<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from __________ to ___________
--------------------
Commission file number 1-11887
CANYON RESOURCES CORPORATION
(a Delaware Corporation)
I.R.S. Employer Identification Number 84-0800747
14142 Denver West Parkway, Suite 250
Golden, CO 80401
(303) 278-8464
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 the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date: 46,497,470
shares of the Company's Common Stock were outstanding as of November 1,
1999.
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements have been prepared by
Canyon Resources Corporation ("the Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations.
These consolidated financial statements should be read in conjunction
with the financial statements and accompanying notes included in the Company's
Form 10-K for the year ended December 31, 1998.
<TABLE>
<S> <C>
Consolidated Balance Sheets......................................................Page 3
Consolidated Statements of Operations ...........................................Page 4
Consolidated Statements of Cash Flows............................................Page 5-6
Notes to Interim Consolidated Financial Statements...............................Page 7-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................Page 18-23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...........................................................Page 23-24
</TABLE>
2
<PAGE> 3
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 674,300 $ 1,985,700
Restricted cash 2,148,000 4,887,200
Accounts receivable 35,800 173,800
Inventories 7,378,200 5,372,200
Prepaid and other assets 984,900 1,165,000
------------ ------------
Total current assets 11,221,200 13,583,900
------------ ------------
Property and equipment, at cost
Mining claims and leases 21,477,200 24,508,100
Producing properties 51,252,200 51,124,700
Other 928,400 994,200
------------ ------------
73,657,800 76,627,000
Accumulated depreciation and depletion (16,726,000) (11,639,500)
------------ ------------
Net property and equipment 56,931,800 64,987,500
------------ ------------
Other assets 4,862,800 3,300,300
------------ ------------
Total Assets $ 73,015,800 $ 81,871,700
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,428,000 $ 3,134,300
Notes payable - current 27,600 18,708,400
Accrued taxes, other than payroll and income 34,700 60,800
Accrued reclamation costs 964,000 964,000
Deferred income 8,358,900 4,090,700
Other current liabilities 845,300 961,700
------------ ------------
Total current liabilities 12,658,500 27,919,900
Notes payable - long term 5,209,800 --
Accrued reclamation costs 2,409,400 2,704,900
Deferred income 4,805,000 4,489,500
Other noncurrent liabilities 1,254,000 1,458,500
------------ ------------
Total Liabilities 26,336,700 36,572,800
------------ ------------
Commitments and contingencies (Notes 9 and 10)
Common stock ($.01 par value) 100,000,000 shares authorized;
issued and outstanding: 46,497,500 at September 30, 1999, and
46,137,100 at December 31, 1998 465,000 461,400
Capital in excess of par value 95,422,100 95,293,500
Deficit (49,208,000) (50,456,000)
------------ ------------
Total Stockholders' Equity 46,679,100 45,298,900
------------ ------------
Total Liabilities and Stockholders' Equity $ 73,015,800 $ 81,871,700
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales $ 8,168,200 $ 7,525,800 $ 22,866,600 $ 25,064,000
------------ ------------ ------------ ------------
EXPENSES
Cost of sales 6,106,000 5,879,000 18,160,100 18,675,500
Depreciation, depletion, and amortization 1,793,400 1,417,700 5,094,400 4,717,400
Selling, general and administrative 208,300 781,100 875,000 2,466,300
Exploration costs 92,000 146,300 164,300 452,500
------------ ------------ ------------ ------------
8,199,700 8,224,100 24,293,800 26,311,700
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 29,000 51,800 106,600 164,300
Interest expense (162,600) (263,500) (513,600) (1,200,100)
Gain on partial prepayment of gold loan -- 919,700 3,108,200 919,700
Gain (loss) on asset disposals 20,400 22,200 (19,000) 39,900
Other -- 13,800 (7,000) (8,300)
------------ ------------ ------------ ------------
(113,200) 744,000 2,675,200 (84,500)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles $ (144,700) $ 45,700 $ 1,248,000 $ (1,332,200)
Extraordinary loss on debt prepayments -- -- -- (281,500)
Cumulative effect of changes in accounting
principles -- -- -- (8,928,100)
------------ ------------ ------------ ------------
Net income (loss) $ (144,700) $ 45,700 $ 1,248,000 $(10,541,800)
============ ============ ============ ============
Basic and diluted income (loss) per share:
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles -- -- $ 0.03 $ (0.03)
Extraordinary loss on debt prepayments -- -- -- $ (0.01)
Cumulative effect of changes in accounting
principles -- -- -- $ (0.19)
------------ ------------ ------------ ------------
Net income (loss) -- -- $ 0.03 $ (0.23)
============ ============ ============ ===========
Weighted average shares outstanding - basis eps 46,497,500 46,107,100 46,298,000 46,107,100
Weighted average shares outstanding - diluted eps 46,497,500 46,107,100 46,303,100 46,107,100
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,248,000 $(10,541,800)
------------ ------------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary loss on debt prepayments -- 281,500
Cumulative effect of changes in accounting principles -- 8,928,100
Depreciation, depletion, and amortization 5,094,400 4,717,400
Amortization of financing costs 116,400 165,400
(Gain) loss on asset disposals 19,000 (39,800)
Other -- 34,800
Changes in assets and liabilities;
(Increase) decrease in receivables 138,000 (303,100)
Increase in inventories (2,006,000) (68,600)
(Increase) decrease in prepaid and other assets 1,399,200 (862,100)
Decrease in accounts payable and accrued liabilities (558,800) (738,100)
Increase in deferred income 2,055,700 9,818,200
(Decrease) increase in other liabilities (279,900) 465,800
(Increase) decrease in restricted cash 339,200 (233,000)
------------ ------------
Total adjustments 6,317,200 22,166,500
------------ ------------
Net cash provided by operating activities 7,565,200 11,624,700
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (184,300) (3,580,600)
Proceeds on asset dispositions 64,800 143,500
------------ ------------
Net cash used in investing activities (119,500) (3,437,100)
------------ ------------
Cash flows from financing activities:
Issuance of stock, net 56,200 2,192,500
Proceeds from loans -- 1,004,000
Receipts from escrow account -- 200
Restricted cash utilized for debt payments 2,400,000 --
Payments on debt (11,002,200) (13,866,700)
Payment to collateralize letter of credit -- (165,000)
Payments on capital lease obligations (211,100) (139,000)
------------ ------------
Net cash used in financing activities (8,757,100) (10,974,000)
------------ ------------
Net decrease in cash and cash equivalents (1,311,400) (2,786,400)
Cash and cash equivalents, beginning of year 1,985,700 3,111,000
------------ ------------
Cash and cash equivalents, end of period $ 674,300 $ 324,600
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
Supplemental disclosures of cash flow information:
1. The Company paid $398,600 of interest during the first nine months of 1999,
and $1,119,200 during the corresponding period of 1998. There was no
capitalized interest for either period.
