<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______ to ______
----------
Commission file number 1-11887
CANYON RESOURCES CORPORATION
(a Delaware Corporation)
I.R.S. Employer Identification Number 84-0800747
14142 Denver West Parkway, Suite 250
Golden, CO 80401
(303) 278-8464
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 11,627,241 shares of the
Company's Common Stock were outstanding as of August 1, 2000.
================================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements have been prepared by
Canyon Resources Corporation ("the Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations.
These consolidated financial statements should be read in conjunction
with the financial statements and accompanying notes included in the Company's
Form 10-K for the year ended December 31, 1999.
<TABLE>
<S> <C>
Consolidated Balance Sheets......................................Page 3
Consolidated Statements of Operations ...........................Page 4
Consolidated Statements of Cash Flows............................Page 5-6
Notes to Interim Consolidated Financial Statements...............Page 7-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................Page 16-20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................Page 21-22
</TABLE>
2
<PAGE> 3
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,152,400 $ 681,600
Restricted cash 2,161,500 2,211,900
Accounts receivable 21,100 18,800
Inventories 6,507,000 7,818,900
Prepaid and other assets 1,067,700 1,168,700
------------ ------------
Total current assets 11,909,700 11,899,900
------------ ------------
Property and equipment, at cost
Mining claims and leases 22,811,000 21,136,400
Producing properties 51,828,600 51,521,400
Other 841,600 841,600
------------ ------------
75,481,200 73,499,400
Accumulated depreciation and depletion (23,483,500) (18,582,400)
------------ ------------
Net property and equipment 51,997,700 54,917,000
------------ ------------
Other assets 2,948,700 4,414,300
------------ ------------
Total Assets $ 66,856,100 $ 71,231,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,898,300 $ 2,499,700
Notes payable - current 1,350,100 30,700
Accrued taxes, other than payroll and income 7,800 36,400
Accrued reclamation costs 1,830,400 1,830,400
Deferred income 5,354,400 8,421,200
Other current liabilities 1,826,400 840,500
------------ ------------
Total current liabilities 12,267,400 13,658,900
Notes payable - long term 4,000,700 5,336,900
Accrued reclamation costs 2,294,200 2,386,100
Deferred income 1,896,000 2,769,200
Other noncurrent liabilities 1,425,800 1,445,500
------------ ------------
Total Liabilities 21,884,100 25,596,600
------------ ------------
Commitments and contingencies (Note 7)
Common stock ($.01 par value) 100,000,000 shares authorized
and 46,497,500 issued and outstanding at December 31, 1999;
50,000,000 shares authorized and 11,627,200 issued and
outstanding at June 30, 2000 116,300 465,000
Capital in excess of par value 95,773,300 95,422,100
Deficit (50,917,600) (50,252,500)
------------ ------------
Total Stockholders' Equity 44,972,000 45,634,600
------------ ------------
Total Liabilities and Stockholders' Equity $ 66,856,100 $ 71,231,200
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales $ 8,541,500 $ 7,362,700 $ 17,387,800 $ 14,698,400
------------ ------------ ------------ ------------
EXPENSES
Cost of sales 5,733,200 6,173,500 12,347,200 12,054,100
Depreciation, depletion, and amortization 2,260,300 1,683,500 4,885,500 3,301,000
Selling, general and administrative 232,400 314,300 542,800 666,700
Exploration costs 9,800 39,400 16,500 72,300
------------ ------------ ------------ ------------
8,235,700 8,210,700 17,792,000 16,094,100
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 34,500 32,300 75,400 77,600
Interest expense (191,600) (156,500) (380,800) (351,000)
Gain on restructuring of gold loan -- 2,768,900 -- 3,108,200
Gain (loss) on asset disposals -- (12,600) 44,200 (39,400)
Other (900) (10,500) 300 (7,000)
------------ ------------ ------------ ------------
(158,000) 2,621,600 (260,900) 2,788,400
------------ ------------ ------------ ------------
Net income (loss) $ 147,800 $ 1,773,600 $ (665,100) $ 1,392,700
============ ============ ============ ============
Basic and diluted income (loss) per share(1) $ 0.01 $ 0.15 $ (0.06) $ 0.12
============ ============ ============ ============
Weighted average shares outstanding:(1)
Basic eps 11,627,200 11,563,600 11,626,800 11,549,600
Diluted eps 11,726,100 11,567,400 11,626,800 11,565,600
</TABLE>
----------
(1) Adjusted for the Company's 1/4 reverse split of common stock.
