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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, 1999
Commission file number 1-11887
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 45,674,922 shares of the registrant's voting
stock held by non-affiliates on March 1, 2000 was approximately $17,128,100.
At March 1, 2000 there were 46,507,470 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 2000
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, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
- ------ ----
<S> <C> <C>
PART I
1. Business 1
2. Properties 9
3. Legal Proceedings 24
4. Submission of Matters to a Vote of Security Holders 25
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 26
6. Selected Financial Data 27
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 28
7(a). Quantitative and Qualitative Disclosures about Market Risk 40
8. Financial Statements 42
9. Changes in and Disagreements with Accountants 67
PART III
10. Directors and Executive Officers of the Registrant 68
11. Executive Compensation 68
12. Security Ownership of Certain Beneficial Owners and Management 68
13. Certain Relationships and Related Transactions 68
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 69
</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 governmental 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 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 in Latin
America and Africa. The Company's exploration and development efforts emphasize
precious metals (gold and silver). Until December 31, 1998, the Company also had
industrial mineral production operations (diatomite and pumice) in the western
United States. (See "Financing - Asset Sales".)
Once acquired, mineral properties are evaluated by means of geologic
mapping, rock sampling, and geochemical analyses. Properties having favorable
geologic conditions and anomalous geochemical results usually warrant further
exploration by the Company. In almost all cases, exploration or development
drilling is required to further test the mineral potential of a property.
Properties which have a demonstrated inventory of mineralized rock of a
potentially economic nature are further evaluated by conducting various studies
including calculation of tonnage and grade, metallurgical testing, development
of a mine plan, environmental baseline studies and economic feasibility studies.
If economics of a project are favorable, a plan of operations is developed and
submitted to the required governmental agencies for review. Depending on the
magnitude of the proposed project and its expected environmental impact, a
vigorous environmental review may be required prior to issuance of permits for
the construction of a mining operation.
The organizational chart on the following page reflects the Company's
legal ownership of subsidiaries and ownership interests in various gold
properties as of 12/31/99.
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[CANYON RESOURCES CORPORATION FLOWCHART]
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The Company has conducted 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
During 1999, the Briggs Mine, located in southeastern California,
produced 86,669 ounces of gold and 24,044 ounces of silver, the highest gold
production ever for the Company. The Briggs Mine achieved higher levels of
production in 1999 than 1998 due principally to operational improvements,
despite the lower grade ores mined and crushed in 1999. (See "Item 2 -
Properties - Production Properties - Briggs Mine.")
During 1999, the Kendall Mine located near Lewistown, Montana,
continued with closure activities, principally relating to collection, treatment
and disposal of water contained in the process system and mine area,
revegetation of waste-rock dump surfaces, and testing of biocells for passive
water treatment.
During 1999, all of the Company's revenues (gold and silver) were
generated by its Briggs Mine in California. In 2000 and subsequent years, the
Company anticipates that all of its revenues will be derived from precious
metals and that the Briggs Mine will be the only source of revenue until the
McDonald Gold Project or other projects are placed into production.
FINANCING
ASSET SALES
On September 28, 1999, the Company sold a 4% net smelter return royalty
interest in production from the mineral properties of the Seven-Up Pete Venture
to Franco-Nevada Mining Corporation (Franco-Nevada) for $3.0 million in cash and
a commitment to maintain an existing $0.5 million reclamation bond. Should the
Company not be able to develop the mineral properties as a result of the
anti-cyanide initiative, I-137, Franco-Nevada would be entitled to one-third of
any proceeds received resulting from a successful takings lawsuit. (See
"Development Properties - Seven-Up Pete Venture - Legal Status").
On December 31, 1998, the Company sold all of the assets of CR Minerals
Corporation to an investment group for $6,475,000 less certain working capital
adjustments. The consideration included $475,000 which was used to pay-off a
promissory note issued in connection with the Company's 1997 purchase of the
pumice mine which supplied ore to its New Mexico processing facility.
EQUITY OFFERINGS
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.
During 1999, a warrant to purchase 15,000 shares of common stock was
exercised at $3.75 per share. This warrant was part of an equity financing in
1996 in which 2,317,167 total warrants were issued, 2,302,167 warrants expired
unexercised on March 25, 1999.
BRIGGS MINE 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
syndicate of three banks, and initially included 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.
In May 1998, the loan facility was restructured and included (i) the
modification of certain coverage ratios (as defined), (ii) a revision to the
amortization schedule for the gold loan, and (iii) the liquidation of the
Company's hedge position for all forward contracts with settlement dates beyond
June 30, 1998. The liquidation resulted in proceeds of $11.1 million which were
used to prepay in full the cash loans then outstanding of $8.6 million.
In August 1998, the loan facility was further restructured as follows:
(i) a six month, $1 million credit line at LIBOR plus 2 3/8% was established for
working capital needs ($650,000 drawn at December 31, 1998); (ii) the Company
pledged the stock of its subsidiary, CR Minerals, as additional collateral for
the loan; (the Company subsequently sold the assets of CR Minerals and
contributed $2.4 million of the proceeds which was used to pay of the credit
line amount of $650,000 and further reduce the gold loan principal by 6,117
ounces) (iii) certain proceeds from any additional asset sales the Company may
undertake will be used to reduce the principal balance on the loan; and (iv) the
$2.5 million remaining from the May, 1998 hedge liquidation was utilized for
scheduled debt service for the period ending September 30, 1998 (644 ounces of
principal and 312 ounces of interest) and to further reduce the principal on the
gold loan by 8,225 ounces.
In June 1999, the loan facility was again restuctured and included (i)
the liquidation of 125,000 ounces of forward gold contracts which netted $5.5
million; (ii) utilizing the forward liquidation proceeds to reduce the gold loan
debt by 20,506 ounces; (iii) establishing a $600,000 credit line for capital
expenditures and working capital needs ($135,000 drawn at December 31, 1999; the
commitment for remaining draws will expire on December 31, 2000); (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 and 50% thereafter (the remaining 50% to be applied to the
loan balance) through December 31, 2000.
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 ($7,727,200) to fair market value of $261.10 per ounce
($5,199,200).
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The following table summarizes principal and interest payments and
weighted average interest rates on the loan facility:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Principal payments
Gold loan
o Ounces 26,623 13,057 4,832
o Monetized amount $ 10,331,100 $ 5,066,700 $ 1,875,000
Cash loans $ 650,000 $ 8,700,000 $ 300,000
Interest payments
Gold loan
o Ounces 715 2,481 2,437
o Market value $ 194,800 $ 730,700 $ 787,800
Cash loans $ 207,700 $ 390,900 $ 767,000
Weighted average interest rates
Gold loan 2.5% 3.5% 3.4%
Cash loans 7.9% 10.3% 10.2%
============ =========== ===========
</TABLE>
LEASING ARRANGEMENTS
In addition to the 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 (Caterpillar). The majority of
the equipment leased initially had a 5-year term. During 1999, the Company and
Caterpillar extended the lease an additional two years on certain equipment
which will lower the Company's lease costs in 2000 by approximately $0.5
million. During 1998, the Company also entered into a 5-year lease for the
capitalized cost ($1.1 million) associated with the replacement cone crushers at
the Briggs Mine.
AVAILABILITY OF MINERAL DEPOSITS; COMPETITION AND MARKETS
Gold mineralization is found in many countries and in many different
geologic environments, and in most cases is accompanied by the presence of
silver mineralization. Country politics and tax structure are important
criteria, as well as the geologic favorability, in the decision to invest in
exploration in a country. Since many companies are engaged in the exploration
and development of gold properties and often have substantially greater
technical and financial resources than the Company, the Company may be at a
disadvantage with respect to some of its competitors in the acquisition and
development of suitable mining prospects. Mineral properties in an early stage
of exploration, or not currently being explored, are often relatively
inexpensive to acquire; therefore, the Company believes that the expertise of
its staff and its ability to rapidly evaluate and respond to opportunities allow
it to compete effectively with many companies having far greater financial
resources. In recent years the political environments in many countries of the
world have become favorable to investment in the mining industry. The Company
believes that, in particular, many of such countries in Latin America and Africa
host favorable geologic conditions for the occurrence of sizeable
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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
McDonald gold deposit would have production costs close to or below the
world-wide average for gold mines, if cyanide treatment is allowed in the state
of Montana (See "Development Properties - Seven-Up Pete Venture - Legal
Status".) 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.
The marketing of all minerals is affected by numerous factors, many of
which are beyond the control of the Company. Such factors include the price of
the mineral in the marketplace, imports of minerals from other nations, demand
for minerals, the availability of adequate refining and milling facilities, and
the market price of competitive minerals used in the same industrial
applications. The market price of minerals is extremely volatile and beyond the
control of the Company. Gold prices are generally influenced by basic
supply/demand fundamentals. The market dynamics of supply/demand can be heavily
influenced by economic policy; e.g., 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 $279 and $388 per ounce. Price
fluctuations between the time that such a decision is made and the commencement
of production can 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 obtaining 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, 1999, 43,000
ounces of the Briggs Mine production was hedged with forward contracts at an
average price of $286 per ounce.
CUSTOMERS
From 1997 through 1999, the Company sold its gold and silver production
primarily to two precious metal buyers, NM Rothschild & Sons Limited and
Bayerische Hypo-und Vereinsbank AG (formerly Bayerische Vereinsbank AG). 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.
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
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extensively regulates mining operations conducted in National Forests.
Department of Interior regulations cover mining operations carried out on most
other public lands. All operations by the Company involving the exploration for
or the production of minerals are subject to existing laws and regulations
relating to exploration procedures, safety precautions, employee health and
safety, air quality standards, pollution of water sources, waste materials,
odor, noise, dust and other environmental protection requirements adopted by
federal, state, and local governmental authorities. The Company may be required
to prepare and present to such authorities data pertaining to the effect or
impact that any proposed exploration for or production of minerals may have upon
the environment. The requirements imposed by any such authorities may be costly,
time consuming, and may delay operations. Future legislation and regulations
designed to protect the environment, as well as future interpretations of
existing laws and regulations, may require substantial increases in equipment
and operating costs to the Company and delays, interruptions, or a termination
of operations. The Company cannot accurately predict or estimate the impact of
any such future laws or regulations, or future interpretations of existing laws
and regulations, on its operations.
The United States has an extensive framework of environmental
legislation that undergoes constant revision. The Company participates in the
legislative process through independent contact with legislators and through
trade organizations to assist legislative bodies in making informed decisions.
Historic mining activities have occurred on certain properties held by
the Company. In the event that such historic activities have resulted in
releases or threatened releases of regulated substances to the environment,
potential for liability may exist under federal or state remediation statutes.
The Company is not aware of any pending claims under these statutes at this
time, and cannot predict whether any such claims will be asserted in the future.
The Company has spent approximately $6.3 million on reclamation and
closure activities at the Kendall Mine through December 31, 1999, and expects to
spend an additional $2.8 million through mine closure. At December 31, 1999, 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. In October 1999, the
Montana Department of Environmental Quality (DEQ) issued a letter to CR Kendall
that requested an increase in the reclamation bond for the Kendall minesite to
$8.1 million. The Company believes that the $8.1 million bond request is
inappropriate and has appealed the action of the DEQ.
The Briggs Mine operates under a number of permits issued by state,
local and federal agencies. Moreover, the Company was required to post a $3.03
million reclamation bond to ensure appropriate reclamation and a $1.01 million
bond to ensure adequate funds to mitigate any "foreseeable release" of
pollutants to state waters. The Company also maintains a $0.144 million
reclamation bond for exploration at the Briggs Mine.
The Company's surety bonds total approximately $6.1 million and are
partially collateralized as follows: (i) cash held directly by the Sureties in
the amount of $1.9 million; (ii) a bank Letter of Credit in the amount of $0.2
million which is collateralized with cash; and (iii) a security interest in
28,000 acres of real property mineral interests in Montana. In addition, the
Company has agreed to make additional cash deposits with the Sureties totaling
$1.5 million over a three year period at the rate of $0.5 million per year,
commencing June 30, 2001.
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
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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. 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 its operations.
The Company believes that it is currently in compliance with all
applicable environmental regulations.
EMPLOYEES
As of March 1, 2000, the Company and its wholly-owned subsidiaries
employed 125 persons, which number may adjust seasonally. None of the Company's
employees are covered by collective bargaining agreements.
SEASONALITY
Seasonality does not currently have a material impact on the Company's
operations.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS & GOVERNMENT
CONTRACTS
Other than interests in mining properties granted by governmental
authorities and private landowners, the Company does not own any material
patents, trademarks, licenses, franchises or concessions.
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ITEM 2. PROPERTIES
The following table provides a summary of the most significant
properties in which the Company has an interest as of December 31, 1999. More
detailed information regarding each of these properties is provided in the text
that follows.
CANYON RESOURCES CORPORATION
PROPERTIES AS OF 12/31/99
<TABLE>
<CAPTION>
DEVELOPMENT
DATE ACQUISITION CAPITAL TO ANTICIPATED TIME
INTEREST COST OF MAKE PROPERTY OF COMMENCEMENT
PROPERTY INTEREST NATURE OF INTEREST ACQUIRED INTEREST(1) OPERATIONAL OF OPERATIONS
- ---------------------- -------- ------------------------- ------------ -------------- --------------- -----------------
<S> <C> <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
-------- ------------------------- ------------ -------------- --------------- -----------------
DEVELOPMENT PROPERTIES
Seven-Up Pete 100% Mineral Leases 1990, 1997 $10.2 $ 225 million Unknown(4)
Venture million(3) (estimated)
-------- ------------------------- ------------ -------------- --------------- -----------------
EXPLORATION PROPERTIES
Panamint 100% Unpatented Mining Claims 1990 $0.3 million Unknown Unknown
Range
-------- ------------------------- ------------ -------------- --------------- -----------------
Montana 100% Mainly fee mineral rights 1990 $2.1 million Unknown Unknown
900,000 acres
-------- ------------------------- ------------ -------------- --------------- -----------------
Arroya 100% Mineral License 1994 Nil Unknown Unknown
Cascada (Argentina)
-------- ------------------------- ------------ -------------- --------------- -----------------
Other Argentine 100%(2) Mineral Claims (Cateos) 1994 Nil Unknown Unknown
properties
-------- ------------------------- ------------ -------------- --------------- -----------------
San Pedrito 100% Mineral Concession 1995 Nil Unknown Unknown
(Panama)
-------- ------------------------- ------------ -------------- --------------- -----------------
Ethiopian 90%(2) Exploration Licenses 1995-1996 Nil Unknown Unknown
Properties
-------- ------------------------- ------------ -------------- --------------- -----------------
Chegutu 90% Exploration License 1995 Nil Unknown Unknown
(Zimbabwe)
======== ========================= ============ ============== =============== =================
</TABLE>
(1) Net to Canyon's interest in the property.
(2) Subject to joint-venture or purchase provisions.
(3) To date - an additional amount of $10 million will be paid to Phelps Dodge
when all permits have been achieved or construction commences.
(4) See discussion at "Development Properties - Seven-Up Pete Venture - Legal
Status."
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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 666 unpatented mining claims, 67 mill site
claims, 1 tunnel site claim, 1 patented millsite claim, and 2 patented mining
claims that comprise an area of approximately 14,000 acres. The passage of the
California Desert Protection Act in 1994 removed all of the Company's holdings
from Wilderness Study Areas. The Company'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 patent 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
increased the initial design production rate to approximately 85,000 ounces per
year in 1999.
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 1997 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.")
During 1998, 10.5 million tons were mined, of which 3.4 million tons
were crusher ore with an average grade of 0.030 ounce of gold per ton and a
waste-to-ore strip ratio of 2.0 to 1. The Briggs Mine produced 80,316 ounces of
gold and 22,138 ounces of silver in 1998.
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During 1999, 9.8 million tons were mined, of which 4.3 million tons
were crusher ore with an average grade of 0.028 ounce of gold per ton and 0.9
million tons were run-of-mine (non-crusher) ore with an average grade of 0.012
ounce of gold per ton. The average waste-to-ore strip ratio was 0.9 to 1. The
Briggs Mine produced 86,669 ounces of gold and 24,044 ounces of silver in 1999.
Statistical production and financial data for the Briggs Mine are shown
on the following table.
BRIGGS MINE OPERATIONS
<TABLE>
<CAPTION>
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRODUCTION
Tons Mined (waste and ore) 9,786,652 10,479,800 9,321,500 5,516,600
Tons Ore Mined (crusher ore) 4,280,000 3,395,700 2,845,300 798,300
Gold Grade of Crusher Ore (oz/ton) 0.028 0.030 0.033 0.043
Tons Run-of-Mine Ore 903,100 181,900 -- --
Strip Ratio (tons waste/tons ore) 0.9:1 2.0:1 2.3:1 5.9:1
Gold Production (oz) 86,669 80,316 66,769 3,417
Silver Production (oz) 24,044 22,138 19,215 654
Recoverable Gold Inventory (oz) 38,164 25,170 23,899 24,267
FINANCIAL
Ounces of Gold Sold (1) 83,565 79,303 68,436 1,500
Average Gold Price Realized $ 370 $ 375 $ 401 $ 406
Revenue from Mine Operations (1) $30,904,500 $29,773,400 $27,491,500 $ 608,600
Cash Operating Cost Per Ore Ton
Mined $ 4.41 $ 6.16 $ 6.27 N/A
Cash Operating Cost Per Ounce(2) $ 275 $ 278 $ 290 N/A
Total Production Cost Per Ounce (2) $ 369 $ 368 $ 383 N/A
Operating Earnings (3) (4) $ 27,300 $ 540,500 $ 882,900 N/A
Capital Expenditures (4) $ 44,200 $ 203,100 $ 3,141,600 $28,083,500
=========== =========== =========== ===========
</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 and permitting costs for
reserve expansion.
Reserves for the Briggs Mine as calculated by the Company at various
gold prices are shown on the following table.
<TABLE>
<CAPTION>
MINEABLE RESERVES (1/1/00) $ 350 GOLD $ 300 GOLD $ 250 GOLD
----------- ----------- ----------
<S> <C> <C> <C>
Tons Ore* 11,446,300 10,286,100 8,307,600
Grade 0.037 0.038 0.035
Contained Gold Ounces 426,800 392,300 291,600
=========== =========== ==========
</TABLE>
* Excludes approximately 1.0 million tons of run-of-mine ore with
an average grade of .009 ounce of gold per ton.