2. The Company paid no income taxes during the first nine months of 1999 nor
during the corresponding period of 1998.
3. On September 29, 1999, the Company received $3.0 million in connection with
a third party funding commitment. As the proceeds are designated for
restricted use in the maintenance and development of certain noncurrent
assets, the $3.0 million is included in other assets on the Company's
Balance Sheet at September 30, 1999, with a corresponding reduction in the
carrying value of mining claims and leases.
Supplemental schedule of noncash investing and financing activities:
1. The Company converted a commodity based loan to a cash loan during the
first nine months of 1999. The carrying amount was reduced by $2,528,000 at
the time of conversion to adjust the monetized amount of the loan to fair
market value.
2. The Company financed an equipment lease buy-out in the amount of $59,200
during the first nine months of 1999.
3. The Company acquired equipment with a fair market value of $53,000 by
exchange of certain assets during the first nine months of 1999.
4. The Company issued 345,400 shares of common stock with a fair market value
of $76,000 to certain creditors as payment for accounts payable during the
first nine months of 1999.
5. The Company acquired $12,300 in equipment through capital leases during the
first nine months of 1999 and $1,258,900 in equipment through capital
leases during the corresponding period of 1998.
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
During interim periods, Canyon Resources (the Company) follows the
accounting policies set forth in its Annual Report to Stockholders and
its Report on Form 10-K filed with the Securities and Exchange
Commission. Users of financial information produced for interim periods
are encouraged to refer to the footnotes contained in the Annual Report
to Stockholders when reviewing interim financial results.
The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
settlement of liabilities and commitments in the ordinary course of
business. The Company's liquidity, however, has been adversely impacted
by a sustained period of low gold prices and high debt service
requirements. Although the Company has significantly improved its
working capital position since year-end by restructuring the Briggs
Mine loan facility (See Note 7), substantially all of the Company's
then forward sales contracts at prices that approximated $311 per ounce
were liquidated and used to pay-down debt in connection with the
restructuring. New forward contracts have been put in place for
approximately six months of production at the Briggs Mine, however, the
average price per ounce is approximately $29 lower than the liquidated
contracts. The ability to generate cash flow on a going-forward basis
will be dependent on the Briggs Mine producing gold at cash costs below
its hedged price or the prevailing market price. In this regard, the
Company has reduced staff levels at the Briggs Mine approximately 11%
and implemented an alternative mine plan with the objective of
producing gold at cash costs below $250 per ounce. In March 1999, the
Company received a demand notice for an increase in collateral of
approximately $1.2 million from the Sureties who issued certain bonds
for reclamation obligations at the Briggs Mine, Kendall Mine and
McDonald Gold Project. In September 1999, the Company reached an
agreement in principle with the Sureties to satisfy the demand by
granting a security interest in certain real property mineral rights
and agreeing to make certain future cash deposits. However, until a
final agreement is executed, there can be no assurances that the
Sureties will not exercise any remedies available to them during the
intervening period. The Company has curtailed all discretionary
expenditures, is attempting to sell its African properties and
continues to evaluate potential merger or other alliance opportunities.
There can be no assurances, however, that the Company will be
successful in this regard.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 requires that
all derivatives be recognized as assets or liabilities and be measured
at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivatives and whether they qualify for hedge accounting as either a
fair value hedge or a cash flow hedge. The key criterion for hedge
accounting is that the hedging relationship must be
7
<PAGE> 8
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
1. BASIS OF PRESENTATION: (CONTINUED)
highly effective in achieving offsetting changes in fair value or cash
flows of the hedging instruments and the hedged items. SFAS 133 is
effective for the Company beginning on January 1, 2001 but earlier
adoption is permitted. There are many complexities to this new standard
and the Company is currently evaluating the impact that SFAS 133 will
have on its reported operating results and financial position and has
not yet determined whether it will adopt SFAS 133 earlier than January
1, 2001.
In the opinion of management, the accompanying interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial
position, the results of operations, and the cash flows of Canyon
Resources and its consolidated subsidiaries for interim periods.
Certain prior period items have been reclassified to conform with the
current period presentation.
2. PRIOR YEAR CHANGES IN ACCOUNTING PRINCIPLES:
In the second quarter of 1998, the Company changed its method of
accounting for exploration costs on unproven properties from
capitalizing all expenditures to expensing all costs, other than
acquisition costs, prior to the establishment of proven and probable
reserves. This brought the Company's accounting method in accordance
with the predominant practice in the US mining industry and better
reflects operating income and cash flow. The $5,625,400 cumulative
effect of the change on prior years is included in the loss for the
nine months ended September 30, 1998.