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (665,100) $ 1,392,700
----------- ------------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and depletion 4,885,500 3,301,000
Amortization of financing costs 91,000 89,000
(Gain) loss on asset dispositions (44,200) 39,400
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,300) 142,900
(Increase) decrease in inventories 1,311,900 (1,030,400)
(Increase) decrease in prepaid and other assets (1,027,300) 805,600
Decrease in accounts payable and accrued liabilities (596,000) (712,500)
(Decrease) increase in deferred income (3,940,000) 3,363,400
Decrease in other liabilities (91,900) (216,600)
Decrease in restricted cash 207,500 106,700
----------- ------------
Total adjustments 794,200 5,888,500
----------- ------------
Net cash provided by operating activities 129,100 7,281,200
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (828,100) (200,200)
Proceeds from asset sales 44,200 22,200
Decrease in restricted cash 2,345,800 --
----------- ------------
Net cash provided by (used in) investing activities 1,561,900 (178,000)
----------- ------------
Cash flows from financing activities:
Issuance of stock, net 2,500 56,200
Restricted cash utilized for debt payments -- 2,400,000
Payments on debt (16,800) (10,992,700)
Payments on capital lease obligations (205,900) (138,500)
----------- ------------
Net cash used in financing activities (220,200) (8,675,000)
----------- ------------
Net increase (decrease) in cash and cash equivalents 1,470,800 (1,571,800)
Cash and cash equivalents, beginning of year 681,600 1,985,700
----------- ------------
Cash and cash equivalents, end of period $ 2,152,400 $ 413,900
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
Supplemental disclosures of cash flow information:
1. The Company paid $232,900 of interest during the first half of 2000, and
$263,600 during the corresponding period of 1999. There was no capitalized
interest for either period.
2. The Company paid no income taxes during the first half of 2000 nor the
corresponding period of 1999.
Supplemental schedule of noncash investing and financing activities:
1. Capital lease obligations of $147,500 were incurred for equipment during
the first half of 2000.
2. The Company converted a commodity based loan with a carrying amount of
$7,727,200 to a cash loan during the first half of 1999. The carrying
amount was reduced by $2,528,000 at the time of conversion to adjust the
monetized amount of the loan to fair market value.
3. The Company financed an equipment lease buy-out in the amount of $59,200
during the first half of 1999.
4. The Company acquired equipment with a fair market value of $53,000 by
exchange of certain assets during the first half of 1999.
5. The Company issued 307,200 shares of common stock with a fair market value
of $67,600 to certain creditors as payment for accounts payable during the
first half of 1999.
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
During interim periods, Canyon Resources (the Company) follows the
accounting policies set forth in its Annual Report to Stockholders and
its Report on Form 10-K filed with the Securities and Exchange
Commission. Users of financial information produced for interim periods
are encouraged to refer to the footnotes contained in the Annual Report
to Stockholders when reviewing interim financial results.
On March 9, 2000, the Board of Directors approved a resolution to
implement a 1/4 reverse split of the Company's common stock, reduce the
Company's authorized shares of common stock from 100 million 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 were
effective on March 24, 2000. An amount equal to the $0.01 par value of
the shares no longer outstanding has been transferred from common stock
to additional paid-in capital.
In June 1998, the Financial Accounting Standards Board (FASB) 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 hedging 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. In June 2000, the FASB issued SFAS 138, which
amends the accounting and reporting standards of SFAS 133 for certain
derivative instruments and hedging activities. There are many
complexities to these new standards and the Company is currently
evaluating their impact on its reported operating results and financial
position and has not yet determined whether it will adopt the standards
earlier than January 1, 2001.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements. The objective of this SAB is to provide further
guidance on revenue recognition issues in the absence of authoritative
literature addressing a specific arrangement or a specific industry. In
June 2000, the SEC released SAB No. 101B, which delays the
implementation date of SAB 101 for registrants with fiscal years that
begin between December 16, 1999 and March 15, 2000 until the fourth
fiscal quarter of the first fiscal year beginning after December 15,
1999. The Company is currently assessing the impact of the SAB. Its
effect on the Company's financial position or results of operations has
not yet been determined.
