces of gold.
In March, 1997, the Briggs Mine achieved commercial production levels,
and, for the year, produced 66,769 ounces of gold and 19,215 ounces of silver.
During 1997, 9.3 million tons were mined, of which 2.8 million tons were ore
with an average grade of 0.033 ounce of gold per ton and a waste-to-ore strip
ratio of 2.3 to 1.
Lower crushing throughput and higher than expected operating costs
were experienced in 1997, principally relating to unsatisfactory performance of
the tertiary stage vertical shaft impact crushers. In early 1998, these units
were replaced with three cone crushers with the objective of reducing costs and
increasing throughput. A scheduled expansion of the leach pad was completed
during the year at a cost of $2.1 million. This expansion was financed by
drawing on the final $4.0 million tranche of the Company's loan facility (See
"Item 1 - Business - Financing.")
11
<PAGE> 14
Statistical production and financial data for the Briggs Mine are
shown on the following table.
BRIGGS MINE OPERATIONS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
PRODUCTION
Tons Mined (waste and ore) 9,321,500 5,516,600
Tons Ore Mined 2,845,300 798,300
Gold Grade of Ore (oz/ton) 0.033 0.043
Strip Ratio (tons waste/tons ore) 2.3:1 5.9:1
Gold Production (oz) 66,769 3,417
Silver Production (oz) 19,215 654
Recoverable Gold Inventory (oz) 23,899 24,267
FINANCIAL
Ounces of Gold Sold (1) 68,436 1,500
Average Gold Price Realized $424 $406
Revenue from Mine Operations (1) $27,491,500 $608,600
Cash Operating Cost Per Ore Ton Mined $6.27 N/A
Cash Operating Cost Per Ounce(2) $290 N/A
Total Production Cost Per Ounce (2) $383 N/A
Operating Earnings (3) (4) $882,900 N/A
Capital Expenditures (4) $3,141,600 $28,083,500
=========== ===========
MINEABLE RESERVES (1/1/98) $350 GOLD $300 GOLD
----------- ------------
Tons Ore 24,823,300 20,534,300
Grade 0.034 0.034
Contained Gold Ounces 831,700 699,840
=========== ===========
</TABLE>
(1) Proceeds from 1996 gold sales and 8,150 ounces in 1997 credited
against development costs.
(2) As calculated under The Gold Institute's Production Cost Standard
(3) Prior to interest income (expense) and other non-operating items
(4) Excludes exploration and development drilling
Development
drilling in 1997 at North Briggs and Goldtooth, located
immediately north and south, respectively, of the Briggs Mine, identified the
following mineable reserves, which are included in the above Briggs Mine
reserves:
<TABLE>
<CAPTION>
$350 GOLD PRICE $300 GOLD PRICE
-------------------------------- ---------------------------------
ORE TONS GRADE OUNCES ORE TONS GRADE OUNCES
--------- ----- ------- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Goldtooth 3,016,000 0.037 113,000 2,537,600 0.037 93,100
North Briggs 3,758,000 0.052 195,000 2,805,800 0.055 153,700
--------- ----- ------- --------- ----- -------
6,774,000 0.046 308,000 5,343,400 0.046 246,800
========= ===== ======= ========= ===== =======
</TABLE>
12
<PAGE> 15
The reserves at North Briggs were defined by 151 drillholes and occur
subparallel to the topography, along a low-angle detachment fault, with
increased thickness of mineralization eastward approaching the high-angle
regionally persistent Goldtooth fault. The gold mineralized structure at North
Briggs is still open to the northeast and east. The Goldtooth reserves,
defined by 132 drillholes, occur primarily in steeply dipping orientation
within favorable rock units adjacent to the Goldtooth fault.
Environmental Regulation
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. The permits issued
to date are adequate for all mine operations involving currently identified
mineable reserves in the Briggs deposit. Additional permits will be required
to allow mining of the Briggs North and Goldtooth deposits. 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, trial court, and appellate level.
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 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 Kendall Mine was developed as an 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.
Operations
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
13
<PAGE> 16
gold in the heap leach pads continued through early 1997. All economic gold
has now been recovered, and the mine is currently in a reclamation and closure
mode.
During 1997, the two heap leach pads were rinsed of residual cyanide
by continuous circulation of water and a treatment plant using reverse osmosis
technology was installed to reduce dissolved metals so that water from the
process system could be discharged. The Company expects to re-contour and
cover the heap leach pads with an engineered cap of clay and topsoil and
commence revegetation efforts of the heaps in 1998. The Company is currently
evaluating long-term water treatment technologies for expected residual
draindown of the heaps and waste-rock dump seepage.
Statistical production and financial data of the Kendall Mine for the
last five years is shown on the following table.
KENDALL MINE OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
PRODUCTION
<S> <C> <C> <C> <C> <C>
Tons Mined (waste and ore)(000) -- -- 45 7,570 6,183
Tons Ore Mined (000) -- -- 21 1,588 1,737
Gold Grade of Ore (oz/ton) -- -- 0.079 0.044 0.049
Actual Strip Ratio (tons waste/tons ore) -- -- 1.1:1 3.8:1 2.6:1
Gold Production (oz) 633 3,607 16,624 48,391 54,203
Silver Production (oz) 131 1,762 7,429 22,503 29,218
Recoverable Gold Inventory (oz) -- -- 7,000 20,608 13,344
(unleached gold in heap and ore stockpile)
FINANCIAL (NET TO CANYON)
Ounces of Gold Sold1 622(7) 3,269(6) 16,386 45,877 51,113
Average Gold Price Realized ($/oz) 327(7) 392(6) 386 374 353
Revenue From Mine Operations ($000) 204(7) 1,282(6) 6,331 17,154 18,027
Operating Cost/Ore Ton Mined ($)2 --(3) --(3) --(3) 6.87 6.55
Operating Cost/Gold Ounce Sold ($)2 --(5) --(5) 362 238 223
Operating Earnings ($000) --(5) --(5) 391(4) 6,240 6,650
Capital Expenditures ($000) -- -- 168 477 1,115
</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.
6 Through September 30, 1996. Subsequent sales and proceeds (138 ounces and
$51K of proceeds) credited against reclamation costs.
7 Credited against reclamation costs
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,
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<PAGE> 17
1989. In 1996 the Company completed a land exchange with the U.S. Bureau of
Land Management (BLM). 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, drainage and heap dewatering. Discussions of
long-term water handling 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. In October 1997, the
Company applied for a Montana Pollutant Discharge Elimination System (MPDES)
permit to cover seepage from waste rock piles. The DEQ is reviewing the permit
application.
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 1997, approximately 4.4 disturbed acres were
reclaimed, and no additional acres were disturbed. The Company's reclamation
expenditures in 1997 were approximately $1.8 million, primarily related to
treatment and disposal of process water, capture and treatment of waste rock
dump seepage, and improved drainage and sediment controls.
Final reclamation will require disposal of captured 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 non-crystalline 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 Company has developed a wide range
of diatomite products. These products are differentiated based on particle
size distribution, which yields different physical properties. 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.
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
15
<PAGE> 18
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 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 more than two decades of
production at near capacity rates.
The plant produces a natural diatomite product that is composed mainly
of noncrystalline silica. DiaFil products typically contain crystalline silica
that ranges from less than 0.1% to under 1%. Competitive calcined diatomite
products contain up to 70% 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. Regulatory agencies have issued
mining permits for two of the deposits and are currently reviewing the
application on the third deposit. The company has posted a reclamation
assurance that covers the three deposits in the total amount of $160,000.
Mining from one deposit is currently being conducted on private land
owned by the Company and the other two deposits are located on unpatented
mining claims. 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 $1,102.
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. From mid-1996 to the end of 1997, ore was
purchased from two separate sources and hauled by truck to the plant site where
it was stockpiled for processing. In December, 1997, CR Minerals purchased the
mine that fed the majority of the raw ore to the Santa Fe plant from Western
Mobile Santa Fe, Inc. The mine is located 50 miles north of the processing
plant near Espanola, New Mexico. The ore is dried, milled and classified into
various
16
<PAGE> 19
products by size fraction. Finished product can be shipped from the plant by
bulk rail cars, bulk bags or 50 pound bags. In 1997, the plant was 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 volcanic 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
(nondetectable) 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 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 VENTURE
General
Prior to September 25, 1997, through its wholly owned subsidiary, CR
Montana Corporation (CR Montana), the Company owned 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 was the operator of the SPV.
On September 25, 1997, Canyon and CR Montana purchased the 72.25%
participating interest in the Seven-Up Pete Joint Venture, including the
McDonald Gold Project, from Phelps Dodge Corporation (Phelps Dodge). The
purchase increased Canyon's effective ownership in the project to 100%. Canyon
made an initial payment of $5 million to Phelps Dodge, as part of a purchase
price which shall be no less than $100 million and no more than $150 million. No
additional payments are required until after all permits have been achieved or
construction commences. The largest part of the purchase price, $20 to $30 per
mineable reserve ounce attributable to the former Phelps Dodge ownership, is to
be paid after all permits have been obtained and construction of the mine is
underway. The purchase payments are collateralized only by the 72.25%
participating interest and underlying assets being transferred from Phelps Dodge
to Canyon.
17
<PAGE> 20
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 management unit.
During 1997, the Company funded a total of $3.1 million for SPV
expenditures, 27.75% of the expenditures prior to the purchase from Phelps
Dodge and 100% of the expenditures since that date.
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. 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. Drilling on the McDonald property
continued from 1991 through 1994. Analysis of the drill data through the end
of 1992 indicated 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 (opt), using a cutoff grade of 0.008 opt.
In 1993 Davy International completed a Feasibility Study that
indicated that 205.1 million tons of the McDonald deposit, with an average
grade of 0.025 opt and containing 5.2 million ounces of gold, could be mined
economically (at a gold price of $375/oz.) in an open-pit, heap-leaching
operation. The study indicated that mining and crushing of 121 million tons of
ore above a 0.016 opt cutoff grade (with an average grade of 0.034 opt) and
mining and direct loading onto the leach pad of an additional 84 million tons
of lower grade ore (averaging 0.012 opt) could, with an expected average 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, were expected to be approximately $188 million. Operating costs,
including royalty, severance and property taxes, and reclamation reserve, were
expected to be approximately $231 per ounce of gold produced.
Through the end of 1996, the McDonald gold deposit had been defined
through the drilling of 609 drillholes, containing 469,000 feet, over an area
of approximately 8,000 feet in east-west dimension and 5,000 feet in
north-south dimension. Seventy-nine of these drillholes, including 56,300
feet, were coreholes. This data base includes 168 holes drilled since the 1993
Feasibility Study. Every five foot sample interval has been assayed by outside
commercial labs for its gold content, with routine check assays. The rock
obtained in the coreholes was used extensively for metallurgical testing of
leaching characteristics of the deposit.
In late 1997, Canyon undertook a complete remodeling of the McDonald
gold deposit, with all of the drill data. In the remodeling work, samples from
every five-foot interval of all of the drillholes were
18
<PAGE> 21
re-examined. The remodeling was conducted under the direction of MRDI, Canada,
an international consulting engineering firm. The remodeling indicates that
the McDonald gold deposit contains 9.3 million ounces of gold, averaging 0.019
opt, using a cutoff grade of 0.008 opt; including 6.0 million ounces, averaging
0.029 opt, using a cutoff grade of 0.016 opt; including 4.9 million ounces,
averaging 0.034 opt, using a cutoff grade of 0.020 opt.
MCDONALD GOLD DEPOSIT
MINERAL INVENTORY
<TABLE>
<CAPTION>
Cut-off Grade Tons Grade Ounces Gold
(opt gold) (millions) (opt gold) (thousands)
------------- ------------ ----------- -----------
<S> <C> <C> <C>
0.006 644.2 0.016 10,299
0.008 494.5 0.019 9,280
0.012 312.5 0.024 7,508
0.016 207.2 0.029 6,058
0.020 142.3 0.034 4,901
0.025 92.1 0.041 3,786
0.035 45.6 0.053 2,436
</TABLE>
Canyon's ongoing engineering analysis projects that gold can be
produced profitably from the McDonald deposit at gold prices in the $300 to
$350 per ounce range. Under the current $350 gold-price mine plan, mineable
reserves containing 6.9 million ounces of gold would be mined, with the
production of 4.7 million ounces of gold and 10 million ounces of silver over a
12-year period. Under this mine design, mining and crushing of 107 million
tons of ore above a 0.020 opt cutoff grade (with an average grade of 0.037 opt)
and mining and direct loading onto a leach pad of an additional 260 million
tons of lower grade ore (averaging 0.012 opt) would, with an expected average
recovery of 81% of the contained gold from the crushed rock and 52% from the
run-of-mine rock, would produce approximately 400,000 ounces of gold per year
over the mine life. Cash operating costs for the $350 gold-price mine plan are
estimated at $176 per ounce. Initial capital costs are estimated at
approximately $227 million. More detailed engineering work in 1998 will cause
these numbers to be further defined.
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 in the second
quarter of 1999.
19
<PAGE> 22
Most of the McDonald gold deposit occurs on land owned by the State of
Montana and is subject to a 5% net smelter returns royalty payable principally
to Montana Tech, part of the state university system. A minor portion of the
McDonald gold deposit occurs on land owned by the Sieben Ranch Company (SRC)
and is subject to a 5% net smelter returns royalty. In 1997, the SPV entered
into a purchase option agreement with the SRC whereby, after all permits to
construct the mine are achieved, SPV will purchase all of the SRC lands that
are included in the McDonald mine plan. The royalty would still be payable to
the SRC upon production.