In the fourth quarter of 1998, the Company elected early adoption of
Statement of Position No. 98-5, Reporting on the Costs of Start-Up
Activities (SOP 98-5). SOP 98-5 was otherwise effective for financial
statements for fiscal years beginning after December 15, 1998 and
requires costs of start-up activities and organization costs to be
expensed as incurred. The $3,302,700 cumulative effect of the change on
prior years is included in the loss for the nine months ended September
30, 1998. The effect of the change on the third quarter of 1998 was to
decrease the loss before extraordinary item and cumulative effect of
changes in accounting principles by $152,500, which had no effect on
per share amounts. The effect of the change on the nine months ended
September 30, 1998 was to decrease the loss before extraordinary item
and cumulative effect of changes in accounting principles by $513,000,
or $0.01 per share.
8
<PAGE> 9
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
2. PRIOR YEAR CHANGES IN ACCOUNTING PRINCIPLES: (CONTINUED)
The following table summarizes the effect of the accounting changes on
previously reported results for the three and nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
--------------------------- -------------------------------
$ Amounts Per Share $ Amounts Per Share
---------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Loss before extraordinary item and
cumulative effect of changes in accounting
principles as originally reported $ (106,800) $ -- $ (1,845,200) $ (0.04)
Effect of start-up costs accounting change 152,500 -- 513,000 0.01
---------- --------- -------------- ------------
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles as restated 45,700 $ -- (1,332,200) $ (0.03)
Extraordinary loss on debt prepayments -- $ -- (281,500) $ (0.01)
Cumulative effect on prior years -- -- (8,928,100) $ (0.19)
---------- --------- -------------- ------------
Net income (loss) as restated $ 45,700 $ -- $ (10,541,800) $ (0.23)
========== ========= ============== ============
</TABLE>
3. INTERIM RESULTS:
The foregoing interim results are not necessarily indicative of the
results of operations for the full year ending December 31, 1999.
4. 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.
9
<PAGE> 10
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
5. RESTRICTED CASH:
Restricted cash consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Collateral for Letter of Credit (a) $ 249,000 $2,118,000
Collateral for reclamation bond (a) 1,869,000 --
Seven-Up Pete Venture funding commitment (b) 3,000,000 --
Proceeds from asset sales reserved for debt
payments (c) -- 2,400,000
Unexpended proceeds from gold sales (d) 30,000 369,200
---------- ----------
$5,148,000 $4,887,200
Current portion 2,118,000 4,887,200
---------- ----------
Noncurrent portion* $3,000,000 --
========== ==========
</TABLE>
*Included in other assets
(a) In connection with the issuance of certain bonds for the
performance of reclamation obligations at the Kendall Mine,
Briggs Mine, and McDonald Gold Project, a bank Letter of
Credit was provided in favor of the Sureties as partial
collateral for such bond obligations. The Letter of Credit is
fully collateralized with cash. In September 1999, $1,869,000
was transferred directly to the Sureties as continuing
collateral for the Kendall Mine reclamation bond and the bank
Letter of Credit was correspondingly reduced to $249,000. The
Letter of Credit will expire no earlier than December 31,
1999, and, at the bank's option, may be renewed for successive
one-year periods.
(b) In September 1999, the Seven-Up Pete Venture received $3.0
million solely for the purposes of maintaining its property
rights in the McDonald and Seven-Up Pete gold deposits and to
undertake a takings lawsuit against the State of Montana for
the lost value of the property rights incurred as a result of
the passage of the anti- cyanide initiative, I-137. (See Note
12).
(c) In connection with the sale of the Company's industrial
minerals assets on December 31, 1998, certain proceeds were
required to be utilized for debt reduction on the Briggs Mine
loan facility. (See Note 7).
(d) The Briggs Mine loan facility requires all proceeds from gold
sales to be held in trust and disbursed from the collected
credit balance in certain orders of priority.
10
<PAGE> 11
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
6. INVENTORIES:
Inventories consisted of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Gold-in-process (a) $6,891,300 $4,962,200
Materials and supplies 486,900 410,000
---------- ----------
$7,378,200 $5,372,200
========== ==========
</TABLE>
(a) Includes all direct and indirect costs of mining, crushing,
processing, and site overhead expenses.
7. NOTES PAYABLE:
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Briggs Facility (a) $ -- $18,058,400
o Gold Loan 5,199,200 --
o Cash Loan -- 650,000
o Credit Line 38,200 --
----------- -----------
Caterpillar Finance (b) $ 5,237,400 $18,708,400
Current portion (1) 27,600 18,708,400
----------- -----------
Notes Payable - Noncurrent $ 5,209,800 $ --
=========== ===========
</TABLE>
(1) At December 31, 1998, the Company was not in compliance with
certain covenants of the Briggs loan facility. The covenant
violations constituted events of default and the lenders
could, by notice to the Company, terminate the commitment and
declare all amounts immediately due and payable. Accordingly,
the Company classified all of the debt as current on its
Balance Sheet at December 31, 1998. In June 1999, the Company
reached an agreement with the lenders to restructure the
facility, the terms of which included (i) waivers for all
outstanding covenant violations, (ii) the liquidation of
125,000 ounces of forward gold contracts which netted $5.5
million, (iii) utilizing the forward liquidation proceeds to
reduce the
11
<PAGE> 12
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. NOTES PAYABLE: (CONTINUED)
gold loan debt by 20,506 ounces, (iv) rescheduling remaining
principal payments to 2001 and 2002 on a quarterly basis, and
(v) allowing the Company access to the first $1.6 million of
net cash flow from the Briggs Mine (as defined) and 50%
thereafter (the remaining 50% to be applied to the loan
balance) during the remainder of 1999 and 2000.