7
<PAGE> 8
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
1. BASIS OF PRESENTATION: (CONTINUED)
In the opinion of management, the accompanying interim financial
statements contain all material adjustments, consisting only of normal
recurring adjustments necessary to present fairly the financial
position, the results of operations, and the cash flows of Canyon
Resources and its consolidated subsidiaries for interim periods.
Certain prior period items have been reclassified to conform with the
current period presentation.
2. INTERIM RESULTS:
The foregoing interim results are not necessarily indicative of the
results of operations for the full year ending December 31, 2000.
3. 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.
4. RESTRICTED CASH:
Restricted cash consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- -----------
<S> <C> <C>
Collateral for Letter of Credit(a) $ 249,000 $ 249,000
Collateral for reclamation bond(b) 1,869,000 1,869,000
Seven-Up Pete Venture funds(c) -- 2,502,900
Unexpended proceeds from gold sales(d) 43,500 93,900
---------- ----------
2,161,500 4,714,800
Current portion 2,161,500 2,211,900
---------- ----------
Noncurrent portion* $ -- $2,502,900
========== ==========
</TABLE>
----------
* Included in other assets
(a) In connection with the issuance of certain bonds for the performance of
reclamation obligations and other contingent events at the Briggs Mine, a
bank Letter of Credit
8
<PAGE> 9
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
4. RESTRICTED CASH: (CONTINUED)
was provided in favor of the Sureties as partial collateral
for such bond obligations. The Letter of Credit is fully
collateralized with cash and will expire no earlier than
December 31, 2000, and at the bank's option, may be renewed
for successive one-year periods.
(b) Held directly by the Sureties as full collateral for the
Kendall Mine reclamation bond.
(c) At December 31, 1999, $2.5 million remained from a September
1999 Financing Agreement with Franco-Nevada Mining Corporation
(Franco-Nevada) in which the Seven-Up Pete Venture initially
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. On June 14, 2000, Franco-Nevada filed a
Complaint in the District Court, City and County of Denver,
Colorado, which sought to have the Financing Agreement
cancelled, a return of all funds provided by Franco-Nevada,
and the imposition of additional unspecified damages,
including punitive damages, to be determined at trial, and the
recovery of interest, costs, and attorney fees. On June 30,
2000, the Company and Franco-Nevada reached a Settlement
Agreement (Settlement Agreement) in connection with the
Complaint, the terms of which provided for i) termination of
the Financing Agreement; ii) the return of $1.0 million of the
$3.0 million originally paid by Franco-Nevada in exchange for
all of Franco-Nevada's interest in the Seven-Up Pete Venture;
iii) the continuance until October 20, 2002 of a $0.5 million
reclamation bond supported by Franco-Nevada; and iv) dismissal
of the Complaint. On July 11, 2000, all assignments and
transfers were completed and the Complaint was dismissed. In
connection with the terms of the Settlement Agreement, the
Company has designated the remaining funds of $1.7 million as
cash and cash equivalents, recorded a $1.0 million current
liability, and restored $1.0 million of carrying value to
mining claims and leases on its June 30, 2000 balance sheet.
(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.
9
<PAGE> 10
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
5. INVENTORIES:
Inventories consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Gold-in-process(a) $6,087,200 $7,314,200
Materials and supplies 419,800 504,700
---------- ----------
$6,507,000 $7,818,900
========== ==========
</TABLE>
----------
(a) Includes all direct and indirect costs of mining, crushing, processing,
and site overhead expenses.