A sizeable permitting and engineering budget is projected for the
McDonald Gold Project for 1998 and 1999. Such work will include completion of
the many permits necessary for project construction, modest infill drilling to
further refine the mine-plan sequencing, detailed engineering, and a bankable
feasibility study.
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 January, 1993, updating an earlier 1991
study. The 1993 Preliminary Feasibility Study indicates that the Seven-Up Pete
gold deposit contains 10.3 million tons of mineralized rock with an average
grade of 0.058 ounce of gold per ton.
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),
20
<PAGE> 23
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 second quarter of 1999. 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.
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. (See "Item 2 - Properties -
Briggs Project - Development" for a discussion of Goldtooth and North Briggs).
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.
Several areas identified as drill targets in the Pleasant Canyon and
Jackpot areas were drilled in 1997. This drilling resulted in the interception
of ore-grade gold mineralization in six widely spaced drill holes in the
Pleasant Canyon area. The gold mineralization appears to occur as two horizons
that can be traced from the surface to a depth of at least 535 feet below the
surface. A reconnaissance drilling program was also conducted at the Jackson
prospect, whereas only two new holes were drilled at the Cecil R prospect. The
drilling at Jackson intercepted potentially ore- grade gold mineralization that
appears to trend northward from the area of drilling. The two drill holes at
Cecil R did not add to the previously 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.
An aerial geophysical program was conducted across the entire claim
block in 1996 and was followed up with ground reconnaissance in 1997. The
geophysical data will be used to assist further exploration for concealed gold
deposits on the property.
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,
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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 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). During 1995, HMC expended $738,412 on the
property, primarily in the drilling of 22 reverse circulation and 4 core holes.
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.
In 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.
In June, 1997, the Company entered into a Purchase and Sales Agreement
with Mountain View Gold Inc. (MVG). The agreement gives MVG the right to
purchase the property by paying the Company $3.0 million over three years and
expending $1.25 million in exploration work on the property. In 1997, MVG paid
$0.3 million to the Company and expended approximately $0.1 million on the
property. MVG, at any time, upon proper notice, may terminate the agreement
and its then remaining obligations, and relinquish its interest in the
property.
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.
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During 1995, BHP Minerals expended $200,869 on surface exploration and
drilling on the Company's property. Eight drill holes totaling 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 $381,662 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 1,500 foot exploration drill hole was completed on a stratabound
copper-silver occurrence. Results were discouraging and the target has been
abandoned.
During 1997, BHP expended $340,872, focusing primarily on
reconnaissance in the central block of the property. Four areas containing
gold-stream sediment anomalies were identified through the collection and
analysis of 1,200 samples. In addition, 9 drill holes totaling 3,140 feet were
completed at various areas on the property. Results suggest further drilling
and geologic mapping is warranted in 1998.
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.
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.
LATIN AMERICAN EXPLORATION
ARGENTINA
The Company decided in 1995 that other areas in Latin America and
Africa offered better potential to find and develop gold resources than
Argentina. The Company decided to market its Argentine properties to other
mining companies in joint ventures or options. The Company 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. 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. PDA conducted soil
geochemical sampling, geologic mapping, induced polarization geophysical
surveying and drilled five holes totaling 1024 meters at Arroyo Cascada during
1996. In 1996 PDA expended $383,638 on
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the Arroyo Cascada property. In February, 1997, PDA notified CRIC that it was
terminating the exploration agreement.
In July, 1997, CRIC entered into an Exploration with Option to Joint
Venture letter agreement covering the Arroyo Cascada property with Puma
Minerals Corp. (Puma). By expending $2.0 million over four years on the
property, Puma has the right to enter into a joint venture with CRIC as
operator with a 50% participating interest. In 1997, Puma expended
approximately $17,000 on the property, principally relating to geologic mapping
and sampling.
In July, 1997, CRIC entered into a Purchase and Sales Agreement with
Minera El Desquite S.A. (Minera) for its Aeuropuerto Property. The Aeuropuerto
property is an epithermal gold exploration prospect in highly altered volcanic
rocks. Minera has agreed to pay CRIC $2.0 million over five years and a 2.5%
net smelter return on any production from the property. Minera, at any time,
upon proper notice, may terminate the agreement and its then remaining
obligations, and relinquish its interest in the property.
The Santa Cruz properties contain gold-bearing quartz veins and
stockworks in volcanic rocks, similar to the nearby multimillion ounce Cerro
Vanguardia gold deposit. In April, 1997, CRIC entered into an Exploration with
Option to Joint Venture Agreement with D&F Incorporated (D&F). The agreement,
as amended in October, 1997, allows D&F to earn an undivided 70% interest in
the properties by expending $500,000 over a two year period. In 1997, D&F
expended approximately $30,000 on the property, principally related to legal
labor as required by the Ministry of Mines.
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. Work during 1997
consisted of additional trenching and infill sampling of anomalies. The
trenching revealed gold mineralized in bedrock over several kilometers of
strike. The Company expended $0.9 million on the Rio Maria project in 1997.
Immediately adjacent to the Company's Rio Maria Project is a new discovery,
Andorinhas, by Golden Star Resources Ltd. The Company believes drilling is
warranted in several areas at Rio Maria and is actively seeking a joint venture
partner to fund continuing work.
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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 May, 1997,
Energold applied for a new concession at El Higo, on a reduced area basis,
which is currently pending before the Department of Mines. Eight additional
drill holes were completed on the Los Pedregones Concession in 1997 with
anomalous gold values indicated.
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 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. During 1997, surface mapping, and geologic trenching on the
concession indicates the possible presence of a porphyry copper system with
anomalous gold values. Further work, including some drilling, is planned for
1998.
In August, 1997, Energold was granted a six-month extension for
purposes of completing the $3.0 million work commitment and exercise of the
option to acquire all the issued and outstanding shares of MH. To date,
Energold has spent in excess of $2.3 million on its Dominican activities.
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.
No substantive work was undertaken in 1997 at the San Pedrito
concession. The Company is actively seeking a joint-venture partner to
continue the work at San Pedrito.
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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, while also
evaluating property specific opportunities elsewhere in Africa. CRAL has
acquired one property in Zimbabwe.
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 Adola Gold Mine
Enterprise. 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
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 1997 total exploration expenditures exceeded the second
license year requirement of $750,000. The work included approximately 2,375m
of trenching, 58 line km of induced polarization geophysical survey, 65 line km
of radiometric geophysical survey, and 1,005m of diamond core drilling.
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.
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. The first
year of the license required a minimum expenditure of $250,000 which was met
and a commitment was made to continue work
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into the second year of exploration which requires a $400,000 minimum
expenditure. Field work at Meleka Abeba during the first year included
building of access roads, lie cutting, rock, soil, and stream sediment
geochemical sampling, and geologic mapping. In year two of the license, this
work led to a trenching program which discovered areas of strongly anomalous
gold mineralization in bedrock. In late November 1997, diamond core drilling
commenced to test several areas for near surface bulk mineable gold
mineralization. Assay results of this drilling is pending.
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 $3.0 million in exploration expenditures on two licenses,
JCI would earn a 51% joint venture interest.
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
submit 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 which was subsequently issued. A Mineral Prospecting
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 will be required to fund
49% of the costs.
During 1997, CRAL and JCI expended $1.3 million 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.
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(Cambrian), an Australian mining company. Under the terms of the agreement
Cambrian could earn a 40% interest in the property by spending $240,000 on
exploration by September 14, 1997. Cambrian can increase their ownership to
55% by spending an additional $240,000 by December 30, 1999. During 1997,
Cambrian expended approximately $69,000 on the property, principally related to
geophysical surveys, sampling and assaying. CRAL is currently evaluating
certain proposed changes to the agreement due to the low expenditures levels
incurred by Cambrian to date.
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 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. These uncertainties relate
to such things as sufficiency of mineral discovery, proper posting and marking
of boundaries, and possible conflicts with other claims not determinable from
descriptions of record. 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, a claim holder must pay a maintenance fee
to the United States of $100 per claim per year for each assessment year
instead of performing assessment work. In addition, a payment of $100 per
claim is required for each new claim located. State law may, in some instances,
still require performance of assessment work.
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 California State Office of the Bureau of Land Management
(BLM). 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.
On October 1, 1994, while the California and Nevada 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 moratorium (as interpreted by the Secretary of the Interior), and solely as
a result of the inaction of the California State Office 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. The Nevada
applications are considered exempt by the Secretary and will be adjudicated
even if the moratorium continues.
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Before the Secretary's position on the Nevada applications was known,
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 Nevada and
California 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. That decision is presently being appealed, but 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, 1998, 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. Such bills have
proposed, among other things, to either eliminate or greatly limit the right to
a mineral patent and to impose a federal royalty on production from unpatented
mining claims. Although it is impossible to predict at this point what any
legislated royalties might be, enactment could adversely affect the potential
for development of such claims and the economics of existing operating mines on
federal unpatented mining claims. The Company's financial performance could
therefore be affected adversely by passage of such legislation.
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 would not affect the Company's Kendall, McDonald, or Seven-Up Pete
projects, or the CR Minerals diatomite and pumice properties currently being
mined, because these projects are not on federal lands. Other portions of the
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.
29
<PAGE> 32
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 $8,878 per month. The Company expects to
extend its lease on a month-to-month basis and enter into a longer-term
commitment during the second quarter of 1998. The Company maintains storage
and/or facilities in Golden, Colorado; Reno and Gerlach, Nevada; Lincoln,
Montana; 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 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.
The Inyo County Planning Commission approved the Briggs Project on
July 12, 1995. This approval was appealed on July 26, 1995 by the Appellants
to the Inyo County Board of Supervisors. On August 30, 1995, the Inyo County
Board of Supervisors rejected the appeal 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, subsequently 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 appealed the Superior Court rulings
to the California Court of Appeals. On March 17, 1998, the Court of Appeal
affirmed the Superior Court's denial of the petition for writ of mandate, and
thus rejected Appellants' challenge to the approvals granted by
30
<PAGE> 33
the County. The time within which to seek review of the Court of Appeal's
decision by the California Supreme Court has not yet expired.
CR BRIGGS EXPLORATION PERMITS
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 June 9, 1997, the Superior Court denied
Appellants' complaint for injunctive relief. The statutory limit on time to
appeal the decision has passed and Appellants have no further recourse in
California on this matter.
On December 23, 1996, Appellants filed an administrative appeal with
the IBLA challenging the approval of a Plan of Operations for exploration
withing the Briggs claim block. The appeal was denied by the IBLA on May 23,
1997.
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 1997.
31
<PAGE> 34
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>
1997
Fourth Quarter $2.88 $1.00 - -
Third Quarter $2.88 $1.75 - -
Second Quarter $3.38 $2.31 - -
First Quarter $3.44 $2.25 - -
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
</TABLE>
On March 10, 1998, the high and low prices for the Company's common
stock were $0.94 and $0.81, 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, 1996 AMEX provided quotes.
As of March 10, 1998, there were approximately 1,325 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 6,150.
As of March 10, 1998, there were 15 holders of record of non-trading
warrants to purchase common stock. As of March 10, 1998, there were
outstanding; a) 46,107,074 shares of common stock; b) 2,595,349 warrants to
purchase common stock; and c) 2,499,200 employee and non-qualified stock
options to purchase common stock.
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 on
behalf of its wholly owned subsidiary, CR Briggs Corporation, in connection
with a loan for
32
<PAGE> 35
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.
SALE OF UNREGISTERED SECURITIES
On September 10, 1997, the Company issued 50,000 shares of its $0.01
par value common stock bearing a restrictive legend to Kennecott Exploration
Company (Kennecott). The shares were issued as partial consideration for
terminating a previous agreement to purchase the Cahuilla exploration property.
Fair market value of the 50,000 shares on the date of issue was $106,200. The
securities issued to Kennecott, a sophisticated investor, were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
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,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED
BALANCE SHEETS
Working Capital $ 2,581,200 $ 6,460,600 $26,323,200 $14,953,000 $19,301,600
Current Assets 13,514,300 12,286,500 28,922,700 18,318,100 24,264,500
Total Assets 97,282,100 84,384,300 72,424,200 52,187,600 53,235,700
Current Liabilities 10,933,100 5,825,900 2,599,500 3,365,100 4,962,900
Long-term Obligations 31,310,500 30,117,800 49,754,200 23,468,900 22,846,300
Total Liabilities 42,243,600 35,943,700 52,353,700 26,834,000 27,809,200
Common Stockholders' Equity 55,038,500 48,440,600 20,070,500 25,353,600 25,426,500
============ ============ =========== =========== ===========
SUMMARY OF CONSOLIDATED
STATEMENTS OF OPERATIONS
Sales $28,890,300 $ 4,857,000 $9,006,600 $19,580,200 $19,879,600
Income (Loss) Before
Extraordinary Items (5,022,300) (7,114,900)(1) (6,143,200) (337,700) 920,700
Net Income (Loss) (5,022,300) (7,114,900) (6,143,200) (337,700) 920,700
Net Income (Loss) Per Share2
Basic (0.13) (0.21) (0.24) (0.01) 0.04
Diluted (0.13) (0.21) (0.24) (0.01) 0.04
============ ============ =========== =========== ===========
</TABLE>
(1) Includes asset writedowns of $2,267,300 for certain exploration
properties.
(2) The Company adopted Statement of Financial Accounting Standards
No. 128 (SFAS128), Earnings per Share in 1997. All prior periods
have been restated to conform with the provisions of SFAS128.