11
<PAGE> 14
Development
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>
MINEABLE RESERVES (1/1/00) $ 350 GOLD $ 300 GOLD $ 250 GOLD
---------- ---------- ----------
<S> <C> <C> <C>
Goldtooth
Tons Ore 2,665,600 2,537,600 2,195,300
Grade 0.036 0.036 0.038
Contained Gold Ounces 96,850 93,050 82,680
North Briggs
Tons Ore 3,160,000 2,705,500 1,069,300
Grade 0.053 0.053 0.058
Contained Gold Ounces 167,420 152,170 61,810
========== ========== ==========
</TABLE>
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 Operate, Great
Basin Unified Air Pollution Control District; and 5) Section 404 Dredge and Fill
Permit, Army Corps of Engineers. In January 2000, the Briggs Mine obtained an
amendment to its operating permit that allows mining of the North Briggs and
Goldtooth deposits. The amendment was obtained through an Environmental
Assessment conducted by the U.S. Bureau of Land Management and an equivalent
document approved by the Inyo County Planning Commission. The permits issued to
date are adequate for all mine operations involving currently identified
mineable reserves in the Briggs deposit.
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.
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
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<PAGE> 15
include (i) approximately 253.61 acres in patented claims and fee land; and (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 gold in the heap leach pads
continued through early 1998. All economic gold has now been recovered, and the
mine is currently in a reclamation and closure mode. The Kendall Mine produced
approximately 302,000 ounces of gold and approximately 136,000 ounces of silver
from 1988 through 1998.
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.
During 1998 and 1999, the Company tested the efficiency of a biocell in
removal of constituents from water of the Barnes King drainage. This passive
water-treatment system performed better than expectations. As a result of the
success of the test, biocells are being designed specifically for each drainage
so that they will remove the constitutents and allow the clean water to flow
unimpeded downstream. It is expected that biocells will be installed in any of
the mine area drainages that require such passive treatment.
During 2000, subject to adequate cash resources, the Company expects to
cover the heap leach pads with soil caps, commence revegetation of the heaps,
and install biocells in certain mine area drainages for passive water treatment.
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 the DEQ on November 1, 1989. 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 DEQ has issued a Notice of Violation and Administrative Order to CR
Kendall for alleged water quality violations for the period from September 1,
1996 through October 31, 1997. (See " Item 3 - Legal Proceedings".)
13
<PAGE> 16
The DEQ requires that the Company maintain a $1,869,000 reclamation bond
to ensure appropriate reclamation of the Kendall Mine. In October 1999, the
Montana Department of Environmental Quality (DEQ) issued a letter to CR Kendall
that requested an increase in the reclamation bond for the Kendall minesite to
$8.1 million. The Company believes that the $8.1 million bond request is
inappropriate and has appealed the action of the DEQ.
Reclamation has been ongoing throughout the life of the operation.
Disturbed areas are contoured and topsoil is replaced and reseeded as soon as
possible. Over the last several years, more than 200,000 trees and shrubs have
been planted and reclamation has been completed on two-thirds of the disturbed
area (approximately 300 of 450 acres) of the Kendall minesite. During 1999,
approximately 8.8 disturbed acres were reclaimed, and no additional acres were
disturbed. The Company's reclamation expenditures in 1999 were approximately
$0.9 million, primarily related to treatment and disposal of process water,
capture and treatment of waste rock dump seepage, improved drainage and sediment
controls, and testing of a passive water treatment system.
Final reclamation will require recontouring of spent ore heaps, roads and
other areas and redistribution of topsoil, reseeding of some disturbed areas,
and construction of long term water treatment facilities. 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.
The Kendall Mine uses internal and external technical and legal experts to
monitor and ensure environmental compliance. The Company believes the operation
is currently in material compliance with all environmental and safety
regulations.
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, a subsidiary of Phelps Dodge Corporation (Phelps Dodge), 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 Venture, including the McDonald Gold
Project, from 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 was to be no less than $100 million and
no more than $150 million. No additional payment is required until after all
permits have been achieved or construction commences. In September 1999, Phelps
Dodge agreed to an amendment to the purchase agreement which lowered the
residual payment obligation to Phelps Dodge to $10 million, or, alternatively,
one-third of any award received by the Seven-Up Pete Venture as a result of a
taking lawsuit against the State of Montana. The purchase payment is
collateralized only by the 72.25% participating interest and underlying assets
transferred from Phelps Dodge to Canyon.
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
14
<PAGE> 17
paved highway that crosses the property. The SPV consists of approximately 21
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
ten-year term of the lease for 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.
In September 1999, the Seven-Up Pete Venture obtained $3.5 million in
funding from Franco-Nevada Mining Corporation. The funding was in the form of
$3.0 million in cash and a commitment to maintain an existing $0.5 million
reclamation bond. For providing the funding, Franco-Nevada will receive a four
percent net smelter return royalty from any mineral production from properties
of the SPV or, alternatively, one-third of any proceeds received by the SPV
resulting from any takings lawsuit.
Legal Status
On November 3, 1998, an anti-cyanide mining initiative, I-137, passed 52%
to 48% by a vote of the Montana electorate, effectively bringing permitting work
on the SPJV to a standstill. This bill bans development of new gold and silver
mines and expansions to existing mines which use open-pit mining and cyanide in
the treatment and recovery process in the State of Montana. For most of the
campaign period leading up to the vote, mining companies and employees were
prevented from campaigning due to a previously passed initiative (I-125) which
prohibited campaign expenditures by "for-profit" entities. Just 10 days prior to
the election, a federal judge declared the prohibition "unconstitutional."
The Seven-Up Pete Venture plans to file a lawsuit in April 2000 against
the State of Montana seeking to have I-137 declared unconstitutional or,
alternatively, seeking to obtain a "takings" or damage award for the lost value
of the McDonald, Seven-Up Pete and Keep Cool mineral properties. The invalidity
of I-137 is based on i) having been denied the opportunity to campaign due to
the effectiveness of I-125 until the last few days of the campaign, and ii) due
process considerations, in that I-137 was enacted without any compelling public
policy interest, since environmental safety concerns are well protected and
monitored with existing laws and regulations.
The Company's legal counsel believes that it is likely that the Venture
will prevail in this lawsuit, either with respect to the claim that I-137 is
unconstitutional or the takings or damage claims. The amount of a takings reward
would be the value of taken property as determined by the court. The Company
expects to present evidence that the value of the taken property could be as
high as several hundred million dollars before litigation and related expenses.
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
15
<PAGE> 18
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 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 $350 gold price mine plan, mineable reserves
containing 7.2 million ounces of gold would be mined, with the production of 5.0
million ounces of gold and 10 million ounces of silver over a 14-year period.
Under this mine design, mining and crushing of 131 million tons of ore above a
0.016 opt cutoff grade (with an average grade of 0.033 opt) and
16
<PAGE> 19
mining and direct loading onto a leach pad of an additional 258 million tons of
lower grade ore (averaging 0.011 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, produce approximately 385,000 ounces of gold per year over the mine life.
Cash operating costs for the $350 gold price mine plan are estimated at $180 per
ounce. Initial capital costs are estimated at approximately $225 million. More
detailed engineering work will cause these numbers to be further defined.
Environmental baseline studies have been conducted since 1989,
providing the necessary information to design and locate 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 was 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 were to 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 were actively preparing the EIS when the threat of the
anti-cyanide gold mining initiative, I-137, was proposed mid-year 1998. (See
"Legal Status.") With the threat of passage and the actual passage of I-137 in
November 1998, all permitting work on the McDonald project has been suspended.
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 to the state
school lands trust, the principal beneficiary of which is 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 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.
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.
A comprehensive Pre-Feasibility Study completed in early 1999 documents
that the Seven-Up Pete deposit is economically viable at gold prices between
$300 per ounce and $400 per ounce when developed in conjunction with the nearby
McDonald Gold Project. The Seven-Up Pete ores would be mined in an open pit,
hauled by truck to the McDonald site, and crushed and heap leached at the
McDonald facility. Using a dilution factor of 25%, the mineable reserves of the
Seven-Up Pete deposit are 11.7 million tons, with an average grade of 0.051
ounce of gold per ton and 0.24 ounce of silver per ton, containing 600,450
ounces of gold and 2.4 million ounces of silver. These reserves are anticipated
to be mined with an average strip ratio (waste
17
<PAGE> 20
tons/ore tons) of 3.9:1. The Pre-Feasibility study shows that the Seven-Up Pete
ore is projected to be mined at a rate of 1.5 million tons per year, from which
a total of 450,000 ounces of gold and 1.1 million ounces of silver are expected
to be produced over an eight-year period at an average cash operating cost of
$160 per ounce of gold. Initial capital costs are projected to be approximately
$18 million.
There are no current plans to develop the Seven-Up Pete deposit at this
time, in that I-137 is in effect. Prior to its development at any time in the
future, an Environmental Impact Study for Seven-Up Pete would have to be
prepared which would consider the cumulative impact of simultaneous operation of
this property and the McDonald operation.
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 DEQ, the Operating
Plan from the DNRC, the Air Quality Permit (DEQ), the Montana Pollutant
Discharge Elimination System Permit (DEQ), a Non-Degradation Authorization
(DEQ), a Stormwater Discharge Permit (DEQ), a Water Rights Permit (DNRC), a
Section 404 Dredge and Fill Permit from the U.S. Army COE, and a Fiscal Impact
Plan which must be approved by the Montana Hard Rock Impact Board and numerous
local government units.
An EIS was being prepared by three co-lead agencies, DEQ, DNRC, and
COE, when the anti-cyanide initiative, I-137, was passed, thus terminating
active work on the EIS. This EIS would be used to support all of the major
permit decisions. No assurance can be given that such permits will be issued, or
if issued, in what time frame such issuance would occur.
18
<PAGE> 21
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
Outside the Briggs Mine, the Company has defined several advanced stage
exploration targets within its 14,000 acre claim block. The Briggs gold deposit
is hosted by Precambrian quartz and amphibolite gneisses that have been
severally deformed by faults of Tertiary age. High-angle faults and shear zones
have acted as vertical conduits that channeled gold-bearing hydrothermal fluids
upwards into a series of stacked low-angle faults. Since the discovery of the
Briggs gold deposit, the Company had developed a detailed geological
understanding of this deposit type. Using this knowledge, the Company has
identified significant gold mineralization within the Briggs claim block
extending 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 Goldtooth, 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 Goldtooth, 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.
The last holes drilled in the greater Briggs area in 1997 were ore
holes drilled at North Briggs. The mineralized feeder zone at North Briggs has
not yet been located. There is a strong opportunity that the mineralization at
North Briggs was introduced along the same vertical feeder structures that
introduced the mineralization to the south at the Briggs and Goldtooth deposits.
Thus, the first priority exploration target in the Panamint District is to test
by drilling offsets to the north and east at North Briggs.
The Company feels that it is imperative that it resume, in 2000,
reserve-expansion and exploration drilling adjacent to the Briggs Mine in the
Panamint District, so that the life of the Briggs Mine can be extended. The last
holes drilled in the greater Briggs area in 1997 were ore holes drilled at North
Briggs. As funds become available, the Company plans to resume drilling
offsetting the North Briggs deposit with the objective of expanding the mineable
reserves of this higher grade (0.053 opt) deposit.
In addition, a separate, relatively undrilled target of significant
gold mineralization is the Cecil R/Jackson area located two to four miles north
of the Briggs Mine. Earlier drilling delineated 84,000 ounces of gold contained
in mineralized rock with an average grade of 0.038 opt at Cecil R. A cluster of
holes drilled at the Jackson area, 8,000 feet south of Cecil R, encountered 30
to 75-foot thicknesses of 0.06 opt to 0.116 opt gold grades along a structural
zone which extends to the north beyond the area of drilling. A large area of
anomalous gold values has been sampled in surface rocks along 2,000 feet of this
structural zone north of Jackson to the location where the gold-bearing
structural zone passes beneath gravel cover. This same structural zone may be
the feeder conduit for the gold mineralization at Cecil R, 8,000 feet to the
north. The Cecil R/Jackson area represents a significant target for further
exploration drilling by the Company in efforts to develop the next mineable gold
deposit in the Panamint District.
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
19
<PAGE> 22
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.
The Company has conducted reconnaissance and detailed mapping and
geochemical sampling of nearly the entire claim block. An aerial geophysical
program was conducted across the entire claim block in 1996 and was followed up
with ground reconnaissance in 1997. The geophysical and geochemical data will be
used to assist further exploration for concealed gold deposits on 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. The mineral rights have value for their mineral
potential, but also as value to the surface owners who desire to consolidate
ownership of the mineral and surface estate. Several parcels of this land
package have been sold by the Company in the last few years.
LATIN AMERICAN EXPLORATION
ARGENTINA
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 its 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 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
had the right to enter into a joint venture with CRIC as operator with a 50%
participating interest. During 1997 and 1998, Puma conducted geochemical
sampling, geologic mapping, and drilled 11 exploration drillholes. Following
this work, Puma withdrew its option to earn an interest in the property in
October, 1998. Canyon is actively seeking a new joint venture partner.
In July 1997, CRIC entered into a Purchase and Sales Agreement with
Minera El Desquite S.A. (Minera) for its Aeropuerto Property. The agreement
initially required Minera to pay CRIC $2.0 million over five years and a 2.5%
net smelter return on any production from the property. In 1998, the purchase
terms were modified to lower the payments in the first three years, but increase
the total purchase price to $2.42 million. Minera, at any time, upon proper
notice, may terminate the agreement and its then remaining obligations, and
relinquish its interest in the property. The Aeropuerto property is an
epithermal gold exploration prospect in highly altered volcanic rocks.
20
<PAGE> 23
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 from 1997 through 1999 at the San
Pedrito concession. The Company is actively seeking a joint venture partner to
continue the work at San Pedrito.
AFRICA EXPLORATION
GENERAL
In February 1994, the Company entered into an agreement with Africa
Mineral Resource Specialists Inc. (AMRS), a Colorado corporation, whereby the
Company would finance the exploration and acquisition of precious metal
properties in Africa and the AMRS staff would conduct certain
exploration/acquisition activities under the direction of the Company. To
conduct the business activities in Africa, a subsidiary company, Canyon
Resources Africa Ltd. (CRAL) was formed - of which the Company owns 90% and AMRS
owns 10%.
The Company is currently attempting to sell its African subsidiaries
and their underlying properties.
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
required 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 was $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
21
<PAGE> 24
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 into the second year of exploration which
required a $400,000 minimum expenditure. Field work at Meleka-Abeba during the
first year included building of access roads, line 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 1997, a limited diamond core
drilling program was undertaken to test several areas for near surface bulk
mineable gold mineralization. Anomalous gold values were intercepted and
additional follow-up drilling is required.
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. The joint venture continued into 1998 at
which time JCI withdrew from both the Megado and Meleka-Abeba license areas.
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 portions of the area may be converted
to Exploration Licenses. The joint venture committed to spend a minimum of
$50,000 during the one year period and CRAL funded 49% of the costs. The joint
venture applied for an exploration license covering a portion of the Tendaho
Graben area and that application was approved. JCI subsequently took over
management and funding of the Exploration License.
During 1997, CRAL and JCI expended $1.3 million on the various
Ethiopian licenses and exploration activities. During 1998, $0.6 million was
expended on the various licenses and exploration activities. No substantive work
was undertaken in 1999.
TITLE TO PROPERTY
U.S. MINERAL PROPERTIES
The Company's U.S. mineral properties consist of fee mineral rights,
leases covering state and private lands, leases of unpatented mining claims, and
unpatented mining claims located or otherwise acquired by the Company. Many of
the Company's mining properties 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
22
<PAGE> 25
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 holder of an unpatented mining claim, mill
or tunnel site claim 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 October 1, 1994, while the 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 applications not to be exempt from the
moratorium, and therefore will not allow them to be processed while the
moratorium remains in effect.
Before the Secretary's position on the applications was known, the
Company instituted litigation in U.S. District Court to attempt to force the
Secretary to construe the applications as exempt from the moratorium and to
diligently process all of them, either by granting patents or by contesting the
claims. However, the Court has declined to compel the Secretary to expedite
processing of the applications. 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 1,2000, 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
23
<PAGE> 26
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, because these projects are not on federal lands. The
Briggs project and certain other exploration properties, however, do occur on
federal mining claims and could be materially affected by such legislation.
FOREIGN MINERAL PROPERTIES
In the countries outside the United States where the Company is
operating, the rights to minerals are vested with the government. Mineral rights
are granted by the government through concessions, licenses or leases. Often,
the earliest stage work is conducted under Reconnaissance or Prospecting Permits
which have a duration of one to two years and cover large areas. Exploration
Licenses or Concessions often will involve a considerably smaller area and will
have a duration of one to three years, often with the right to extend for one or
two additional years with a reduction of the size of the area with each renewal.
Exploration Licenses usually contain the right to convert to a Mining License or
Concession provided the Licensee adheres to the terms of the Exploration License
and has defined an economic mineral deposit. Mining Licenses are generally for a
term of 10 to 20 years or longer or for the economic life of the deposit.
Usually the Licensee must considerably reduce the size of the area held when
converting from an Exploration License to a Mining License.
Mineral Licenses generally have a land rental charge which varies from
a few cents to several dollars per hectare per year and increases from
Prospecting to Exploration to Mining Licenses. Some countries have no royalty
provisions on production from Mining Licenses, whereas others will charge
royalties varying from 1-5% of the value of the minerals produced. Several
countries require a free carried interest in a mining operation at levels of
10-20% equity participation, although most countries in which the Company is
working do not. A number of countries charge a tax of 10-20% on dividends which
are remitted outside the country. Income tax rates vary from 30-40% in the
countries in which the Company is working. In several countries the sole
benefit, outside of land rental, that the country derives from Mining Licenses
is through collection of income tax.