6. NOTES PAYABLE:
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Briggs Facility(a)
o Cash Loan $5,199,200 $5,199,200
o Credit Line 135,000 135,000
Caterpillar Finance(b) 16,600 33,400
---------- ----------
$5,350,800 $5,367,600
Current portion 1,350,100 30,700
---------- ----------
Notes Payable - Noncurrent $4,000,700 $5,336,900
========== ==========
</TABLE>
----------
(a) On December 6, 1995, the Company's wholly owned subsidiary, CR Briggs
Corporation, obtained a $34.0 million loan facility to finance the
capital requirements of mine construction and working capital for its
Briggs Mine in California. Drawings on the facility included $25.0
million principal in the form of a gold loan and $9.0 million principal
as dollar loans. The gold loan portion was monetized at $388.05 per
ounce, or 64,425 ounces. The dollar loans were paid-off during the
second quarter of 1998 and the gold loan was converted to a cash loan
on June 30, 1999. During the second quarter of 1999, a $0.6 million
credit line was established for capital expenditures and working
capital needs.
10
<PAGE> 11
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
6. NOTES PAYABLE: (CONTINUED)
The following table summarizes principal and interest payments and
weighted average rates on the loan facility.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
2000 1999 2000 1999
-------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Principal payments
Gold loan
o Ounces -- 23,172 -- 26,623
o Monetized amt -- $8,991,900 -- $10,331,200
Cash loans -- -- -- $ 650,000
Interest payments
Gold loan
o Ounces -- 308 -- 715
o Market value -- $ 80,500 -- $ 194,800
Cash loans $114,400 -- $ 232,900 $ 2,000
Weighted avg int rate
Gold loans -- 2.3% -- 2.5%
Cash loans 8.8% -- 8.7% 8.0%
</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 money payments over two years at an interest
rate of 8.5%.
7. COMMITMENTS AND CONTINGENCIES:
(a) Site Restoration Costs
Reclamation spending at the Kendall Mine for the second
quarter of 2000 was $190,600. For the comparable period of
1999, spending totaled $264,200. For the six months ended June
30, 2000, spending totaled $351,800 as compared to $456,300
for the prior period.
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
11
<PAGE> 12
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 DEQ bond request amount
greatly exceeds the cost of remaining work and has filed an
administrative appeal to the DEQ's actions.
(b) 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 totaling $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.
(c) Contingent Liability:
On September 25, 1997, the Company, together with its wholly
owned subsidiary, CR Montana Corporation (CR Montana),
purchased a 72.25% participating interest and underlying
assets in the Seven-Up Pete Venture (Venture) from CR
Montana's partner in the Venture, Phelps Dodge Corporation
(Phelps Dodge). The Company and its wholly owned subsidiary
now own 100% of the Venture. The Venture includes the McDonald
Gold Project near Lincoln, Montana.
The Company made an initial payment of $5 million as part of a
total purchase price which was to be no less than $100 million
and no more than $150 million, assuming all applicable permits
for the McDonald Gold Project are obtained. The largest part
of the purchase price, $30 per mineable reserve ounce
attributable to the Phelps Dodge ownership was to be paid
after all permits for mine development were obtained. In
September 1999, the Company and Phelps Dodge restructured the
agreement to provide for a payment of $10.0 million upon
issuance of all permits required for construction of the
McDonald Gold Project, or alternatively, one-third of any
proceeds received from a takings lawsuit. Due to the
contingent nature of the transaction, the Company recorded
only the initial payment of $5 million as additions to mining
claims and leases.
(d) 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
12
<PAGE> 13
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 related to the Kendall minesite. 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, as modified by the State Legislature in April
1999, bans development of new gold and silver mines which use
open-pit mining methods and 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 filed 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 is
based on, amongst others, (i) the right not to be deprived of
property without due process of law, (ii) the right to equal
protection under the laws, and (iii) the right to be protected
against laws which impair the obligations of existing
contracts. 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.
13
<PAGE> 14
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
8. PRICE PROTECTION ARRANGEMENTS:
At June 30, 2000, 47,200 ounces of the Briggs Mine production was
hedged with floating rate forward contracts at an average price of
approximately $297 per ounce.