33
<PAGE> 36
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
1997 COMPARED TO 1996
The Company recorded a net loss of $5.0 million, or $0.13 per share,
on revenues of $28.9 million in 1997, compared to a net loss of $7.1 million,
or $0.21 per share, on revenues of $4.9 million in 1996. Although the 1997
results reflect an improvement over 1996, due principally to the attainment of
commercial production at the Briggs Mine in March 1997, the current year was
also impacted by a provision for site restoration at the Kendall Mine, higher
interest expense, and lower interest income.
During 1997, the Company sold 68,436 ounces of gold and 18,500 ounces
of silver from its Briggs Mine at an average realized price of $402 per
equivalent gold ounce. This total includes the sale of 8,150 ounces of gold
during the first two months of 1997 which was credited against capitalized
development costs. During 1996, the Company sold 3,269 ounces of gold and
2,308 ounces of silver from the Kendall Mine at an average realized price of
$392 per equivalent gold ounce and 1,500 ounces of gold from the Briggs Mine at
an average realized price of $406 per ounce. Proceeds from sales at the Briggs
Mine in 1996 were credited against capitalized development costs.
The following table summarizes the Company's gold deliveries and
revenues in 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Average Average
Gold Per Revenue Gold Price Revenue
Ounces Per Oz. $000's Ounces Per Oz. $000's
------ ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Deliveries
Forwards 58,350 $ 403 $23,490 1,500 $ 398 $ 597
Put options 3,600 $ 380 1,368 -- -- --
Spot sales 4,875 $ 326 1,572 3,269 388 1,270
Gold loan 1,611 $ 388 625 -- $ -- --
------ ------- ------ ----- ------- -----
68,436 $ 395 27,055 4,769 $ 391 1,867
====== ======= ====== ===== ======= =====
Other transactions
Silver proceeds -- 97 -- 12
Other hedging gains -- 339 -- 12
------ ------- ------ ----- ------- -----
68,436 $ 402 $27,491 4,769 $ 397 $ 1,891
====== ======= ====== ===== ======= =====
</TABLE>
34
<PAGE> 37
As a result of the Company's hedging programs, additional revenues of
$4,823,700 and $56,100 in 1997 and 1996, respectively, were recognized relative
to spot prices in effect on the settlement dates. The New York Commodity
Exchange (COMEX) gold prices averaged $331 per ounce in 1997 and $388 per ounce
in 1996. In 1997, revenue from the sale of industrial mineral products
increased 31% and per ton prices increased 5% from the prior year. All of the
Company's revenues in 1997 and 1996 were from domestic activities.
Cost of sales was $21.4 million in 1997 compared to $4.4 million in
1996, reflecting the impact of the Briggs Mine attaining commercial production
levels. Cost of sales includes all direct and indirect costs of mining,
crushing, processing, and overhead expenses of the Company's production
operations, including provisions for estimated site restoration costs accrued
on a units-of-production basis. Per ounce cost of gold production at the
Briggs Mine in 1997, as computed under the Gold Institute's Production Cost
Standard, were as follows:
<TABLE>
<CAPTION>
Per Ounce
---------
<S> <C>
Cash Operating Cost (1) $290
Total Cash Costs (2) $297
Total Production Costs (3) $383
</TABLE>
(1) As per cost of sales description above, excluding royalties
and accruals for site restoration
(2) Cash operating cost plus royalties
(3) Total cash costs plus depreciation, depletion, amortization
and accruals for site restoration
The Briggs Mine experienced higher costs and lower throughput than
expected during the year, principally relating to unsatisfactory performance of
the tertiary stage vertical shaft impact crushers. These units were replaced
with three cone crushers in late 1997 and early 1998 with the objective of
significantly increasing tonnage throughput and lowering costs in 1998 and
onward.
Depreciation, depletion and amortization was higher in 1997 due to the
attainment of commercial production at the Briggs Mine. During 1997, the
original design tertiary stage vertical shaft impact crushers were removed from
service. The Company adjusted its carrying value of the items to fair market
value, resulting in an impairment of $215,900.
Selling, general, and administrative costs of $3.3 million were not
materially different from the prior year ($3.4 million) nor were exploration
costs ($0.2 million in 1997 versus $0.3 million in 1996).
The Company's abandonments of $0.3 million in 1997 relate to costs
associated with the Cahuilla property, located in Imperial County, California.
During 1996, the Company wrote down its carrying value or abandoned certain
exploration properties by $2.4 million based upon a fourth quarter analysis of
available drilling results and other work performed by joint venture partners
and itself.
During the fourth quarter of 1997, the Company recorded a charge of
$2.6 million for site restoration based on an update to the anticipated scope
of work remaining at the Kendall Mine. In 1996, a comparable charge of $1.4
million was recorded.
Interest income was lower in the current year due to lower cash
balances. Interest expense was higher in the current year due to the Briggs
Mine attaining commercial production levels (prior year interest was
capitalized during the mine's development and commissioning).
35
<PAGE> 38
The Company executed an agreement during 1997 to sell the Mountain
View property in Nevada for $3.0 million, payable over a twenty-four month
period and, until the purchase price is paid in full, an aggregate work
commitment of $1.25 million. At any time, the buyer, upon proper notice, may
terminate the agreement and its then remaining obligations, and relinquish its
interest in the property. The Company also executed an agreement during 1997
to sell the Aeropuerto property in Chubut Province, Argentina for $2.0 million,
payable over a sixty month period. At any time, the buyer, upon proper notice,
may terminate the agreement and its then remaining obligations, and relinquish
its interest in the property. Due to the contingent nature of the
transactions, gain will be recognized only upon receipt of cash over the
relevant periods. Accordingly, the Company recorded a gain of $0.3 million
during 1997.
There was no current or deferred provision for income taxes during 1997
or 1996. Additionally, although the Company maintains significant deferred tax
assets, principally in the form of operating loss carryforwards, the Company has
not recorded a net deferred tax asset in either 1997 or 1996 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.
The Company adopted Statement of Financial Accounting Standards No.
128 (SFAS128), Earnings per Share in 1997. SFAS128's objective is to simplify
the computation of earnings per share (EPS) and to make the US standard more
compatible with that of other countries and the International Accounting
Standards Committee. SFAS128 supercedes APB Opinion 15, replacing the
presentation of "primary" and "fully diluted" EPS with "basic" and "diluted"
EPS. Basic EPS is computed by dividing income available to common shareholders
(net income less any dividends declared on preferred stock and any dividends
accumulated on cumulative preferred stock) by the weighted average number of
common shares outstanding. Diluted EPS requires an adjustment to the
denominator to include the number of additional common shares that would have
been outstanding if dilutive potential common shares had been issued. The
numerator is adjusted to add back any convertible preferred dividends and the
after-tax amount of interest recognized with any convertible debt. As the
Company reported net losses in 1997 and 1996, inclusion of potential common
shares would have an antidilutive effect on per share amounts. Accordingly,
the Company's basic and diluted EPS computations are the same for 1997 and
1996. Potential common shares that were not included in the computation of
diluted EPS for the years 1997 and 1996, respectively, were 4,795,700, and
6,495,400, respectively.
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.
(See Note 18 to the Consolidated Financial Statements)
Inflation did not have a material impact on operations in 1997 or
1996. Management of the Company does not anticipate that inflation will have a
significant impact on continuing 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
36
<PAGE> 39
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. During 1996,
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. All of the Company's revenues in 1996
and 1995 were from domestic activities.
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 estimated 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.
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. During 1996, the Company also wrote
down its carrying value for the following 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:
<TABLE>
<CAPTION>
$
MILLIONS
--------
<S> <C>
Mountain View (Nevada) $1.8
Rattlesnake (Wyoming) 0.2
Arroyo Cascada (Argentina) 0.2
Bajo Pobre (Argentina) 0.1
------
$2.3
======
</TABLE>
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
deferred tax assets, principally in the form of operating loss
37
<PAGE> 40
carry-forwards, the Company has not recorded a net deferred tax asset 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.
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.
LIQUIDITY & CAPITAL RESOURCES
SUMMARY:
The Company's cash and cash equivalents decreased $1.1 million during
1997 to $3.1 million at year-end. The decrease was a result of net cash
provided by operations of $0.7 million, $15.2 million of net cash used in
investing activities, and $13.4 million of net cash provided by financing
activities.
OPERATING ACTIVITIES:
Operations provided $0.7 million of cash as compared to using $8.1
million in 1996 and $2.4 million in 1995. The current year positive operating
cash flow was due to commercial production levels being attained at the Briggs
Mine.
INVESTING ACTIVITIES:
Capital expenditures in 1997 totaled $19.4 million. Major components
included the following:
<TABLE>
<CAPTION>
$ MILLIONS
--------------
<S> <C> <C>
Briggs Mine
o Final construction and working capital $3.8
o Leach pad expansion 2.1
o Capitalized interest 0.5
o Development drilling 1.0
o Crusher items 0.2 $ 7.6
--- ------
McDonald Gold Project
o Initial payment to purchase Phelps Dodge interest (1) 5.0
o Ongoing permitting 3.1 8.1
--- ------
Industrial Minerals
o Equipment upgrades 1.5
o Pumice mine purchase 0.5 2.0
--- ------
Exploration
o Panamints (Briggs claim block) 0.4
o Brazil 0.9
o Africa 0.2
o Other 0.2 1.7
--- ------
$19.4
</TABLE>
(1) See separate discussion under the caption "Credit Arrangements, - Purchase
of McDonald Gold Project".
38
<PAGE> 41
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.
FINANCING ACTIVITIES:
Common Stock Issues
On January 30, 1998, the Company completed an equity financing under a
Shelf Registration which raised approximately $2.5 million ($2.3 million net of
expenses) through the sale of 2,490,000 shares of common stock.
On December 30, 1997, the Company completed an equity financing under
a Shelf Registration which raised $2.5 million ($2.2 million net of expenses)
through the sale of 2,510,000 shares of common stock.
On June 11, 1997, the Company completed an equity financing under a
Shelf Registration which raised $10.0 million ($9.1 million net of expenses)
through the sale of 3,400,000 shares of common stock. Warrants to purchase
278,182 shares of common stock at a price of $4.05 per share were issued to the
Company's underwriter in connection with the financing. The warrants will
expire on June 5, 2000.
During 1997, 165,300 incentive and non-qualified stock options were
exercised resulting in proceeds to the Company of $0.3 million.
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.
During April and May 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 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. A warrant to purchase 300,000 shares of common stock was issued to the
Company's underwriter and financial advisor 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,
39
<PAGE> 42
the warrants, and the common shares underlying the warrants which was declared
effective by the Securities and Exchange Commission on May 14, 1996.
During 1996, 306,400 incentive and non-qualified stock options were
exercised resulting in proceeds to the Company of $0.3 million.
During 1995, 28,500 incentive and non-qualified options were exercised
resulting in proceeds to the Company of $0.034 million.
During 1995, the Company issued 210,100 shares of common stock in
connection with the conversion of $725,000 principal of its 6% Convertible
Subordinated Notes and 61,539 shares in connection with the acquisition of a
joint venture interest.
Credit Arrangements
Purchase of the McDonald Gold Project
On September 25, 1997, the Company, together with its wholly owned
subsidiary CR Montana Corporation (CR Montana), purchased a 72.25%
participating interest and underlying assets in the Seven-Up Pete Venture
(Venture) from CR Montana's partner in the Venture, Phelps Dodge Corporation
(Phelps Dodge). The Company and its wholly owned subsidiary now own 100% of the
Venture. The Venture includes the McDonald Gold Project near Lincoln, Montana,
which is currently in the permitting stage.
The Company made an initial payment of $5 million from its existing
cash balance as part of a total purchase price which will be no less than $100
million and no more than $150 million, assuming all applicable permits for the
McDonald Gold Project are obtained. At present, Canyon is pursuing various
options with respect to the remaining purchase price obligation which may
include, amongst others, sale of equity, mergers, or joint venture
participation. A discretionary payment of $20 million can be made toward the
total purchase price. Subject to Canyon making the discretionary payment
within one year of the closing, a further payment of at least $75 million but
no more than $125 million will be made once all permits for the McDonald Gold
Project have been obtained or construction is underway, based on a price of $20
per mineable reserve ounce attributable to the former Phelps Dodge ownership as
determined by a final feasibility study. Should the Company not make the
discretionary payment and permits are obtained or construction commences on or
before the second anniversary of the closing, a further payment of at least $95
million plus the product of $1,666,666 and the number of months between the
first anniversary date of the closing and the month in which permits are
obtained or construction commences but no more than $145 million will instead
be made, based on a price of $20 per mineable reserve ounce attributable to the
former Phelps Dodge ownership plus the product of $0.833 times the number of
months between the first anniversary date of the closing and the earlier to
occur of a) the month when the discretionary or other payments reach $20
million, and b) the month in which permits are obtained or construction
commences. Should the Company not make the discretionary payment and permits
are obtained or construction commences after the second anniversary of the
closing, a further payment of at least $115 million but no more than $145
million will instead be made, based on a price of $30 per mineable reserve
ounce attributable to the former Phelps Dodge ownership. If the aggregate
payments have then not totaled $150 million, a varying production payment will
be made each quarter based on 72.25% of the ounces produced on a sliding scale
commensurate with the then gold price as follows: 1) $0 per ounce if the gold
price is less than or equal to $350.00 per ounce; 2) $3 per ounce if the gold
price is greater than $350.00 but less than or equal to $375.00 per ounce; 3)
$5 per ounce if the gold price is greater than $375.00 but less than or equal
to $400.00 per ounce; 4) $7 per ounce if the gold price is greater than $400.00
but less than or equal to $425.00 per ounce; and 5) $10 per ounce if the gold
price is greater than $425.00 per ounce. Production payments will cease when
the aggregate of all payments reach $150 million.