LEASED PROPERTY
The Company leases approximately 4,300 square feet of office space at
14142 Denver West Parkway, Golden, Colorado 80401, under a lease which expires
July 31, 2001. Rent is presently $5,970 per month. The Company maintains storage
and/or facilities in Golden, Colorado; Lincoln, Montana; and Ridgecrest,
California, on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
CR KENDALL - VAN HAUR LAWSUIT
In May 1998, a plaintiff group including members of the Van Haur family
and the Van Haur family Ranch Trust (collectively "Plaintiffs") filed suit in
U.S. District Court in Montana against the Kendall Mine. The Plaintiffs operate
a farming and ranching enterprise approximately 1 1/2 to 2 miles downstream of
the Kendall Mine. Plaintiffs allege violation of their water rights and other
torts by the Kendall Mine and request unspecified damages and punitive damages.
On December 2, 1999, the lawsuit was dismissed on the basis that the federal
court did not have subject matter jurisdiction. On December 8, 1999, the
Plaintiffs refiled the suit in Montana State Court. The Company believes the
Plaintiffs' allegations are completely without merit and that the Company will
prevail in this matter.
24
<PAGE> 27
CR KENDALL - WATER QUALITY NOTICE OF VIOLATION
On September 23, 1998, the DEQ issued a Notice of Violation and
Administrative Order alleging certain violations of Montana water quality laws.
DEQ proposed a penalty of $330,000 (since modified to $302,000) in connection
with the alleged violations. The Company believes: (1) that many of the
allegations are unfounded, and (2) the proposed fine does not comport with
Montana statutes because it fails to consider certain mandatory mitigating
factors. The Company is negotiating the proposed fine with the DEQ and will
defend itself in court if a satisfactory resolution cannot be reached with the
administrative agency.
MCDONALD GOLD PROJECT - MONTANA DEPARTMENT OF NATURAL RESOURCES
METALIFEROUS 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 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. In February 2000, pursuant to its September 1998 decision,
the DNRC determined that the primary terms of the mineral leases had expired.
The Company has appealed the action of the DNRC in an administrative hearing
process under the state's Administrative Procedures Act, and believes that it
will prevail. The leases continue in effect during this appeal. It is the
Company's position that the permitting process has been interrupted by the
threat and passage of I-137 and, thus, the permit extension is continued until
the governmental impediment is resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 10, 2000 the Company's shareholders, at a special meeting
of shareholders, approved an alternate capital restructuring proposal for a
reverse split of common stock. The approval authorized the Board of Directors of
the Company, at its discretion, to implement a 1/2.5, a 1/4, or a 1/5 reverse
split of shares of common stock and a reduction of the Company's authorized
shares of common stock from 100 million to 50 million and elimination of the
Company's authorized preferred stock at any time within the next 23 months,
until January 14, 2002. Shareholders representing 25,507,425 shares of common
stock or 54.8% of the shareholders of record voted in favor of the proposal,
1,361,357 shares or 2.93% voted against the proposal, and 281,591 shares or 0.6%
either abstained or were broker non-votes.
On March 9, 2000, the Board of Directors approved a resolution to
implement a 1/4 reverse split of common stock, reduce the Company's authorized
shares of common stock to 50 million, eliminate the Company's authorized
preferred stock, and modify the numbers of outstanding warrants and options and
their exercise prices in accord with the 1/4 reverse split. These actions are
anticipated to be effective on March 24, 2000.
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<PAGE> 28
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
prices for the Company's common stock during 1999 and 1998. There are currently
no trading warrants.
<TABLE>
<CAPTION>
COMMON STOCK
------------------
High Low
------ -------
<S> <C> <C>
1999
Fourth Quarter $ 0.63 $ 0.19
Third Quarter $ 0.44 $ 0.13
Second Quarter $ 0.25 $ 0.13
First Quarter $ 0.31 $ 0.19
1998
Fourth Quarter $ 0.63 $ 0.25
Third Quarter $ 0.75 $ 0.19
Second Quarter $ 1.31 $ 0.63
First Quarter $ 1.19 $ 0.63
====== =======
</TABLE>
On March 1, 2000, the high and low prices for the Company's common
stock were $0.44 and $0.38, respectively.
As of March 1, 2000, there were approximately 1,330 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 6,000. As of March
1, 2000, there was 1 holder of record of non-trading warrants to purchase common
stock.
As of March 1, 2000, there were outstanding; a) 46,507,470 shares of
common stock; b) 278,182 warrants to purchase common stock; and c) 2,317,000
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 the Briggs Mine, the Company has agreed to maintain certain levels of
working capital, tangible net worth, and leverage ratios after January 1, 2001
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
26
<PAGE> 29
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
During 1999, the Company issued 345,400 shares of its $0.01 par value
common stock to six creditors as consideration for extinguishment of certain
payables aggregating $76,000. The shares were issued pursuant to the exemption
from registration provided by 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,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED
BALANCE SHEETS
Working Capital $ (1,759,000) $(14,336,000) $ 2,581,200 $ 6,460,600 $ 26,323,200
Current Assets 11,899,900 13,583,900 13,514,300 12,286,500 28,922,700
Total Assets 71,231,200 81,871,700 97,282,100 84,384,300 72,424,200
Current Liabilities 13,658,900 27,919,900 10,933,100 5,825,900 2,599,500
Long-term Obligations 11,937,700 8,652,900 31,310,500 30,117,800 49,754,200
Total Liabilities 25,596,600 36,572,800 42,243,600 35,943,700 52,353,700
Common Stockholders' Equity 45,634,600 45,298,900 55,038,500 48,440,600 20,070,500
============ ============ ============ ============ ============
SUMMARY OF CONSOLIDATED
STATEMENTS OF OPERATIONS
Sales $ 30,904,500 $ 35,246,600 $ 28,890,300 $ 4,857,000 $ 9,006,600
Income (Loss) Before Extraordinary
Items and Cumulative Effect of
Changes in Accounting Principles 203,500 (2,849,300) (5,022,300) (7,114,900) (6,143,200)
Net Income (Loss)(1) 203,500 (12,058,900) (5,022,300) (7,114,900) (6,143,200)
Net Income (Loss) Per Share(2)
Basic and Diluted(3) -- (0.26) (0.13) (0.21) (0.24)
============ ============ ============ ============ ============
</TABLE>
(1) The Company changed its methods of accounting for exploration costs on
unproven properties and accounting for costs of start-up activities in
1998. See Note 4 to Consolidated Financial Statements.
(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.
(3) Potential common shares had no effect on 1999 and would be
antidilutive during the preceding four year period as the Company
recorded net losses.
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<PAGE> 30
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
1999 COMPARED TO 1998
The Company recorded net income of $203,500, or $0.00 per share, on
revenues of $30,904,500 in 1999. This compares to a loss before extraordinary
item and cumulative effect of changes in accounting principles of $2,849,300, or
$0.06 per share, and a net loss of $12,058,900, or $0.26 per share, on revenues
of $35,246,600 in 1998.
During 1999, the Company sold 83,565 ounces of gold and 23,400 ounces
of silver at an average realized price of $370 per equivalent gold ounce. During
1998, the Company sold 79,303 ounces of gold and 21,500 ounces of silver at an
average realized price of $375 per equivalent gold ounce.
The following table summarizes the Company's gold deliveries and
revenues in 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------
AVERAGE AVERAGE
GOLD PRICE PER REVENUE GOLD PRICE PER REVENUE
OUNCES OZ. $000'S OUNCES OZ. $000'S
---------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deliveries
Forwards 62,800 $393 $ 24,667 56,600 $392 $ 22,176
Put options -- -- -- 4,200 $379 1,590
Spot sales 20,765 $295 6,115 16,409 $298 4,891
Gold loan -- -- -- 2,094 $388 813
---------- -------- -------- ---------
83,565 $368 30,782 79,303 $372 29,470
Other transactions
Silver proceeds -- 123 -- 114
Other hedging gains -- -- -- 190
---------- -------- -------- ---------
83,565 $370 $ 30,905 79,303 $375 $ 29,774
========== ========= ======== ======== ========= =========
</TABLE>
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<PAGE> 31
As a result of the Company's hedging programs, additional revenues of
$7,453,200 and $6,287,000 in 1999 and 1998, respectively, were recognized
relative to spot prices in effect on the settlement dates. The New York
Commodity Exchange (COMEX) gold prices averaged $279 per ounce in 1999 and $294
per ounce in 1998. All of the Company's revenues in 1999 and 1998 were from
domestic activities.
Cost of sales was $23.9 million in 1999 compared to $26.3 million in
1998. The lower cost of sales in 1999 was principally due to the sale of the
Company's industrial minerals business at the end of 1998. 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 as computed under
the Gold Institute's Production Cost Standard, was as follows:
<TABLE>
<CAPTION>
PER OUNCE
---------------
1999 1998
------ ------
<S> <C> <C>
Cash Operating Cost (1) $ 275 $ 278
Total Cash Costs (2) $ 281 $ 284
Total Production Costs (3) $ 369 $ 368
====== ======
</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 lower per ounce costs in 1999 are attributable to higher production
levels, despite the lower grade of ores mined and leached in 1999.
Depreciation, depletion, and amortization was higher in 1999 due to a
greater number of gold ounces sold from the Briggs Mine.
Selling, general, and administration expenses were lower in 1999 due to
the sale of the Company's industrial minerals business at the end of 1998 and to
reduced corporate overhead.
Exploration costs in 1999 were lower due to reduced levels of activity.
During the fourth quarter of 1999, the Company recorded a charge of
$0.9 million for site restoration based on an update to the anticipated scope of
work remaining at the Kendall Mine.
Interest income was lower in 1999 due to lower cash balances. Interest
expense was lower due to lower debt balances.
During 1999, in connection with an August 1998 restructuring of the
Briggs Mine Loan Facility, certain proceeds from the sale of the Company's
industrial minerals business were used to reduce the principal on a gold loan by
6,117 ounces. Additionally, in connection with a June 1999 restructuring, the
gold loan principal was reduced by 20,506 ounces. As a result of the
restructuring of the gold loan, the Company recognized a gain of $3,108,200.
This amount is shown as an other income item on the Statement of Operations for
the year ended December 31, 1999.
29
<PAGE> 32
During 1998, as part of a May 1998 restructuring of the Briggs Mine
loan facility, proceeds from a hedge liquidation were used to prepay in full
certain cash loans outstanding and to reduce the principal on the gold loan by
8,869 ounces. As a result of the full prepayment on the cash loans, unamortized
deferred financing costs of $281,500 were expensed. This amount is shown as an
extraordinary item on the Statement of Operations for the year ended December
31, 1998. In addition, as a result of the restructuring of the gold loan, the
Company recognized a gain of $919,700. This amount is shown as an other income
item on the Statement of Operations for the year ended December 31, 1998.
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 1998.
The effect of the change on 1998 was to increase the loss before extraordinary
item and cumulative effect of a change in accounting principle by $408,600, or
$0.01 per share, and the net loss by $6,034,000 or $0.13 per share.
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 1998.
The effect of the change on 1998 was to decrease the loss before extraordinary
item and cumulative effect of a change in accounting principle by $751,200, or
$0.02 per share, and to increase the net loss by $2,551,500, or $0.06 per share.
On December 31, 1998, the Company completed the sale of its industrial
minerals assets to an investment group. The Company recorded a loss on asset
disposals of $849,100 in connection with the sale.
There was no current or deferred provision for income taxes during 1999
or 1998. 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 1999 or 1998 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.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). 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 includes foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. The Company has no items of other
comprehensive income in any period presented in its financial statements.
Inflation did not have a material impact on operations in 1999 or 1998.
Management of the Company does not anticipate that inflation will have a
significant impact on continuing operations.
30
<PAGE> 33
1998 COMPARED TO 1997
The Company recorded a loss before extraordinary item and cumulative
effect of changes in accounting principles of $2,849,300, or $0.06 per share,
and a net loss of $12,058,900, or $0.26 per share, on revenues of $35,246,600 in
1998. This compares to a net loss of $5,022,300, or $0.13 per share, on revenues
of $28,890,300 in 1997.
During 1998, as part of a May 1998 restructuring of the Briggs Mine
loan facility, proceeds from a hedge liquidation were used to prepay in full
certain cash loans outstanding and to reduce the principal on a gold loan by
8,869 ounces. As a result of the full prepayment on the cash loans, unamortized
deferred financing costs of $281,500 were expensed. This amount is shown as an
extraordinary item on the Statement of Operations for the year ended December
31,1998. In addition, as a result of the restructuring of the gold loan, the
Company recognized a gain of $919,700. This amount is shown as an other income
item on the Statement of Operations for the year ended December 31, 1998.
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 1998.
The effect of the change on 1998 was to increase the loss before extraordinary
item and cumulative effect of a change in accounting principle by $408,600, or
$0.01 per share, and the net loss by $6,034,000 or $0.13 per share.
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 1998.
The effect of the change on 1998 was to decrease the loss before extraordinary
item and cumulative effect of a change in accounting principle by $751,200, or
$0.02 per share, and to increase the net loss by $2,551,500, or $0.06 per share.
On December 31, 1998, the Company completed the sale of its industrial
minerals assets to an investment group. The Company recorded a loss on asset
disposals of $849,100 in connection with the sale.
During 1998, the Company sold 79,303 ounces of gold and 21,500 ounces
of silver at an average realized price of $375 per equivalent gold ounce. During
1997, the Company sold 68,436 ounces of gold and 18,500 ounces of silver 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 at the Briggs Mine.
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<PAGE> 34
The following table summarizes the Company's gold deliveries and
revenues in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------
AVERAGE AVERAGE
GOLD PRICE PER REVENUE GOLD PRICE PER REVENUE
OUNCES OZ. $000'S OUNCES OZ. $000'S
---------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deliveries
Forwards 56,600 $392 $ 22,176 58,350 $403 $ 23,490
Put options 4,200 $379 1,590 3,600 $380 1,368
Spot sales 16,409 $298 4,891 4,875 $326 1,572
Gold loan 2,094 $388 813 1,611 $388 625
---------- -------- -------- ---------
79,303 $372 29,470 68,436 $395 27,055
Other transactions
Silver proceeds -- 114 -- 97
Other hedging gains -- 190 -- 339
---------- -------- -------- ---------
79,303 $375 $ 29,774 68,436 $402 $ 27,491
========== ========= ======== ======== ========= =========
</TABLE>
As a result of the Company's hedging programs, additional revenues of
$6,287,000 and $4,823,700 in 1998 and 1997, respectively, were recognized
relative to spot prices in effect on the settlement dates. The New York
Commodity Exchange (COMEX) gold prices averaged $294 per ounce in 1998 and $331
per ounce in 1997. In 1998, revenue from the sale of industrial mineral products
increased 17% from the prior year. All of the Company's revenues in 1998 and
1997 were from domestic activities.
Cost of sales was $26.3 million in 1998 compared to $21.4 million in
1997, reflecting the impact of the Briggs Mine operating at commercial
production levels for all of 1998. 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 as computed under
the Gold Institute's Production Cost Standard, was as follows:
<TABLE>
<CAPTION>
PER OUNCE
---------------
1998 1997
------ ------
<S> <C> <C>
Cash Operating Cost (1) $ 278 $ 290
Total Cash Costs (2) $ 284 $ 297
Total Production Costs (3) $ 368 $ 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 lower per ounce costs in 1998 are attributable to higher production
levels, which was principally a result of a 23% improvement in crusher
throughput in the current year. In late 1997 and early 1998, the original design
tertiary stage vertical shaft impact crushers (VSI's) were removed from service
and replaced with more efficient cone crushers. In connection with the removal,
the Company adjusted its carrying value of the VSI's to fair market value during
the fourth quarter of 1997, resulting in an impairment of $215,900. In 1998, the
fair market value was further reduced by $19,700.
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<PAGE> 35
Depreciation, depletion and amortization was higher in 1998 due to a
greater number of gold ounces sold from the Briggs Mine.
Exploration costs in 1998 of $0.6 million were $0.4 million higher than
in 1997, principally a result of the Company's change in the method of
accounting for exploration costs on unproven properties. The Company's
abandonments of $0.3 million in 1997 relate to costs associated with the
Cahuilla property, located in Imperial County, California.
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.
Interest income was lower in 1998 due to lower cash balances. Interest
expense was not materially different in 1998 as compared to 1997.
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, could terminate the agreement and its then remaining obligations, and
relinquish its interest in the property. Due to the contingent nature of the
transaction, gain was recognized only upon receipt of cash in excess of basis.
During the third quarter of 1998, the buyer relinquished its interest in the
property. The Company subsequently returned the property to the underlying
lessors. No gain or loss occurred as a result of the property relinquishment. In
1997, the Company recorded a gain of $229,100 in connection with payments
received in the initial year of the agreement.
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 is recognized only upon receipt of cash in excess of basis over the sixty
month period. Accordingly, the Company recorded a gain of $70,100 during 1998
and $42,400 during 1997.
Inflation did not have a material impact on operations in 1998 or 1997.
LIQUIDITY & CAPITAL RESOURCES
SUMMARY OF 1999 CASH FLOW:
The Company's cash and cash equivalents decreased $1.3 million during
1999 to $0.7 million at year-end. The decrease was a result of net cash provided
by operations of $7.4 million and $8.7 million of net cash used in financing
activities.
OPERATING ACTIVITIES:
Operations provided $7.4 million of cash in 1999 as compared to $11.2
million in 1998 and $0.7 million in 1997. The liquidation of a gold hedge
position in 1999 contributed $5.5 million of the total operating cash flow.
During 1998, the liquidation of a gold hedge position contributed $11.1 million
of the total operating cash flow. Operating cash flow in 1997 was substantially
lower as the Briggs Mine operated at commercial levels for only ten months and
no hedge positions were liquidated.
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<PAGE> 36
INVESTING ACTIVITIES:
Capital Expenditures
Capital expenditures in 1999 totaled $0.6 million. Major components
included $0.5 million for the McDonald Gold Project and $0.1 million for
miscellaneous projects at the Briggs Mine.
Capital expenditures in 1998 totaled $4.5 million. Major components
included $4.0 million for permitting efforts on the McDonald Gold Project; $0.3
million for capital improvements at the Company's industrial minerals
facilities; and $0.2 million for miscellaneous capital projects at the Briggs
Mine.