9. DEFERRED INCOME:
The Company's overall deferred income balance at June 30, 2000 was $7.3
million and will be recognized in operations as follows:
<TABLE>
<CAPTION>
$ MM
------------------------------------------
Balance of Year Year
2000 2001 2002 Total
---------- ---- ---- -----
<S> <C> <C> <C>
$4.5 $1.5 $1.3 $7.3
</TABLE>
10. INCOME TAXES:
No current provision was recorded as the Company does not expect
taxable income for the year. No deferred tax benefit was recorded as
the Company applies a full valuation allowance to its gross deferred
tax assets, except to the extent of offsetting reversals of expected
deferred tax liabilities.
11. EARNINGS PER SHARE (EPS):
The Company computes EPS by applying the provisions of Financial
Accounting Standards No. 128, Earnings per Share. The following table
provides a reconciliation of the amounts used in the calculation of the
Company's basic and diluted EPS.
14
<PAGE> 15
CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
11. EARNINGS PER SHARE (EPS): (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
BASIC EPS
Net income (loss) $ 147,800 $ 1,773,600 $ (665,100) $ 1,392,700
=========== =========== =========== ===========
Weighted average shares
outstanding 11,627,200 11,563,600 11,626,800 11,549,600
=========== =========== =========== ===========
Per share amount $ 0.01 $ 0.15 $ (0.06) $ 0.12
=========== =========== =========== ===========
DILUTED EPS
Net income (loss) $ 147,800 $ 1,773,600 $ (665,100) $ 1,392,700
=========== =========== =========== ===========
Weighted average shares
outstanding 11,627,200 11,563,600 11,626,800 11,549,600
Add: effect of dilutive options 98,900 3,800 (A) 16,000
----------- ----------- ----------- -----------
Weighted average shares
outstanding, as adjusted 11,726,100 11,567,400 11,626,800 11,565,600
=========== =========== =========== ===========
Per share amount $ 0.01 $ 0.15 $ (0.06) $ 0.12
=========== =========== =========== ===========
</TABLE>
----------
(A) Effect would be antidilutive due to a net loss.
At June 30, 2000, options to purchase 241,900 shares of common stock
were outstanding that were not included in the current period
calculations of EPS because their exercise price was greater than the
average market price of the Company's common shares. At June 30, 1999,
options and warrants to purchase 537,600 shares of common stock were
outstanding that were not included in the prior period calculations of
EPS because their exercise price was greater than the average market
price of the Company's common shares.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The matters discussed in this report on Form 10-Q, when not historical
matters, are forward- looking statements that involve a number of risks and
uncertainties that could cause actual results to differ materially from
projected results. Such factors include, among others, the speculative nature of
mineral exploration, commodity prices, production and reserve estimates,
environmental and government regulations, availability of financing, force
majeure events, and other risk factors as described from time to time in the
Company's filings with the Securities and Exchange Commission. Many of these
factors are beyond the Company's ability to control or predict. The Company
disclaims any intent or obligation to update its forward-looking statements,
whether as a result of receiving new information, the occurrence of future
events, or otherwise.
RESULTS OF OPERATIONS
The Company recorded net income of $147,800, or $0.01 per share on
revenues of $8,541,500 for the second quarter of 2000. For the six months ended
June 30, 2000, the Company recorded a net loss of $665,100, or $0.06 per share
on revenues of $17,387,800. This compares to net income of $1,773,600, or $0.15
per share for the second quarter of 1999 and net income of $1,392,700, or $0.12
per share on revenues of $14,698,400 during the first six months of 1999. The
prior period results included gains of $2,768,900 and $3,108,200 for the three
and six months ended June 30, 1999, respectively, in connection with certain
restructurings of the Company's gold loan.
For the three months ended June 30, 2000, the Company sold 20,557
ounces of gold and 5,000 ounces of silver at an average price of $416 per
equivalent gold ounce. For the comparable period of 1999, the Company sold
20,864 ounces of gold at an average realized price of $353 per equivalent gold
ounce. The New York Commodity Exchange (COMEX) gold price averaged $280 and $274
per ounce for the three months ended June 30, 2000 and 1999, respectively.