40
<PAGE> 43
The purchase payments are collateralized only by the 72.25%
participating interest and underlying assets in the Venture transferred from
Phelps Dodge to the Company and CR Montana in this transaction, and the 50%
co-tenancy interest in certain real property also transferred to the Company and
CR Montana.
Revolver
In October, 1997, the Company's wholly owned subsidiary, CR Minerals
Corporation (CR Minerals), secured a one- year revolving credit line (Revolver)
with Norwest Bank Colorado, N.A. in an amount not to exceed the lesser of a
borrowing base or $600,000. The borrowing base is calculated on 70% of CR
Minerals' domestic accounts receivables not more than 90 days in age from date
of invoice. Interest is payable monthly at a rate of one-half of one percent
above the Norwest Bank Colorado, N.A. prime rate. At December 31, 1997, the
interest rate was 9.0%. The Revolver must be completely paid down and
maintained at a zero balance for at least 30 consecutive days during each
fiscal year. The Company is guaranteeing the obligations of CR Minerals under
the Revolver, which is collateralized by a first security interest in CR
Minerals' accounts receivable, chattel paper, inventory, equipment and general
intangibles. CR Minerals is required to maintain a minimum level of tangible
net worth, and is prohibited from incurring additional indebtedness on any of
its real or personal property under the terms of the Revolver. At December 31,
1997, borrowings under the Revolver totaled $350,000.
Pumice Mine Purchase
On December 31, 1997, CR Minerals purchased the pumice mine which
supplies the raw ore for its New Mexico processing facility from Western Mobile
Santa Fe, Inc. Total purchase price was $950,000, of which $475,000 was paid
at closing with the balance of $475,000 due one year later.
Equipment Financing
During 1997, the Company repaid its remaining obligation of $196,800
in connection with a 1994 financing of certain mining equipment.
CR Briggs Loan Facility
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. During 1997, the remaining $4.0 million was drawn.
Average interest rates on the amounts outstanding were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gold loan 3.4% 4.1% 5.3%
Cash loans 10.2% 9.9% 9.9%
</TABLE>
41
<PAGE> 44
During 1997 and 1996, interest payments of $1,554,800 and $1,387,500
were made. This includes 2,437 ounces of gold ($787,800 monetized) and
$767,000 relating to the cash loans.
During 1997, the Company repaid 4,832 ounces of the gold loan
($1,875,000 monetized) and $300,000 of the cash loans. Repayment terms require
quarterly installments over six years 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. As of December 31, 1997, the
Company had increased its recoverable reserves (at $300 per oz. gold prices) by
approximately 138,000 ounces from the original feasibility amounts.
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, 1997, approximately 34% of the Briggs Mine
production from current reserves was hedged as follows:
BRIGGS MINE HEDGE POSITION
12/31/97
<TABLE>
<CAPTION>
OUNCES AVERAGE PRICE/OZ.
------ -----------------
<S> <C> <C>
Forward Contracts 127,750 $431
Put Options 11,800 $380
Gold Loan 59,593 $388
------- ----
199,143 $415
======= ====
</TABLE>
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. CR Briggs was not
in compliance with certain conditions of the loan agreement as of December 31,
1997, relating to (i) certain coverage ratios (as defined); (ii) production
performance (as defined); and (iii) operating cost performance (as defined). CR
Briggs was also not in compliance with certain coverage ratios (as defined) as
of March 6, 1998. In addition, the Company, as guarantor, was not in compliance
as of December 31, 1997, nor was it in compliance or expects to be in compliance
for dates up to and including March 31, 1998, with respect to maintaining a
minimum consolidated working capital ratio (as defined). CR Briggs and the
Company have obtained waivers and amendments for all matters of noncompliance.
The Company anticipates to be in compliance with all future covenants for the
remainder of 1998.
The Briggs Mine is also required to meet certain production and
economic parameters over a 120-day testing period (completion testing) as
measured against the project's original feasibility study. Formal completion
testing was initiated February 1, 1997 and concluded June 1, 1997. Many items
were satisfied, however, certain items, principally relating to the crushing
plant, were not. CR Briggs obtained a waiver of
42
<PAGE> 45
compliance for this matter and was granted an extension to June 1, 1998 to
satisfy the completion test requirements. The Company anticipates it will
achieve project completion by that date.
Letters of Credit
Certain bonds have been issued for the performance of reclamation
obligations at the Briggs and Kendall Mines, aggregating $5.9 million. A bank
Letter of Credit in the amount of $1,953,000 has been provided in favor of the
Surety as partial collateral for such obligations, and the Company has fully
collateralized the Letter of Credit with cash. The Letter of Credit will
expire no earlier than December 31, 1998, and, at the bank's option, may be
renewed for successive one-year periods. The amount on deposit as collateral
for the Letter of Credit is included as restricted cash on the Company's
balance sheet at December 31, 1997. 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.
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 canceled.
OUTLOOK:
Operations
The Briggs Mine is expected to produce approximately 88,000 ounces in
1998 at cash operating costs between $250-$260 per ounce. Capital spending of
$0.8 million is anticipated relating principally to condemnation drilling for
waste dumps and to crushing equipment and facilities. The Company's hedge
position for 1998 is summarized below:
<TABLE>
<CAPTION>
AVERAGE
OUNCES PRICE/OZ.
------ ---------
<S> <C> <C>
Forward Contracts 47,050 $414
Put Options 8,200 $380
Gold Loan 8,375 $388
------ ----
63,625 $406
====== ====
</TABLE>
The Company expects approximately 19% of its revenues in 1998 will be
generated from sales of industrial minerals. Capital spending of $1.2 million
is anticipated, principally related to equipment improvements to the New Mexico
facility.
The Company expects to spend approximately $1.4 million on reclamation
at Kendall during 1998 and a further $2.5 million beyond 1998 through mine
closure. The Company has accrued the expected reclamation costs at December
31, 1997, based upon its current estimate.
The Company expects to spend approximately $0.5 million on its
exploration properties in 1998, principally relating to holding costs and to
monitoring the activities of the Company's joint venture partners.
43
<PAGE> 46
The McDonald Gold Project is expected to require in excess of $9.0
million in 1998 to advance the permitting process and move the project forward
to final feasibility. The Company does not anticipate being able to raise the
required amount via the equity markets nor is its expected cash flow from
operations sufficient to finance the cash requirements of the project over the
next one-two years. As a result, the Company is currently seeking a joint
venture partner to finance all expenditures necessary to take the project to
commencement of production. The Company expects a draft environmental impact
statement to be issued in the third quarter of 1998 and final permits by
mid-year, 1999.
OTHER MATTERS:
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, put
options, and a gold loan with approximately 34% of reserves hedged at an
average price of $415 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 commitments. With regard to credit risk, the Company uses only
creditworthy counterparties and dose not anticipate any non-performance by such
counterparties.
Year 2000 Issue
Computer programs written decades ago utilized a two digit format to
identify the applicable year. Without modification, any date sensitive
software beyond December 31, 1999 could fail, as the date would be reset to
year 1900. This could result in, amongst other things, disruptions to
operations and the inability to process financial transactions. The Company
has not yet made an assessment of the impact of the year 2000 issue. The
Company expects to initiate communications with all of its equipment suppliers
in which a computer is utilized and with its computer manufacturers (hardware
and software) for the processing of financial information to determine the
extent to which the issue may impact the Company. In addition, the Company
will inquire of other entities who are significant suppliers of consumables
used in its operations and of others it currently interacts with electronically
(financial institutions, etc.) to determine the extent to which it may be
vulnerable to those third parties' failure to remediate their own Year 2000
Issue.
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 new central agency, the 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.
44
<PAGE> 47
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. The Company is currently negotiating details of final
mine closure with the DEQ. The DEQ has approved portions of the closure plan
related to recontouring, revegetation, drainage, and heap dewatering.
Discussions of long-term water handling and heap closure methods continue.
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
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.
Recently Issued Financial Accounting Standards
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income and Statement of Financial Accounting Standards No. 131
(SFAS 131), Disclosures about Segments of an Enterprise and Related
Information. The provisions of SFAS 130 and SFAS 131 will be effective for
fiscal years beginning after December 15, 1997. SFAS 130 is designed to report
a measure of all changes in equity of an enterprise that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. Besides net income, other
comprehensive income would include foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain investments
in debt and equity securities. SFAS 131 establishes standards for the way that
public business enterprises determine operating segments and report information
about those segments in annual financial statements. SFAS 131 also requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 further establishes
standards for related disclosures about products and services, geographic
areas, and major customers. Upon adoption of SFAS 130, the Company does not
anticipate a material impact on its financial statements. Upon adoption of
SFAS 131, the Company does anticipate a material impact on its reported
disclosures.
45
<PAGE> 48
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 on
behalf 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 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not meet the minimum market capitalization
requirement for these disclosures in 1997.
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Consolidated Statement of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53-70
</TABLE>
46
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Canyon Resources Corporation:
We have audited the consolidated balance sheets of Canyon Resources Corporation
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with general
accepted accounting principles.
As discussed in Note 7 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.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 12, 1998, except for Note 8(a),
as to which the date is March 31, 1998
47
<PAGE> 50
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,111,000 $ 4,181,100
Restricted cash 2,316,300 2,557,500
Accounts receivable 746,700 574,300
Inventories 6,051,800 4,382,400
Prepaid and other assets 1,288,500 591,200
------------ ------------
Total current assets 13,514,300 12,286,500
------------ ------------
Property and equipment, at cost
Mining claims and leases 26,463,800 17,561,600
Producing properties 60,616,800 53,875,000
Other 1,144,500 898,200
------------ ------------
88,225,100 72,334,800
Accumulated depreciation and depletion (7,269,100) (1,995,200)
------------ ------------
Net property and equipment 80,956,000 70,339,600
------------ ------------
Other assets 2,811,800 1,758,200
------------ ------------
Total Assets $ 97,282,100 $ 84,384,300
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,829,600 $ 1,616,400
Notes payable - current 4,554,300 2,071,800
Accrued taxes, other than payroll and income 151,400 104,300
Accrued reclamation costs 1,441,200 1,421,000
Other accrued liabilities 956,600 612,400
------------ ------------
Total current liabilities 10,933,100 5,825,900
Notes payable - long term 28,055,000 28,125,000
Accrued reclamation costs 2,857,500 1,584,000
Other noncurrent liabilities 398,000 408,800
------------ ------------
Total Liabilities 42,243,600 35,943,700
------------ ------------
Commitments and contingencies (Notes 10, 11, 12 and 13)
Common stock ($.01 par value) 100,000,000 shares authorized;
issued and outstanding: 43,617,100 at December 31, 1997
and 37,503,600 at December 31, 1996 436,200 375,000
Capital in excess of par value 92,999,400 81,440,400
Deficit (38,397,100) (33,374,800)
------------ ------------
Total Stockholders' Equity 55,038,500 48,440,600
------------ ------------
Total Liabilities and Stockholders' Equity $ 97,282,100 $ 84,384,300
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
48
<PAGE> 51
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Sales $ 28,890,300 $ 4,857,000 $ 9,006,600
------------ ------------ ------------
EXPENSES
Cost of sales 21,389,900 4,356,900 7,393,600
Depreciation, depletion, and amortization 5,207,100 262,300 723,100
Selling, general and administrative 3,242,500 3,425,800 3,377,600
Exploration costs 202,000 307,800 991,700
Abandonments and impairments of mineral properties 305,900 2,425,800 302,300
Provision for site restoration 2,634,900 1,398,800 1,087,300
Impairment of producing assets 215,900 -- 296,000
------------ ------------ ------------
33,198,200 12,177,400 14,171,600
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 375,600 1,095,500 570,000
Interest expense (1,442,900) (846,200) (1,679,300)
Other 352,900 (43,800) 131,100
------------ ------------ ------------
(714,400) 205,500 (978,200)
------------ ------------ ------------
Net loss $ (5,022,300) $ (7,114,900) $ (6,143,200)
============ ============ ============
Basic and diluted loss per share:
Net loss $ (0.13) $ (0.21) $ (0.24)
============ ============ ============
Weighted average shares outstanding 39,821,900 33,275,500 25,696,800
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
49
<PAGE> 52
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Capital Retained
Common Stock in excess Earnings
Shares Amount of par value (Deficit)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1994 25,497,100 $ 255,000 $ 45,215,300 $(20,116,700)
------------ ------------ ------------ ------------
Issuances of stock 61,600 600 99,400
Exercise of stock options 24,400 200 34,900 --
Conversion of debenture 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) -- -- -- (7,144,900)
------------ ------------ ------------ ------------
Balances, December 31, 1996 37,503,600 375,000 81,440,400 (33,374,800)
------------ ------------ ------------ ------------
Issuance of stock and warrants 5,960,000 59,100 11,191,800
Exercise of stock options 153,500 2,100 367,200 --
Net (loss) -- -- -- (5,022,300)
------------ ------------ ------------ ------------
Balances, December 31, 1997 43,617,100 $ 436,200 $ 92,999,400 $(38,397,100)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
50
<PAGE> 53
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,022,300) $ (7,114,900) $ (6,143,200)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, depletion, and amortization 5,207,100 262,300 723,100
Amortization of financing costs 228,600 154,500 326,900
Abandonments and impairments of mineral properties 305,900 2,425,800 302,300
Provision for site restoration 2,634,900 1,398,800 1,087,300
Impairment of producing assets 215,900 -- 296,000
Provision for inventory obsolescence 266,500 -- --
(Gain) loss on disposal of assets (343,000) 4,000 (161,000)
Other (500) 23,300 81,300
Changes in assets and liabilities
Decrease (increase) in receivables (171,900) 91,100 (70,100)
Decrease (increase) in inventories (2,224,800) (3,620,600) 1,766,200
Decrease (increase) in prepaid and other assets (1,597,300) 18,900 (97,000)
Increase (decrease) in accounts payable and accrued liabilities 2,255,500 (1,150,100) (1,691,800)
Increase (decrease) in other liabilities (737,800) (613,600) 1,223,900
(Increase) in restricted cash (309,100) -- --
------------ ------------ ------------
Total adjustments 5,730,000 (1,005,600) 3,787,100
------------ ------------ ------------
Net cash provided by (used in) operating activities 707,700 (8,120,500) (2,356,100)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (19,429,100) (33,458,400) (8,080,800)
Proceeds on asset dispositions 373,600 45,300 430,800
Production proceeds during mine development and restricted cash 3,894,100 4,400 --
Other 4,000 20,000 20,000
------------ ------------ ------------
Net cash used in investing activities (15,157,400) (33,388,700) (7,630,000)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of stock 11,612,500 14,505,100 35,100
Debenture conversion cost -- -- (43,500)
Payments on debt (2,371,800) (216,600) (386,400)
Payments on capital lease obligations (157,200) (63,900) (35,000)
Proceeds from loans and restricted cash, net 4,296,100 27,259,500 2,740,400
Payments from 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)
------------ ------------ ------------
Net cash provided by (used in) financing activities 13,379,600 43,796,500 (1,400,200)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,070,100) 2,287,300 (11,386,300)
Cash and cash equivalents, beginning of year 4,181,100 1,893,800 13,280,100
------------ ------------ ------------
Cash and cash equivalents, end of year $ 3,111,000 $ 4,181,100 $ 1,893,800
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
51
<PAGE> 54
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental disclosures of cash flow information:
1. The Company paid $1,644,400, $2,247,200 and $1,369,100 of interest
during 1997, 1996, and 1995, respectively. Of the total payments,
capitalized interest during 1997, 1996, and 1995 was $543,600,
$1,449,600, and $13,100, respectively.