Capital expenditures in 1997 totaled $19.4 million. Major components
included $7.6 million at the Briggs Mine for final construction, working capital
and development drilling; $8.1 million at the McDonald Gold Project which
included an initial payment of $5.0 million to purchase Phelps Dodge's interest
in the project and $3.0 million for ongoing permitting; $1.5 million of
equipment upgrades at the Company's industrial minerals facilities and $0.5
million to purchase the pumice mine that supplied the ore for its New Mexico
processing facility; and $1.7 million on exploration properties.
Asset Dispositions
During 1999, 1998, and 1997, respectively, the Company received
proceeds of approximately $0.1 million, $0.1 million, and $0.4 million,
respectively, in connection with the sale of certain exploration properties.
On December 31, 1998, the Company completed the sale of its industrial
minerals assets to an investment group for a purchase price of $6,475,000 less
certain working capital adjustments.
Seven-Up Pete Venture Funding Commitment
In September 1999, the Company entered into a contract with
Franco-Nevada Mining Corporation, Inc. (Franco-Nevada) which provided $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 was provided to allow the Venture to maintain its property rights in the
McDonald and Seven-Up Pete gold deposits and to undertake a lawsuit against the
State of Montana and the Montana Department of Environmental Quality 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.
FINANCING ACTIVITIES:
Common Stock Issues
On March 31, 1999, the Company issued 15,000 shares in connection with
a warrant exercise at $3.75 per share.
On October 14, 1998, the Company issued 30,000 shares in a private
placement at $0.50 per share.
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<PAGE> 37
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.
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.
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 successful takings
lawsuit.
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.
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 initially included 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.
35
<PAGE> 38
In May 1998, the loan facility was restructured and included (i) the
modification of certain coverage ratios (as defined), (ii) a revision to the
amortization schedule for the gold loan, and (iii) the liquidation of the
Company's hedge position for all forward contracts with settlement dates beyond
June 30, 1998. The liquidation resulted in proceeds of $11.1 million which were
used to prepay in full the cash loans then outstanding of $8.6 million.
In August 1998, the loan facility was further restructured as follows:
(i) a six month, $1 million credit line at LIBOR plus 2 3/8% was established for
working capital needs ($650,000 drawn at December 31, 1998); (ii) the Company
pledged the stock of its subsidiary, CR Minerals, as additional collateral for
the loan; (the Company subsequently sold the assets of CR Minerals and
contributed $2.4 million of the proceeds which was used to pay of the credit
line amount of $650,000 and further reduce the gold loan principal by 6,117
ounces) (iii) certain proceeds from any additional asset sales the Company may
undertake will be used to reduce the principal balance on the loan; and (iv) the
$2.5 million remaining from the May, 1998 hedge liquidation was utilized for
scheduled debt service for the period ending September 30, 1998 (644 ounces of
principal and 312 ounces of interest) and to further reduce the principal on the
gold loan by 8,225 ounces.
In June 1999, the loan facility was again restuctured and included (i)
the liquidation of 125,000 ounces of forward gold contracts which netted $5.5
million; (ii) utilizing the forward liquidation proceeds to reduce the gold loan
debt by 20,506 ounces; (iii) establishing a $600,000 credit line for capital
expenditures and working capital needs ($135,000 drawn at December 31, 1999; the
commitment for remaining draws will expire on December 31, 2000); (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 and 50% thereafter (the remaining 50% to be applied to the
loan balance) through December 31, 2000.
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 ($7,727,200) to fair market value of $261.10 per ounce
($5,199,200).
The following table summarizes principal and interest payments and
weighted average interest rates on the loan facility:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Principal payments
Gold loan
o Ounces 26,623 13,057 4,832
o Monetized amount $ 10,331,100 $ 5,066,700 $ 1,875,000
Cash loans $ 650,000 $ 8,700,000 $ 300,000
Interest payments
Gold loan
o Ounces 715 2,481 2,437
o Market value $ 194,800 $ 730,700 $ 787,800
Cash loans $ 207,700 $ 390,900 $ 767,000
Weighted average interest rates
Gold loan 2.5% 3.5% 3.4%
Cash loans 7.9% 10.3% 10.2%
============ =========== ===========
</TABLE>
36
<PAGE> 39
The Company's debt at December 31, 1999, consists of (i) a dollar
loan in the amount of $5,199,200; (ii) a dollar credit line with an outstanding
balance of $135,000; and (iii) an equipment loan in the amount of $33,400.
As a condition of the Briggs Mine loan facility, a portion of the
mine's future production is hedged to ensure adequate cash flow for repayment of
the obligation. At December 31, 1999, 43,000 ounces of the Briggs Mine
production was hedged with forward contracts at an average price of $286 per
ounce. Subsequent to year-end, additional forward contracts were entered into,
and , as of March 1, 2000, 73,000 ounces of the the Briggs Mine production was
hedged at an average price of $298 per ounce.
Surety Bonds-Collateral Commitment
Certain bonds have been issued aggregating $6.1 million for the
performance of reclamation obligations and other contingent events at the Briggs
Mine and Kendall Mine. The Sureties currently hold the following collateral for
such bonds: (i) cash in the amount of $1,869,000; (ii) a bank Letter of Credit
in the amount of $249,000 which is collateralized with cash; and (iii) a
security interest in 28,000 acres of real property mineral interests in Montana.
In addition, the Company has agreed to make additional cash deposits with the
Sureties totalling $1.5 million over a three year period at the rate of $0.5
million per year, commencing June 30, 2001.
OUTLOOK:
Operations
The Briggs Mine is expected to produce approximately 87,000 ounces in
2000 at cash operating costs between $250-$260 per ounce. The Company's hedge
position as of December 31, 1999 consisted of 43,000 ounces of forward contracts
at an average price of $286 per ounce (as of March 1, 2000; 73,000 ounces at an
average price of $298 per ounce). In addition, the Company will recognize
approximately $8.4 million of deferred hedging gains in operations during 2000.
Reclamation activity at Kendall during 2000 will depend on governmental
approval of the Company's reclamation plan and the availability of cash
resources and could range from $0.4 million to $1.8 million. The Company expects
that total costs to achieve mine closure will be approximately $2.8 million. The
Company has accrued the expected reclamation costs at December 31, 1999, based
upon its current estimate.
Expenditures at the McDonald Gold Project (funded by Franco-Nevada) are
expected to be approximately $0.8 million in 2000.
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
open-pit gold and silver mines and expansions to existing mines which use
cyanide in the treatment and recovery process. For most of the campaign period,
mining companies 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 Seven-Up Pete Venture plans to file a
lawsuit in April 2000 against the State of Montana seeking to have I-137 deemed
unconstitutional or, alternatively, to obtain a "takings" or damage award for
the lost value of the McDonald, Seven-Up Pete and Keep Cool mineral properties.
The lawsuit will be based on, amongst others, (i) having been denied the
opportunity to campaign due to the
37
<PAGE> 40
effectiveness of I-125 until the last few days, and (ii) due process
considerations, in that I-137 was enacted without any compelling public policy
interest, since environmental safety concerns are well protected and monitored
with existing laws and regulations. The Company's legal counsel believes that it
is likely that the Venture will prevail in this lawsuit with respect to the
claim that I-137 is unconstitutional.
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 the Briggs Mine as of December 31, 1999
consisted of forward contracts on 43,000 ounces at an average price of $286 per
ounce. Subsequent to year-end, the Company increased its hedge position to
73,000 ounces at an average price of $298 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 does not anticipate any
non-performance by such counterparties.
Environmental Regulation
In 1995 the Montana State Legislature passed legislation which
streamlined the permitting process of new industrial projects by reorganizing
the several state agencies that had jurisdiction over environmental permitting
into one new central agency, the Department of Environmental Quality (DEQ). This
agency is 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. Moreover, with the passage of I-137 in November, 1998,
the Company cannot presently proceed with permitting and development of the
McDonald Gold Project.
The Kendall Mine operates under permits granted by the DEQ and the
Company currently maintains a $1,869,000 Reclamation Bond in favor of the DEQ 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.
Moreover, in October 1999, the Company received a determination notice from the
DEQ for an increase in the bond amount to approximately $8.1 million. The
Company believes the bond amount greatly exceeds the cost of remaining work and
has filed an administrative appeal to the DEQ's action. The Company's estimate
to achieve final mine closure may be impacted by the outcome of these pending
matters.
In September 1998, the DEQ issued a Notice of Violation and
Administrative Order with respect to the Kendall Mine alleging certain
violations of Montana water quality laws. DEQ proposed a penalty of $330,000
(since modified to $302,000) in connection with the alleged violations. The
Company believes (i) that many of the allegations are unfounded, and (ii) the
proposed fine is in violation of Montana statutes because it fails to consider
certain mandatory mitigating factors. The Company is negotiating the proposed
38
<PAGE> 41
fine with the DEQ and will defend itself in court if a satisfactory resolution
cannot be reached with the administrative agency.
The Briggs Mine operates under permits granted by various agencies
including the U.S. Bureau of Land Management (BLM), Inyo County, the California
Department of Conservation, and the Lahontan Regional Water Quality Control
Board (Lahontan). These agencies have jointly required the Company to post a
reclamation bond in the amount of $3,030,000 to ensure appropriate reclamation.
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 claims into private
ownership in accordance with the provisions of currently applicable law.
Recently Issued Financial Accounting Standards
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 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.
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 must maintain certain levels of working
capital, tangible net worth, and leverage ratios after January 1, 2001 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.
39
<PAGE> 42
ITEM 7(a). 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 $279 per ounce and $388 per
ounce. Moreover, during 1999, gold prices declined to their lowest level in over
two decades.
In order to protect the selling price of a portion of its anticipated
production from the Briggs Mine, the Company, as of December 31, 1999, had
entered into forward gold contracts on 43,000 ounces at an average price of $286
per ounce. Subsequent to year-end, the Company increased its hedge position to
73,000 ounces (approximately 84% of its anticipated production in 2000) at an
average price of $298 per ounce. A forward contract allows the Company the
flexibility to (i) deliver gold and receive the contract price if the market
price is below the contract price or (ii) extend the maturity date of the
forward contract and sell at the market price if the contract price is below the
market price. For purposes of illustrating the potential impact of a change in
gold price on the Company's annual profitability and cash flow, if 85% of its
estimated production was delivered against the forward contracts, a $10 change
in the price of gold would have an impact of approximately $0.1 million.
Similarly, a hedge position of only 50% with a $10 change in the price of gold
would impact the Company's annual profitability and cash flow by 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. In addition, the Company could be subject to
cash margin calls by its counterparties if the market price of gold
significantly exceeds the forward contract price.
In May 1998, the Company liquidated a forward position that was
originally established in December, 1995, resulting in proceeds of $11.1
million. During 1998, $2.5 million of deferred income was recognized in
operations based on the original expected settlement dates of the forward
contracts. During 1999, $4.1 million of deferred income was recognized. The
balance of $4.5 million will be recognized in 2000.
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 proceeds on the liquidation was deferred and will be recognized in
operations based on the original expected settlement dates of the forward
contracts. During 1999, $1.3 million of deferred income was recognized. During
2000, $3.9 million of deferred income will be recognized with the balance of
$0.3 million recognized in 2001.
On June 30, 1999, the Company converted a commodity based 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 $2.5 million which will
be recognized in operations over the original scheduled gold loan repayment
dates in 2001 and 2002.
At December 31, 1999, the market value of the Company's forward gold
contracts was approximately $0.1 million less than contract value.
40
<PAGE> 43
Interest Rates
At December 31, 1999, the Company's debt was approximately $5.4
million, $5.3 million of which relates to the Briggs Mine.The Company is
required to periodically reset the rate on the debt associated with the Briggs
Mine for periods that the Company may choose which range in duration from one to
six months. During 1999, 1998, and 1997, respectively, the interest rate on the
Company's cash loans for the Briggs Mine averaged 7.9%, 10.3%, and 10.2%,
respectively. A 100 basis point change in the rate would have an impact on
annual earnings and cash flow of less than $0.1 million, based on the
outstanding loan amount of $5.3 million at December 31, 1999.
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.
41
<PAGE> 44
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants .......................................... 43
Consolidated Balance Sheets ................................................ 44
Consolidated Statements of Operations ...................................... 45
Consolidated Statement of Changes in Stockholders' Equity .................. 46
Consolidated Statements of Cash Flows ...................................... 47
Notes to Consolidated Financial Statements .............................. 49-66
</TABLE>
42
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of
Canyon Resources Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of Canyon
Resources Corporation and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
March 9, 2000
43
<PAGE> 46
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 681,600 $ 1,985,700
Restricted cash 2,211,900 4,887,200
Accounts receivable 18,800 173,800
Inventories 7,818,900 5,372,200
Prepaid and other assets 1,168,700 1,165,000
------------ ------------
Total current assets 11,899,900 13,583,900
------------ ------------
Property and equipment, at cost
Mining claims and leases 21,594,000 24,508,100
Producing properties 51,300,600 51,124,700
Other 841,600 994,200
------------ ------------
73,736,200 76,627,000
Accumulated depreciation and depletion (18,582,400) (11,639,500)
------------ ------------
Net property and equipment 55,153,800 64,987,500
------------ ------------
Other assets 4,177,500 3,300,300
------------ ------------
Total Assets $ 71,231,200 $ 81,871,700
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,499,700 $ 3,134,300
Notes payable - current 30,700 18,708,400
Accrued taxes, other than payroll and income 36,400 60,800
Accrued reclamation costs 1,830,400 964,000
Deferred income 8,421,200 4,090,700
Other current liabilities 840,500 961,700
------------ ------------
Total current liabilities 13,658,900 27,919,900
Notes payable - long term 5,336,900 --
Accrued reclamation costs 2,386,100 2,704,900
Deferred income 2,769,200 4,489,500
Other noncurrent liabilities 1,445,500 1,458,500
------------ ------------
Total Liabilities 25,596,600 36,572,800
------------ ------------
Commitments and contingencies (Note 9)
Common stock ($.01 par value) 100,000,000 shares authorized; issued and out-
standing: 46,497,500 at December 31, 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 (50,252,500) (50,456,000)
------------ ------------
Total Stockholders' Equity 45,634,600 45,298,900
------------ ------------
Total Liabilities and Stockholders' Equity $ 71,231,200 $ 81,871,700
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
44
<PAGE> 47
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Sales $ 30,904,500 $ 35,246,600 $ 28,890,300
------------ ------------ ------------
EXPENSES
Cost of sales 23,934,300 26,299,600 21,389,900
Depreciation, depletion, and amortization 7,014,400 6,783,600 5,207,100
Selling, general and administrative 1,146,400 3,274,200 3,242,500
Exploration costs 185,800 552,400 202,000
Provision for site restoration 937,400 -- 2,634,900
Abandonments and impairments of mineral properties -- -- 305,900
Impairment of producing assets -- 19,700 215,900
------------ ------------ ------------
33,218,300 36,929,500 33,198,200
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 150,800 196,900 375,600
Interest expense (704,600) (1,504,100) (1,442,900)
Gain on restructuring of gold loan 3,108,200 919,700 --
Gain (loss) on asset disposals (26,900) (771,500) 343,000
Other (10,200) (7,400) 9,900
------------ ------------ ------------
2,517,300 (1,166,400) (714,400)
------------ ------------ ------------
Income (loss) before extraordinary item and cumulative
effect of changes in accounting principles 203,500 (2,849,300) (5,022,300)
Extraordinary loss on debt prepayments -- (281,500) --
Cumulative effect of changes in accounting principles -- (8,928,100) --
------------ ------------ ------------
Net income (loss) $ 203,500 $(12,058,900) $ (5,022,300)
============ ============ ============
Basic and diluted income (loss) per share:
Income (loss) before extraordinary item and
cumulative effect of changes in accounting principles $ -- $ (0.06) $ (0.13)
Extraordinary loss on debt prepayments -- $ (0.01) --
Cumulative effect of changes in accounting principles -- $ (0.19) --
------------ ------------ ------------
Net loss $ -- $ (0.26) $ (0.13)
============ ============ ============
Weighted average shares outstanding 46,347,900 46,114,600 39,821,900
============ ============ ============
Pro forma amounts assuming the discretionary change
in accounting principle is applied retroactively
Net income (loss) -- -- $ (6,553,300)
Basis and diluted per share amounts -- -- $ (0.16)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
45
<PAGE> 48
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Capital
Common Stock in excess
Shares Amount of par value Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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)
Issuance of stock 2,520,000 25,200 2,294,100 --
Net (loss) -- -- -- (12,058,900)
------------ ------------ ------------ ------------
Balances, December 31, 1998 46,137,100 461,400 95,293,500 (50,456,000)
Issuance of stock and warrants 360,400 3,600 128,600 --
Net income -- -- -- 203,500
------------ ------------ ------------ ------------
Balances, December 31, 1999 46,497,500 $ 465,000 $ 95,422,100 ($50,252,500)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
46
<PAGE> 49
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 203,500 $(12,058,900) $ (5,022,300)
------------ ------------ ------------
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 7,014,400 6,783,600 5,207,100
Amortization of financing costs 160,000 209,900 228,600
Abandonments and impairments of mineral properties -- -- 305,900
Provision for site restoration 937,400 -- 2,634,900
Impairment of producing assets -- 19,700 215,900
Provision for inventory obsolescence -- -- 266,500
(Gain) loss on disposal of assets 26,900 771,500 (343,000)
Other -- 50,000 (500)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivables 155,000 (317,700) (171,900)
Decrease (increase) in inventories (2,446,700) 20,100 (2,224,800)
Decrease (increase) in prepaid and other assets 1,360,000 (1,256,400) (1,597,300)
Increase (decrease) in accounts payable and accrued liabilities (286,000) (779,200) 2,255,500
Increase in deferred income 82,200 8,580,200 --
Increase (decrease) in other liabilities (81,600) 45,000 (737,800)
Increase (decrease) in restricted cash 275,300 (60,100) (309,100)
------------ ------------ ------------
Total adjustments 7,196,900 23,276,200 5,730,000
------------ ------------ ------------
Net cash provided by operating activities 7,400,400 11,217,300 707,700
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (586,500) (4,464,800) (19,429,100)
Proceeds on asset dispositions 64,800 6,587,500 373,600
Production proceeds during mine development -- -- 3,289,900
Decrease in restricted cash 497,100 -- 604,200
Other -- -- 4,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (24,600) 2,122,700 (15,157,400)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of stock 56,200 2,207,500 11,612,500
Proceeds from loans and restricted cash, net 135,000 1,204,000 4,296,100
Proceeds from asset sales utilized (reserved) for debt payments 2,400,000 (2,400,000) --
Receipts from escrow account -- 200 --
Payments on debt (11,007,100) (15,091,600) (2,371,800)
Payments on capital lease obligations (264,000) (220,400) (157,200)
Payments to collateralize letters of credit -- (165,000) --
------------ ------------ ------------
Net cash provided by (used in) financing activities (8,679,900) (14,465,300) 13,379,600
------------ ------------ ------------
Net decrease in cash and cash equivalents (1,304,100) (1,125,300) (1,070,100)
Cash and cash equivalents, beginning of year 1,985,700 3,111,000 4,181,100
------------ ------------ ------------
Cash and cash equivalents, end of year $ 681,600 $ 1,985,700 $ 3,111,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
47
<PAGE> 50
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental disclosures of cash flow information:
1. The Company paid $543,500, $1,366,800, and $1,644,400 of interest during
1999, 1998, and 1997, respectively. No interest was capitalized during
1999 or 1998. Of the total interest paid during 1997, $543,600 was
capitalized.