The following table summarizes the Company's gold deliveries and
revenues for the three months ended June 30, 2000 and the comparable period for
1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
----------------------------------- ------------------------------------
AVERAGE AVERAGE
GOLD PRICE REVENUE GOLD PRICE REVENUE
OUNCES PER OZ. $000'S OUNCES PER OZ. $000'S
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Deliveries
Forwards 18,800 $ 326 $ 6,134 20,200 $ 310 $6,267
Spot sales 1,757 $ 279 491 664 $ 274 182
Deferred income -- -- 1,892 -- -- 914
------ ------- ------ ------
20,557 $ 414 8,517 20,864 $ 353 7,363
Other transactions
Silver proceeds -- -- 25 -- -- --
------ ------- ------ ------
20,557 $ 416 $ 8,542 20,864 $ 353 $7,363
</TABLE>
16
<PAGE> 17
For the six months ended June 30, 2000, the Company sold 44,309 ounces
of gold and 10,000 ounces of silver at an average price of $392 per equivalent
gold ounce. For the comparable period of 1999, the Company sold 40,764 ounces of
gold and 3,900 ounces of silver at an average realized price of $361 per
equivalent gold ounce. The New York Commodity Exchange (COMEX) gold price
averaged $285 and $280 per ounce for the six months ended June 30, 2000 and
1999, respectively.
The following table summarizes the Company's gold deliveries and
revenues for the six months ended June 30, 2000 and the comparable period for
1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------------------------ ------------------------------------
AVERAGE AVERAGE
GOLD PRICE REVENUE GOLD PRICE REVENUE
OUNCES PER OZ. $000'S OUNCES PER OZ. $000'S
------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Deliveries
Forwards 21,800 $ 318 $ 6,930 40,100 $ 309 $12,385
Spot sales 22,509 $ 287 6,468 664 $ 274 182
Deferred income -- -- 3,940 -- -- 2,110
------ ------- ------ -------
44,309 $ 391 17,338 40,764 $ 360 14,677
Other transactions
Silver proceeds -- -- 50 -- -- 22
------ ------- ------ -------
44,309 $ 392 $17,388 40,764 $ 361 $14,699
</TABLE>
Cost of sales was $5.7 million for the three months ended June 30,
2000, as compared to $6.2 million in the prior period. For the six months ended
June 30, 2000, cost of sales was $12.3 million as compared to $12.1 million in
the prior period.
Per ounce cost of gold sold at the Briggs Mine, as computed under the
Gold Institute's Production Cost Standard, was as follows:
CR BRIGGS MINE
COST PER OUNCE OF GOLD SOLD
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash operating (1) $267 $284 $267 $284
Total cash costs (2) $273 $290 $273 $290
Total production costs (3) $388 $376 $388 $376
</TABLE>
----------
(1) All direct and indirect costs of the operation, excluding royalties and
accruals for site restoration. Includes inventory changes and
adjustments for deferred stripping.
(2) Cash operating costs plus royalties.
(3) Total cash costs plus depreciation, depletion, amortization and
accruals for site restoration.
17
<PAGE> 18
Depreciation, depletion and amortization was higher in the current
period due to a greater number of ounces sold and to a lower reserve base.
Selling, general, and administrative expense was lower in the current period due
to reduced corporate office expenses. Exploration costs were lower in the
current period due to curtailment of all discretionary expenditures.
As a result of certain restructurings of the Briggs Mine gold loan, the
Company recorded gains of $2.8 million and $3.1 million, respectively, for the
three and six months ended June 30, 1999. There was no comparable activity in
the current period.
LIQUIDITY & CAPITAL RESOURCES
For the six months ended June 30, 2000, operating activities provided
$0.1 million of cash, investing activities provided $1.6 million of cash, and
financing activities used $0.2 million of cash, resulting in a net increase in
cash of $1.5 million. Cash and cash equivalents at June 30, 2000 was $2.2
million.