2. The Company paid no income taxes during 1997, 1996, and 1995.
Supplemental schedule of noncash investing and financing activities:
1. Capital lease obligations of $97,600, $379,000, and $48,600 were
incurred for equipment in 1997, 1996, and 1995, respectively.
2. The Company issued 50,000 shares of common stock which was valued at
$106,200 in connection with the termination of a previous agreement
to acquire an exploration property in 1997.
3. The Company executed a promissory note in the face amount of $475,000
($434,300 discounted) as partial consideration to acquire an asset in
1997.
4. 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.
5. 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.
6. During 1995, the Company transferred title to previously financed
equipment back to the creditor for consideration equal to the unpaid
balance of $56,500.
7. 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 $39,900, $101,200, and $9,500 during 1997, 1996,
and 1995, respectively.
The accompanying notes are an integral part of these consolidated
financial statements.
52
<PAGE> 55
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 and directly in the United States, Canada and
internationally to the paint, plastics, asphalt coatings, filler, and abrasives
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 the following subsidiaries:
<TABLE>
<CAPTION>
%
Name Ownership
---- ---------
<S> <C>
CR Kendall Corporation 100
CR Minerals Corporation 100
CR Briggs Corporation 100
CR Montana Corporation 100
CR International Corporation 100
Canyon Resources (Chile) S.A. 100
Canyon de Panama, S.A. 100
CR Brazil Corporation 100
Canyon Resources Venezuela, C.A. 90
Canyon Resources Africa Ltd. 90
Canyon Resources Tanzania Limited 90
</TABLE>
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.
53
<PAGE> 56
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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, 1997
and 1996, 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 4. The Company maintained its
restricted cash at December 31, 1997 and 1996, in two financial institutions.
INVENTORIES: Processed ores and metal-in-process are stated at the lower of
average cost or market. Materials and supplies are stated at cost.
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 (ratio of waste tons mined to ore tons mined)
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 carrying value of exploration properties in
light of their potential for economic mineralization and the likelihood of
continued work by either the Company or a joint venture partner. The Company
may, from time to time, reduce its carrying value to an amount that
approximates fair market value based upon an assessment of such criteria.
PRODUCING PROPERTIES AND EQUIPMENT: Acquisition, exploration and
development costs associated with properties brought into production are
charged to operations using the units-of-production method based on estimated
recoverable reserves. Gold production facilities and equipment are stated at
cost and are amortized 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 evaluates the carrying value of producing properties and equipment
by applying the provisions 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 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. Measurement of an impairment loss
for an asset held for sale would be based on fair market value less estimated
costs to sell.
54
<PAGE> 57
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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. When
an operation is in the reclamation phase, the Company applies the provisions of
Statement of Financial Accounting Standards No. 5, Accounting for Contingencies.
REVENUE RECOGNITION: Revenue from the sale of gold and industrial minerals
is recognized when title passes to the buyer.
DERIVATIVE COMMODITY INSTRUMENTS: The Company uses derivative commodity
instruments (gold loans, gold forward contracts, and put options) to manage
market risks associated with fluctuating gold prices. The Company does not
hold or issue derivative commodity instruments for trading purposes. 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 production will be sufficient to
repay the gold loan, or the cost of production exceeds the market price of the
gold, the gold loan is recorded at the higher of the original proceeds or the
market value. Costs or premiums, if any, and gains or losses related to
changes in values of other derivative commodity instruments are included in
revenues when the underlying production is delivered to meet the commitment, or
at the originally designated maturity dates in the event of early settlement of
such instruments. Cash flow resulting from hedge contracts is included in net
cash provided by operating activities on the statements of cash flows.
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: The Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS128), Earnings per Share in 1997 and all prior periods
have been restated. SFAS128's objective is to simplify the computation of
earnings per share (EPS) and to make the US standard more compatible with that
of other countries and the International Accounting Standards Committee.
SFAS128 supercedes APB Opinion 15, replacing the presentation of "primary" and
"fully diluted" EPS with "basic" and "diluted" EPS. Basic EPS is computed by
dividing income available to common shareholders (net income less any dividends
declared on preferred stock and any dividends accumulated on cumulative
preferred stock) by the weighted average number of common shares outstanding.
Diluted EPS requires an adjustment to the denominator to include the number of
additional common shares that would have been outstanding if dilutive potential
common shares had been issued. The numerator is adjusted to add back any
convertible preferred dividends and the after-tax amount of interest recognized
with any convertible debt. As the Company reported net losses in 1997, 1996,
and 1995, inclusion of potential common shares would have an antidilutive
effect on per share amounts. Accordingly, the Company's basic and diluted EPS
computations are the same for the periods presented. Potential common shares
that were not included in the computation of diluted EPS for the years 1997,
1996, and 1995, respectively, were 4,795,700, 6,495,400, and 12,333,100,
respectively.
55
<PAGE> 58
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. RESTRICTED CASH:
Restricted cash consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Collateral for Letter of Credit (a) $1,953,000 $1,953,000
Unexpended proceeds from loan drawing (b) 54,000 100
Unexpended proceeds from gold sales (c) 309,100 604,200
Contingency account (d) 200 200
---------- ----------
$2,316,300 $2,557,500
Current portion 2,316,300 2,557,500
---------- ----------
Noncurrent portion $ -- $ --
========== ==========
</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, 1998. At
the bank's option, the Letter of Credit may be renewed for successive one-year
periods.
(b) As described in Note 8(a), the loan proceeds are restricted solely
for the development of the Briggs Mine.
(c) 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.
(d) As a condition precedent to securing a loan facility (see Note 8(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.
5. INVENTORIES:
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Gold-in-process (a) $4,997,900 $3,451,400
Industrial Minerals -
in process (a) 413,200 394,900
Materials and supplies 640,700 536,100
---------- -----------
$6,051,800 $4,382,400
========== ==========
</TABLE>
(a) Includes all direct and indirect costs of mining,
crushing, processing and mine site overhead expenses.
56
<PAGE> 59
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. MINING CLAIMS AND LEASES:
The carrying value of the Company's mining claims and leases consists
of the following components at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- ------------
<S> <C> <C>
Mining Property(1):
McDonald $16,646,600 $ 8,828,500
Exploration Properties 9,817,200 8,733,100
----------- ------------
$26,463,800 $ 17,561,600
=========== ============
</TABLE>
(1) The Briggs Mine attained commercial production in March, 1997.
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, 1997. 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 ($9,817,200
and $8,733,100 at December 31, 1997 and 1996, respectively) since the
realization is dependent upon the discovery of reserves in commercial
quantities and the subsequent development or sale of those reserves.
7. ASSET IMPAIRMENT:
In 1997, certain crushing components at the Briggs Mine were replaced.
The Company adjusted its carrying value of the items removed from service to
fair market value during the fourth quarter of 1997, resulting in an impairment
of $215,900. The fair market amount of $121,700 is included in other current
assets on the Company's consolidated balance sheet at December 31, 1997.
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.
57
<PAGE> 60
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. NOTES PAYABLE:
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Briggs Loan (a) $31,825,000 $30,000,000
Norwest Revolver (b) 350,000 --
Western Mobil Note (c) 434,300 --
Caterpillar Finance Note (d) -- 196,800
----------- -----------
$32,609,300 30,196,800
Current portion 4,554,300 2,071,800
----------- -----------
Notes Payable - Long Term $28,055,000 $28,125,000
=========== ===========
</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. During 1997, the remaining $4.0 million was drawn.
Average interest rates on the amounts outstanding were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gold loan 3.4% 4.1% 5.3%
Cash loans 10.2% 9.9% 9.9%
</TABLE>
During 1997 and 1996, interest payments of $1,554,800 and $1,387,500
were made. This includes 2,437 ounces of gold ($787,800 monetized) and
$767,000 relating to the cash loans.
During 1997, the Company repaid 4,832 ounces of the gold loan
($1,875,000 monetized) and $300,000 of the cash loans. Repayment terms require
quarterly installments over six years 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
58
<PAGE> 61
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. NOTES PAYABLE, CONTINUED:
loan amounts. As of December 31, 1997, the Company had increased its
recoverable reserves (at $300 per oz. gold prices) by approximately 138,000
ounces from the original feasibility amounts.
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, 1997, approximately 34% of the Briggs Mine
production from current reserves was hedged as follows:
BRIGGS MINE HEDGE POSITION
12/31/97
<TABLE>
<CAPTION>
OUNCES AVERAGE PRICE/OZ.
------ -----------------
<S> <C> <C>
Forward Contracts 127,750 $431
Put Options 11,800 $380
Gold Loan 59,593 $388
199,143 $415
</TABLE>
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. CR Briggs was not
in compliance with certain conditions of the loan agreement as of December 31,
1997, relating to (i) certain coverage ratios (as defined); (ii) production
performance (as defined); and (iii) operating cost performance (as defined). CR
Briggs was also not in compliance with certain coverage ratios (as defined) as
of March 6, 1998. In addition, the Company, as guarantor, was not in compliance
as of December 31, 1997, nor was it in compliance or expects to be in compliance
for dates up to and including March 31, 1998, with respect to maintaining a
minimum consolidated working capital ratio (as defined). CR Briggs and the
Company have obtained waivers and amendments for all matters of noncompliance.
The Company anticipates to be in compliance with all future covenants for the
remainder of 1998.
The Briggs Mine is also required to meet certain production and
economic parameters over a 120-day testing period (completion testing) as
measured against the project's original feasibility study. Formal completion
testing was initiated February 1, 1997 and concluded June 1, 1997. Many items
were satisfied, however, certain items, principally relating to the crushing
plant, were not. CR Briggs obtained a waiver of compliance for this matter and
was granted an extension to June 1, 1998 to satisfy the completion test
requirements. The Company anticipates it will achieve project completion by
that date.
(b) In October, 1997, the Company's wholly owned subsidiary, CR Minerals
Corporation (CR Minerals), secured a one-year revolving credit line (Revolver)
with Norwest Bank Colorado, N.A. in an amount not to exceed the lesser of a
borrowing base or $600,000. The borrowing base is calculated on 70% of CR
Minerals'
59
<PAGE> 62
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. NOTES PAYABLE, CONTINUED:
domestic accounts receivables not more than 90 days in age from date of
invoice. Interest is payable monthly at a rate of one-half of one percent
above the Norwest Bank Colorado, N.A. prime rate. At December 31, 1997, the
interest rate was 9.0%. The Revolver must be completely paid down and
maintained at a zero balance for at least 30 consecutive days during each
fiscal year. The Company is guaranteeing the obligations of CR Minerals under
the Revolver, which is collateralized by a first security interest in CR
Minerals' accounts receivable, chattel paper, inventory, equipment and general
intangibles. CR Minerals is required to maintain a minimum level of tangible
net worth, and is prohibited from incurring additional indebtedness on any of
its real or personal property under the terms of the Revolver.
(c) On December 31, 1997, CR Minerals purchased the pumice mine which
supplies the raw ore for its New Mexico processing facility from Western Mobile
Santa Fe, Inc. Total purchase price was $950,000, of which $475,000 was paid
at closing with the balance of $475,000 due one year later. As the promissory
note issued for the remaining consideration did not contain a stated interest
rate, an imputed rate of 9% was used to establish the note's present value,
resulting in a discount of $40,700. This amount will be amortized to interest
expense in 1998.
(d) 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 1997, the Company paid $8,700
of interest and paid the remaining principal balance of $196,800. 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.