(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. Drawings on
the facility included $25.0 million principal in the form of a
gold loan and $9.0 million principal as dollar loans. The gold
loan portion was monetized at $388.05 per ounce, or 64,425
ounces. The dollar loans were paid off during the second
quarter of 1998. In connection with an August 1998
restructuring of the loan facility, the Company, during the
first quarter of 1999, utilized $1,650,000 of proceeds from
the December 1998 sale of its industrial minerals assets to
(i) pay off a credit line amount of $650,000, and (ii) reduce
the gold loan principal by 3,451 ounces. During the second
quarter of 1999, the Company utilized $750,000 of proceeds
from the 1998 sale of its industrial minerals assets to
further reduce the gold loan principal by 2,666 ounces. As a
result of these transactions, the Company recognized gains of
$339,300 and $284,600 during the first and second quarters of
1999, respectively. Additionally, in connection with the June
1999 restructuring of the loan facility as previously
described, the Company recognized a gain of $2,484,300 through
the application of 20,506 ounces of gold to the loan
principal. The gains associated with the partial prepayments
are shown as an other income item on the Statement of
Operations for the nine months ended September 30, 1999. On
June 30, 1999, the Company converted its then remaining gold
loan debt of 19,913 ounces to a dollar loan. As a result of
the conversion, the Company reduced its carrying value of the
debt from the monetized price of $388.05 per ounce to fair
market value of $261.10 per ounce. The gain of $2,528,000
[19,913 ounces x ($388.05 - $261.10)] associated with the
conversion will be deferred and recognized in operations over
the loan repayment schedule. The weighted average interest
rate on the dollar loan during the three months ended
September 30, 1999 was 7.6%. For the comparable period in
1998, weighted average interest rates on the gold loan and
dollar loans were 3.0% and 8.1%, respectively. For the nine
months ended September 30, 1999, weighted average interest
rates on the gold and dollar loans were 2.5% and 7.8%,
respectively. For the comparable period of 1998, weighted
average interest rates were 3.3% and 10.5%, respectively.
Interest payments of $101,500 and $154,700
12
<PAGE> 13
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. NOTES PAYABLE: (CONTINUED)
were made during the three months ended September 30, 1999 and
1998, respectively. For the nine month period, interest
payments of $298,400 and $966,200 were made during 1999 and
1998, respectively.
(b) In March 1999, the Company arranged to finance an equipment
lease buy-out with Caterpillar Finance in the amount of
$59,200. Terms of the financing require equal monthly payments
over two years at an interest rate of 8.5%. For the three
months ended September 30, 1999, principal and interest
payments of $9,500 and $1,300, respectively, were made. For
the nine months ended September 30, 1999, principal and
interest payments of $21,000 and $3,200, respectively, were
made.
8. SITE RESTORATION COSTS:
Reclamation spending at the Kendall Mine for the three months ended
September 30, 1999 was $209,900. For the comparable period of 1998,
spending totaled $235,700. For the nine months ended September 30,
1999, spending totaled $666,200 as compared to $764,900 for the prior
period.
9. 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.
The Company made an initial payment of $5 million as part of a total
purchase price which was to 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, $30
per mineable reserve ounce attributable to the Phelps Dodge ownership
was to be paid after all permits for mine development were obtained. In
September 1999, the Company and Phelps Dodge restructured the agreement
to provide for a payment of $10.0 million upon issuance of all permits
required for construction of the McDonald Gold Project, or
alternatively, one-third of any proceeds received from a takings
lawsuit. Due to the contingent nature of the transaction, the Company
recorded only the initial payment of $5 million as additions to mining
claims and leases.
13
<PAGE> 14
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
10. OTHER CONTINGENT MATTERS:
On September 24, 1998, the Montana Department of Natural Resources
(DNRC), the entity that administers state mineral leases, unilaterally
decided to cancel the permitting extension of the 10-year lease term of
the state leases that pertain to the McDonald Gold Project. This was
provoked by Canyon's inability to continue permitting at McDonald due
to the anti-cyanide initiative, I-137, and would require the Company,
after a period of approximately seventeen months, to commence paying a
delay rental of $150,000 per month in order to maintain the leases. The
Company has challenged the DNRC's action in Montana District Court and
believes it will prevail in this matter.
In September 1998, the Montana Department of Environmental Quality
(DEQ) filed a complaint in District Court alleging violations of the
Montana Water Quality Act for unpermitted discharges at the Kendall
Mine. The DEQ initially proposed a civil penalty in the amount of
$330,000, which was subsequently modified to $302,000, in connection
with the complaint. The Company has prepared a response to the
complaint and believes the penalty as currently assessed is without
substantial merit.
In November 1998, the Montana electorate passed an anti-cyanide mining
initiative (I-137) by a vote of 52% to 48%. I-137 bans development of
new gold and silver mines which use open-pit mining and cyanide in the
treatment and recovery process. For most of the campaign period, mining
companies and their employees were prevented from campaigning due to a
previously passed initiative (I-125) which prohibited campaign
expenditures by "for-profit" entities. Ten days prior to the election,
a federal judge declared the prohibition "unconstitutional". The mining
community has an appeal pending regarding I-137 in the U.S. Ninth
Circuit Court of Appeals. The basis of the appeal is that the election
should be overturned based on having been denied the opportunity to
campaign due to the effectiveness of I-125 until the last few days
prior to the election. In addition, the Seven-Up Pete Venture intends
to file a lawsuit against the State of Montana based on enactment of
I-137. The lawsuit will, amongst other matters, challenge the
constitutionality of I-137 based on due process considerations and
contend that I-137 results in a taking of property. The Company's legal
counsel believes that it is likely that I-137 will be declared
unconstitutional, or at a minimum, be overturned.