During the first six months of 2000, the Company spent $0.7 million on
efforts associated with maintaining its property rights in the Seven-Up Pete
Venture and commencing a lawsuit against the State of Montana seeking to
overturn the anti-cyanide mining initiative, I-137. Funding for this activity
was provided from a September 1999 Financing Agreement with Franco- Nevada
Mining Corporation. (See "Other Matters - Seven-Up Pete Venture and McDonald
Gold Project - Financing Agreement"). The Company also spent $0.1 million on
capital improvements at the Briggs Mine during the first six months of 2000.
OTHER MATTERS
Seven-Up Pete Venture and 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, as modified by the State
Legislature in April 1999, bans development of new gold and silver mines which
use open pit mining methods and 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 (Venture) filed 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 is based on, amongst others, (i) the
right not to be deprived of property without due process of law, (ii) the right
to equal protection under the laws, and (iii) the right to be protected against
laws which impair the obligations of existing
18
<PAGE> 19
contracts. 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.
Financing Agreement
In September 1999, the Company received $3.0 million from Franco-Nevada
Mining Corporation (Franco-Nevada) through the sale of a 4% net smelter return
royalty from the mineral properties of the Venture. Should the Company not be
able to develop the mineral properties if I-137 is not overturned, Franco-Nevada
was entitled to one-third of any proceeds received resulting from a successful
takings lawsuit. On June 14, 2000, Franco-Nevada filed a Complaint in the
District Court, City and County of Denver, Colorado, which sought to have the
Financing Agreement cancelled, a return of all funds provided by Franco-Nevada,
and the imposition of additional unspecified damages, including punitive
damages, to be determined at trial, and the recovery of interest, costs, and
attorney fees. On June 30, 2000, the Company and Franco- Nevada reached a
Settlement Agreement (Settlement Agreement) in connection with the Complaint,
the terms of which provided for i) termination of the Financing Agreement; ii)
the return of $1.0 million of the $3.0 million originally paid by Franco-Nevada
in exchange for all of Franco-Nevada's interest in the Venture; iii) the
continuance until October 20, 2002 of a $0.5 million reclamation bond supported
by Franco-Nevada; and iv) dismissal of the Complaint. On July 11, 2000, all
assignments and transfers were completed and the Complaint was dismissed.
State 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 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.
Environmental Regulation
In September 1998, the Montana Department of Environmental Quality
(DEQ) issued a Notice of Violation and Administrative Order alleging certain
violations of Montana water quality laws relating to the Kendall minesite. 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
19
<PAGE> 20
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.
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. 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 DEQ bond request amount
greatly exceeds the cost of remaining work and has filed an administrative
appeal to the DEQ's actions.
20
<PAGE> 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Prices
The Company's earnings and cash flow are significantly impacted by
changes in the market price of gold. Gold prices can fluctuate widely and are
affected by numerous factors, such as demand, production levels, economic
policies of central banks, and producer hedging. During the last five years, the
average annual market price has fluctuated between $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 June 30, 2000, had entered
into floating rate forward gold contracts on 47,200 ounces (approximately 44% of
estimated production for the ensuing twelve months) at an average price of $297
per ounce. A floating rate 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 44% of its estimated production
for the ensuing twelve months was delivered against the forward contracts, a $10
change in the spot price of gold would have an impact of approximately $0.6
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
floating 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. As of December 31, 1999, $4.5 million of the gain had not been
recognized in operations. During the first six months of 2000, $2.2 million of
the gain was recognized based on the original expected settlement dates of the
forward contracts. The remaining gain of $2.3 million will be recognized during
the balance of 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. As of December 31, 1999, $4.2 million of the gain had not be recognized
in operations. During the first six months of 2000, $1.8 million of the gain was
recognized based on the original expected settlement date
21
<PAGE> 22
of the forward contracts. The remaining gain will be recognized as follows: i)
$2.1 million during the balance of 2000 and ii) $0.3 million in 2001.
On June 30, 1999, the Company converted a commodity based loan to a
cash loan. In connection with the conversion, the 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 June 30, 2000, the mark to market value of the Company's forward
gold contracts was approximately $0.3 million.
Interest Rates
At June 30, 2000, 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. 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 June 30, 2000.
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.