Maturities of notes payable are as follows for the next five years:
<TABLE>
<S> <C>
1998 $ 4,554,300
1999 4,640,000
2000 2,610,000
2001 6,960,000
2002 8,845,000
Thereafter* 5,000,000
-------------
Total $ 32,609,300
=============
</TABLE>
* Subject to varying prepayments equal to 30% of free cash flow
from the Briggs Mine (as defined) after primary debt service.
9. SITE RESTORATION COSTS:
Reclamation at the Kendall Mine has been ongoing throughout the life
of the operation and cash costs to date total $4.3 million. During 1997, the
Company recorded an additional charge of $2.6 million based on
60
<PAGE> 63
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. SITE RESTORATION COSTS, CONTINUED:
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 $8.2 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 related to recontouring,
revegetation, drainage and dewatering, discussions of long- term water handling
and heap closure methods continue. The Company's estimate to achieve final
mine closure may be impacted by the outcome of these pending matters.
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.
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, 1997, future minimum lease payments
extending beyond one year under noncancellable leases were as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$1,886,300 $1,851,700 $1,849,100 $ 181,800 $ 13,200 $ 61,700 $5,843,800
</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
$200,600 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 $155,900 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
$178,200 annually.
61
<PAGE> 64
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. LEASE COMMITMENTS, CONTINUED:
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, 1997, 1996 and 1995 were $2,072,300; $19,500; and $85,600,
respectively. Rent expense included in selling, general and administrative
expense of the Company for the years ended December 31, 1997, 1996 and 1995,
was $120,300; $100,900; and $121,200, respectively.
Property and equipment includes equipment with a cost and accumulated
amortization of $647,400 and $236,200, respectively, at December 31, 1997 and
$548,600 and $124,800, respectively, at December 31, 1996, for leases that have
been capitalized. Future minimum lease obligations under capital leases are as
follows:
<TABLE>
<S> <C>
1998 $168,400
1999 207,100
2000 37,800
2001 500
2002 --
--------
Total 413,800
Less amounts representing interest 49,700
--------
Present value of minimum lease payments 364,100
Less current obligations 135,300
--------
Long-term obligations under capital lease $228,800
========
</TABLE>
11. CONTINGENT LIABILITY:
On September 25, 1997, the Company, together with its wholly owned
subsidiary, CR Montana Corporation (CR Montana), purchased a 72.25%
participating interest and underlying assets in the Seven-Up Pete Venture
(Venture) from CR Montana's partner in the Venture, Phelps Dodge Corporation
(Phelps Dodge). The Company and its wholly owned subsidiary now own 100% of
the Venture. The Venture includes the McDonald Gold Project near Lincoln,
Montana, which is currently in the permitting stage.
The Company made an initial payment of $5 million as part of a total
purchase price which will be no less than $100 million and no more than $150
million, assuming all applicable permits for the McDonald Gold Project are
obtained. The largest part of the purchase price, $20 to $30 per mineable
reserve ounce attributable to the Phelps Dodge ownership as determined by a
final feasibility study, is to be paid after all permits for mine development
are obtained. Due to the contingent nature of the transaction, the Company has
recorded only the initial payment of $5 million as additions to mining claims
and leases during 1997.
12. COMMITMENTS AND CONTINGENCIES:
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.
62
<PAGE> 65
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. YEAR 2000 ISSUE:
Computer programs written decades ago utilized a two digit format to
identify the applicable year. Without modification, any date sensitive
software beyond December 31, 1999 could fail, as the date would be reset to
year 1900. This could result in, amongst other things, disruptions to
operations and the inability to process financial transactions. The Company
has not yet made an assessment of the impact of the year 2000 issue. The
Company expects to initiate communications with all of its equipment suppliers
in which a computer is utilized and with its computer manufacturers (hardware
and software) for the processing of financial information to determine the
extent to which the issue may impact the Company. In addition, the Company
will inquire of other entities who are significant suppliers of consumables
used in its operations and of others it currently interacts with electronically
(financial institutions, etc.) to determine the extent to which it may be
vulnerable to those third parties' failure to remediate their own Year 2000
Issue.
14. CERTAIN CONCENTRATIONS AND CONCENTRATIONS OF CREDIT RISK:
The Company sold its gold and silver production predominately to two
customers during 1997 and to one customer during 1996 and 1995. 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
customers would adversely affect the Company. Sales of industrial minerals
were made to a diverse base of customers during 1997, 1996, and 1995.
The Company is subject to credit risk in connection with its price
protection arrangements as outlined in Note 8(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.
15. CONTINGENT SALES OF EXPLORATION PROPERTIES:
The Company executed an agreement during the second quarter of 1997 to
sell the Mountain View property in Nevada for $3.0 million, payable over a
twenty-four month period and, until the purchase price is paid in full, an
aggregate work commitment of $1,250,000. At any time, the buyer, upon proper
notice, may terminate the agreement and its then remaining obligations, and
relinquish its interest in the property. Due to the contingent nature of the
transaction, gain will be recognized only upon receipt of cash over the
twenty-four month period. Accordingly, the Company recorded a gain of $229,100
during 1997.
The Company executed an agreement during the third quarter of 1997 to
sell the Aeropuerto property in Chubut Province, Argentina for $2.0 million,
payable over a sixty month period. At any time, the buyer, upon proper notice,
may terminate the agreement and its then remaining obligations, and relinquish
its interest in the property. Due to the contingent nature of the transaction,
gain will be recognized only upon receipt of cash over the sixty month period.
Accordingly, the Company recorded a gain of $42,400 during 1997.
63
<PAGE> 66
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. 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 commodity prices,
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 1997, 1996, and 1995, the change in the valuation
allowance was $1,211,500, $3,263,100, and $2,190,200, respectively, and was due
primarily to increased operating loss carryforwards and changes in temporary
differences.
Deferred tax assets and liabilities were comprised of the following at
December 31, 1997, and December 31, 1996:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
DEFERRED TAX ASSETS
Reserve for mine reclamation $ 1,762,500 $ 1,232,000
Inventories 2,291,900 93,400
Net Operating Loss Carryforwards 18,449,400 18,061,600
Other 374,300 281,200
------------ ------------
Total Gross Deferred Tax Assets 22,878,100 19,668,200
Valuation Allowance (17,035,200) (15,823,700)
------------ ------------
Net Deferred Tax Assets $ 5,842,900 $ 3,844,500
------------ ------------
DEFERRED TAX LIABILITIES
Net PP&E (writedowns, depreciation/depletion
and exploration/development expenditures) $ (5,256,300) $ (3,844,500)
Deferred Stripping (536,700) --
Other (49,900) --
------------ ------------
$ (5,842,900) $ (3,844,500)
------------ ------------
NET DEFERRED INCOME TAX ASSET (LIABILITY) $ -- $ --
============ ============
</TABLE>
There was no current or deferred provision for income taxes for the
years ended December 31, 1997, 1996, and 1995. The current provision for
income taxes differs from the amounts computed by applying the U.S. federal
statutory rate as follows:
64
<PAGE> 67
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. INCOME TAXES, CONTINUED:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Tax at Statutory Rate of 34% $(1,707,600) $(2,419,100) $(2,063,200)
Net Operating Loss (With) Without Tax Benefit 1,707,600 2,419,100 2,063,200
Alternative Minimum Tax -- -- --
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards
for regular tax purposes of approximately $51,007,900 and approximately
$31,512,300 of net loss carryforwards available for the alternative minimum
tax. The net loss carryforwards will expire from 1999 through 2011.
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, 1997, $1,026,000 remains subject to Section 382 limitations.
17. 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, 1997, and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31 1997 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $3,111,000 $3,111,000 $4,181,100 $4,181,100
Restricted Cash $2,316,300 $2,316,300 $2,557,500 $2,557,500
Long-term Investments $ 309,700 $ 429,000 $ 313,700 $ 413,200
Long-term Debt (1) $8,180,000 $8,180,000 $5,196,800 $5,196,800
</TABLE>
(1) Long-term debt excludes the carrying and fair value amounts for
the Company's gold loan (see Note 8(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.
65
<PAGE> 68
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:
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 debt based on discounted cash flows using
the Company's current rate of borrowing for a similar liability.
18. 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.
Incentive stock option activity during 1997, 1996, and 1995 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ -------------------------
Weighted Weighted Weighted
Amount Average Price Amount Average Price Amount Average Price
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 2,005,000 $ 2.50 1,965,200 $ 2.36 1,689,000 $ 2.54
Granted 511,000 $ 1.33 348,500 $ 2.57 540,500 $ 2.14
Exercised (113,400) $ 1.66 (186,400) $ 1.33 (23,500) $ 1.50
Forfeited (211,400) $ 2.66 (122,600) $ 2.27 (89,000) $ 2.75
Expired -- -- -- -- (151,500) $ 3.50
--------- --------- ---------
Outstanding,
end of year 2,191,200 $ 2.25 2,005,000 $ 2.50 1,965,500 $ 2.36
========= ========= =========
Exercisable,
end of year 1,333,200 $ 2.51 1,104,000 $ 2.62 963,500 $ 2.66
</TABLE>
66
<PAGE> 69
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. STOCK OPTIONS, CONTINUED:
A summary of the outstanding incentive stock options as of December
31, 1997, follows:
<TABLE>
<CAPTION>
Range of Amount Weighted Average Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- --------------- --------------
<S> <C> <C> <C>
$ 1.19 - $ 2.87 1,595,700 3.6 years $ 1.86
$ 3.00 - $ 3.69 595,500 2.2 years $ 3.32
</TABLE>
At December 31, 1997, there were 373,986 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.
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.
67
<PAGE> 70
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. STOCK OPTIONS, CONTINUED:
Non-qualified stock option activity during 1997, 1996, and 1995 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ------------------------
Weighted Weighted Weighted
Amount Average Price Amount Average Price Amount Average Price
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 260,000 $ 2.54 335,000 $ 2.21 305,000 $ 2.26
Granted 140,000 $ 3.00 60,000 $ 3.31 60,000 $ 2.06
Exercised (40,000) $ 2.39 (120,000) $ 1.41 (5,000) $ 1.88
Forfeitures (40,000) $ 2.72 (15,000) $ 3.69 -- --
Expirations -- -- -- -- (25,000) $ 2.50
------- ------- -------
Outstanding,
end of year 320,000 $ 2.88 260,000 $ 2.72 335,000 $ 2.21
======= ======= =======
Exercisable,
end of year 180,000 $ 2.80 200,000 $ 2.54 275,000 $ 2.24
</TABLE>
A summary of the outstanding non-qualified stock options as of
December 31, 1997, 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 80,000 2.0 years $ 2.24
$ 3.00 - $ 3.31 240,000 3.2 years $ 3.10
</TABLE>
At December 31, 1997, there were 128,357 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
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
68
<PAGE> 71
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. STOCK OPTIONS, CONTINUED:
been determined under the provisions of SFAS 123, the following pro forma net
loss and per share amounts would have been recorded:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss
o As reported $ 5,022,300 $ 7,114,900 $ 6,143,200
o Pro Forma $ 5,506,300 $ 7,401,800 $ 6,226,600
Basic and diluted loss
per share
o As reported $0.13 $ 0.21 $ 0.24
o Pro Forma $0.14 $ 0.22 $ 0.24
</TABLE>
The weighted average fair value for options granted in 1997, 1996 and
1995 were $0.72 per share, $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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected volatility
o Incentive Stock Options 75.2% 73.7% 73.7%
o Non-Qualified Stock Options 80.3% 73.7% 73.7%
Expected option term
o Incentive Stock Options 3 years 3 years 3 years
o Non-Qualified Stock Options 5 years 5 years 5 years
Weighted average risk-free interest rate
o Incentive Stock Options 5.8% 5.8% 5.7%
o Non-Qualified Stock Options 6.5% 6.6% 6.3%
Forfeiture rate
o Incentive Stock Options 15% 15% 15%
o Non-Qualified Stock Options - - -
</TABLE>
69
<PAGE> 72
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
19. WARRANTS:
As a result of an equity offering in June, 1997, warrants to purchase
278,182 shares of $0.01 par value common stock were issued at a price of $4.05
per share. The warrants will expire on June 5, 2000.
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.
20. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income. SFAS 130 is designed to report a measure of all changes
in equity of an enterprise that result from recognized transactions and other
economic events of the period other than transactions with owners in their
capacity as owners. Besides net income, other comprehensive income would
include foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and equity
securities. The provisions of SFAS 130 will be effective for fiscal years
beginning after December 15, 1997. Upon adoption, the Company does not
anticipate a material impact on its financial statements.
In June, 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. SFAS 131 establishes standards for the way that public
business enterprises determine operating segments and report information about
those segments in annual financial statements. SFAS 131 also requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 further establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The provisions of SFAS 131 will be effective for
fiscal years beginning after December 15, 1997. Upon adoption, the Company
anticipates a material impact on its reported disclosures.
21. SUBSEQUENT EVENT:
On January 30, 1998, the Company completed an equity financing which
raised approximately $2.5 million ($2.3 million net of expenses) through the
sale of 2,490,000 shares of common stock.
70
<PAGE> 73
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.
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 1998 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 1998 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 1998 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 1998 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.
71
<PAGE> 74
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, 1997 and 1996
Consolidated Statements of Operations - Years ended December
31, 1997, 1996, and 1995
Consolidated Statement of Changes in Stockholders' Equity -
Years ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows - Years ended December
31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
(b) The Company filed a report on Form 8-K on October 9, 1997, in
connection with the purchase of a 72.25% participating interest and
underlying assets in the Seven-Up Pete Venture from Phelps Dodge
Corporation.