2. The Company paid no income taxes during 1999, 1998, and 1997.
3. During 1999, the Company received $3.0 million in connection with a third
party funding commitment, the proceeds of which are designated for
restricted use in the maintenance and development of certain noncurrent
assets. The Company initially reduced its carrying value of mining claims
and leases upon receipt of the funds. At December 31, 1999, a balance of
$2.5 million remained which is included in other assets on the Company's
Balance Sheet.
Supplemental schedule of noncash investing and financing activities:
1. Capital lease obligations of $12,300, $1,326,300, and $97,600 were
incurred for equipment in 1999, 1998, and 1997, respectively.
2. The Company converted a commodity based loan with a carrying amount of
$7,727,200 to a cash loan in 1999. The carrying amount was reduced by
$2,528,000 at the time of conversion to adjust the monetized amount of
the loan to the value of the commodity based loan on the conversion date.
3. The Company financed an equipment lease buy-out in the amount of $59,200
in 1999.
4. The Company acquired equipment with a fair market value of $53,000 by
exchange of certain assets in 1999.
5. 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 1999.
6. 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.
7. 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.
8. Certain stock options were exercised and paid for by tendering shares
otherwise issuable in lieu of cash payment during 1997. Fair market value
of the shares tendered was $39,900.
The accompanying notes are an integral part of these
consolidated financial statements.
48
<PAGE> 51
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Canyon Resources Corporation (the Company or Canyon) is a United
States based corporation involved in all phases of the mining business including
exploration, permitting, developing, operating and final closure of mining
projects. The Company has gold production operations in the western United
States and conducts exploration activities in search of additional mineral
properties (emphasizing precious metals) in the western United States and in
Latin America and Africa. The principal market for the Company's precious metals
products are European-based bullion trading concerns. Until December 31, 1998,
the Company also had industrial mineral production operations (diatomite and
pumice) in the Western United States.
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:
BASIS OF PRESENTATION: The consolidated financial statements of the Company
include the accounts of Canyon and its wholly-owned subsidiaries: CR Kendall
Corporation; CR Minerals Corporation; CR Briggs Corporation; CR Montana
Corporation; CR International Corporation; Canyon Resources (Chile) S.A.; Canyon
De Panama, S.A.; CR Brazil Corporation; and its 90% owned subsidiaries: Canyon
Resources Venezuela, C.A.; Canyon Resources Africa Ltd.; and Canyon Resources
Tanzania Limited. The Company applied equity accounting principles for its 40%
ownership in Minera Hispaniola, S.A., a foreign corporation which was sold in
1998, and proportionately consolidates its interests in undivided interest joint
ventures.
INTERCOMPANY BALANCES: All intercompany balances and transactions have been
eliminated.
PRIOR PERIOD RECLASSIFICATIONS: Certain prior period items have been
reclassified in the consolidated financial statements to conform with the
current year presentation.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include amounts which are
readily convertible into cash and which are not subject to significant risk from
changes in interest rates. The Company maintained at December 31, 1999 and 1998,
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 as collateral for
reclamation bonds is classified based on the expected release or use of such
collateral. Cash held in trust and restricted to specific use is classified as
current when expected to be used in current operations or noncurrent when
expected to be used in the acquisition, maintenance, or development of
noncurrent assets.
INVENTORIES: Processed ores and metal-in-process are stated at the lower of
average cost or market. Materials and supplies are stated at cost.
49
<PAGE> 52
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED):
DEFERRED MINING COSTS: The Company, in order to more closely match expenses and
revenues, capitalizes costs of overburden removal that are in excess of the
estimated average pit strip ratio (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: All costs, other than acquisition costs, are expensed
prior to the establishment of proven and probable reserves (See Note 4). Gains
or losses resulting from the sale or abandonment of 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.
PRODUCING PROPERTIES AND EQUIPMENT: Acquisition and development costs associated
with properties brought into production are charged to operations using the
units-of-production method based on estimated recoverable reserves. Production
facilities and equipment are stated at cost and are amortized over the estimated
proven and probable recoverable reserves of the related property. 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.
IMPAIRMENTS: The Company evaluates the carrying value of its properties and
equipment by applying the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. With respect to properties with proven
reserves, an impairment loss is recognized when the estimated future cash flows
(undiscounted and without interest) expected to result from the use of the asset
are less than the carrying amount of the asset. Measurement of the impairment
loss is based on discounted cash flows. Properties with unproven reserves are
assessed for impairment when changes in market conditions or other events occur
and are measured based on fair value.
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. 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. Deferred income represents payments
received for the future delivery of mineral products to be mined. Upon delivery,
revenue is included in the Company's Statement of Operations.
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
50
<PAGE> 53
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED):
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.
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
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.
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.
EARNINGS PER SHARE: The Company computes earnings per share (EPS) by applying
the provisions of Statement of Financial Accounting Standards No. 128, Earnings
per Share. 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. The inclusion
of potential common shares had no effect on per share amounts in 1999. As the
Company reported net losses in 1998 and 1997, 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 all periods
presented. At December 31, 1999, 1998, and 1997, respectively, there were
potential common shares outstanding of 2,709,200, 4,889,000 and 5,106,500,
respectively.
COMPREHENSIVE INCOME: The provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, are 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 includes foreign currency items, minimum pension liability adjustments,
and unrealized gains and losses on certain investments
51
<PAGE> 54
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED):
in debt and equity securities. The Company has no items of other comprehensive
income in any period presented in the accompanying financial statements.
4. 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 1998.
The effect of the change on 1998 was to increase the loss before extraordinary
item and cumulative effect of changes in accounting principles by $408,600, or
$0.01 per share.
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 1998.
The effect of the change on 1998 was to decrease the loss before extraordinary
item and cumulative effect of changes in accounting principles by $751,200, or
$0.02 per share.
5. RESTRICTED CASH:
Restricted cash consisted of the following at December 31:
<TABLE>
<CAPTION>
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) 2,502,900 --
Proceeds from asset sales reserved for debt payments (c) -- 2,400,000
Unexpended proceeds from gold sales (d) 93,900 369,200
---------- ----------
$4,714,800 $4,887,200
Current portion 2,211,900 4,887,200
---------- ----------
Noncurrent portion * $2,502,900 $ --
*Included in other assets ========== ==========
</TABLE>
(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 full and 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, 2000,
and at the bank's option, may be renewed for successive one-year
periods.
52
<PAGE> 55
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RESTRICTED CASH, (CONTINUED):
(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 lawsuit against the State of Montana as a result of
the passage of the anti-cyanide initiative, I-137. In addition, a
replacement reclamation bond in the amount of $0.5 million was
provided for the McDonald Gold Project (See Note 7).
(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 8).
(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.
6. INVENTORIES:
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Gold-in-process (a) $ 7,314,200 $ 4,962,200
Materials and supplies 504,700 410,000
----------- -----------
$ 7,818,900 $ 5,372,200
=========== ===========
</TABLE>
(a) Includes all direct and indirect costs of mining,
crushing, processing and mine site overhead expenses.
7. MINING CLAIMS AND LEASES:
The carrying value of the Company's mining claims and leases consists
of the following components at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Mining Property:
McDonald $15,961,400 $18,769,400
Seven-Up Pete 5,175,000 5,175,000
Exploration Properties 457,600 563,700
----------- -----------
$21,594,000 $24,508,100
=========== ===========
</TABLE>
Feasibility studies on the McDonald and Seven-Up Pete properties located in
Montana indicate sufficient mineable reserves that, with subsequent development,
would allow the Company to ultimately recover its carrying values (See Note
9(e)).
53
<PAGE> 56
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. MINING CLAIMS AND LEASES, (CONTINUED):
In September 1999, the Company entered into a contract with
Franco-Nevada Mining Corporation, Inc. (Franco-Nevada) which provided $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 was provided to allow the Venture to maintain its property rights in the
McDonald and Seven-Up Pete gold deposits and to undertake a lawsuit against the
State of Montana and the Montana Department of Environmental Quality as a result
of implementation of the anti-cyanide initiative, I-137 (See Note 9(e)). 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. Upon receipt of this funding, the
Company reduced the carrying value of its mining claims and leases by $3.0
million.
8. NOTES PAYABLE:
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Briggs Facility (a)
o Gold Loan $ -- $ 18,058,400
o Cash Loans 5,199,200 --
o Credit Line 135,000 650,000
Caterpillar Finance 33,400
------------ ------------
$ 5,367,600 $ 18,708,400
Current portion (1) 30,700 18,708,400
------------ ------------
Notes Payable - Noncurrent $ 5,336,900 --
============ ============
</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 gold loan debt by 20,506 ounces, (iv)
establishing a $600,000 credit line for capital expenditures and
working capital needs ($135,000 drawn at December 31, 1999; the
commitment for remaining draws will expire on December 31, 2000),
(v) rescheduling remaining principal payments to 2001 and 2002 on a
quarterly basis, and (vi) 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) through December 31, 2000.
54
<PAGE> 57
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. NOTES PAYABLE, (CONTINUED):
(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 initially included 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.
In May 1998, the loan facility was restructured and included (i) the
modification of certain coverage ratios (as defined), (ii) a revision to
the amortization schedule for the gold loan, and (iii) the liquidation
of the Company's hedge position for all forward contracts with
settlement dates beyond June 30, 1998. The liquidation resulted in
proceeds of $11.1 million which were used to prepay in full the cash
loans then outstanding of $8.6 million. As a result of the prepayment,
unamortized deferred financing costs of $281,500 allocated to the cash
loans were expensed in the second quarter of 1998. This amount is shown
as an extraordinary item on the Statement of Operations for the year
ended December 31, 1998.
In August, 1998, the loan facility was further restructured as follows:
(i) a six month, $1 million credit line at LIBOR plus 2 3/8% was
established for working capital needs ($650,000 drawn at December 31,
1998); (ii) the Company pledged the stock of its subsidiary, CR
Minerals, as additional collateral for the loan (the Company
subsequently sold the assets of CR Minerals and contributed $2.4 million
of the proceeds for further debt reduction); (iii) certain proceeds from
any additional asset sales the Company may undertake will be used to
reduce the principal balance on the loan; and (iv) the $2.5 million
remaining from the May, 1998 hedge liquidation was utilized for
scheduled debt service for the period ending September 30, 1998 (644
ounces of principal and 312 ounces of interest) and to further reduce
the principal on the gold loan by 8,225 ounces. As a result of the
restructuring of the gold loan, the Company recognized a gain of
$919,700. This amount is shown as an other income item on the Statement
of Operations for the year ended December 31, 1998.
During 1999, in connection with the August 1998 restructuring as
previously described, the Company contributed $2.4 million to CR Briggs
Corporation which was used to pay off a credit line amount of $650,000
and reduce the gold loan principal by 6,117 ounces. Additionally, in
connection with the June 1999 restructuring, the gold loan principal was
reduced by 20,506 ounces. As a result of the restructuring of the gold
loan, the Company recognized a gain of $3,108,200. This amount is shown
as an other income item on the Statement of Operations for the year
ended December 31, 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
55
<PAGE> 58
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. NOTES PAYABLE, (CONTINUED):
$2,528,000 associated with the conversion will be deferred and
recognized in operations over the original gold loan repayment
schedule.
The following table summarizes principal and interest payments and
weighted average interest rates on the loan facility:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Principal payments
Gold loan
o Ounces 26,623 13,057 4,832
o Monetized amount $ 10,331,100 $ 5,066,700 $ 1,875,000
Cash loans $ 650,000 $ 8,700,000 $ 300,000
Interest payments
Gold loan
o Ounces 715 2,481 2,437
o Market value $ 194,800 $ 730,700 $ 787,800
Cash loans $ 207,700 $ 390,900 $ 767,000
Weighted average interest rates
Gold loan 2.5% 3.5% 3.4%
Cash loans 7.9% 10.3% 10.2%
============ =========== ===========
</TABLE>
(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 payment over two years at an interest
rate of 8.5%. During 1999, principal and interest payments of $25,800
and $3,700, respectively, were made.
Maturities of notes payable over the next five years are as follow:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Total
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 30,700 $2,669,800 $2,667,100 -- -- $ 5,367,600
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
(a) Site Restoration Costs:
Reclamation spending at the Kendall Mine for 1999, 1998, and 1997 was
$0.8 million, $1.1 million, and $1.8 million, respectively. During 1999
the Company recorded an additional charge of $0.9 million based on a
fourth quarter update to costs associated with final reclamation, water
quality
56
<PAGE> 59
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES, (CONTINUED):
compliance, and long-term monitoring requirements. Costs to date total
$6.3 million and the Company's estimate of total costs to achieve mine
closure is $9.1 million.
The Kendall Mine operates under permits granted by the Montana
Department of Environmental Quality (DEQ) and the Company currently
maintains a $1,869,000 Reclamation Bond in favor of the DEQ to ensure
appropriate reclamation. In October 1999, the Company received a
determination notice from the DEQ for an increase in the bond amount to
approximately $8.1 million. The Company believes the bond amount
greatly exceeds the cost of remaining work and has filed an
administrative appeal to the DEQ's action.
The Briggs Mine operates under permits granted by various agencies
including the U.S. Bureau of Land Management (BLM), Inyo County, the
California Department of Conservation, and the Lahontan Regional Water
Quality Control Board (Lahontan). These agencies have jointly required
the Company to post a reclamation bond in the amount of $3,030,000 to
ensure appropriate reclamation. 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.
(b) Lease Commitments:
The Company has entered into various operating leases for office space
and equipment, including a mining fleet at the Briggs Mine. At December
31, 1999, future minimum lease payments extending beyond one year under
noncancellable leases were as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Total
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1,223,100 $1,023,200 $ 810,700 -- -- $ 3,057,000
</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
$196,500 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
$79,400 in annual rental fees, however, this amount will vary as claims
are added or dropped. The Company has submitted patent applications for
its Briggs claims, however, no assurances can be made that
57
<PAGE> 60
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES, (CONTINUED):
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 $18,600 annually.
Lease costs included in cost of goods sold for the years ended December
31, 1999, 1998 and 1997 were $1,983,800; $2,307,100; and $2,072,300,
respectively. The aforementioned amounts do not include lease costs
capitalized during the development stage of the Briggs Mine during part
of 1997. Rent expense included in selling, general and administrative
expense of the Company for the years ended December 31, 1999, 1998 and
1997, was $85,000; $120,300; and $120,300, respectively.
Property and equipment includes equipment with a cost and accumulated
amortization of $1,915,700 and $750,300, respectively, at December 31,
1999 and $1,956,900 and $487,100, respectively, at December 31, 1998,
for leases that have been capitalized. Future minimum lease obligations
under capital leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 436,400
2001 316,100
2002 280,400
2003 385,900
2004 --
------------
Total 1,418,800
Less amounts representing interest 225,500
------------
Present value of minimum lease payments 1,193,300
Less current obligations 336,200
------------
Long-term obligations under capital lease $ 857,100
============
</TABLE>
(c) Surety Bonds - Collateral Commitment
During 1999, in response to a demand for an increase in collateral by
the Sureties who issued certain bonds for the performance of
reclamation obligations and other contingent matters, the Company has
(i) agreed to make cash deposits with the Sureties totalling $1.5
million over a three year period at the rate of $0.5 million per year,
commencing June 30, 2001 and (ii) granted a security interest in favor
of the Sureties in 28,000 acres of real property mineral interests in
Montana.
(d) 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.
58
<PAGE> 61
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES, (CONTINUED):
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.
(e) 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 which 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. In February 2000, pursuant to its September 1998
decision, the DNRC determined that the primary terms of the mineral
leases had expired. The Company has appealed the action of the DNRC in
an administrative hearing process under the state's Administrative
Procedures Act, and believes that it will prevail. The leases continue
in effect during this appeal. It is the Company's position that the
permitting process has been interrupted by the threat and passage of
I-137 and, thus, the permit extension is continued until the
governmental impediment is resolved.
In September 1998, the DEQ issued a Notice of Violation and
Administrative Order alleging certain violations of Montana water
quality laws. DEQ proposed a penalty of $330,000 (since modified to
$302,000) in connection with the alleged violations. The Company
believes (i) that many of the allegations are unfounded, and (ii) the
proposed fine does not comport with Montana statutes because it fails
to consider certain mandatory mitigating factors. The Company is
negotiating the proposed fine with the DEQ and will defend itself in
court if a satisfactory resolution cannot be reached with the
administrative agency.
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 and expansions to existing mines which use
cyanide in the treatment and recovery process. For most of the campaign
period, mining companies 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 Seven-Up Pete Venture plans to file a lawsuit in April 2000 against
the State of Montana seeking to have I-137 declared unconstitutional
or, alternatively, to obtain a "takings" or damage award for the lost
value of the McDonald, Seven-Up Pete and Keep Cool mineral properties.