In March 1999, the Company received a demand notice for an increase in
collateral of approximately $1.2 million from the Sureties who issued
certain bonds for reclamation obligations at the Briggs Mine, Kendall
Mine and McDonald Gold Project. In September 1999, the Company reached
an agreement in principle with the Sureties to satisfy the demand by
granting a security interest in certain real property mineral rights
and agreeing to make certain future cash deposits. However, until a
final agreement is executed, there
14
<PAGE> 15
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
10. OTHER CONTINGENT MATTERS: (CONTINUED)
can be no assurances that the Sureties will not exercise any remedies
available to them during the intervening period.
In October 1999, the Company received a determination notice from the
DEQ for an increase in the Kendall Mine reclamation bond amount from
approximately $1.9 million to approximately $8.1 million. Although the
Company believes the increased bond amount greatly exceeds the cost of
remaining work to be accomplished, it is unsure what remedies, if any,
the DEQ may seek if the parties cannot agree on the appropriate bond
amount.
11. CONTINGENT SALE OF EXPLORATION PROPERTY:
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 in excess of basis over the sixty month period.
Accordingly, the Company recorded a gain of $62,800 during the first
nine months of 1999 and $70,100 during the comparable period in 1998.
12. SEVEN-UP PETE VENTURE FUNDING COMMITMENT
In September 1999, the Company entered into a contract with
Franco-Nevada Mining Corporation, Inc. (Franco-Nevada) to provide $3.5
million of funding ($3.0 million cash and a commitment to maintain an
existing $0.5 million reclamation bond) for the Seven-Up Pete Venture
(Venture). The funding is provided to allow the Venture to maintain its
property rights in the McDonald and Seven-Up Pete gold deposits and to
undertake a takings lawsuit against the State of Montana for the lost
value of the property rights incurred as a result of implementation of
the anti-cyanide initiative, I-137. As consideration for the financing,
Franco-Nevada will receive a four percent net smelter returns royalty
from any mineral production from the properties of the Venture or,
alternatively, one-third of any proceeds received by the Venture
resulting from a successful takings lawsuit. The $3.0 million is
included in other assets on the Company's Balance Sheet at September
30, 1999, with a corresponding reduction in the carrying value of the
Venture's properties.
15
<PAGE> 16
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
13. DEFERRED INCOME:
In May 1998, the Company liquidated a gold hedge position consisting of
forward contracts on 105,900 ounces which resulted in proceeds of $11.1
million. The gain on the liquidation was initially deferred and is
being recognized in operations based on the original settlement dates
of the forward contracts. For the three months ended September 30,
1999, $1.0 million of the gain was recognized in operations. For the
nine months ended September 30, 1999, $3.1 million of the gain was
recognized in operations. For the three and nine months ended September
30, 1998, $1.3 million of the gain was recognized in operations.
In June 1999, the Company liquidated a gold hedge position consisting
of forward contracts on 125,000 ounces which resulted in proceeds of
$5.5 million. The gain on the liquidation was deferred and will be
recognized in operations based on the original expected settlement
dates of the forward contracts. For the three and nine months ended
September 30, 1999, $0.3 million of the gain was recognized in
operations.
On June 30, 1999, the Company converted its Briggs Mine gold loan to a
cash loan. In connection with the conversion, the Company reduced the
monetized amount of the debt to fair value, resulting in a gain of
$2,528,000. The gain will be deferred and recognized in operations over
the scheduled repayment dates in 2001 and 2002.
The Company's deferred gains will be recognized in operations as
follows:
<TABLE>
<CAPTION>
$MM
----
<S> <C>
Balance of 1999 2.0
2000 8.4
2001 1.5
2002 1.3
----
TOTAL 13.2
====
</TABLE>
14. INCOME TAXES:
No current provision for income taxes was recorded as the Company does
not expect taxable income for the year. No deferred tax benefit was
recorded as the Company applies a full valuation allowance to its gross
deferred tax assets, except to the extent of offsetting reversals of
expected deferred tax liabilities.
16
<PAGE> 17
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
15. EARNINGS PER SHARE (EPS):
The Company computes EPS by applying the provisions of Financial
Accounting Standards No. 128, Earnings per Share. The following table
provides a reconciliation of the amounts used in the calculation of the
Company's basic and diluted EPS before extraordinary item and
cumulative effect of changes in accounting principles.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EPS
Income (loss) before extraordinary
item and accounting changes $ (144,700) $ 45,700 $ 1,248,000 $(1,332,200)
Weighted average shares
outstanding 46,497,500 46,107,100 46,298,000 46,107,100
============ =========== =========== ===========
Per share amount $ -- $ -- $ 0.03 $ (0.03)
============ =========== =========== ===========
DILUTED EPS
Income (loss) before extraordinary
item and accounting changes $ (144,700) $ 45,700 $ 1,248,000 $(1,332,200)
Weighted average shares
outstanding 46,497,500 46,107,100 46,298,300 46,107,100
Add: effect of dilutive options (A) (B) 5,100 (A)
------------ ----------- ----------- -----------
Weighted average shares
outstanding, as adjusted 46,497,500 46,107,100 46,303,100 46,107,100
============ =========== =========== ===========
Per share amount $ -- $ -- $ 0.03 $ (0.03)
============ =========== =========== ===========
</TABLE>
(A) Effect would be antidilutive due to a loss before extraordinary item
and accounting changes.
(B) The exercise price of all options and warrants outstanding during the
period was greater than the average market price of the Company's
common shares.
At September 30, 1999, options and warrants to purchase 2,045,700
shares of common stock were outstanding that were not included in the
calculations of EPS for the nine months ended September 30, 1999,
because their exercise price was greater than the average market price
of the Company's common shares. Options and warrants to purchase
4,694,500 shares of common stock were outstanding at September 30, 1998
that were not included in the prior period calculations of diluted EPS
as the effect would be antidilutive.