(c) Exhibits, as required by Item 601 of Regulation S-K, are listed on
pages 73 to 74. The exhibit numbers correspond to the numbers
assigned in Item 601 of Regulation S-K.
72
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (2)
3.1.1 Executed Certificate of Designations, dated December 26, 1990, as filed with the Delaware Secretary of
State on December 26, 1990 (3)
3.2* Bylaws of the Company, as amended
4.1 Specimen Common Stock Certificate (1)
4.2 Specimen Warrant Certificate (5)
4.3 Warrant Agreement dated March 20, 1996, by and between the Company and American Securities Transfer,
Inc. (5)
4.4 Rights Agreement dated March 20, 1997, between Canyon Resources Corporation and American Securities
Transfer & Trust, Inc. (6)
10.1 Change of Control Agreements, dated December 6, 1991, between the Company and Richard H. De Voto, Gary
C. Huber and William W. Walker (4)
10.2 Loan Agreement dated December 6, 1995, among CR Briggs Corporation as Borrower and Banque Paribas as
Agent (5)
10.3 Master Tax Lease dated December 27, 1995, between CR Briggs Corporation and Caterpillar Financial
Services Corporation (5)
10.4 Purchase Agreement dated September 25, 1997, between Phelps Dodge Corporation, acting through its
division, Phelps Dodge Mining Company, and CR Montana Corporation and Canyon Resources Corporation (7)
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)
27* Financial Data Schedule
</TABLE>
* Filed herewith
73
<PAGE> 76
(1) Exhibit 4.1 is 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) Exhibit 3.1 is incorporated by reference from Exhibit 3.1 to the
Company's Registration Statement on Form S-3 (File No. 333-00175)
declared effective by the Securities and Exchange Commission on May
14, 1996.
(3) Exhibit 3.1.1 is incorporated by reference from Exhibit 4 of the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on December 26, 1990.
(4) Exhibit 10.1 is incorporated by reference from Exhibit 10.20 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
(5) Exhibits 4.2, 4.3, 10.2 and 10.3 are incorporated by reference from
Exhibits 4.9, 4.10, 10.22 and 10.23 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(6) Exhibit 4.4 is incorporated by reference from Exhibit 4 of the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on March 27, 1997.
(7) Exhibit 10.4 is incorporated by reference from Exhibit 2 of the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on October 9, 1997.
74
<PAGE> 77
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 30, 1998 /s/ Richard H. De Voto
----------------------------
Richard H. De Voto
Principal Executive Officer
Date: March 30, 1998 /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.
<TABLE>
<S> <C> <C>
Date: March 30, 1998 /s/ Richard H. De Voto
---------------------------------------
Richard H. De Voto, Director
Date: March 30, 1998 /s/ Gary C. Huber
---------------------------------------
Gary C. Huber, Director
Date: March 30, 1998 /s/ James E. Askew
---------------------------------------
James E. Askew, Director
Date: March 30, 1998 /s/ Leland O. Erdahl
---------------------------------------
Leland O. Erdahl, Director
Date: March 30, 1998 /s/ Christopher M.T. Thompson
---------------------------------------
Christopher M.T. Thompson, Director
Date: March 30, 1998 /s/ Robert L. Zerga
---------------------------------------
Robert L. Zerga, Director
</TABLE>
75
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (2)
3.1.1 Executed Certificate of Designations, dated December 26, 1990, as filed with the Delaware Secretary of
State on December 26, 1990 (3)
3.2* Bylaws of the Company, as amended
4.1 Specimen Common Stock Certificate (1)
4.2 Specimen Warrant Certificate (5)
4.3 Warrant Agreement dated March 20, 1996, by and between the Company and American Securities Transfer,
Inc. (5)
4.4 Rights Agreement dated March 20, 1997, between Canyon Resources Corporation and American Securities
Transfer & Trust, Inc. (6)
10.1 Change of Control Agreements, dated December 6, 1991, between the Company and Richard H. De Voto, Gary
C. Huber and William W. Walker (4)
10.2 Loan Agreement dated December 6, 1995, among CR Briggs Corporation as Borrower and Banque Paribas as
Agent (5)
10.3 Master Tax Lease dated December 27, 1995, between CR Briggs Corporation and Caterpillar Financial
Services Corporation (5)
10.4 Purchase Agreement dated September 25, 1997, between Phelps Dodge Corporation, acting through its
division, Phelps Dodge Mining Company, and CR Montana Corporation and Canyon Resources Corporation (7)
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)
27* Financial Data Schedule
</TABLE>
* Filed herewith
<PAGE> 79
(1) Exhibit 4.1 is 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) Exhibit 3.1 is incorporated by reference from Exhibit 3.1 to the
Company's Registration Statement on Form S-3 (File No. 333-00175)
declared effective by the Securities and Exchange Commission on May
14, 1996.
(3) Exhibit 3.1.1 is incorporated by reference from Exhibit 4 of the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on December 26, 1990.
(4) Exhibit 10.1 is incorporated by reference from Exhibit 10.20 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
(5) Exhibits 4.2, 4.3, 10.2 and 10.3 are incorporated by reference from
Exhibits 4.9, 4.10, 10.22 and 10.23 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(6) Exhibit 4.4 is incorporated by reference from Exhibit 4 of the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on March 27, 1997.
(7) Exhibit 10.4 is incorporated by reference from Exhibit 2 of the
Company's Report on Form 8-K filed with the Securities and Exchange
Commission on October 9, 1997.
<PAGE> 1
Exhibit 3.2
- --------------------------------------------------------------------------------
CANYON RESOURCES CORPORATION
AMENDED AND RESTATED BYLAWS
EFFECTIVE AS OF
MARCH 25, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
RESTATED BYLAWS
OF
CANYON RESOURCES CORPORATION
ARTICLE I.
Offices
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware.
The corporation may also have offices at such other places both within
and without the State of Delaware as the board of directors may from time to
time determine or the business of the corporation may require.
ARTICLE II.
Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders
shall be held at 10:00 o'clock in the morning on the first Wednesday in the
month of March in each year, beginning with the year 1980, or such other date
as the board shall determine, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day. If the election of directors shall
not be held on the day designated herein for any annual meeting of the
stockholders, or at any adjournment thereof, the board of directors shall cause
the election to be held at a special meeting of the stockholders as soon
thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the stockholders,
for any purpose, unless otherwise prescribed by statute, may be called by the
president, or by the board of directors, and shall be called by the president
at the request of the holders of not less than a majority of all the
outstanding shares of the corporation entitled to vote at the meeting. Such
request shall state the purpose or purposes of the proposed meeting.
Section 3. Place of Meeting. The board of directors may designate
any place, either within or outside Delaware, as the place for any annual
meeting or for any special meeting called by the board of directors. A waiver
of notice signed by all stockholders entitled to vote at a meeting may
designate any place, either within or outside Delaware, as the place for such
meeting. If no designation is made, or if a special meeting shall be called
otherwise than by the board, the place of meeting shall be the registered
office of the corporation in Delaware.
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<PAGE> 3
Section 4. Fixing Date for Determination of Stockholders of Record.
For the purpose of determining stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or entitled to express
consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for any other lawful action, the board of directors may
fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. If no record date is fixed then the record date shall be: (a) for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders the close of business on the day next preceding the day on which
the meeting is held; (b) for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, the day on which the first written
consent is expressed, and (c) for determining stockholders for any other
purpose the close of business on the day on which the board of directors adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or a vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
Section 5. Notice of Meeting. Written notice stating the place, day
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, unless otherwise
required by statute, either personally or by mail, to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the stockholder at his address as it appears on the stock books of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is more than thirty days, or if after adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 6. Voting Lists. The officer who has charge of the stock
books of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
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<PAGE> 4
Section 7. Quorum. A one-third of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If less than one-third of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time in accordance with Section 5 of this Article,
until a quorum shall be present or represented.
Section 8. Manner of Acting. When a quorum is present at any
meeting, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless a different vote is required by law or the certificate of
incorporation, in which case such express provision shall govern.
Section 9. Informal Action by Stockholders. Unless otherwise
provided in the certificate of incorporation, any action required or permitted
to be taken at any meeting of the stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. In the event that the action
which is consented to is such as would have required the filing of a
certificate with the Secretary of State of Delaware under the General
Corporation Law of the State of Delaware, if such action had been voted on by
stockholders at a meeting thereof, the certificate filed shall state, in lieu
of any statement required under law concerning any vote of stockholders, that
written consent has been given in accordance with the provisions of law and
that written notice has been given as provided by law.
Section 10. Proxies. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize any other person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 11. Voting of Shares. Unless otherwise provided in the
certificate of incorporation and subject to the provisions of Section 4 of this
Article, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
Section 12. Voting of Shares by Certain Holders. Persons holding
stock in a fiduciary capacity shall be entitled to vote the shares so held.
Persons whose stock is pledged shall be entitled to vote, unless in the
transfer by the pledgor on the books of the corporation he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee or his
proxy may represent such shares and vote thereon. If shares stand of record in
the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
3
<PAGE> 5
respecting the same shares, unless the secretary of the corporation is given
written notice to the contrary and if furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so
provided, their acts with respect to voting shall be as set forth in the
General Corporation Law of the State of Delaware.
ARTICLE III.
Board of Directors
Section 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of its board of
directors, except as otherwise provided in the General Corporation Law of the
State of Delaware or the certificate of incorporation.
Section 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be six. A slate of two of the six directors
shall be elected at each annual meeting of stockholders, each slate to serve
for three year terms except as provided in Section 3 of this Article. Each
director shall hold office until his successor shall have been elected and
qualified or until the earliest of his death, resignation, or removal.
Directors need not be residents of Delaware or stockholders of the corporation.
Section 3. Vacancies. Any director may resign at any time by giving
written notice to the corporation. Such resignation shall take effect at the
time specified therein; and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective. Any vacancy
or newly created directorship resulting from any increase in the authorized
number of directors may be filled by the affirmative vote of the majority of
directors then in office, although less than a quorum, or by a sole remaining
director, and a director so chosen shall hold office until the next annual
election and until his successor is duly elected and qualified, unless sooner
displaced. If at any time, by reason of death, resignation or other cause the
corporation should have no directors in office, then an election of directors
may be held in the manner provided by law. If, at the time of filling any
vacancy or any newly created directorship, the directors then in office shall
constitute less than a majority of the whole board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
outstanding shares at the time and who have the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the
directors then in office. When one or more directors shall resign from the
board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill any vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office until the next annual election and until his successor is duly elected
and qualified.
Section 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after
and at the same place as the annual meeting
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<PAGE> 6
of stockholders. The board of directors may provide by resolution the time and
place, either within or outside Delaware, for the holding of additional regular
meetings without other notice than such resolution.
Section 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president, chairman of the
board, or any two directors. The person or persons authorized to call special
meetings of the board of directors may fix any place, either within or outside
Delaware, as the place for holding any special meeting of the board of
directors called by them.
Section 6. Notice. Notice of any special meeting shall be given at
least five days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by notice given at least
two days previously thereto by telegraph. If mailed, such notice shall be
deemed to be delivered when deposited in the United States Mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice
shall be deemed to be delivered when the telegram is delivered to the telegraph
company. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 8. Manner of Acting. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, except as may be otherwise specifically provided by law
or the certificate of incorporation.
Section 9. Removal. Any director may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least 66 2/3% of the voting power of all shares of the Corporation entitled to
vote for the election of directors.
Section 10. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the board of directors, shall have and may exercise all
the powers and authority of the board of directors in the management of the
business and affairs of
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<PAGE> 7
the corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it; but no committee shall have the power or
authority in reference to amend the certificate of incorporation, to adopt an
agreement of merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, to recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or to amend the bylaws of the
corporation; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Each committee shall keep regular minutes of
its meetings and report the same to the board of directors when required.
Section 11. Compensation. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the board of directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at such meeting of the board of directors
and may be paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of any committee of the board may be allowed
like compensation for attending committee meetings.
Section 12. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the board of directors or
any committee thereof may be taken without a meeting if all members of the
board or committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of the proceedings of the board
or committee.
Section 13. Meetings by Telephone. Unless otherwise restricted by
the certificate of incorporation or these bylaws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee thereof,
by means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and such
participation in a meeting in such manner shall constitute presence in person
at the meeting.
ARTICLE IV.
Officers and Agents
Section 1. General. The officers of the corporation shall be a
president, a chairman of the board, a secretary and a treasurer. The board of
directors may appoint such other officers, assistant officers, and agents, a
vice-chairman or vice-chairmen of the board, assistant secretaries and
assistant treasurers, as they may consider necessary, who shall be chosen in
such manner and hold their offices for such terms and have such authority and
duties as from time to time may be determined by the board of directors. The
salaries of all the officers of the corporation shall be fixed by the board of
directors. Any number of offices may be held by the same person with the
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<PAGE> 8
exception of the office of president and secretary being held by the same
person, or as otherwise provided in the certificate of incorporation or these
bylaws.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected by the board of directors annually at the first
meeting of the board held after each annual meeting of the stockholders. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as conveniently may be. Each officer shall hold
office until his successor shall have been duly elected and qualified or until
the earliest to occur of his death, resignation or removal.
Section 3. Removal. Any officer or agent elected or appointed by the
board of directors may be removed at any time by the board whenever in its
judgment the best interests of the corporation will be served thereby.