The lawsuit will be based on, amongst others, (i) having been denied
the opportunity to campaign due to the effectiveness of I-125 until the
last few days, and (ii) due process considerations, in that I-137 was
enacted without any compelling public policy interest,
59
<PAGE> 62
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES, (CONTINUED):
since environmental safety concerns are well protected and monitored
with existing laws and regulations. The Company's legal counsel
believes that it is likely that the Venture will prevail in this
lawsuit with respect to the claim that I-137 is unconstitutional.
10. CERTAIN CONCENTRATIONS AND CONCENTRATIONS OF CREDIT RISK:
The Company sold its gold and silver production predominantly to two
customers during 1999, 1998 and 1997. 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.
The Company is subject to credit risk in connection with its price
protection arrangements as outlined in Note 11) 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.
11. PRICE PROTECTION ARRANGEMENTS:
At December 31, 1999, 43,000 ounces of the Briggs Mine production was
hedged with forward contracts totaling 43,000 ounces at an average price of $286
per ounce. Subsequent to year-end, the Company increased its hedge position to
73,000 ounces at an average price of $298 per ounce.
12. 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. For the years ended December 31, 1999 and 1998, deferred income of $4.1
million and $2.5 million, respectively, were recognized in operations based on
the original expected settlement dates of the forward contracts. During 2000,
the balance of $4.5 million will be recognized.
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 proceeds on the liquidation was deferred and will be recognized in
operations based on the original expected settlement dates of the forward
contracts. For the year ended December 31, 1999, $1.3 million of the deferred
income was recognized. During 2000, $3.9 million of the deferred income will be
recognized with the balance of $0.3 million recognized in 2001.
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 which will
be deferred and recognized in operations over the original scheduled gold loan
repayment dates in 2001 and 2002.
60
<PAGE> 63
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. DEFERRED INCOME (CONTINUED):
The Company's overall deferred income balance at December 31, 1999 will
be recognized in operations as follows:
<TABLE>
<CAPTION>
$ MM
------------------------------------------------------------------
2000 2001 2002 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
$8.4 $1.5 $1.3 $11.2
==== ==== ==== =====
</TABLE>
13. 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 has significant deferred tax assets in the
form of operating loss carryforwards; 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 carryforwards
can be used to offset future reversals of existing deferred tax liabilities.
During 1999, the valuation allowance was reduced by $1,167,500. During 1998 and
1997, the valuation allowance increased by $4,231,400, and $1,211,500,
respectively. Changes in the valuation allowance are primarily due to changes in
operating loss carryforwards and other temporary differences.
Deferred tax assets and liabilities were comprised of the following at
December 31, 1999, and December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
================= =================
<S> <C> <C>
DEFERRED TAX ASSETS
Reserve for mine reclamation $ 1,770,900 1,540,900
Inventories 2,116,500 1,680,400
Net Operating Loss Carryforwards 19,597,200 20,759,700
Other 1,419,300 1,414,800
----------------- -----------------
Total Gross Deferred Tax Assets 24,903,900 25,395,800
Valuation Allowance (20,099,100) (21,266,600)
----------------- -----------------
Net Deferred Tax Assets $ 4,804,800 4,129,200
----------------- -----------------
DEFERRED TAX LIABILITIES
Net PP&E (writedowns, depreciation/depletion
and exploration/development expenditures) $ (4,311,300) $ (3,019,500)
Deferred Stripping (493,500) (1,109,700)
----------------- -----------------
$ (4,804,800) $ (4,129,200)
----------------- -----------------
NET DEFERRED INCOME TAX ASSET (LIABILITY) $ -- $ --
================= =================
</TABLE>
61
<PAGE> 64
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES (CONTINUED):
There was no current or deferred provision for income taxes for the
years ended December 31, 1999, 1998, and 1997. The current provision for income
taxes differs from the amounts computed by applying the U.S. federal statutory
rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------------ ------------
<S> <C> <C> <C>
Tax at Statutory Rate of 34% $ 69,200 $ (4,100,000) $ (1,707,600)
Net Operating Loss (With) Without Tax Benefit $ (69,200) 4,100,000 1,707,600
--------- ------------ ------------
$ -- $ -- $ --
========= ============ ============
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
for regular tax purposes of approximately $54,089,100 and approximately
$39,831,100 of net loss carryforwards available for the alternative minimum tax.
The net loss carryforwards will expire from 2004 through 2019.
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, 1999, $800,500 remains subject to Section 382 limitations.
14. 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 approximate carrying values at December 31, 1999, and December 31,
1998. The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
CASH AND CASH EQUIVALENTS: Carrying amounts approximate fair value based on the
short-term maturity of those instruments.
RESTRICTED CASH: Carrying amounts approximate fair value based on the short-term
maturity of those instruments.
LONG-TERM DEBT: Carrying values approximate fair values estimate based on
discounted cash flows using the Company's current rate of borrowing for a
similar liability.
15. 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
62
<PAGE> 65
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCK OPTIONS (CONTINUED):
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 granted can have a
term no longer than 10 years and are first exercisable at dates determined at
the discretion of the Company's Board of Directors.
Incentive stock option activity during 1999, 1998, and 1997 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Amount Average Price Amount Average Price Amount Average Price
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 2,143,700 $ 1.62 2,191,200 $ 2.25 2,005,000 $ 2.50
Granted 42,000 $ 0.25 486,000 $ 0.25 511,000 $ 1.33
Exercised -- -- -- -- (113,400) $ 1.66
Forfeited (476,200) $ 1.84 (307,700) $ 2.47 (211,400) $ 2.66
Expired (158,500) $ 1.80 (226,500) $ 3.69 -- --
------------ ----------- ------------
Outstanding,
end of year 1,551,000 $ 1.49 2,143,700 $ 1.62 2,191,200 $ 2.25
============ ============ ============
Exercisable,
end of year 1,095,000 $ 1.97 1,184,200 $ 2.29 1,333,200 $ 2.51
============ ============ ============
</TABLE>
A summary of the outstanding incentive stock options as of December 31,
1999, follows:
<TABLE>
<CAPTION>
Range of Amount Weighted Average Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
-------------------- ------------- -------------------------- ----------------
<S> <C> <C> <C>
Less than $ 1.00 483,000 4.0 years $ 0.25
-------------------- ------------- -------------------------- ----------------
$ 1.00 - $ 1.99 409,500 2.9 years $ 1.29
-------------------- ------------- -------------------------- ----------------
$ 2.00 - $ 2.99 436,500 1.3 years $ 2.29
-------------------- ------------- -------------------------- ----------------
$ 3.00 or more 222,000 2.0 years $ 3.00
==================== ============= ========================== ================
</TABLE>
At December 31, 1999 there were 2,014,200 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
63
<PAGE> 66
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCK OPTIONS (CONTINUED):
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.
During 1999, options to purchase 700,000 shares of common stock were
granted to certain key employees at an exercise price equal to the fair market
value of the Company's common stock on the grant date. The grants are
immediately exercisable and have a five-year term.
Non-qualified stock option activity during 1999, 1998, and 1997 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Amount Average Price Amount Average Price Amount Average Price
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 150,000 $ 2.42 320,000 $ 2.88 260,000 $ 2.54
Granted 780,000 $ 0.24 40,000 $ 0.81 140,000 $ 3.00
Exercised -- -- -- -- (40,000) $ 2.39
Forfeitures (40,000) $ 2.30 (150,000) $ 2.67 (40,000) $ 2.72
Expirations (10,000) $ 2.19 (60,000) $ 3.19 -- --
------------ ------------ ------------
Outstanding,
end of year 880,000 $ 0.50 150,000 $ 2.42 320,000 $ 2.88
============ ============ ============
Exercisable,
end of year 850,000 $ 0.51 120,000 $ 2.83 180,000 $ 2.80
============ ============ ============
</TABLE>
64
<PAGE> 67
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCK OPTIONS (CONTINUED):
A summary of the outstanding non-qualified stock options as of December
31, 1999, follows:
<TABLE>
<CAPTION>
Range of Amount Weighted Average Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
-------------------- ------------- -------------------------- ----------------
<S> <C> <C> <C>
Less than $ 1.00 800,000 4.8 years $ 0.25
-------------------- ------------- -------------------------- ----------------
$ 1.00 - $ 1.99 -- -- --
-------------------- ------------- -------------------------- ----------------
$ 2.00 - $ 2.99 10,000 0.3 years $ 2.06
-------------------- ------------- -------------------------- ----------------
$ 3.00 or more 70,000 2.3 years $ 3.04
==================== ============= ========================== ================
</TABLE>
At December 31, 1999, there were 568,400 shares reserved for future
issuance under the Non-Qualified Plan.
The Company measures compensation cost as prescribed by APB Opinion No.
25, Accounting for Stock Issued to Employees (APB 25). 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 issued Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation (SFAS 123), 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 instruments. Had compensation cost been
determined under the provisions of SFAS 123, the following pro forma net loss
and per share amounts would have been recorded:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------------ -----------
<S> <C> <C> <C>
Net income (loss)
o As reported $ 203,500 $(12,058,900) $(5,022,300)
o Pro Forma (30,600) $(12,339,800) $(5,506,300)
Basic and diluted income (loss) per share
o As reported $ -- $ (0.26) $ (0.13)
o Pro Forma $ -- $ (0.27) $ (0.14)
========= ============ ===========
</TABLE>
The weighted average fair value for options granted in 1999, 1998 and
1997 was $0.16 per share, $0.14 per share, and $0.72 per share, respectively.
The pro forma amounts were determined using the Black-Scholes model with the
following assumptions:
65
<PAGE> 68
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCK OPTIONS, (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected volatility
o Incentive Stock Options 92.5% 91.0% 75.2%
o Non-Qualified Stock Options 77.0% 79.3% 80.3%
-------- -------- --------
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 5.9% 4.5% 5.8%
o Non-Qualified Stock Options 6.1% 5.6% 6.5%
-------- -------- --------
Forfeiture rate
o Incentive Stock Options -- (1) 15% 15%
o Non-Qualified Stock Options 5% -- --
======== ======== ========
</TABLE>
(1) Incentive Stock Option grants in 1999 were immediately exercisable.
16. 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 entitled the holder to purchase one share of common stock at
an exercise price equal to $3.75 per share. 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. A
warrant to purchase 15,000 shares of common stock was exercised in March 1999
and the remaining warrants to purchase 2,302,167 shares of common stock expired
on March 25, 1999.
17. SUBSEQUENT EVENT:
On February 10, 2000 the Company's shareholders, at a special meeting
of shareholders, approved an alternate capital restructuring proposal for a
reverse split of common stock. The approval authorized the Board of Directors of
the Company, at its discretion, to implement a 1/2.5, a 1/4, or a 1/5 reverse
split of shares of common stock and a reduction of the Company's authorized
shares of common stock from 100 million to 50 million and elimination of the
Company's authorized preferred stock at any time within the next 23 months,
until January 14, 2002. On March 9, 2000, the Board of Directors approved a
resolution to implement a 1/4 reverse split, reduce the Company's authorized
shares of common stock to 50 million, eliminate the Company's authorized
preferred stock, and modify the numbers of outstanding warrants and options and
their exercise price in accord with the 1/4 reverse split. These actions are
anticipated to be effective on March 24, 2000.
66
<PAGE> 69
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
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.
67
<PAGE> 70
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 2000 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 2000 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 2000 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 2000 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.
68
<PAGE> 71
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, 1999 and 1998
Consolidated Statements of Operations - Years ended December 31, 1999,
1998, and 1997
Consolidated Statement of Changes in Stockholders' Equity - Years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998, and 1997
Notes to Consolidated Financial Statements
(b) There were no reports filed on Form 8-K during the last quarter of the
period covered by this report.
(c) Exhibits, as required by Item 601 of Regulation S-K, are listed on pages 70
to 71. The exhibit numbers correspond to the numbers assigned in Item 601
of Regulation S-K.
69
<PAGE> 72
<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 (8)
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)
10.2.1 Amendment No. 1 to Loan and Guarantee Agreements dated April 8, 1998,
among CR Briggs Corporation, Canyon Resources Corporation, and Banque
Paribas as Agent (9)
10.2.2 Amendment No. 2 to Loan and Guarantee Agreements dated August 19, 1998,
among CR Briggs Corporation, Canyon Resources Corporation, and Banque
Paribas as Agent (9)
10.2.3* Amendment No. 3 to Loan Agreement and Waiver dated July 8, 1999, among
CR Briggs Corporation and Banque Paribas as Agent
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)
10.4.1* Second Amendment and Supplement to Purchase Agreement dated September
17, 1999, between Phelps Dodge Corporation, acting through its
division, Phelps Dodge Mining Company, CR Montana Corporation and
Canyon Resources Corporation, and Seven-Up Pete Joint Venture
21.1* Subsidiaries of the Registrant
23.1* Consent of PricewaterhouseCoopers LLP
</TABLE>
70
<PAGE> 73
<TABLE>
<S> <C>
23.2* Consent of Kvaerner Metals (formerly Davy International)
27* Financial Data Schedule
</TABLE>
* Filed herewith
(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.
(8) Exhibit 3.2 is incorporated by reference from Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
(9) Exhibits 10.2.1 and 10.2.2 are incorporated by reference from Exhibits
10.2.1 and 10.2.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
71
<PAGE> 74
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 23, 2000 /s/ Richard H. De Voto
-----------------------------------------
Richard H. De Voto
Principal Executive Officer
Date: March 23, 2000 /s/ Gary C. Huber
-----------------------------------------
Gary C. Huber
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: March 23, 2000 /s/ Richard H. De Voto
-----------------------------------------
Richard H. De Voto, Director
Date: March 23, 2000 /s/ Gary C. Huber
-----------------------------------------
Gary C. Huber, Director
Date: March 23, 2000 /s/ Leland O. Erdahl
-----------------------------------------
Leland O. Erdahl, Director
Date: March 23, 2000 /s/ Richard F. Mauro
-----------------------------------------
Richard F. Mauro, Director
72
<PAGE> 75
EXHIBIT INDEX
<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 (8)
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)
10.2.1 Amendment No. 1 to Loan and Guarantee Agreements dated April 8, 1998,
among CR Briggs Corporation, Canyon Resources Corporation, and Banque
Paribas as Agent (9)
10.2.2 Amendment No. 2 to Loan and Guarantee Agreements dated August 19, 1998,
among CR Briggs Corporation, Canyon Resources Corporation, and Banque
Paribas as Agent (9)
10.2.3* Amendment No. 3 to Loan Agreement and Waiver dated July 8, 1999, among
CR Briggs Corporation and Banque Paribas as Agent
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)
10.4.1* Second Amendment and Supplement to Purchase Agreement dated September
17, 1999, between Phelps Dodge Corporation, acting through its
division, Phelps Dodge Mining Company, CR Montana Corporation and
Canyon Resources Corporation, and Seven-Up Pete Joint Venture
21.1* Subsidiaries of the Registrant
23.1* Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 76
<TABLE>
<S> <C>
23.2* Consent of Kvaerner Metals (formerly Davy International)
27* Financial Data Schedule
</TABLE>
* Filed herewith
(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.
(8) Exhibit 3.2 is incorporated by reference from Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
(9) Exhibits 10.2.1 and 10.2.2 are incorporated by reference from Exhibits
10.2.1 and 10.2.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
<PAGE> 1
EXHIBIT 10.2.3
EXECUTION COPY
AMENDMENT NO. 3 AND WAIVER (this "Amendment") dated as of July
8, 1999, among CR BRIGGS CORPORATION (the "Company"), a corporation organized
under the laws of the State of Colorado, the Lenders named on the signature
pages hereof, and PARIBAS, in its capacity as agent for the Lenders (the
"Agent").
WITNESSETH
WHEREAS, the Company, the Lenders and the Agent have entered
into the Loan Agreement dated as of December 6, 1995 and amended as of April 8,
1998 and again as of August 19, 1998 (as amended, modified and supplemented from
time to time, the "Loan Agreement"), providing for certain Loans to be made to
the Company by the Lenders to finance the acquisition and construction of the
Project;
WHEREAS, Canyon Resources Corporation (the "Guarantor"), the
Company and the Agent have entered into the Guarantee, Equity Contribution and
Pledge Agreement dated as of December 6, 1995 and amended as of April 8, 1998
and again as of August 19, 1998 (as amended, modified and supplemented from time
to time, the "Guarantee Agreement"), in connection with the Loan Agreement;
WHEREAS, in connection with the proposed restructuring of the
Company's obligations under the Loan Agreement (and as further described in this
Amendment), the Company has agreed to use the proceeds of the liquidation of
certain Hedge Contracts to prepay a portion of the Company's Indebtedness;
WHEREAS, the Lenders have agreed to provide additional loans
to the Company in order to satisfy its working capital needs and other
expenditures approved by the Lenders on terms and conditions set forth below;
NOW, THEREFORE, the Company, the Guarantor, the Lenders and
the Agent wish to amend the Loan Agreement in certain respects, and accordingly,
the parties hereto hereby agree as follows:
Section 1. Definitions. Terms used but not defined herein shall have
the respective meanings ascribed to such terms in the Loan Agreement.
Section 2. Conditions Precedent. The agreements set forth in Section 3
of this Amendment shall be subject to the satisfactory completion, in the
Agent's sole opinion, of the following conditions:
(a) The Company, the Guarantor and the Agent shall have entered
into a waiver agreement relating to the Guarantee Agreement
substantially in the form of Exhibit A hereto;
Amendment
<PAGE> 2
-2-
(b) The Company shall have applied the proceeds received from the
liquidation of certain Hedge Contracts in an aggregate amount of
125,000 ounces (the "Liquidation Proceeds") to the prepayment of the
Tranche A Gold Loan in the manner directed by the Agent; and
(c) No Default, which is not otherwise being waived by the terms
hereof, under the Loan Agreement shall have occurred and be continuing.
Section 3. Amendments.
3.01. Amendment to the Loan Agreement. (a) Section 1.01 of the Loan
Agreement is amended to include the following new definitions in the appropriate
alphabetical locations:
"Hedge Period" shall mean the period commencing on January 1, 2000 and
ending on July 1, 2000 and each six calendar month period thereafter.