17
<PAGE> 18
ITEM 2. 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-Q, 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
The Company recorded a net loss of $144,700, or $0.00 per share on
revenues of $8,168,200 for the third quarter of 1999. For the nine months ended
September 30, 1999, the Company recorded net income of $1,248,000, or $0.03 per
share on revenues of $22,866,600. This compares to net income of $45,700, or
$0.00 per share on revenues of $7,525,800 for the third quarter of 1998 and a
loss before extraordinary item and cumulative effect of changes in accounting
principles of $1,332,200 or $0.03 per share and a net loss of $10,541,800, or
$0.23 per share on revenues of $25,064,000 during the first nine months of 1998.
During the three months ended September 30, 1999, the Company sold
22,253 ounces of gold at an average price of $367 per ounce. For the comparable
period of 1998, the Company sold 16,097 ounces of gold and 3,500 ounces of
silver at an average realized price of $383 per equivalent gold ounce. For the
nine months ended September 30, 1999, 63,017 ounces of gold and 3,900 ounces of
silver were sold at an average realized price of $363 per equivalent gold ounce.
For the comparable period in 1998, 54,155 ounces of gold and 13,500 ounces of
silver were sold at an average realized price of $384 per equivalent gold ounce.
The New York Commodity Exchange (COMEX) gold price averaged $260 and $273 per
ounce, respectively, for the three and nine months ended September 30, 1999. For
the comparable periods of 1998, the COMEX gold price averaged $289 per ounce.
Cost of sales was $6.1 million for the three months ended September 30,
1999, as compared to $5.9 million in the prior period. For the nine months ended
September 30, 1999, cost of sales was $18.2 million as compared to $18.7 million
in the prior period. For the three and nine months ended September 30, 1998,
cost of sales included $0.8 million and $2.6 million, respectively, related to
the Company's industrial minerals program. The assets of this business were sold
on December 31, 1998. Cost of sales for the Briggs Mine was higher in the
current period due to a greater number of gold ounces sold.
18
<PAGE> 19
Per ounce cost of gold sold at the Briggs Mine, as computed under the
Gold Institute's Production Cost Standard, was as follows:
CR BRIGGS MINE
COST PER OUNCE OF GOLD SOLD
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash operating (1) $263 $306 $277 $286
Total cash costs (2) $269 $311 $282 $292
Total production costs (3) $354 $397 $368 $378
</TABLE>
(1) All direct and indirect costs of the operation, excluding
royalties and accruals for site restoration. Includes inventory
changes and adjustments for deferred stripping.
(2) Cash operating costs plus royalties
(3) Total cash costs plus depreciation, depletion, amortization and
accruals for site restoration.
Unit costs were lower in the current periods due to higher production
levels.
Depreciation, depletion and amortization was higher in the current
periods due to a greater number of gold ounces sold.
Interest expense was significantly lower in the current periods due to
lower debt balances. Interest income was lower in the current periods due to
lower cash balances.
In connection with an August 1998 restructuring of the Briggs Mine loan
facility, the Company, during the first quarter of 1999, utilized $1,000,000 of
proceeds from the 1998 sale of its industrial minerals assets to reduce the
Briggs Mine gold loan principal by 3,451 ounces. During the second quarter of
1999, the Company utilized $750,000 of proceeds from the sale to further reduce
the gold loan principal by 2,666 ounces. In June 1999, the Company restructured
the loan facility again, the terms of which included, amongst others, the
liquidation of 125,000 ounces of forward contracts which netted $5.5 million.
The proceeds were used to further reduce the gold loan principal by 20,506
ounces. As a result of these transactions, the Company recognized gains of
$339,300 and $2,768,900 during the first and second quarters of 1999,
respectively.
During the third quarter of 1998, the Company recognized a gain of
$919,700 in connection with a restructuring of the Briggs Mine loan facility by
utilizing proceeds of approximately $2.5 million from a hedge liquidation to
reduce the gold loan principal by 8,869 ounces.
In May 1998, the Company prepaid in full the cash loans outstanding of
$8.6 million on the Briggs Mine loan facility. As a result of the prepayment,
unamortized deferred financing costs of $285,100 allocated to the cash loans
were expensed and recorded as an extraordinary loss.
19
<PAGE> 20
LIQUIDITY & CAPITAL RESOURCES
The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and settlement of
liabilities and commitments in the ordinary course of business. The Company's
liquidity, however, has been adversely impacted by a sustained period of low
gold prices and high debt service requirements. Although the Company has
significantly improved its working capital position since year-end by
restructuring the Briggs Mine loan facility (see discussion below),
substantially all of the Company's then forward sales contracts at prices that
approximated $311 per ounce were liquidated and used to pay-down debt in
connection with the restructuring. New forward contracts have been put in place
for approximately six months of production at the Briggs Mine, however, the
average price per ounce is approximately $29 lower than the liquidated
contracts. The ability to generate cash flow on a going-forward basis will be
dependent on the Briggs Mine producing gold at cash costs below its hedged price
or the prevailing market price. In this regard, the Company has reduced staff
levels at the Briggs Mine approximately 11% and implemented an alternative mine
plan with the objective of producing gold at cash costs below $250 per ounce. In
March 1999, the Company received a demand notice for an increase in collateral
of approximately $1.2 million from the Sureties who issued certain bonds for
reclamation obligations at the Briggs Mine, Kendall Mine and McDonald Gold
Project. In September 1999, the Company reached an agreement in principle with
the Sureties to satisfy the demand by granting a security interest in certain
real property mineral rights and agreeing to make certain future cash deposits.