Section 4. Vacancies. Any officer may resign at any time upon
written notice to the corporation. Such resignation shall take effect at the
time stated therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Any vacancy
occurring in any office by death, resignation, removal or otherwise shall be
filled by the board of directors for the unexpired portion of the term. If any
officer shall be absent or unable for any reason to perform his duties, the
board of directors, to the extent not otherwise inconsistent with these bylaws
or law, may direct that the duties of such officer during such absence or
inability shall be performed by such other officer or assistant officer as
seems advisable to the board.
Section 5. Authority and Duties of Officers. The officers of the
corporation shall have the authority and shall exercise the powers and perform
the duties specified below, and as may be otherwise specified by the board of
directors or by these by-laws, except that in any event each officer shall
exercise such powers and perform such duties as may be required by law, and in
cases where the duties of any officer or agent are not prescribed by these
bylaws or by the board of directors, such officer or agent shall follow the
orders and instructions of the president and chairman of the board.
(a) President and Chairman of the Board. The president and
chairman of the board, subject to the direction and supervision of the board of
directors, shall: (i) be the chief executive officers of the corporation and
have general and active control of its affairs, business and property and
general supervision of its officers, agents and employees; (ii) preside at all
meetings of the stockholders and the board of directors; (iii) see that all
orders and resolutions of the board of directors are carried into effect; and
(iv) sign or countersign all certificates, contracts and other instruments of
the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation. In addition, the president and chairman of the board shall,
unless otherwise directed by the board of directors, attend in person or by
substitute appointed by them, or by written instruments
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<PAGE> 9
appointing a proxy or proxies to represent the corporation, all meetings of the
stockholders of any corporation in which the corporation shall hold any stock
and may, on behalf of the corporation, in person or by substitute or proxy,
execute written waivers of notice and consents with respect to such meetings.
At all such meetings and otherwise, the president and chairman of the board, in
person or by substitute or proxy as aforesaid, may vote the stock so held by
the corporation and may execute written consents and other instruments with
respect to such stock and may exercise any and all rights and powers incident
to the ownership of said stock, subject however to the instructions, if any, of
the board of directors. Subject to the directions of the board of directors,
the president shall exercise all other powers and perform all other duties
normally incident to the office of president of a corporation and shall
exercise such other powers and perform such other duties as from time to time
may be assigned to him by the board.
(b) Vice Presidents. The vice presidents, if any shall be
elected, and if they be so directed shall assist the president and shall
perform such duties as may be assigned to them by the president or by the board
of directors. In the absence of the president, the vice president designated
by the board of directors or (if there be no such designation) designated in
writing by the president shall have the powers and perform the duties of the
president. If no such designation shall be made all vice presidents may
exercise such powers and perform such duties.
(c) Secretary. The secretary shall: (i) record or cause to
be recorded the proceedings of the meeting of the stockholders, the board of
directors and any committees of the board of directors in a book to be kept for
that purpose; (ii) see that all notices are duly given in accordance with the
provisions of these bylaws or as required by law; (iii) be custodian of the
corporate records and of the seal of the corporation; (iv) keep at the
corporation's registered office or principal place of business within or
outside Delaware a record containing the names and addresses of all
stockholders and the number and class of shares held by each, unless such a
record shall be kept at the office of the corporation's transfer agent or
registrar; (v) have general charge of the stock books of the corporation,
unless the corporation has a transfer agent; and (vi) in general, perform all
other duties incident to the office of secretary and such other duties as from
time to time may be assigned to him by the president, chairman of the board, or
by the board of directors. Assistant secretaries, if any, shall have the same
duties and powers, subject to supervision by the secretary.
(d) Treasurer. The treasurer shall: (i) be the principal
financial officer of the corporation and have the care and custody of all
funds, securities, evidences of indebtedness and other personal property of the
corporation and deposit the same in accordance with the instructions of the
board of directors; (ii) receive and give receipts and acquittances for monies
paid in on account of the corporation, and pay out of the funds on hand all
bills, payrolls and other just debts of the corporation of whatever nature upon
maturity; (iii) be the principal accounting officer of the corporation and as
such prescribe and maintain the methods and systems of accounting to be
followed, keep complete books and records of account, prepare and file all
local, state and federal tax returns, prescribe and maintain an adequate system
of internal audit, and prepare and furnish to the president, chairman of the
board, and the board of directors statements of account showing
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<PAGE> 10
the financial position of the corporation and the results of its operations;
and (iv) perform all other duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him by the president, the
chairman of the board or the board of directors. Assistant treasurers, if any,
shall have the same powers and duties, subject to the supervision of the
treasurer.
Section 6. Surety Bonds. The board of directors may require any
officer or agent of the corporation to execute to the corporation a bond in
such sums and with such sureties as shall be satisfactory to the board,
conditioned upon the faithful performance of his duties and for the restoration
to the corporation of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
ARTICLE V.
Stock
Section 1. Certificates. Each holder of stock in the corporation
shall be entitled to have a certificate signed in the name of the corporation
by the chairman or a vice-chairman of the board of directors, or the president
or vice-president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number
of shares owned by him in the corporation. Any of or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue. Certificates of stock shall be consecutively numbered and shall be
in such form consistent with law as shall be prescribed by the board of
directors.
Section 2. Consideration for Shares. Shares shall be issued for such
consideration (but not less than the par value thereof) as shall be determined
from time to time by the board of directors. Treasury shares shall be disposed
of for such consideration as may be determined from time to time by the board.
Such consideration may consist, in whole or in part, of cash, personal
property, real property, leases of real property, services rendered, or
promissory notes, and shall be paid in such form, in such manner and at such
times as the directors may require.
Section 3. Issuance of Stock. The capital stock issued by the
corporation shall be deemed to be fully paid and nonassessable stock, if: (a)
the entire amount of the consideration has been received by the corporation in
the form or forms set forth in Section 2 of this Article V and if any part of
the consideration is in the form of a promissory note or other obligation, such
note or obligation has been satisfied in full; or (b) not less than the amount
of the consideration determined to be capital pursuant to statute has been
received by the corporation in the form or forms set forth in Section 2 of this
Article V and the corporation has received a binding obligation of the
subscriber or purchaser to pay the balance of the subscription or purchase
price; provided,
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however, nothing contained herein shall prevent the board of directors from
issuing partly paid shares as described herein.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares the total amount of the consideration to
be paid therefor and the amount paid thereon shall be stated. Upon the
declaration of any dividend upon partly paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of consideration actually paid thereon.
The directors may from time to time demand payment, in respect of each
share of stock not fully paid, of such sum of money as the necessities of the
business may, in the judgment of the board of directors, require, not exceeding
in the whole, the balance remaining unpaid on said stock, and such sum so
demanded shall be paid to the corporation at such times and by such
installments as the directors shall direct. The directors shall give written
notice of the time and place of such payments, which notice shall be mailed to
each holder or subscriber to his last known post office address at least thirty
days before the time for such payment for stock which is not fully paid.
The corporation may, but shall not be required to, issue fractions of
a share. If it does not issue fractions of a share, it shall: (a) arrange for
the disposition of fractional interest by those entitled thereto; (b) pay in
cash the fair value of fractions of a share as of the time when those entitled
to receive such fractions are determined; or (c) issue scrip or warrants in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but
scrip or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of
liquidation. The board of directors may cause scrip or warrants to be issued
subject to the conditions that they shall become void if not exchanged for
certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the board of
directors may impose.
The board of directors may, at any time and from time to time, if all
of the shares of capital stock which the corporation is authorized by its
certificate of incorporation to issue have not been issued, subscribed for, or
otherwise committed to be issued, issue or take subscriptions for additional
shares of its capital stock up to the amount authorized in its certificate of
incorporation.
Section 4. Lost Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock the board of directors may
direct the issuance of a new certificate in lieu
10
<PAGE> 12
thereof upon such terms and conditions in conformity with law as it may
prescribe. The board of directors may in its discretion require a bond in such
form and amount and with such surety as it may determine, before issuing a new
certificate.
Section 5. Transfer of Shares. Upon surrender to the corporation or
to a transfer agent of the corporation of a certificate of stock duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in the stock books.
Section 6. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and the
corporation shall be entitled to hold liable for calls and assessments a person
registered on its books as the owner of shares, and the corporation shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
Section 7. Transfer Agents, Registrars and Paying Agents. The board
may at its discretion appoint one or more transfer agents, registrars and
agents for making payment upon any class of stock, bond, debenture or other
security of the corporation. Such agents and registrars may be located either
within or outside Delaware. They shall have such rights and duties and shall
be entitled to such compensation as may be agreed.
ARTICLE VI.
Indemnification
The corporation, to the fullest extent permitted by the General
Corporation Law of the State of Delaware and by the common law of the State of
Delaware, shall indemnify each person who is or was an officer, director or
employee of the corporation acting in his capacity as such and may indemnify
each person who is or was an agent of the corporation acting in his capacity as
such. The indemnification rights provided by this Article VI are deemed a
contract between the corporation and its officers, directors, and employees,
and any repeal or modification of those rights will not affect any right of
such persons to be indemnified against claims relating to events occurring
prior to such repeal or modification. To assure indemnification under this
Article VI of all such persons who are or were "fiduciaries" of an employee
benefit plan governed by the Act of Congress entitled "Employee Retirement
Income Security Act of 1974," as amended from time to time, Section 145 of said
statute shall, for the purposes hereof, be interpreted as follows: "other
enterprise" shall be deemed to include an employee benefit plan; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to said
Act of Congress shall be
11
<PAGE> 13
deemed "fines"; and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
ARTICLE VII.
Miscellaneous
Section 1. Waivers of Notice. Whenever notice is required to be
given by law, by the certificate of incorporation or by these bylaws, a written
waiver thereof, signed by the person entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting or (in the case of a stockholder) by proxy
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of a committee of directors need to be specified in any written waiver
or notice unless so required by the certificate of incorporation or these
bylaws.
Section 2. Presumption of Assent. A director or stockholder of the
corporation who is present at a meeting of the board of directors or
stockholders at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director or a stockholder who voted
in favor of such action.
Section 3. Seal. The corporate seal of the corporation shall be
circular in form and shall contain the name of the corporation, the year of its
organization and the words "Seal, Delaware". The custodian of the seal shall
be the secretary, who along with the president, chairman of the board or other
officer authorized by the board of directors, may affix the seal to documents
of the corporation.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
as established by the board of directors.
Section 5. Amendments. These bylaws may be altered, amended or
repealed or new bylaws may be adopted by the board of directors at any meeting
of the directors or by the stockholders at any meeting of the stockholders if
notice of such alteration, amendment, repeal or adoption is contained in the
notice of such stockholders' meeting.
(E N D)
12
<PAGE> 1
EXHIBIT NO. 11.1
CANYON RESOURCES CORPORATION
CALCULATION OF BASIC AND DILUTED
EARNINGS PER SHARE
For the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<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 $ (5,022,300) $ (7,114,900) $ (6,143,200)
Add-interest on convertible debentures,
net of tax effect -- (A) (A)
------------ ------------ ------------
Net loss, as adjusted $ (5,022,300) $ (7,114,900) $ (6,143,200)
============ ============ ============
Adjustment to weighted average shares outstanding
to amount used in loss per share computation:
Weighted average shares outstanding 39,821,900 33,275,500 25,696,800
Add-shares issuable from assumed exercise of
convertible debentures -- (A) (A)
Add-shares issuable from assumed exercise
of options and warrants (A) (A) (A)
------------ ------------ ------------
Weighted average shares outstanding, as adjusted 39,821,900 33,275,500 25,696,800
============ ============ ============
Net loss per share $ (0.13) $ (0.21) $ (0.24)
============ ============ ============
</TABLE>
(A) Effect is antidilutive, so amounts are not included in the 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 Limited 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 PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Canyon Resources Corporation on Form S-3 (File Nos. 333-00175, 333-11561 and
333-18449) and Form S-8 (File No. 33-37306) of our report, which includes an
explanatory paragraph regarding the Company's change in accounting for
impairments of long-lived assets in 1995, dated March 12, 1998, except for Note
8(a) as to which the date is March 31, 1998, on our audits of the consolidated
financial statements of Canyon Resources Corporation as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
which report is included in this Annual Report on Form 10-K.
/s/Coopers & Lybrand L.L.P.
Denver, Colorado
March 31, 1998
<PAGE> 1
Exhibit 23.2
Kvaerner Metals
Murray N. Hutchison
Senior Vice President
March 25, 1998
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. 333-00175); 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, 1997.
Very truly yours,
KVAERNER METALS
Davy Nonferrous Division
/s/ Murray N. Hutchison
Murray N. Hutchison
Senior Vice President
MNH:smr
KVAERNER
- --------------------------------------------------------------------------------
Davy Nonferrous Division Tel +1 510 866 1166
12657 Alcosta Blvd., Suite 200 Fax +1 510 866 6520
San Ramon, California 94583
USA
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,427,300
<SECURITIES> 0
<RECEIVABLES> 746,700
<ALLOWANCES> 0
<INVENTORY> 6,051,800
<CURRENT-ASSETS> 13,514,300
<PP&E> 88,225,100
<DEPRECIATION> 7,269,100
<TOTAL-ASSETS> 97,282,100
<CURRENT-LIABILITIES> 10,933,100
<BONDS> 28,055,000
0
0
<COMMON> 436,200
<OTHER-SE> 92,999,400
<TOTAL-LIABILITY-AND-EQUITY> 97,282,100
<SALES> 28,890,300
<TOTAL-REVENUES> 28,890,300
<CGS> 21,389,900
<TOTAL-COSTS> 21,389,900
<OTHER-EXPENSES> 8,565,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,442,900
<INCOME-PRETAX> (5,023,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,023,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,023,300)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