"Monthly Payment Date" shall mean the last Banking Day of each calendar
month.
"Net Cash Flow" shall mean, for any period, the excess of (a) the sum
of (i) cash from (used in) operations (calculated in accordance with GAAP in the
Company's statement of changes in financial position) and (ii) proceeds from
insurance and other non-operating sources over (b) the sum of (i) approved
capital expenditures as outlined in the most recently approved operating budget
and operating plan delivered pursuant to Section 8.01(b) hereof (except those
capital expenditures to be satisfied by disbursements under the Tranche E Capex
Loans) and (ii) Capital Lease Obligations.
"New Hedge Contract" shall mean each Hedge Contract entered into on or
after June 21, 1999; provided, however, that the term "New Hedge Contract" shall
not be deemed to include any rollover or extension of, modification to,
confirmation under or replacement contract for any Hedge Contract entered into
prior to June 21, 1999.
"New Hedge Party" shall mean on any date of determination, any party
(other than the Borrower) to one or more New Hedge Contracts (but only to the
extent that the financial institution acting as such New Hedge Party is also
then a Lender).
"Tranche E Availability Period" shall mean the period from June 22,
1999 to but excluding the Tranche E Commitment Termination Date.
"Tranche E Capex Commitment" shall mean the obligation of each Tranche
E Lender to make Tranche E Capex Loans in an aggregate Principal Amount at any
one time outstanding up to but not exceeding in the case of each Tranche E
Lender that is a signatory hereto, the amount set forth opposite its name on
Schedule I hereto under the caption "Tranche E Capex
Amendment
<PAGE> 3
-3-
Commitment" (in each case as the same is reduced by each Tranche E Capex Loan
made pursuant to Section 2.01(e) hereof or as may be reduced at any time or from
time to time pursuant to Section 2.03 or 9.02 hereof). At the date of this
Agreement, the aggregate amount of the Tranche E Capex Commitments of all
Tranche E Lenders is equal to U.S.$500,000.
"Tranche E Commitment" shall mean collectively, the Tranche E
Capex Commitment and the Tranche E W/C Commitment. At the date of this
Agreement, the aggregate amount of the Tranche E Commitments of all Tranche E
Lenders is equal to U.S.$600,000.
"Tranche E Commitment Termination Date" shall mean December 31, 2000.
"Tranche E Loans" shall have the meaning ascribed thereto in Section
2.01(e) hereof.
"Tranche E Lenders" shall mean (i) on the date hereof, the Lenders
listed on Schedule I hereto under the caption Tranche E Lenders and (ii)
thereafter, the Lenders that are from time to time holders of the Tranche E
Loans, the Tranche E Notes and the Tranche E Commitments, after giving effect to
any assignments thereof permitted by Section 11.02(b) hereof.
"Tranche E Notes" shall mean the promissory notes provided for by
Section 2.06(d) hereof substantially in the form of Appendix A-8 hereto and all
promissory notes delivered in substitution or exchange therefor.
"Tranche E Principal Payment Date" shall mean the last Banking Day of
each of March, June, September and December.
"Tranche E W/C Commitment" shall mean the obligation of each
Tranche E Lender to make Tranche E W/C Loans in an aggregate Principal Amount at
any one time outstanding up to but not exceeding in the case of each Tranche E
Lender that is a signatory hereto, the amount set forth opposite its name on
Schedule I hereto under the caption "Tranche E W/C Commitment" (in each case as
the same is reduced by each Tranche E W/C Loan made pursuant to Section 2.01(e)
hereof or as may be reduced at any time or from time to time pursuant to Section
2.03 or 9.02 hereof). At the date of this Agreement, the aggregate amount of the
Tranche E W/C Commitments of all Tranche E Lenders is equal to U.S.$100,000.
(b) The following definitions in Section 1.01 of the Loan Agreement are
amended as set forth below:
The definition of "Applicable Margin" is amended to read as
follows: "Applicable Margin" shall mean (a) with
respect to Tranche A Loans, until such time as the
Company's Future Debt Cover Ratio is equal to, or in
excess of 1.6 to 1, 2 3/8% per annum and after the
Company's Future Debt Cover Ratio is equal to, or in
excess of 1.6 to 1, 2 1/8%, (b) with respect to Tranche
B Loans and Tranche C Loans, 4 1/8% per annum, (c) with
respect to Tranche D Loans, 2 3/8% per annum and (d)
with respect to Tranche E Loans, 2 3/8% per annum."
Amendment
<PAGE> 4
-4-
The definition of "Commitments" is amended to read as
follows: "Commitments" shall mean collectively, the
Tranche A Commitments, the Tranche B Commitments, the
Tranche C Commitments, the Tranche D Commitments and
the Tranche E Commitments."
The definition of "Dollar Loans" is amended to read as
follows: "Dollar Loans" shall mean collectively,
Tranche A Dollar Loans, Tranche B Dollar Loans, Tranche
C Dollar Loans, Tranche D Loans and Tranche E Loans."
The definition of "Loans" is amended to read as follows:
"Loans" shall mean collectively, the Tranche A Loans,
Tranche B Loans, the Tranche C Loans, the Tranche D
Loans and the Tranche E Loans, to be made pursuant to
Section 2.01 hereof."
(i) The definition of "Notes" is amended to read as
follows: "Notes" shall mean collectively, Tranche A
Notes, Tranche B Notes, Tranche C Notes, Tranche D
Notes and the Tranche E Notes."; and
(ii) The definition of "Principal Payment Date" is amended
to read as follows: "Principal Payment Date" shall mean
collectively, Tranche A Principal Payment Dates,
Tranche B Principal Payment Dates, Tranche C Principal
Payment Dates, the Tranche D Principal Payment Date and
the Tranche E Principal Payment Date."
(c) Section 2.01 of the Loan Agreement is amended to include Section
2.01(d) as follows:
"(e) Each Tranche E Lender severally agrees, on the terms and
subject to the conditions of this Agreement, to make loans to the
Borrower in Dollars during the Tranche E Availability Period in an
aggregate Principal Amount not exceeding (i) such Tranche E Lender's
Tranche E Capex Commitment ("Tranche E Capex Loans"), and (ii) such
Tranche E Lender's Tranche E W/C Commitment ("Tranche E W/C Loans" and
collectively with the Tranche E Capex Loans, the "Tranche E Loans"). No
Tranche E Lender shall be obligated to make a Tranche E Loan unless and
until each Tranche E Lender has received a Notice of Borrowing in
substantially the form of Appendix N hereto."
(d) Section 2.03(a) of the Loan Agreement is amended by inserting
after the term "Tranche D Commitments" in the fourth line thereof the phrase
"and Tranche E Commitments".
(e) Section 2.03(b) of the Loan Agreement is amended by inserting as
the last
Amendment
<PAGE> 5
-5-
sentence thereof, the following text: "All Tranche E Commitments shall be
automatically reduced to zero on the Tranche E Commitment Termination Date."
(f) Section 2.06(e) of the Loan Agreement is amended to be entitled
Section 2.06(f) and Section 2.06(f) of the Loan Agreement is amended to be
entitled Section 2.06(g).
(g) Section 2.06 of the Loan Agreement is amended to include a new
Section 2.06(e) to read in its entirety as follows:
"(e) The Tranche E Loans made by each Tranche E Lender shall be
evidenced by a single promissory note of the Borrower in substantially
the form of Appendix A-8 hereto, dated the date of the delivery of such
Note to the Agent and payable to such Lender in a Principal Amount
equal to the amount of its Tranche E Commitment as originally in
effect, and otherwise duly completed."
(h) Section 2.08 of the Loan Agreement is amended by deleting the word
"and" from the sixth line thereof and inserting in its place a comma and also
inserting after the term "Tranche C Commitment Termination Date" in the sixth
line thereof the phrase "and the Tranche E Commitment Termination Date."
(i) Section 2.12 of the Loan Agreement is amended by deleting the word
"and" from the ninth line on page forty seven thereof and inserting in its place
a comma.
(j) Section 2.12 of the Loan Agreement is amended by inserting after
the word "Converted)" in the twelfth line on page forty seven thereof the phrase
"and (D) after June 22, 1999, in the case of any Loan, on each Monthly Payment
Date."
(k) Section 2.13 of the Loan Agreement is amended by deleting the word
"or" after the term "Tranche C Loans" in the eleventh line thereof and inserting
in its place a comma.
(l) Section 2.13 of the Loan Agreement is amended by inserting after
the term "Tranche D Loans" in the eleventh line thereof the phrase "or Tranche E
Loans".
(m) Section 2.13 of the Loan Agreement is amended by deleting the word
"or" after the term "Tranche C Loans" in the twelfth line thereof and inserting
in its place a comma.
(n) Section 2.13 of the Loan Agreement is amended by inserting after
the term "Tranche D Loans" in the thirteenth line thereof the phrase "or Tranche
E Loans".
(o) Section 2.17 of the Loan Agreement is amended by inserting after
the term "Except" in the first line thereof the phrase "in the case of Tranche E
Loans and".
(p) Section 2.18 of the Loan Agreement is amended by deleting the word
"or" after the term "Tranche C Loans" in the seventeenth line thereof and
inserting in its place a comma.
Amendment
<PAGE> 6
-6-
(q) Section 2.18 of the Loan Agreement is amended by inserting after
the term "Tranche D Loans" in the eighteenth line thereof the phrase "or Tranche
E Loans".
(r) Section 2.18 of the Loan Agreement is amended by deleting the word
"and" after the term "Tranche C Loans" in the eighteenth line thereof and
inserting in its place a comma.
(s) Section 2.18 of the Loan Agreement is amended by inserting after
the term "Tranche D Loans" in the nineteenth line thereof the phrase "and
Tranche E Loans".
(t) Section 2.18 of the Loan Agreement is amended by inserting after
the words "Appendix M hereto" in the ninth line of page fifty one the following
text: ", provided further that each such notice of borrowing delivered in
respect of a Tranche E Loan will be substantially in the form of Appendix N
hereto."
(u) Section 4.02(b) of the Loan Agreement is amended by deleting the
entire paragraph entitled "fourth" on page sixty-three and the paragraph
entitled "fifth" is amended to be entitled "fourth", the paragraph entitled
"sixth" is amended to be entitled "fifth", the paragraph entitled "seventh" is
amended to be entitled "sixth" and the paragraph entitled "eighth" is amended to
be entitled "seventh".
(v) Section 8.01(c) of the Loan Agreement is amended by inserting
after the sentence ending with the word "difficulties." in the thirtieth line
thereof the language "Together with the Operating Reports required to be
delivered above, the Company shall deliver unaudited balance sheets of the
Borrower as of the close of such calendar month and unaudited statements of
income and expense and changes in financial position for each calendar month and
from the beginning of the then-current fiscal year to the close of each such
calendar month, prepared in accordance with GAAP and accompanied by a
certificate of the chief financial officer of the Borrower providing a
calculation of Net Cash Flow and the amount of Net Cash Flow available to make
Restricted Payments to the Guarantor and the aggregate amount of all such
Restricted Payments made in accordance with the provisions of Section 4.02(b)
hereof, as at such date."
(w) Section 8.12(b) of the Loan Agreement is amended by deleting the
word "All" at the beginning of said Section in the first line thereof and
inserting in its place the word "The".
(x) Section 8.12(b) of the Loan Agreement is amended by inserting
after the word "delivered" in the first line thereof the following language "in
March, June, September and December of each year".
(y) Section 8.12(b) of the Loan Agreement is amended by inserting
after the words "period's expenditures" in the fifth line thereof the following
language ", on a per ounce basis,".
Amendment
<PAGE> 7
-7-
(z) Schedule I to the Loan Agreement is hereby amended in its entirety
and replaced by the Schedule annexed to this Amendment.
(aa) Schedule II to the Loan Agreement is hereby amended in its
entirety and replaced by the Schedule annexed to this Amendment.
(bb) The Appendices to the Loan Agreement are hereby amended to include
Appendix A-8 entitled "Form of Note for Tranche E Loans" as annexed to this
Amendment and Appendix N entitled "Notice of Borrowing for Tranche E Loans" as
annexed to this Amendment.
Section 4. Waiver. Subject to the satisfaction of the conditions
precedent specified in Section 2 above, but effective on and as of the date
hereof, the Lenders hereby waive (i) until January 1, 2001, the Company's
compliance with the mandatory prepayment mechanics Section 2.10(a) the Loan
Agreement, (ii) the Company's compliance with its obligation to maintain the
Debt Service Reserve Sub-Account in the fourth line of Section 4.01(a) on page
sixty of the Loan Agreement, (iii) until January 1, 2001, the Company's
compliance with its obligation not to make Restricted Payments unless the
conditions set forth in Sections 8.20(a) and 8.20(b)(ii) through 8.20(vi) on
pages one hundred eight and one hundred nine of the Loan Agreement have been
satisfied, (iv) until January 1, 2001, the Company's compliance with its
obligation to maintain the debt service coverage ratios in Section 8.28 on page
one hundred and thirteen of the Loan Agreement, (v) any Event of Default under
Section 9.01(c)(ii) of the Loan Agreement that has arisen directly as a result
of a failure by the Company to comply with its obligations with respect to
expenditures not exceeding 110% of the budget under Section 8.12(b) of the Loan
Agreement, (vi) any Event of Default under Section 9.01(c)(i) of the Loan
Agreement that has arisen directly as a result of a failure by the Company to
maintain an excess of aggregate current assets over aggregate current
liabilities in an amount greater than or equal to U.S. $2,500,000 as specified
in Section 8.26 of the Loan Agreement, (vii) any Event of Default under Section
9.01(c)(i) of the Loan Agreement that has arisen directly as a result of a
failure by the Company to maintain the required Hedge Contract obligations
specified in Section 8.27(b) of the Loan Agreement, (viii) any Event of Default
under Section 9.01(c)(i) of the Loan Agreement that has arisen directly as a
result of a failure to maintain the debt service coverage ratio covenants
specified in Section 8.28 of the Loan Agreement and (ix) any Event of Default
under Section 9.01(c)(ii) of the Loan Agreement that has arisen directly as a
result of a failure to comply with the Company's obligation to deliver annual
financial statements as set forth in Section 8.01(e) of the Loan Agreement.
Section 5. Covenants.
5.01 Loan Conversion. Upon the written request of the Majority Lenders,
the Company shall Convert all outstanding Gold Loans into Dollar Loans in
accordance with the terms of Section 2.07 of the Loan Agreement.
5.02 Sale Agreements. The Company shall enter into one or more
agreements for the forward sale of approximately 40,000 ounces of Gold with a
term or terms commencing on
Amendment
<PAGE> 8
-8-
August 1, 1999 through December 31, 1999 with counterparties acceptable to the
Majority Lenders.
5.03 Hedge Contracts. As soon as possible, but at least 45 days prior
to the commencement thereof, the Company shall enter into New Hedge Contracts,
allocated on a pro rata basis among the New Hedge Parties, covering 100% of
projected Gold production for each Hedge Period as estimated in accordance with
the Mining Plan required to be delivered under Section 8.01(b) (net of any
ounces scheduled to be delivered under the Gold Loans) and the Company shall
settle, post margin and deliver under each New Hedge Contract on a pro rata
basis among the New Hedge Parties.
5.04 Restricted Payments. For the period commencing on June 1, 1999
through December 31, 2000, the Company shall only make Restricted Payments in
the form of a payment of principal or interest on Shareholder Loans or any other
amount payable with respect to the Shareholder Loans.
Section 6. Limited Waiver and Special Covenant. For the period
commencing on June 1, 1999 through December 31, 2000, the obligations with
respect to transfers from the Proceeds Account under Section 4.02(b) of the Loan
Agreement shall be suspended. On and as of January 1, 2001, the Company's
obligations under Section 4.02(b) of the Loan Agreement shall be reinstated in
full as amended by the terms of this Amendment. During the period commencing on
June 1, 1999 and through December 31, 2000 the Company covenants as follows, as
if the same were fully incorporated into the text of the Loan Agreement:
"(b) Transfers from Proceeds Account. Subject to Section
4.02(e) hereof, from and after the Start-up of Commercial Production
the Agent shall transfer (or cause to be transferred), from the
collected credit balance of the Proceeds Account (excluding Sub-
Accounts thereof), the following amounts in the following order of
priority (and no transfer at any such priority level shall be made on
any day if any transfer remains to be made on such day at any higher
priority level):
first, (a) to the Borrower, on the first Banking Day
of each calendar month (the "Certification Date"), the amount
certified by the Borrower to be the excess of (i) aggregate
Operating Costs then due and payable and anticipated to become
payable by the Borrower within the following 30 days over (ii)
the aggregate amount previously or concurrently transferred to
or as directed by the Borrower pursuant to this Agreement for
such purpose that remains unexpended;
(b) to the Borrower, on any Banking Day (other than
the first Banking Day) of any calendar month, the amount
certified by the Borrower to be equal to unanticipated
Operating Costs then due and payable and anticipated to be due
and payable prior to the first Banking Day of the following
month which were not included in the Borrower's certification
under clause (a) above and for the payment of which the
Borrower does not have any available funds, provided that
Amendment
<PAGE> 9
-9-
payment of such Operating Costs shall not cause the Borrower
to fail to be in compliance with Section 8.12(b) hereof and
the Borrower shall so certify to the Agent;
second, upon receipt by the Agent of a written
direction by the Majority Lenders directing the Agent to do so
pursuant to Section 5.02(d) hereof, to any insurer under any
insurance policy of the Borrower relating to the Project, the
amount of the premium then due and payable on such insurance
policy;
third, to the Lenders, on each Monthly Payment Date,
the amount of Interest Expense then due and payable (as
notified to the Agent by the Borrower or, so long as any
Potential Default has occurred and is continuing, by any
Lender);
fourth, to the Lenders, on each Payment Date, the
Principal Amount outstanding and any other amounts payable to
the Lenders under the Tranche E W/C Loans (as notified to the
Agent by the Borrower or, so long as any Potential Default has
occurred and is continuing, by any Lender);
fifth, on each Monthly Payment Date, to each Hedge
Party, an amount certified by the Borrower to be equal to the
aggregate of all margin calls under Hedge Contracts of such
Hedge Party during the period from the next preceding
Principal Payment Date;
sixth, on any Banking Day in any calendar month
following the date that all documentation required to be
delivered by the Borrower in such month under Section 8.01(c)
hereof has been received by the Lenders, to the Borrower's
Account for purposes of making Restricted Payments to the
Guarantor, any remaining Net Cash Flow or other amounts
remaining in the Proceeds Account (after application of funds
in accordance with this Section 4.02(b) on or prior to such
date and except to the extent such amounts are required to be
otherwise applied pursuant to this Agreement) up to an
aggregate cumulative amount not to exceed U.S. $1,600,000; and
seventh, on any Banking Day in any calendar month
following the date that all documentation required to be
delivered by the Borrower in such month under Section 8.01(c)
hereof has been received by the Lenders, 50% of any Net Cash
Flow remaining or other amounts remaining in the Proceeds
Account (after application of funds in accordance with this
Section 4.02(b) on or prior to such date and except to the
extent such amounts are required to be otherwise applied
pursuant to this Agreement) to the Lenders to make prepayments
on Principal of the Loans and the remaining 50% to the
Borrower's Account."