However, until a final agreement is executed, there can be no assurances that
the Sureties will not exercise any remedies available to them during the
intervening period. The Company has curtailed all discretionary expenditures, is
attempting to sell its African properties and continues to evaluate potential
merger or other alliance opportunities. There can be no assurances, however,
that the Company will be successful in this regard.
Net cash provided by operating activities during the nine months ended
September 30, 1999 was $7.6 million and was principally due to the liquidation
of a hedge position. The Company spent a nominal $0.2 million on capital
programs for the period.
During the first quarter of 1999, the Company utilized $1,650,000 of
proceeds from the December 1998 sale of its industrial minerals assets to (i)
pay off a credit line amount of $650,000, and (ii) purchase 3,451 ounces of gold
at a market price of $289.75 per ounce which was applied to the gold loan.
During the second quarter of 1999, the Company utilized $750,000 of proceeds
from the 1998 sales of its industrial minerals assets to purchase 2,666 ounces
of gold at a market price of $281.30 which was applied to the gold loan.
In June 1999, the Company restructured the Briggs Mine loan facility,
the terms of which included (i) waivers for all covenant violations existing
since December 31, 1998, (ii) the liquidation of 125,000 ounces of forward gold
contracts which netted $5.5 million, (iii) utilizing the forward liquidation
proceeds to reduce the gold loan debt by 20,506 ounces, (iv) rescheduling
remaining principal payments to 2001 and 2002 on a quarterly basis, and (v)
allowing the Company access to the first $1.6 million of net cash flow from the
Briggs Mine (as defined) and 50% thereafter (the remaining 50% to be applied to
the loan balance) during the remainder of 1999 and 2000.
20
<PAGE> 21
On June 30, 1999, the Company converted its then remaining gold loan
debt of 19,913 ounces to a cash loan. As a result of the conversion, the Company
reduced its carrying value of the debt from the monetized price of $388.05 per
ounce to fair market value of $261.10 per ounce, or $5,199,200.
In September 1999, the Company entered into a contract with
Franco-Nevada Mining Corporation, Inc. (Franco-Nevada) to provide $3.5 million
of funding ($3.0 million cash and a commitment to maintain an existing $0.5
million reclamation bond) for the Seven-Up Pete Venture (Venture). The funding
is provided to allow the Venture to maintain its property rights in the McDonald
and Seven-Up Pete gold deposits and to undertake a takings lawsuit against the
State of Montana for the lost value of the property rights incurred as a result
of implementation of the anti-cyanide initiative, I-137. (See discussion below).
As consideration for the financing, Franco-Nevada will receive a four percent
net smelter returns royalty from any mineral production from the properties of
the Venture or, alternatively, one-third of any proceeds received by the Venture
resulting from a successful takings lawsuit. The $3.0 million is included in
other assets on the Company's Balance Sheet at September 30, 1999, with a
corresponding reduction in the carrying value of the Venture's properties.
OTHER MATTERS
McDonald Gold Project
Anti-Cyanide Mining Initiative
In November 1998, the Montana electorate passed an anti-cyanide mining
initiative (I-137) by a vote of 52% to 48%. I-137 bans development of new gold
and silver mines which use open-pit mining and cyanide in the treatment and
recovery process. For most of the campaign period, mining companies and their
employees were prevented from campaigning due to a previously passed initiative
(I-125) which prohibited campaign expenditures by "for-profit" entities. Ten
days prior to the election, a federal judge declared the prohibition
"unconstitutional". The mining community has an appeal pending regarding I-137
in the U.S. Ninth Circuit Court of Appeals. The basis of the appeal is that the
election should be overturned based on having been denied the opportunity to
campaign due to the effectiveness of I-125 until the last few days prior to the
election. In addition, the Seven-Up Pete Venture, intends to file a lawsuit
against the State of Montana based on enactment of I-137. The lawsuit will,
amongst other matters, challenge the constitutionality of I-137 based on due
process considerations and contend that I-137 results in a taking of property.
The Company's legal counsel believes that it is likely that I-137 will be
declared unconstitutional, or at a minimum, be overturned.
State Mineral Leases
On September 24, 1998, the Montana Department of Natural Resources
(DNRC), the entity that administers state mineral leases, unilaterally decided
to cancel the permitting extension of the 10-year lease term of the state leases
that pertain to the McDonald Gold Project. This was provoked by Canyon's
inability to continue permitting at McDonald due to the anti-cyanide
21
<PAGE> 22
initiative, I-137, and would require the Company, after a period of
approximately seventeen months, to commence paying a delay rental of $150,000
per month in order to maintain the leases. The Company has challenged the DNRC's
action in Montana District Court and believes it will prevail in this matter.
Environmental Regulation
In September 1998, the Montana Department of Environmental Quality
(DEQ) filed a complaint in District Court alleging violations of the Montana
Water Quality Act for unpermitted discharges at the Kendall Mine. The DEQ
initially proposed a civil penalty in the amount of $330,000, which was
subsequently modified to $302,000, in connection with the complaint. The Company
has prepared a response to the complaint and believes the penalty as currently
assessed is without substantial merit.
In October 1999, the Company received a determination notice from the
DEQ for an increase in the Kendall Mine reclamation bond amount from
approximately $1.9 million to approximately $8.1 million. Although the Company
believes the increased bond amount greatly exceeds the cost of remaining work to
be accomplished, it is unsure what remedies, if any, the DEQ may seek if the
parties cannot agree on the appropriate bond amount.
Year 2000 Issue
Many computer programs utilize a two digit format to identify the
applicable year. Without modification, any date sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing, among other things, disruptions
to operations and inability to process financial transactions.