22
<PAGE> 23
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On June 14, 2000, Franco-Nevada Mining Corporation, Inc., d.b.a. 7-Up
Nevada Joint Venture, filed a Complaint against the Seven-Up Pete Joint
Venture, an Arizona general partnership, Canyon Resources Corporation,
CR Montana Corporation, and Perkins Coie, LLP, a Washington limited
liability partnership, in the District Court, City and County of
Denver, Colorado. The Complaint relates to the May 26, 1999 Financial
Support Agreement for the Seven-Up Pete Joint Venture which was funded
on September 28, 1999, between Franco-Nevada and the Seven-Up Pete
Joint Venture, whose partners are Canyon Resources Corporation and CR
Montana Corporation, a wholly owned subsidiary of Canyon Resources.
Perkins Coie is counsel to Canyon Resources and has held the funds
provided by Franco-Nevada in a client trust account and has released
funds from that account as instructed by the Seven-Up Pete Joint
Venture.
After Franco-Nevada completed extensive due diligence work the
Agreement required Franco-Nevada to provide $3.0 million to the
Seven-Up Pete Joint Venture to enable the Venture to maintain its
mineral and other property rights near Lincoln, Montana, and to
undertake legal actions necessary to overturn the anti-mining
initiative, I-137, or receive recompense for the loss of the property
rights. In addition Franco-Nevada secured a $500,000 reclamation bond
for the properties. In exchange for the financing provided under the
Agreement, Seven-Up Pete Joint Venture conveyed to Franco- Nevada a
four percent net smelter returns royalty from all minerals produced
from the properties if I-137 were overturned and the properties were
mined, or the right to receive one third of any property takings award.
The Complaint alleged that the Defendants misrepresented or concealed
material facts concerning the properties, the Venture, and Canyon
Resources prior to the date of closing, September 28, 1999, and had
breached obligations of the Agreement since then. In the Complaint,
Franco-Nevada sought to have the Agreement cancelled, a return of all
funds provided by Franco-Nevada, and the imposition of additional
unspecified damages, including punitive damages, to be determined at
trial, and the recovery of interest, costs, and attorney fees.
On June 30, 2000, the Company and Franco-Nevada reached a Settlement
Agreement in connection with the Complaint, the terms of which provided
for i) termination of the Financial Support Agreement; ii) the return
of $1.0 million of the $3.0 million originally paid by Franco-Nevada in
exchange for all of Franco-Nevada's interest in the Seven-Up Pete
Venture; iii) the continuance until October 20, 2002 of the $0.5
million reclamation bond supported by Franco-Nevada; and iv) dismissal
of the
23
<PAGE> 24
Complaint. On July 11, 2000, all assignments and transfers were
completed and the Complaint was dismissed.
ITEM 2. CHANGES IN SECURITIES:............................................None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:..................................None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS:
On June 8, 2000, the Company held its Annual Meeting of Shareholders.
The following two items of business were voted upon by shareholders at
the meeting:
Proposal I was the election of two Directors of the Company: Leland O.
Erdahl and Gary C. Huber. The proposal electing Mr. Erdahl passed with
votes of 8,824,022 shares "For" and 198,337 "Withheld". The proposal
electing Mr. Huber passed with votes of 8,837,522 shares "For" and
184,837 "Withheld".
Proposal II was to ratify the appointment of PricewaterhouseCoopers
LLP as the Company's independent public accountants for 1999. The
proposal passed with votes of 8,941,831 "For"; 19,569 "Against"; and
60,959 "Abstaining".
ITEM 5. OTHER INFORMATION:................................................None
ITEM 6(a) EXHIBITS:
No. 27 - Financial Data Schedule
ITEM 6(b) REPORTS ON FORM 8-K:
A report on Form 8-K was filed on June 20, 2000, in connection with
the Complaint described in Item 1 - Legal Proceedings.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANYON RESOURCES CORPORATION
Date: August 11, 2000 /s/ Gary C. Huber
---------------------------------
Gary C. Huber
Chief Financial Officer
Date: August 11, 2000 /s/ Richard T. Phillips
---------------------------------
Richard T. Phillips
Treasurer
25
<PAGE> 26
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