Section 7. Documents Otherwise Unchanged. Except as herein provided,
the
Amendment
<PAGE> 10
-10-
Loan Agreement shall remain unchanged and in full force and effect, and each
reference to the Loan Agreement shall be a reference to the Loan Agreement as
amended hereby and as the same may be further amended, supplemented and
otherwise modified and in effect from time to time.
Section 8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be identical and all of which, when taken
together, shall constitute one and the same instrument, and any of the parties
hereto may execute this Amendment by signing any such counterpart.
Section 9. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
Section 10. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
Amendment
<PAGE> 11
-11-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
BORROWER
CR BRIGGS CORPORATION
By /s/ Gary C. Huber
-------------------------------------
Name: Gary C. Huber
Title: Vice President
AGENT
PARIBAS
as Agent
By /s/ Grant Winton
-------------------------------------
Name: Grant Winton
Title: Vice President
LENDERS:
PARIBAS
By /s/ Grant Winton
-------------------------------------
Name: Grant Winton
Title: Vice President
By /s/ Donald Maley, Jr.
-------------------------------------
Name: Donald Maley, Jr.
Title: Managing Director
Amendment
<PAGE> 12
-12-
BAYERISCHE HYPO- UND VEREINSBANK
AG,
NEW YORK BRANCH
By /s/ Andrew G. Mathews
-------------------------------------
Name: Andrew G. Mathews
Title: Managing Director
By /s/ Bernd Schaefer
-------------------------------------
Name: Bernd Schaefer
Title: Director
NM ROTHSCHILD & SONS LIMITED
By /s/ N.A. Wood
-------------------------------------
Name: Nicholas Wood
Title: Assistant Director
By /s/ R.E. Spencer
-------------------------------------
Name: Richard Spencer
Title: Assistant Director
Amendment
<PAGE> 13
SCHEDULE I
Commitments
<TABLE>
<CAPTION>
Tranche A
Tranche A Lenders: Commitment:
- ------------------ -----------
<S> <C>
Paribas 8,333,334
Bayerische Hypo- und Vereinsbank 8,333,333
Rothschild 8,333,333
===========
Total Tranche A Commitments U.S. $25,000,000
</TABLE>
<TABLE>
<CAPTION>
Tranche B
Tranche B Lenders: Commitment:
- ----------------- ----------
<S> <C>
Paribas 1,666,668
Bayerische Hypo- und Vereinsbank 1,666,666
Rothschild 1,666,666
===========
Total Tranche B Commitments U.S. $ 5,000,000
</TABLE>
<TABLE>
<CAPTION>
Tranche C
Tranche C Lenders: Commitment:
- ----------------- ----------
<S> <C>
Paribas 1,333,334
Bayerische Hypo- und Vereinsbank 1,333,333
Rothschild 1,333,333
===========
Total Tranche C Commitments U.S. $ 4,000,000
</TABLE>
<TABLE>
<CAPTION>
Tranche D
Tranche D Lenders: Commitment:
- ----------------- ----------
<S> <C>
Paribas 333,334
Bayerische Hypo- und Vereinsbank 333,333
Rothschild 333,333
===========
Total Tranche D Commitments U.S. $ 1,000,000
</TABLE>
<TABLE>
<CAPTION>
Tranche E Tranche E
Tranche E Lenders: Capex Commitment: W/C Commitment
----------------- ---------------- --------------
<S> <C> <C>
Paribas $ 166,668 $ 33,334
Bayerische Hypo- und Vereinsbank $ 166,666 $ 33,333
Rothschild $ 166,666 $ 33,333
========== =========
Total Tranche E Commitments U.S. $ 500,000 U.S. $ 100,000
</TABLE>
Amendment
<PAGE> 14
-2-
Applicable Lending Office for each Lender
Paribas 787 Seventh Avenue
New York, New York 10019
Bayerische Hypo- und Vereinsbank 150 East 42nd Street
New York, New York 10017-4679
Rothschild New Court, St. Swithin's Lane
London EC4P 4DU
England
Amendment
<PAGE> 15
-3-
SCHEDULE II
Amortization Schedule
<TABLE>
<CAPTION>
TRANCHE A AND E PRINCIPAL % OF PRINCIPAL AMOUNT OF % OF PRINCIPAL AMOUNT OF
PAYMENT DATES TRANCHE A LOANS TO BE TRANCHE E LOANS TO BE
REPAID REPAID
<S> <C> <C>
first 0% 0%
second 0% 0%
third 0% 0%
fourth 0% 0%
fifth 0% 0%
sixth 0% 0%
seventh [12.5]% [12.5]%
eighth [12.5]% [12.5]%
ninth [12.5]% [12.5]%
tenth [12.5]% [12.5]%
eleventh [12.5]% [12.5]%
twelfth [12.5]% [12.5]%
thirteenth [12.5]% [12.5]%
fourteenth [12.5]% [12.5]%
</TABLE>
Amendment
<PAGE> 1
EXHIBIT 10.4.1
SECOND AMENDMENT AND SUPPLEMENT
TO PURCHASE AGREEMENT
THIS SECOND AMENDMENT AND SUPPLEMENT TO PURCHASE AGREEMENT ("Second
Amendment") is made and entered into effective as of September 17, 1999, by and
between PHELPS DODGE CORPORATION, a New York corporation ("Seller"), acting
through its division Phelps Dodge Mining Company; CR MONTANA CORPORATION, a
Colorado corporation ("CR Montana"), and CANYON RESOURCES CORPORATION, a
Delaware corporation ("Canyon Resources" and, together with CR Montana,
"Buyers", and each individually a "Buyer"); and SEVEN-UP PETE JOINT VENTURE, an
Arizona general partnership comprised solely of CR Montana and Canyon Resources
(the "Partnership"). Unless otherwise provided herein, all capitalized terms in
this Second Amendment shall have the same meanings and definitions as provided
in the Purchase Agreement (defined below).
RECITALS
Buyers and Seller entered into a Purchase Agreement dated as of September
25, 1997 ("Purchase Agreement"), with respect to a Partnership Interest and
Co-Tenancy Interest.
Closing under the Purchase Agreement has occurred, pursuant to which Buyers
have paid Seller $5,000,000.
Buyers and Seller wish to restructure the balance of the Purchase Price
under the Purchase Agreement.
Buyers and the Partnership contemplate instituting a "takings" action in
Montana state or federal court, or both, against the State of Montana and other
governmental agencies to seek compensation for losses suffered by Buyers and the
Partnership as a result of certain actions and legislation by the State of
Montana and its agencies, including but not limited to the passage on November
3, 1998 of Montana Ballot Initiative No. 137.
If either Buyers or the Partnership are successful in recovering damages or
other monetary compensation from the State of Montana or other governmental
agency, they wish to share with Seller a portion of such proceeds, as provided
in this Second Amendment.
Seller, Buyers and the Partnership wish to reflect their agreements on
these various matters by means of this Second Amendment.
NOW, THEREFORE, in consideration of the mutual benefits to be obtained
by the parties hereto pursuant to this Second Amendment, the parties hereby
agree as follows:
PAGE 1
<PAGE> 2
Amendments to Purchase Agreement. Seller and Buyers hereby amend the
Purchase Agreement as follows:
Section 2 of the Purchase Agreement is deleted in its entirety and
replaced with the following:
Purchase Price. The aggregate purchase price for the
Purchased Assets shall be an amount equal to the sum of the
following (collectively, the "Purchase Price"):
$5,000,000, paid at Closing; and
$10,000,000, to be paid (by wire transfer of
immediately available funds to the
account designated by Seller) within
30 days after the earlier of the
following to occur:
commencement of construction of the
McDonald Gold Project, it
being understood and agreed
that performance of any
activity permitted by any
Consent related to the
McDonald Gold Project and
in force on September 25,
1997, shall not be deemed
to constitute "commencement
of construction of the
McDonald Gold Project"; and
issuance of the Permits listed in
Schedule 2.2(f) and the
resolution of all
administrative and judicial
appeals of and challenges
to those Permits, if any,
or the passing of the time
to file such appeals and
challenges, or a
determination by the
applicable Governmental
Authority that such Permits
are unnecessary for the
construction and/or
operation of the McDonald
Gold Project (the "FSP
Date").
Section 7.7 of the Purchase Agreement is deleted in
its entirety.
Section 7.9 of the Purchase Agreement is deleted in its entirety.
Section 7.11 of the Purchase Agreement is amended by adding the
following phrase to the beginning of the sentence: "If and when Montana Ballot
Initiative No. 137 is either invalidated, set aside or reversed by a final court
order or by the Montana legislature, . . .".
PAGE 2
<PAGE> 3
Section 7.14 of the Purchase Agreement is deleted in its entirety.
Section 7.15 of the Purchase Agreement is deleted in its entirety.
The following terms and definitions are deleted from Section 12.1.2:
Board Amount;
Change of Ownership Payment;
Discretionary Payment;
Engineering Firm;
Feasibility Study;
Feasibility Study Payment;
Gold Price;
Mineable Ounces;
New Feasibility Study;
Production Payment; and
Second Contingent Payment.
This Second Amendment replaces and supersedes in its entirety the
First Amendment to Purchase Agreement, dated effective as of June 25, 1998.
Promptly following the execution of this Second Amendment, the Note and
the Deed of Trust and Security Agreement shall be amended by the First Amendment
to Promissory Note and the First Amendment to Deed of Trust and Security
Agreement, in the forms of Exhibits A and B hereto, respectively. These
amendments shall be executed by Buyers promptly after their execution of this
Second Amendment. Buyers shall cause such First Amendment to Deed of Trust and
Security Agreement to be recorded promptly in Lewis and Clark County, Montana,
at Buyers' expense
Allocation of Proceeds Received from State of Montana or Other
Governmental Agency.
Within 30 days after receipt by any of the Buyers or the
Partnership of any proceeds from the State of Montana or any governmental agency
(collectively, the "Government") as a result of any or all of the following:
PAGE 3
<PAGE> 4
A final judgment or judgments rendered
against the Government by any court
as a result of any actions filed by
Buyers or the Partnership to seek
compensation for economic losses or
property losses suffered by Buyers
or the Partnership due to actions
and legislation by the Government,
including but not limited to the
passage on November 3, 1998 of
Montana Ballot Initiative No. 137;
or
A settlement of any such actions; or
A transaction or transactions with the
Government to purchase any or all of
the McDonald Gold Project or to
obtain an agreement or any other
commitment of any kind from Canyon
Resources, CR Montana, the
Partnership or any of their
Affiliates that the McDonald Gold
Project will not be developed;
Buyers, or the Partnership, or both of them, as applicable, shall pay to Seller
one-third (1/3) of such proceeds after deduction of legal fees and other costs
(including, but not limited to expert witness fees and reasonable expenses
incurred by legal counsel) that are incurred by Buyers and the Partnership, are
directly related to the recovery of such proceeds, and are not recovered by
Buyers or the Partnership, from the Government. Solely for purposes of
illustration of the foregoing, if Buyers' and the Partnership's total payments
from the Government were $102,000,000 and their total legal fees and other costs
were $3,000,000, Buyers and the Partnership collectively would pay Seller
$33,000,000.
Buyers, the Partnership and Seller understand and agree that, except as
otherwise expressly provided by this paragraph 2.B, (i) Seller shall not be
entitled to receive payment of both the Purchase Price balance upon occurrence
of an event as provided by Section 2.b of the Purchase Agreement as amended by
paragraph 1.A above and a payment under paragraph 2.A above, (ii) payment to
Seller of the $10,000,000 Purchase Price balance pursuant to said Section 2.b
shall terminate Seller's right to payment under paragraph 2.A above, and (iii)
payment to Seller of $10,000,000 or more pursuant to paragraph 2.A above shall
terminate Seller's right to payment of the balance of the Purchase Price
pursuant to said Section 2.b of the Purchase Agreement. If Seller receives less
than $10,000,000 pursuant to paragraph 2.A above, the provisions of Section 2.b
of the Purchase Agreement shall remain in effect, with the exception that the
amount(s) received by Seller pursuant to paragraph 2.A above shall be credited
against the balance of the Purchase Price. Solely for purposes of illustration
of the application of the foregoing sentence, if Seller were to receive
$5,000,000 pursuant to paragraph 2.A above, and the conditions for payment of
the balance of the Purchase Price were met pursuant
PAGE 4
<PAGE> 5
to said Section 2.b of the Purchase Agreement, the Purchase Price balance
payable to Seller would be $5,000,000.
Buyers and the Partnership shall provide to a counsel or other
representative designated in writing by Seller copies of all pleadings filed in
any "takings" proceedings filed against the Government by Buyers, or the
Partnership, or both of them. Buyers and the Partnership also shall provide
Seller with reasonably detailed written reports of negotiations with the
Government concerning these proceedings, to the extent that such reports do not
violate confidentiality requirements of the Government and do not constitute a
waiver of Buyers' or the Partnership's attorney-client or attorney work product
privilege.
Dedication of Proceeds Received from 7-Up Nevada Joint Venture
("7NJV"); Effect of Election by 7NJV to Terminate. Buyers and the Partnership
agree that all proceeds received from the 7NJV, a Nevada joint venture comprised
of Franco-Nevada Mining Corporation, Inc., a Nevada corporation, and Euro-Nevada
Mining Corporation, Inc., a Nevada corporation, pursuant to that certain
Financial Support Agreement for Seven-Up Joint Venture, dated May 26, 1999, as
amended (the "7NJV Agreement"), between 7NJV and the Partnership, shall be
utilized solely as provided in paragraphs 2(a) and 2(b) of the 7NJV Agreement.
If 7NJV elects to terminate the 7NJV Agreement pursuant to paragraph 7 thereto,
this Second Amendment shall terminate upon such election and no longer shall be
of any force or effect.
Successors and Assigns. The rights and obligations under this Second
Amendment shall inure to the benefit of, and be binding upon, as appropriate,
the respective successors and assigns of the parties hereto. Without limiting
the foregoing, Buyers and the Partnership agree that any new entity formed
pursuant to the 7NJV Agreement shall agree in writing to be bound by the
Purchase Price balance payment obligations hereunder and by the Buyers' and the
Partnership's obligations under paragraphs 2 and 3 above.
Scope of Amendment. Except as amended and supplemented by this Second
Amendment, the Purchase Agreement shall remain in full force and effect in
accordance with its original terms.
WHEREFORE, the parties have executed this Second Amendment and
Supplement to Purchase Agreement as of the date first above written.
PHELPS DODGE CORPORATION, a New York
corporation acting through its division
Phelps Dodge Mining Corporation
PAGE 5
<PAGE> 6
/s/ S. David Colton
S. David Colton
Vice President and General Counsel
CR MONTANA CORPORATION, a Colorado
corporation
/s/ Gary C. Huber
Gary C. Huber
Vice President
CANYON RESOURCES CORPORATION, a
Delaware corporation
/s/ Gary C. Huber
Gary C. Huber
Vice President
SEVEN-UP PETE JOINT VENTURE
By: Canyon Resources Corporation
General Partner
/s/ Gary C. Huber
Gary C. Huber
Vice President
and
By: CR Montana Corporation, General Partner
/s/ Gary C. Huber
Gary C. Huber
Vice President
PAGE 6
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Date of Place of Ownership
Incorporation Incorporation %
------------- ---------------- ----------
<S> <C> <C> <C>
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 ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-37306) of Canyon Resources Corporation of our
report dated March 9, 2000 relating to the financial statements and financial
statement schedules, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Denver, CO
March 23, 2000
<PAGE> 1
Exhibit 23.2
Kvaerner
R. Randall Nye
Vice President-Commercial and General Counsel
Direct Dial 925/866-6419
Facsimile 925/866-6320
Email [email protected]
March 21, 2000
Canyon Resources Corporation
14142 Denver West Parkway, Suite 250
Golden, CO 80401
Gentlemen:
We hereby consent to the incorporation by reference with the Registration
Statement of Canyon Resources Corporation (The Company) on Form S-8 (File No.
33-37306) 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,
1999.
Very truly yours,
/s/ R. Randall Nye
R. Randall Nye
Vice President
Commercial and General Counsel
RRN/mmd
KVAERNER
================================================================================
Metals E&C Division Tel +1 925 866 1166
12657 Alcosta Blvd., Suite 200 Fax + 1 925 866 6520
San Ramon, California 94583
USA
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,893,500
<SECURITIES> 0
<RECEIVABLES> 18,800
<ALLOWANCES> 0
<INVENTORY> 7,818,900
<CURRENT-ASSETS> 11,899,900
<PP&E> 73,736,200
<DEPRECIATION> 18,582,400
<TOTAL-ASSETS> 71,231,200
<CURRENT-LIABILITIES> 13,658,900
<BONDS> 5,336,900
0
0
<COMMON> 465,000
<OTHER-SE> 95,422,100
<TOTAL-LIABILITY-AND-EQUITY> 71,231,200
<SALES> 30,904,500
<TOTAL-REVENUES> 30,904,500
<CGS> 23,934,300
<TOTAL-COSTS> 23,934,300
<OTHER-EXPENSES> 8,137,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704,600
<INCOME-PRETAX> 203,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 203,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,500
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