The Company has completed its inventory of systems which utilize
information technology. Noncompliant software at the Briggs Mine has been
upgraded or replaced. Certain financial reporting software and voice
communications systems at the Company's corporate headquarters are not year 2000
compliant and are expected to be upgraded or replaced in the fourth quarter of
1999. The associated costs are not expected to be material. The Company has
completed a review of equipment used in its operations and believes it is not at
material risk for embedded chip failures.
The Company relies on third parties to supply certain materials,
utilities, transportation, and other services necessary for its business
operations. During the first quarter of 1999, the Company initiated a process to
ascertain their stage of year 2000 readiness through questionnaires, interviews
and other means. The Company has completed its third party assessment and
believes it is not at material risk for such failures. As part of the Company's
contingency planning, alternate suppliers, have been identified to reduce the
risks of interruption if third party failures do occur.
Although the Company believes it has adequate resources and personnel
to complete its remediation efforts prior to December 31, 1999, the Company
remains at risk with respect to its
22
<PAGE> 23
ability to complete its own program and/or to a failure by one or more of its
third party suppliers to achieve year 2000 compliance within the required time
frame.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Prices
The Company's earnings and cash flow are significantly impacted by
changes in the market price of gold. Gold prices can fluctuate widely and are
affected by numerous factors, such as demand, production levels, economic
policies of central banks, and producer hedging. During the last five years, the
average annual market price has fluctuated between $294 per ounce and $388 per
ounce. During 1999, gold prices declined to their lowest level in two decades.
The Company currently utilizes short dated forward gold contracts to
protect the selling price of a portion of its anticipated production. At
November 1, 1999, contracts totaling 43,000 ounces were in place at an average
price of approximately $283 per ounce, or approximately $7 per ounce less than
the market price of gold. Based on the Company's current hedge position, a $10
change in the price of gold would have an impact on annual profitability and
cash flow of approximately $0.4 million.
There are certain market risks associated with commodity instruments.
If the Company's counterparties fail to honor their contractual obligation to
purchase gold at agreed-upon prices, the Company may be exposed to market price
risk by having to sell gold in the open market at prevailing prices. Similarly,
if the Company fails to produce sufficient quantities of gold to meet its
forward commitments, the Company would have to purchase the shortfall in the
open market at prevailing prices. The Company may also be subject to margin
calls by its counterparties when the market price exceeds the price of its
forward gold contracts.
In May 1998, the Company liquidated a forward position that was
originally established in December 1995, resulting in proceeds of $11.1 million.
As of December 31, 1998, $8.6 million of the gain had not been recognized in
operations. During the first nine months of 1999, $3.1 million of the gain was
recognized. During the fourth quarter of 1999, $1.0 million of the gain will be
recognized with the balance of $4.5 million recognized in 2000.
In June 1999, the Company liquidated a forward position that was
initially established in 1998, resulting in proceeds of $5.5 million. During the
third quarter of 1999, $0.3 million of the gain was recognized. The remaining
gain will be recognized as follows: (i) $1.0 million during the fourth quarter
of 1999, (ii) $3.9 million in 2000, and (iii) $0.3 million in 2001.
On June 30, 1999, the Company converted a commodity based loan to a
cash loan. In connection with the conversion, the monetized amount of the debt
was reduced to fair value, resulting in a gain of $2,528,000. The gain will be
recognized in operations over the scheduled repayments in 2001 and 2002.
23
<PAGE> 24
At November 1, 1999, the mark to market value of the Company's forward
contracts was approximately negative $0.3 million.
Interest Rates
At September 30, 1999, the Company's debt primarily consisted of a cash
loan for the Briggs Mine bearing interest at approximately 7.8%. The Company is
required to have the rate periodically reset for periods that it may choose
which range in duration from one to six months. The Company is not exposed to
significant interest rate risk, as a change of 100 basis points in the rate
would have an impact on annual earnings and cash flow of approximately $0.052
million, based on the September 30, 1999 outstanding loan amount of $5.2
million.
Foreign Currency
The price of gold is denominated in US dollars, and the Company's gold
production operations are in the United States. The Company conducts only a
minor amount of exploration activity in foreign countries and has minimal
foreign currency exposure.
24
<PAGE> 25
PART II OTHER INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. LEGAL PROCEEDINGS:..................................................................... None
ITEM 2. CHANGES IN SECURITIES:
In October 1999, the Company issued 38,217 shares of its $0.01 par
value common stock to a creditor as consideration for
extinguishment of certain payables in the amount of $9,300. The
shares were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:....................................................... None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS:..................................... None
ITEM 5. OTHER INFORMATION:..................................................................... None
ITEM 6(a) EXHIBITS:
No. 27 - Financial Data Schedule
ITEM 6(b) REPORTS ON FORM 8-K:................................................................... None
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANYON RESOURCES CORPORATION
Date: November 12, 1999 /s/ Gary C. Huber
-------------------------------
Gary C. Huber
Chief Financial Officer
Date: November 12, 1999 /s/ Richard T. Phillips
-------------------------------
Richard T. Phillips
Treasurer
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,822,300
<SECURITIES> 0
<RECEIVABLES> 35,800
<ALLOWANCES> 0
<INVENTORY> 7,378,200
<CURRENT-ASSETS> 11,221,200
<PP&E> 73,657,800
<DEPRECIATION> 16,726,000
<TOTAL-ASSETS> 73,015,800
<CURRENT-LIABILITIES> 12,658,500
<BONDS> 5,209,800
0
0
<COMMON> 465,000
<OTHER-SE> 95,422,100
<TOTAL-LIABILITY-AND-EQUITY> 73,015,800
<SALES> 22,866,600
<TOTAL-REVENUES> 22,866,600
<CGS> 18,160,100
<TOTAL-COSTS> 18,160,100
<OTHER-EXPENSES> 5,258,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 513,600
<INCOME-PRETAX> 1,248,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,248,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,248,000
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
